CapitaLand China Trust downgraded to Hold by Daiwa

CapitaLand China Trust's 51 percent-owned Rock Square mall, located in Guangzhou in China. Credit: CapitaLand China TrustCapitaLand China Trust's Rock Square mall, located in Guangzhou in China. Credit: CapitaLand China Trust

Daiwa downgraded CapitaLand China Trust, or CLCT, to Hold from Outperform in a note Monday, citing valuation and execution risks.

The Japanese investment bank cut its target price to S$1.39 from S$1.44, citing a higher discount rate assumption as it expects Singapore 10-year bond yields to rise to 1.5 percent from its previous estimate of 1 percent.

In addition, the bank lowered its distribution per unit (DPU) forecast by 2.4 percent on the later-than-expected completion of Singapore-Hangzhou Science & Technology Park Phases I and II.

But the note said China’s nascent China REIT, or C-REIT, market wouldn’t necessarily be a negative for CLCT, and could even offer positives, such as providing benchmarks for appropriate yields for short ground leases in China.

Earlier this year, China’s regulators approved the listing of nine REITs by Chinese companies on the mainland’s stock exchanges, with the assets limited to infrastructure.

“We think CLCT is fortunate to have a sponsor with a significant business presence and pipeline of best-in-class assets in China, so CLCT would not have to compete excessively for assets,” Daiwa said.

“We believe CLCT may even stand out, and trade better than C-REIT peers, for its CapitaLand-Singapore connection and high corporate governance, sustainability and trust, if more global capital is allocated into China real estate/REITs,” Daiwa added.

CLCT’s units were trading at S$1.37, down 0.73 percent, at 11:02 a.m. SGT.

CLCT was previously known as CapitaLand Retail China Trust, with the name changed earlier this year after the mandate was expanded to include other types of commercial real estate in addition to retail assets.