Commonwealth Property Office Fund (CPA) has had its "outperform" rating swapped to "underperform" by Credit Suisse after issuing full-year guidance that didn't live up to the broker's expectations.
While the results for 2012-13 were largely in line with Credit Suisse's estimates, earnings per share guidance – set at 6.55 cents – was "underwhelming" as it implied a slight fall in funds from operations (FFO) as growth softens in the Australian Real Estate Investment Trust (A-REIT) sector.
"Growth will be dampened by high lease expiries, downtime on assets due for redevelopment, weaker leasing conditions and slightly higher interest rates," Credit Suisse said.
Recent high vacancy rates in particular for office buildings cast a dour outlook for the sector (see David Gilmour's A-REITs find favour – but what about those vacancies rates?).
Further, CPA has outperformed the broader sector by 7% over the past month and is trading at premium to Credit Suisse's net asset value, while the rest of the A-REIT sector trades at a 9% discount.
The broker says it would be unlikely that a takeover price for the company would be set at a premium to its current price, and that its very possible that no bid will be made for the entire entity in the short term – just management rights.
Credit Suisse's target price for the stock is $1.17. CPA is currently trading at $1.18.