What happens to Wheelock after losing Borders?

Wheelock’s earnings were ahead of expectations, propped up by higher recognition of sales on the completion of Scotts Square. In keeping with the slowdown in the luxury segment, sales of Orchard View and Scotts Square were incremental.

3Q11 and 9M11 core net profit came in above consensus, and at 38%/81% of our FY11 estimates. Despite the completion of Scotts Square, we expect slow sales in the next few quarters, offset by retail recurring income.

Slow sales of luxury units
We expect sales to remain slow for Wheelock’s stock of luxury units, with two units from Scotts Square and one unit from Orchard View sold in 3Q11. Ardmore III will add to the stock in 4Q11. We view the completion of Scotts Square as a small positive, with 100% profit recognition of units sold going forward. Development revenue was boosted by recognition of Scotts Square sales, with its TOP in Aug.

Recurring income in 2012
We expect recurring income from Scotts Square from 2012, once operations stabilise. The retail portion is 92% leased (soft opening on 8 Nov). Investment income dropped 11% qoq, with occupancy at Wheelock Place falling from 99% to 89% in 3Q following the departure of ground-level tenant, Borders Bookstore. Reportedly, the vacated space could be taken up by the Robinsons Group.

Little upside potential
We continue to like Wheelock’s net cash position, but at 0.7x P/BV, we see little upside potential in the near term with Wheelock’s positioning in the luxury segment in Singapore. Its Fuyang City development in China gives Wheelock some diversification, but it remains to be seen if property measures will be loosened in the near-term.