Scentre REITMacquarie has also upgraded Scentre (ASX: SCG) to...

Scentre REIT

Macquarie has also upgraded Scentre (ASX: SCG) to Neutral from Underperform on valuation grounds.

Despite caution about the balance sheet gearing (39%) and interest cost headwinds over FY22-FY24, with the stock trading on 14x funds from operations (FFO) - and at a -21% discount to NTA – the broker can see value emerging. (Target price $2.85).

Credit Suisse also believes Scentre’s [relatively] lower gearing and higher hedging better insulate the REIT from the impacts of rising rates. The broker retains an Outperform rating while the target price decreases to $3.20 from $3.31.

Ord Minnett also sees emerging value in the REIT sector - due to a stabilisation of long-term bond yields and moderating market cash rate assumptions over the past few weeks – and retains a Buy rating on Scentre (price target $3.20).

The Martin Currie Real Income Fund also favours Scentre as foot traffic recovers in the late pandemic.

The fund manager is impressed by the REIT’s recently demonstrated ability to maintain yields, and notes that strong tenant occupancy trends typically increases the power to push up rents as tenant sales grow.

Dividend yield 5.12%.

https://www.marketindex.com.au/news/three-defensive-reits-for-a-high-interest-rate-inflation-environment