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.

 

" 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.