ETF Background
The AXJREITS is an investment product that provides investors with exposure to a diversified portfolio of Real Estate Investment Trusts (REITs) listed across developed and emerging economies in Asia, including Singapore (73.6% of portfolio), Hong Kong (13.5%) and India (6.8%). It closely replicates the performance of the FTSE EPRA Nareit Asia ex Japan REIT 10% Capped Index. Established in 2017, AXJREITS comprises of 44 securities with a market cap of S$350 mn as of 18 Apr 2024. Among the five REITs ETFs in Singapore, it is the largest in terms of market cap.
Investment Merits
ETF Benchmark
AXJREITS replicates as closely as possible the performance of the FTSE EPRA Nareit Asia ex Japan REITS 10% Capped Index, which is designed to track the performance of REITS in both developed and emerging markets in Asia excluding Australia, New Zealand, and Japan.
Valuation
Dividend Yield Spread valuation
Dividend Yield measures the annual value of dividends received relative to the market price per unit of the ETF. To value AXJREITS, we will use the average dividend yield spread to a 10-year bond (Figure 4). Since its inception, AXJREITS has had an average 2.37% spread to a 10-year bond. The three-year average is 2.64%, and the current spread is 3.17%.
We value AXJREITS at S$0.80 at a 2.64% dividend yield spread, its 3-year average spread. We believe that is appropriate given the recent rise in interest rates.
To determine the range of valuations, we applied a 5% and 10% discount and premium to both Dividend Yield Spread and Forward Dividend (Figure 1). 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 S$0.69 (Figure 1). 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 S$0.92.
Source: Phillip Capital Research - 24 Apr 2024
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Created by traderhub8 | Jun 12, 2024
Created by traderhub8 | Jun 03, 2024