DBS Group Research has downgraded CapitaLand China Trust (CLCT) from a “Buy” to a “Hold” rating, citing a challenging operating environment in China and a softer reversionary outlook. The trust’s revenue for the first half of 2025 fell by 6.3% year-on-year to RMB867.6 million, whilst its distribution per unit (DPU) dropped by 17% to 2.49 Singapore cents, falling short of expectations.
The downgrade comes as tenant confidence wanes amidst a soft reversionary outlook, with estimated negative reversions of 3% for retail, 10% for business parks, and 30% for logistics. The trust’s participation in the C-REIT platform is seen as a potential differentiator, but it may lead to a prolonged recovery period. The anticipated divestment of Yuhuating Mall is expected to reduce gearing but could also dilute DPU.
Geraldine Wong, an analyst at DBS, noted that “supply risks and lower submarket rents may extend the soft reversionary outlook across all asset classes.” Despite asset enhancement initiatives, the trust’s business parks and logistics sectors have seen significant declines in revenue due to oversupply and lingering effects of the tariff war.
Looking ahead, the trust faces potential further dilution of DPU with the repositioning of CapitaLand Xinnan and perpetual reissuance. The possibility of privatisation by sponsor CapitaLand Integrated Commercial Trust is considered unlikely at this stage. The revised price target for CLCT is set at SGD0.75, reflecting a 1% downside from the last traded price of SGD0.760 on 31 July 2025.
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