This article is from the Australian Property Journal archive
ANALYSTS at investment banking firm Barrenjoey has revised its outlook of Australia’s largest property groups, with notable downgrade for heavyweight Charter Hall while upgrading rival Dexus.
Charter Hall, which manages $81 billion of assets, was downgraded from neutral to underweight, with a price target of $15. Based on analyst’s ratings, Charter Hall’s 12-month average price target is $15.15.
It follows UBS downgrading Charter Hall last month, while most analysts have recently reiterated their ratings. Most are of the buy position, with only UBS and Bank of America saying sell. Most hold a downside risk.
Continued repricing of commercial property assets erased $6.5 billion from Charter Hall’s juggernaut funds management business and at the same time put the group in negative territory for FY24, but its share price lifted on the back of a forecast 6% rise in distribution in FY25. Charter Hall is looking to diversify its portfolio by making a $710 million bid pub investor Hotel Property Investments.
Charter Hall closed 4c lower on Friday, at $15.92.
Australia’s biggest owner of office towers, Dexus was meanwhile upgraded from neutral to overweight, with Barrenjoey moving ahead of other analysts who have recently held on their action. Barrenjoey’s price target is $8.25, with Dexus’ average price target being $7.71 based on analyst ratings.
The upgrade comes as Dexus diversified its property by entering the purpose built student accommodation (PBSA) market.
Analysts are split on risk, and are mostly split between hold and buy stances.
Dexus’ share price also closed 4c lower on Friday, at $7.77.
In a note to clients in recent weeks, Barrenjoey analysts said, “Elevated levels of rate volatility and consensus earnings downgrades have largely kept investors on the sidelines over the last two years, not knowing when to catch a falling knife.
“The cycle appears to have turned: average gearing levels stabilised this season, and credit conditions for REITs are starting to ease in-line with lower bank wholesale funding costs.”
The analysts hold a positive outlook operating earnings and distributions growth beyond 12 months, tipping earnings up between 3% to 5% annually for 90% of REIT stocks.
Alongside Charter Hall, convenience-based shopping centre owner Region Group was downgraded, from neutral to overweight. Its price target is $2.35, with analyst ratings giving it a 12-month average target of $2.49. It closed down a sliver at $2.28 on Friday. Analysts consider risk to be to the upside and most are of the buy position. Morgan Stanley also downgraded Region Group last week.
Barrenjoey has also downgraded Australia’s largest listed solely fuel and convenience retail REIT, Waypoint REIT from underweight to neutral. Analysts consider risk to be to the upside. Barrenjoey’s price target is $2.50, compared to $2.52 on analyst ratings. It ended the week slightly down at $2.60.
Joining Dexus on the upgraded list were Growthpoint Properties, from neutral to overweight – most analysts consider risk to the downside – as well as National Storage REIT, from underweight to neutral, HPT Group, also from underweight to neutral, HomeCo Daily Needs REIT from neutral to overweight.
The rating update is a feather in the cap for Growthpoint Properties which last week expanded its logistics platform with establishment of the Growthpoint Australia Logistics Partnership (GALP) with TPG Angelo Gordon.
Most analysts hold an upside position on HomeCo Daily Needs REIT, and a buy or hold stance. GPT is widely considered a buy, with risk falling to the downside.
Barrenjoey made headlines last week as it flagged that Star Entertainment’s Sydney casino could be worth as little as $8 million.
The firm downgraded the beleaguered casino operator last week to neutral and reduced its share price target from 65c to 30c, as the Star faces earnings, liquidity and balance sheet concerns.
