The equity research team at DBS has called a ‘Hold’ rating on Singapore-listed retail landlord SPH REIT citing the lack of near-term catalysts, and a limited upside beyond the bank’s target price.
In an investment research report issued on 12 January, DBS opines that units of SPH REIT are currently fairly priced, and its dividend yield of 5.5% reflects the strength of the REIT's assets, and stability of earnings.
The bank also noted that SPH REIT’s relatively low gearing of circa 26%, and cost of debt of 2.8% puts it in good posture to make a debt funded acquisition, especially on its sponsor’s property known as Seletar Mall.
“However, we believe this acquisition is likely to be more of a medium term prospect, as the mall was only completed in December 2014, and is still on its first lease cycle”, said DBS.
The bank has maintained its target price of SGD1.00 on SPH REIT.
Meanwhile OCBC Investment Research has lowered its fair value estimate on SPH REIT from SGD1.06 to SGD1.04, although it maintains a ‘Buy’ rating on the stock.
In an investment research report issued on the same day, OCBC pointed to the REIT’s stable results, positive rental reversions, and efforts to refresh its tenant mix as plus factors moving forward.
However OCBC lowered its estimate on SPH REIT as the bank has adopted a higher risk-free rate assumption of 2.7%, up from 2.4% previously.
Units of SPH REIT finished the trading day about 0.5% higher from its previous close on the Singapore Exchange to end at SGD0.975.