The DEXUS Property Group (ASX: DXS) share price could be on the rise today.
This morning the property company's shares were upgraded by analysts at Goldman Sachs.
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What did Goldman Sachs say?
The broker notes that since June, Dexus has managed to offload $1.7 billion of Office assets and taken advantage of resilient asset pricing in the face of rapidly deteriorating occupier market conditions.
In addition to this, during the period the company has continued to build its Logistics and Healthcare funds under management base, while positioning for any further cyclical deterioration via the formation of an Opportunistic Fund.
Based on this and on a proforma basis, Goldman expects look-through gearing to fall to ~20%. This compares to 26% at the end of June and its target range of 30% to 40%.
But it doesn't expect it to stop there. With its Gold Tower asset in Brisbane currently being marketed for sale, Goldman expect Dexus' gearing to decline further. It feels this provides additional scope for share buyback activity and positions its balance sheet to absorb further material asset devaluations.
Asset devaluations.
Goldman Sachs believes the market is pricing in a significant decline in the value of its Office assets.
It commented: "On our estimates, DXS' current stock price implies a ~21% decline in the value of its Office portfolio vs Jun-20 levels. We continue to expect a peak-to-trough decline of ~30% for Sydney and Melbourne CBD Office assets. However, with valuations (and transactional evidence) to date proving resilient and purchaser demand for Australian Commercial assets holding up, we believe the disconnect between private and public market pricing implicit in DXS' stock price provides scope for potential M&A activity."
Upgrade to neutral.
In light of the above, Goldman Sachs has upgraded its rating on Dexus from sell to neutral with a price target of $9.65. This compares to the current Dexus share price of $8.99.
The broker also estimates that Dexus' shares currently provide investors with a generous FY 2021 dividend yield of 5.6%.
Combined with its price target, this implies a potential total return of almost 13% over the next 12 months.
