ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
CAPITALAND INTEGRATED COMM TR (SGX:C38U)
Ascendas REIT vs CapitaLand Integrated Commercial Trust - Clash Of The Titans
- Ascendas REIT wins in a neck and neck race as Ascendas REIT's share price have lagged its large cap industrial peers by close to 20% since pre-COVID.
- Ascendas REIT’s portfolio has lower earnings risks as majority of its assets are beneficiaries of rising e-commerce.
- Each have ~S$1bn of realizable sponsor pipeline in the near-term though we believe Ascendas REIT’s pipeline’s may be acquired more accretively.
- At current yields, we prefer Ascendas REIT over CapitaLand Integrated Commercial Trust as an opportunistic relative trade.
Head-to-head: Ascendas REIT (AREIT) vs CapitaLand Integrated Commercial Trust (CICT)
- The merger of the former CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) to become CapitaLand Integrated Commercial Trust (SGX:C38U), the Singapore S-REITs now have a new behemoth taking over Ascendas REIT (SGX:A17U)’s position as the largest S-REIT in Singapore.
- Given its significant market cap and that it has a notable weight in various indices, we believe that CapitaLand Integrated Commercial Trust together with Ascendas REIT attracts strong flows (both active and passive) from investors.
Battle round between AREIT vs CICT
- Market Cap:
- Ascendas REIT: US$9.4bn.
- CapitaLand Integrated Commercial Trust: US$10.4bn.
- FY20-FY22 DPU CAGR forecast:
- Ascendas REIT: 4.5%; estimate 10.7% (including acquisitions).
- CapitaLand Integrated Commercial Trust: 18.2% (CapitaLand Integrated Commercial Trus expected to deliver strong recovery from a low base in FY20).
- We note that CapitaLand Integrated Commercial Trust's share price has re-rated by ~24% from the recent low in Oct 20, which we believe is due to the improved investor sentiment towards the commercial (retail and office) sectors on the back of a recovering economy. However, with FY21F yields trading quite similar to Ascendas REIT, investors have been asking if the current divergent price performance will continue. We thus look at both stocks holistically in terms of earnings (growth and risk) and historical trading yields to get a relative preference at current levels. It was indeed a very close fight between the two as both has stacked up quite similar in terms of their attributes.
- After considering various factors including potential growth, earnings risk, pipeline and valuation, we believe that Ascendas REIT edges out in this neck and neck race. While CapitaLand Integrated Commercial Trust’s growth potential is higher at 2-year CAGR of 18% largely riding on a retail recovery, our preference is for Ascendas REIT given its lower downside earnings risks (in the event of a slower than expected recovery) while relative valuations are also more attractive given CapitaLand Integrated Commercial Trust's share price has run ahead.
- Comparatively, Ascendas REIT has been a laggard vs their respective peers in the large-cap industrial S-REIT space.
Round 1: Earnings Downside Risk
Ascendas REIT’s portfolio has lower earnings risks than CapitaLand Integrated Commercial Trust, in our view.
- On a relative basis, we believe that Ascendas REIT’s portfolio has lower earnings risks given ~74% of its portfolio comprises of business parks, logistics and hi-specs & data center which are asset classes that continue to see growth or support tenants who are within growing industries. The demand-supply dynamics in this industrial sectors remain conducive for landlords to nudge rents up a little in 2021, which implies that organic growth outlook remains on an uptrend.
- We do note the higher supply in the light industrial and flatted factories in 2021 due to a delay in completions, and we estimate that ~9% of Ascendas REIT’s GRI could have some earnings risks (in both occupancies and rental growth potential) which we believe is manageable.
- A review on the tenant mix of CapitaLand Integrated Commercial Trust’s portfolio implies that trade sectors that could potentially see downside risks to occupancies or rental reversions contributes ~54% of GRI from both its retail and office assets. We identify these sectors that have seen either
- negatively impacted by COVID-19 pandemic (e.g. travel & hospitality, fashion etc) or
- face potential downsizing from adoption of flexible work arrangements to crystalize cost savings (for example the financial institutions).
- While the number appears large, we believe that the actual downside risk will be much lower as we believe that a smaller subset of these subsectors will be seeking more financial assistance, either from the government or the landlord. In FY21, CapitaLand Integrated Commercial Trust’s management continue to focus on tenant retention especially in its retail malls to ensure healthy occupancy rates.
Round 2: Acquisition pipelines
Ascendas REIT and CapitaLand Integrated Commercial Trust have ~S$1b of realizable sponsor pipeline.
