Broker's take: Maybank KE downgrades SPH Reit to 'hold' after surprise DPU cut

MAYBANK Kim Eng has downgraded SPH Reit to "hold" from "buy", and lowered its target price to S$0.80 from S$1.15 previously.

The downgrade follows the real estate investment trust (Reit) announcing on Wednesday that it will distribute just 0.3 Singapore cent per unit for its second quarter ended Feb 29, 78.7 per cent lower than its distribution per unit (DPU) of 1.41 cents a year ago.

The Reit's manager said the distribution was "modest considering the challenging circumstances arising from the Covid-19 situation for the months ahead".

SPH Reit units were trading at S$0.71 as at 9.50am on Thursday, down S$0.04 or 5.3 per cent.

In a report on Thursday, Maybank Kim Eng called the large DPU cut "a negative surprise", and also lowered its DPU forecasts by between 15 per cent and 18 per cent.

Analyst Chua Su Tye also sees further erosion in shopper traffic and tenant sales in the third quarter of 2020 due to tight restrictions on inbound tourists.

SPH Reit's balance sheet remains sound at 29.3 per cent leverage, the report added. The brokerage estimates S$1.1 billion in debt headroom at a 45 per cent limit to support further deals, although unlikely in the near term as management focuses on tenant retention.

The manager of SPH Reit is wholly owned by Singapore Press Holdings, which publishes The Business Times.

Maybank Kim Eng prefers CapitaLand Mall Trust, which has a "buy" call and target price of S$2.70, for its scale as well as stronger acquisition and potential development growth pipelines.

CapitaLand Mall Trust units were trading at S$1.61 as at 9.50am on Thursday, down S$0.12 or 6.9 per cent.