PhillipCapital analysts Helena Wang and Paul Chew have initiated “accumulate” on Lion-Phillip S-REIT ETF (LP SREIT) with a target price of 91 cents highlighting the exchange-traded fund’s (ETF) resilient dividends despite rate hikes.
LP SREIT gives exposure to 22 REITs in Singapore, the only ETF whose holdings are entirely of Singapore REITs. Established in 2017, LP SREIT has a market cap of $347.89 million, the second largest of the five REITs ETFs in Singapore.
The fund’s dividends have been rising since its IPO, from an annual dividend of 1.8 cents at the IPO to 5.07 cents currently. Coupled with an attractive book value, the ETF offers investors a convenient and efficient way to participate in the potential income and capital appreciation generated by the S-REIT market, the analysts point out.
Moving forward, Wang and Chew expect 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.
“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,” they note.
Wang and Chew values LP SREIT using a combination of historical dividend yield spread and price-to-book ratios, Using these two valuation methods, the target price are 85 cents and 97 cents respectively. Upon applying equal weightage to both valuations, the analysts arrive at the target price of 91 cents.
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As at 11.16am, LP SREIT is trading 0.4 cents higher or 0.49% up at 82.3 cents.