- Although CapitaLand Integrated Commercial Trust has a larger sponsor pipeline of ~S$3b (including CapitaLand (SGX:C31)’s 50% stake in ION Orchard) compared to Ascendas REIT’s ~S$2bn, we estimate the realizable pipeline in the near-term would be S$1b and S$0.7b for Ascendas REIT and CapitaLand Integrated Commercial Trust respectively, which provides investors with good visibility that may provide upside surprise to earnings estimates, in our view.
- Looking through the potential realizable pipeline assets in the near-term that may be offered to the respective S-REITs, we believe that Ascendas REIT’s pipeline of largely Singapore focused Business Parks may be preferred by unitholders as the target assets may comprise of the remaining 75% stake in Galaxis, 5 Science Park Drive (5SPD) and Ascent, assets that we believe to be value accretive to the REIT and highly anticipated by investors and these assets may be offered for injection in FY21.
- On the other hand, while the jewel remains the 50% stake in ION Orchard, we believe that CapitaLand Integrated Commercial Trust’s realisable pipeline assets comprises the portfolio of four office assets in Japan in the near term. While these assets spreads (yields over the borrowing costs) is attractive, the flattish rental profile of Japan real estate may mean that CapitaLand Integrated Commercial Trust will be buying into more income rather than growth.
Round 3: Valuations
Ascendas REIT is a laggard vs its peers (large cap industrials) on all three fronts – share price performance, dividend yield and P/NAV.
- Ascendas REIT's share price has been a laggard to the large cap industrials and has only recently caught up to S-REITs while CapitaLand Integrated Commercial Trust's share price is trading relatively in line with commercial sector
- Since Dec19, both Ascendas REIT's share price (+3.7%) and CapitaLand Integrated Commercial Trust's share price (-12.6%) have underperformed its respectively sectors (commercial -7.4% and large cap industrials +22.8%). However, when compared to S-REIT (+1.9%), Ascendas REIT has outperformed marginally while CapitaLand Integrated Commercial Trust is still a laggard, in line with the performance of their respective sectors. CapitaLand Integrated Commercial Trust's share price has yet to recover to pre-COVID which is in line with the commercial sector.
- Although Ascendas REIT's share price has recovered back to pre-COVID, its peers’ share prices have run ahead of all other sectors, increased more than 20% since Dec19 beneffing from the rise of e-commerce and increased demand for data centers.
- Despite both trading at similar yields at ~5%, Ascendas REIT’s yield is more than 100bps higher compared its large cap peers, higher than that of CapitaLand Integrated Commercial Trust compared to the commercial sector.
- Both Ascendas REIT and CapitaLand Integrated Commercial Trust are trading at similar yield levels at close to 5%. Similar to share prices, we note that Ascendas REIT”s yield is attractive at almost 100bps higher compared its large cap peers and S-REIT. Given its stable portfolio and potential pipeline acquisition, we believe Ascendas REIT will eventually be able to close the gap between its peers.
- Although CapitaLand Integrated Commercial Trust's yields is attractive when compared with commercial sector and S-REIT, it is trading at 50 bps higher than the commercial sector. While still attractive but the gap is narrower compared to Ascendas REIT’s. We believe as economy progressively return to normalcy when vaccine is widely distributed globally will drive further re-rating to CapitaLand Integrated Commercial Trust.
- Similar trends are observed in P/NAV, Ascendas REIT’s P/NAV is 12% below the large cap industrials and 4% below its P/NAV average during COVID in FY20.
- Given Ascendas REIT's share price has lagged, similar trends in P/NAV has been observed. Despite Ascendas REIT’s P/NAV is trading at above S-REIT and its own historical average, it is currently at 12% below the large cap industrials and 6% below its own average during COVID in FY20.
- On the other hand, CapitaLand Integrated Commercial Trust’s P/NAV is trading above most comparatives including the current and historical averages of commercial sector.
More on Ascendas REIT & CapitaLand Integrated Commercial Trust
- See
- Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.
- CapitaLand Integrated Commercial Trust Share Price; CapitaLand Integrated Commercial Trust Target Price; CapitaLand Integrated Commercial Trust Analyst Reports; CapitaLand Integrated Commercial Trust Dividend History; CapitaLand Integrated Commercial Trust Announcements; CapitaLand Integrated Commercial Trust Latest News.
- See PDF report attached below for the complete details of our comparison and how CapitaLand Integrated Commercial Trust and Ascendas REIT stack against each on each respective attribute.
Rachel TAN
DBS Group Research
|
Dale LAI
DBS Research
|
Derek TAN
DBS Research
|
https://www.dbsvickers.com/
2021-02-10
SGX Stock
Analyst Report
4.000
SAME
4.000
2.500
SAME
2.500
