Phillip Securities initiates coverage on dividend-focused Reit ETF trading at ‘attractive' valuation
[SINGAPORE] Phillip Securities Research has initiated coverage on the Phillip SGX APAC Dividend Leaders REIT ETF (Pareits) with an 'accumulate' call and a target price of S$1.095.
In a report released on Wednesday (May 28), Phillip Securities analyst Helena Wang said that the exchange-traded fund (ETF) offers investors stable income at an attractive book value.
'The book value of the ETF has become more attractive in the last two years,' added Wang. 'It historically traded at a high of 1.3 times price-to-book (P/B) ratio but now trades at 0.8 times P/B ratio.'
She also noted that Pareits' dividends have steadily increased since 2021, and are now at around four to six Singapore cents per unit. Its dividend yield stands at around 4.4 per cent.
Wang expects an improvement in distribution per unit as interest rates decline.
The target price of S$1.095 was derived from an equal weighting of two valuation methods. A historical dividend yield spread derived a target price of S$1.22, and a P/B ratio assessment derived a target price of S$0.97.
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The ETF tracks 31 real estate investment trusts (Reits) across the Asia-Pacific, excluding Japan.
The geographic coverage is largely skewed to Australia, which accounts for 52.5 per cent of the portfolio allocation. Singapore and Hong Kong account for 34.8 per cent and 11.5 per cent, respectively.
Some 37.6 per cent of the ETF is allocated in the retail sub-sector, with 29.5 per cent in diversified assets, 13.3 per cent in industrial properties and 10.8 per cent in the office space.
The top three holdings of Pareits are Hong Kong's Link Reit at 10.6 per cent, Australia's Scentre Group at 9.8 per cent, and Singapore's CapitaLand Integrated Commercial Trust at 7.6 per cent.
'Pareits tracks the iEdge Apac ex-Japan Dividend Leaders Reit Index, which weighs Reits based on their dividend payout. This makes it the best choice for investors looking for high dividend payments,' Wang said.
The ETF is the smallest among the five Reit ETFs listed on the Singapore Exchange, with a fund size of just S$11.9 million as at May 27. It also has the highest expense ratio at 0.95 per cent.
The fund is managed by Phillip Capital Management. Both Phillip Capital Management and Phillip Securities Research are part of the PhillipCapital Group.
As at 4 pm on Thursday, units of Pareits were trading 6.4 per cent or S$0.007 higher at S$1.097.
Year to date, it has generated a total return – with dividends reinvested – of 5.5 per cent. This is broadly in line with the 5.6 per cent total return of the benchmark Straits Times Index over the same period.
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