SPH Reit was upgraded by DBS Group Research yesterday.
Analyst Dale Lai raised the trust's target price from 70 cents to 80 cents and re-rated it from "fully valued" to "hold".
SPH Reit units closed up 0.6 per cent to 83 cents yesterday.
Mr Lai upgraded the stock as the real estate investment trust (Reit) is trading at its trough valuation, with an estimated price to net asset value ratio of about 0.86.
He raised the target price to reflect the resumption of rental collections in the coming weeks as malls prepare to reopen in July.
"As the worst of the Covid-19 pandemic is past us, we can see the light at the end of the tunnel with the gradual easing of the circuit breaker measures," he wrote.
Mr Lai added that SPH Reit's distribution per unit (DPU) cut may have come as a shock to investors, but could now "become the upside surprise" given the nation's recently proposed rental waiver Bill.
The Reit cut DPU by 79 per cent to 0.3 cents for the second quarter, with the retained income used to offset tenant rents in the circuit breaker.
SPH Reit committed up to 2.3 months of rental relief to selected tenants - the most generous among retail landlords.
Under the proposed rental waiver Bill, landlords could potentially have to give tenants up to two months of rental relief, Mr Lai said.
Measures in Tuesday's Fortitude Budget mean landlords would have to grant a rental waiver to small and medium-sized enterprise (SME) tenants that have suffered a significant revenue drop in the past few months.
Eligible SME tenants in commercial properties will receive four months of rental relief, shared equally between the government and landlords.
However, Mr Lai said it is "unlikely" that SPH Reit would have to provide more rebates, or make further provisions, given the already generous rebates given to its tenants.
"We see limited downside risks (caused by the proposed Bill) to SPH Reit's earnings forecasts. Its prudence in making provisions for tenant rental relief should provide some buffer to revenues for the rest of (the year)," he wrote.
Mr Lai noted that SPH Reit's Paragon mall in Orchard Road will continue facing weakness in the near term as tourist arrivals and luxury retail remain impacted by the pandemic and impending economic slowdown.
THE BUSINESS TIMES
