JPMorgan Cuts Stockland, GPT, CFS, IOF on Valuations

JPMorgan Chase & Co. (JPM) has downgraded five Australian real estate investment trusts, saying their share prices are too expensive compared with their peers.

GPT Group (GPT), CFS Retail Property Trust (CFX) and Bunnings Warehouse Property Trust (BWP) were cut to “underweight” from “neutral” and Stockland (SGP) and ING Office Fund (IOF) to “neutral” from “overweight.”

“The market is now paying far too much for the passive rent collectors -- a skew too far towards defense,” analysts led by Rob Stanton at JPMorgan wrote in a note dated yesterday. “We see less need for very defensive positioning and as a result see CFX, GPT, and CPA - arguably the most defensive of the large cap REITs - as expensive.”

Australian property trusts largely returned to profit in the year to June 30 after they paid off debt and simplified their structures. REITs’ balance sheets are now “historically strong” after they raised more than A$18 billion ($16 billion) of capital in 2008 and 2009, Moody’s Investors Service said on Aug. 31.

Many other REITs are still undervalued, with the industry as a whole -- excluding Westfield Group (WDC) -- trading at a 2 percent discount to net tangible assets, Stanton wrote.

JPMorgan now recommends investors buy shares of Westfield, Dexus Property Group (DXS), Australand Property Group (ALZ), ING Industrial Fund and Charter Hall Retail Trust (CQR) on a recovery in demand, low debt levels and improvement in property values.

GPT shares fell 1 percent to close at A$3.05 in Sydney. CFS Retail lost 1.3 percent to A$1.955, Bunnings Warehouse slipped 0.5 percent to A$1.92, Stockland declined 1 percent to A$4.06 and ING Office ended down 2.4 percent at 61.5 Australian cents.

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