COF result was out on Friday.

Due to WFH, Office REITs have been crunched. Occupancy is low, vacancy’s high, and, as rates have gone up, the pressure on debt servicing has increased. Consequently, many names are trading vastly below NTA.

Amongst the higher quality REITs, occupancy isn’t quite so bad. COF has ~90% of the portfolio in A-grade assets, DXS, in our view, the best in sector by prime/premium grade assets.

COF’s result showed decent levels of leasing activity, occupancy that was slightly higher than previous (citing “flight to quality” effects) and modest cap rate revisions (widening).

All of that bodes well for DXS, to our mind.

The problem with COF is the gearing. COF’s reported look through gearing (the more interest measure) is close enough to the generic ND/ND+E.

When you are playing a value trade in a sector, you can shoot for the one that has the greatest leverage to a recovery, or, you can try to play it safe with a stronger balance sheet, that will still outperform the market if things normalise, albeit just by not quite as much.

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