PhillipCapital Research analyst Helena Wang has maintained her “accumulate” call on the Lion-Phillip S-REIT ETF, at an unchanged target price of 91 cents, according to a note dated Oct 18.
According to Wang, there were no new additions or removals during the period of reporting. Singapore REITs (S-REITs) remain well-diversified across eight sectors, with the largest sector in industrials at 41.1%, she points out. The second-largest sector is retail at 19.0%, she adds.
The analyst notes that distribution per unit (DPU) for S-REITs declined 14% y-o-y to 4.3 cents due to increased financing costs. Following the US Fed’s 50 basis points rate cut, Wang expects a 3% improvement in the ETF’s DPU.
The Lion-Phillip S-REIT ETF has seen some shifts in its top holdings since the brokerage’s last report in April. Its top holdings are now in the order of Frasers Logistics Commercial Trust (FLCT), Mapletree Industrial Trust ME8U (MINT) and CapitaLand Integrated Commercial Trust C38U (CICT).
FLCT’s portfolio emphasises modern logistics assets and business parks, while MINT invests primarily in industrial properties across Singapore and North America including data centres, high-tech buildings and business park facilities.
CICT is Singapore’s largest REIT with a diversified portfolio of retail, office and integrated developments located mainly in Singapore.
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“Apart from different geographic focus, FLCT benefits from e-commerce growth, MIT from the increasing demand for data infrastructure, and CICT from Singapore’s retail and office market resilience. The three REITs provide complementary exposures across different sectors and geographies within the REIT market,” notes Wang.
Since its inception, S-REITs have had a five-year average of 2.86% spread to a 10-year bond. The current spread is 2.16%, and PhillipCapital values S-REITs at 81 cents at a 2.86% dividend yield, its five-year average spread.
Based on the firm’s sensitivity analysis, it expects a 3% increase in the forward dividend compared to the current dividend due to the Fed’s rate cut. The analysts apply a 5% and 10% discount and premium to both dividend yield spread and a forward dividend.
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“At the bottom end of our valuation range, with a 10% higher projected dividend yield spread and a 10% lower forward dividend, the ETF price is 69 cents. At the top end of our valuation range, we use a 10% lower projection of dividend yield spread and a 10% higher forward dividend, and the ETF price is 94 cents,” she writes.
On the other hand, PhillipCapital values S-REITs at $1.01 based on its five-year average P/B of 1.15 times. They calculate the P/B ratio for S-REITs by weighting the average of ETF constituents' price-to-book ratio.
Since its inception, S-REITs has traded at a five-year average P/B of 1.15 times. The current P/B is 1.02 times.
PhillipCapital similarly applies a 5% and 10% discount and premium to book value and P/B metrics, and have arrived at a target price range of 81 cents and $1.01. “Applying equal weightage to both valuations, we maintain our 'accumulate' recommendation and our target price remains the same at 91 cents,” says Wang.
As at 2.09pm, shares in the Lion-Phillip S-REIT ETF are trading 0.004% down or 0.45% lower at 88.1 cents.
