CapitaLand Retail China Trust's Galleria, Chengdu. (Photo: CapitaLand Retail China Trust)CapitaLand Retail China Trust's Galleria, Chengdu. (Photo: CapitaLand Retail China Trust)

Singapore’s DBS Bank has upgraded its rating on CapitaLand Retail China Trust from ‘Hold’ to ‘Buy’ following recent price corrections.

DBS noted that the retail REIT’s yield is currently at +1 standard deviation of its mean, and believes that current levels have largely priced in the effect of a rise in 10-year bond yields to 3%.

“While [CapitaLand Retail China Trust] will face headwinds in the form of a weaker average RMB exchange rate, impact from higher property taxes in Beijing, and an increase in interest rates over the next few quarters, we believe these risks have largely been priced in”, said the bank.

DBS is also of the opinion that potential of the REIT’s malls have not been maximised, as a number of these properties are in a transition phases, including Minzhongleyuan and Wuhu, which are incurring losses due to nearby road closures, and repositioning works respectively.

“Post the acquisition of Galleria mall, [CapitaLand Retail China Trust’s] gearing will stabilise at around 37% but will still be below the 45% limit imposed by MAS”, said DBS, noting that the REIT still has some debt headroom for possible acquisitions.

The bank has however not revised the REIT’s target price of SGD1.60 (USD1.12).

Units of CapitaLand Retail China Trust finished the trading day about 0.7% lower from its previous close on the Singapore Exchange to end at SGD1.375.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.