Will SingLand buckle under a financial sector slowdown?

Its moderate sectoral exposure should shield it partly but office rents will be most vulnerable, says CIMB.

Besides, Singapore Land's retail and hospitality segments will keep the property firm flush with revenue even if financial institutions take a worse-than-expected hit that result in dropping rents and rent values.

Here's more from CIMB:

Hedged against a downturn in the financial sector
Management indicated that its exposure to the finance sector for office assets is limited, the bulk of which comes from Singapore Land Tower and SGX Centre at 50% and 40% of NLA respectively. Consequently, SingLand is to some extent hedged against a financial sector downturn, but management notes that financial institutions are typically the occupiers of large office space and the drivers of rental growth, also limiting their rental upside in a recovery.

Signing rents remain stable at about 20% below 2007 levels and up to 50% below 2008 levels, while capital values are at 2008/09 levels. We thus see limited downside to current signing rents when the 25-30% of leases are due for renewal at end-2012. At SGX Centre, anchor tenant (occupying 30-40% of NLA) is currently paying rents at >30% below current market rate, signed in 2009.

Retail/hospitality to remain resilient
The retail and hospitality segments continue to do well as rents, occupancies and room rates remain strong, providing overall uplift to recurring income. Pan Pacific Hotel, Mandarin Oriental and Marina Mandarin saw higher room and F&B revenue in FY11 and management expects the segment to continue to do well despite incoming supplies. Contributions for Pan Pacific Hotel will be set back by one quarter due to renovation works in 2Q12

Privatisation, a less likely scenario
Management notes that Mr Gokongwei’s share accumulation has subsided since Dec 2011, despite not having surpassed the 1% limit under the creep rule. According to Philippines media, JG Summit recently announced its decision to invest in the government’s public-private partnership programme (PPP) for infrastructure by boosting investments in hospitality, opening 30 hotels in the next four years. While it remains speculative whether Mr Gokongwei intends to focus on local Philippines projects, we note that it is less likely for Mr Gokongwei to relinquish his stake unless capital needs are dire, following more than a decade as a major shareholder. Regardless of intention to wrestle control over UIC/SingLand, a privatisation attempt is expensive with UIC trading at 1x, compared to 0.5x in Jan 2009 when UOL made its takeover bid.