PhillipCapital analyst Helena Wang has initiated “accumulate” on NikkoAM-StraitsTrading Asia ex Japan REIT ETF (AXJREITS) with a target price of 82 cents, emphasising the exchange-traded fund’s (ETF) position as the largest listed REIT ETF in Singapore.
AXJREITS provides exposure to 44 REITs across the Asia ex-Japan region and is the only REIT ETF in Singapore that pays dividends quarterly. Established in 2017, AXJREITS has a market cap of $350 million — the largest among the five REITs ETFs in Singapore.
Since its IPO, the fund’s dividends have remained stable, says Wang, maintaining annual dividends at around 4 to 6 cents. The annual dividend stands at 4.7 cents currently.
Over the last two years, Wang notes that the REIT ETF’s book value has become increasingly attractive, with the ETF currently trading at a 10% discount to the book.
“Investors gain the opportunity to participate in the potential income and capital appreciation generated by the Asian markets, offering convenient and efficient access to this segment of the real estate sector,” notes the analyst.
Wang expects dividends from REITs to remain under pressure from higher interest rates. “Due to interest rate hedges, effective interest rates will still creep up until 2025. In contrast, property valuations in Singapore have been stable supported by transaction prices,” says Wang.
“Interest rate cuts can provide REITs the triple benefit of a yield more attractive to bonds, lower interest expenses and increase valuations as cap rates compress,” she adds.
The analyst values AXJREITS using a combination of historical dividend yield spread and price-to-book ratios. Utilising these two valuation methods, the target prices are at 80 and 84 cents respectively. With the application of equal weightage to both valuations, Wang arrives at the target price of 82 cents.
As at 4.49pm, shares in AXJREITS are trading 0.2 cents lower, or 0.26% down, at 76.4 cents.
