Brokers' take: CGS-CIMB downgrades SPH Reit to 'hold' as recovery likely priced in

CGS-CIMB has downgraded its call on SPH Reit to "hold" from "add" as it expects the real estate investment trust's (Reit) recovery is already priced in, the brokerage said on Friday (Apr 1).

The research team maintained its target price of S$0.95 on the counter. It noted that the market has likely priced in a recovery as SPH Reit currently trades with a distribution per unit (DPU) yield of around 5.4 per cent, which is near its 5-year average of 5.3 per cent.

The yield is also lower than the average yield of retail Reits of 5.6 per cent.

Units of SPH Reit were trading at S$0.975 at 10.35 am on Monday, up S$0.005 or 0.5 per cent.

However, the research team still remains positive on the Reit's recovery moving forward.

SPH Reit on Friday posted a 16.1 per cent on-quarter increase in DPU to 1.44 Singapore cents for the fiscal second quarter ended Feb 28, bringing the Reit's first-half distribution to a level that is 9.8 per cent higher than the year-ago period.

This came on the back of an 8.4 per cent on-year growth in distributable income to unitholders in H1 to S$82.6 million. The Reit's manager said the financial results were supported by gradual market recovery, although the net property income growth was partially dampened by an increase in property operating expenses, mainly from the spike in electricity rates.

Noting that the results came in line with expectations, the research team expects rental pressure for the Reit will ease this year as there are likely fewer Covid-19 restrictions in 2022 than in 2021, with Paragon Mall being a prime beneficiary of easing border measures.

It also expects tenant sales should improve on relaxed restriction measures and as consumers adapt to endemic Covid-19.

The research team is also positive on the Reit's low gearing levels at around 30.1 per cent in the second quarter of its financial year 2022, which should give it "ample firepower" for acquisitions.

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