Better Buy: Ascendas REIT vs. CapitaLand Integrated Commercial Trust

August 22, 2022

Dividend investors in Singapore have had a relatively decent year. A lot of that is down to the predictable nature of passive income from REITs.

With Singapore being one of the top global hubs for listed REITs, fat dividends are also paid out here.

But, as we know, not all Singapore REITs are created equal. There’s a smattering of metrics that REIT investors should keep an eye on.

Many local investors have their firm favourites in the REIT space. Two of the biggest – and most popular – are Ascendas Real Estate Investment Trust (SGX: A17U) and CapitaLand Integrated Commercial Trust (SGX: C38U), which is also known as “CICT”.

With both REITs having already reported their H1 2022 earnings, it’s an apt time to compare them. For dividend investors, which REIT is the better buy now; Ascendas REIT or CICT? Let’s find out.

Gearing ratio

For investors, it’s important going into a potential recession, that the REITs they own are financially stable.

One of the key metrics of measuring this is the REIT’s gearing ratio (also known as aggregate leverage). This shows the REIT’s debt to total assets and indicates how much headroom a REIT has to acquire.

That’s crucial if the REIT wants to continue to grow, even amid a recession. So, in the latest H1 2022, which REIT had the better gearing ratio?

Ascendas REIT reported it has a gearing ratio of 36.7% as of 30 June 2022. That was down from 37.6% as of 31 March 2022.

As for CICT, the retail and commercial REIT had a gearing ratio of 40.6% as of 30 June 2022. Furthermore, that was an increase from the 39.1% gearing ratio it has as of 31 March 2022.

For this round, Ascendas wins for its lower gearing ratio.

Winner: Ascendas REIT

Portfolio occupancy and rental reversion

Just like any landlord, you want your property to be fully occupied at all times. Ideally, you’ll also want new (or renewing) tenants to be paying more.

Higher rents are what’s also known as “positive rental reversion” in REIT-speak.

For owners of tens, or even hundreds of properties, full occupancy can be hard as leases run down and tenants move.

However, the top REITs in Singapore typically have occupancy rates of well over 90%. Rental reversions, on the other hand, can vary depending on the portfolio’s demand.

In the first half of 2022, Ascendas REIT had an overall portfolio occupancy of 94.0% and positive portfolio rental reversion of +9.4%.

Meanwhile, CICT had a slightly lower portfolio occupancy of 93.8% during the period. Its rental reversion for its retail portion of its portfolio was actually negative at -0.5% during the first half of the year.

While its commercial portfolio had positive rental reversion of +8.4%, this isn’t enough to make up for it. That’s because retail assets generate over 55% of CICT’s overall revenue.

Winner: Ascendas REIT

DPU growth

Finally, we want to know how much the distribution per unit (DPU) has grown over the past decade or so. Both REITs managed to grow their H1 2022 dividends on a year-on-year basis.

However, a longer timeframe will give us a better indication of the sustainability of that dividend growth.

First up is Ascendas REIT. The industrial REIT announced a H1 2022 DPU of 7.873 Singapore cents, up 2.8% year-on-year.

If we go back to the first half of calendar year 2012, Ascendas REIT paid out a DPU of 6.98 Singapore cents. That amounts to a 10-year compound annual growth rate (CAGR) for its DPU of a disappointing 1.2%.

As for CICT, it announced a DPU of 5.22 Sinapore cents for H1 2022 – up only 0.8% year-on-year. In the first half of 2012, the REIT paid out a DPU of 4.68 Singapore cents.

So, CICT boats a 10-year CAGR for its dividend of 1.1%. Both are pretty disappointing growth rates, and in line with each other, so we should call this a draw.

Winner: It’s a draw

Ascendas REIT the stronger of the two

While both REITs are among the largest in Singapore, it seems like Ascendas REIT looks like the better buy today.

That’s because its portfolio’s fundamentals are solid and its occupancy, as well as rental reversion, outshine those of CICT.

It’s disappointing to see both REITs have such slow DPU growth. However, on the whole, Ascendas REIT is the better pick of the two for dividend and REIT investors.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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