Broker's take: Ascendas Reit a preferred pick over CICT for DBS

DBS Group Research on Wednesday named Ascendas Real Estate Investment Trust (Ascendas Reit) its preferred pick over CapitaLand Integrated Commercial Trust (CICT).

While both counters trade at "similar and attractive" yields of about 5 per cent, Ascendas Reit wins in a neck and neck race as its unit price has lagged its large-cap industrial peers by close to 20 per cent since pre-Covid-19 times, the research team said.

Ascendas Reit has lower earnings risk as most of its assets are beneficiaries of rising demand from e-commerce, DBS said. About 74 per cent of its portfolio comprises new economy assets in business parks, logistics and hi-specs and data centres.

On the other hand, about 54 per cent of CICT's tenant trade sectors may see a slower rebound in 2021 given the lasting impact from the Covid-19 pandemic, DBS estimates. Office occupancies may also be impacted if more firms look to crystallise occupancy savings by adopting flexible work arrangements.

Ascendas Reit's planned acquisition of its pipeline from its sponsor should also drive a rerating and close its gap versus peers that have been outperforming Singapore-listed Reits by about 21 per cent since December 2019.

DBS believes that the potential injection of a 75 per cent stake of Galaxis, Ascent and 5 Science Park Drive in Ascendas Reit's portfolio will likely be well-received by investors if offered for acquisition in FY2021.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

"While we remain excited on the possibility of ION Orchard being injected into CICT, the asset low yield and 50 per cent stake may prove to be a hurdle," DBS said. As such, Japan offices could be a possibility for CICT to consider.

DBS has a "buy" call on both Ascendas Reit and CICT, with target prices of S$4 and S$2.50 respectively.

Ascendas Reit units closed 0.97 per cent or S$0.03 lower at S$3.07 on Wednesday, while CICT units closed 0.47 per cent or S$0.01 lower at S$2.14.