SINGAPORE (July 28): DBS Group Research has downgraded CapitaLand Retail China Trust from “buy” to “hold”, with a lower target price of $1.60 from $1.69 previously.

In a note on Thursday, analysts Mervin Song and Derek Tan say CRCT’s retail malls have yet to perform to their full potential as they were either ramping up their business operations, or were caught in a transitional phase.

For instance, Grand Canyon was acquired in 2014 and is currently only generating an annual net property income yield of 5.4%, lower than the targeted range of 7% to 8%. Minzhongleyuan and Wuhu are also recording losses because of road closures and repositioning works respectively.

According to the analysts, CRCT’s current gearing of 29% is much lower than the new 45% limit imposed by the Monetary Authority of Singapore, and “places CRCT in a strong position to pursue DPU-accretive acquisitions”.

“We understand price expectations from potential sellers are now lower which potentially opens up more opportunities for CRCT,” say the analysts.

Furthermore, they note that the recent depreciation of the renminbi against the Singapore dollar would limit CRCT’s short term performance. However, they remain positive on the trust in the medium term, with a targeted 4% growth in net property income over the next three years.

Units in CRCT were trading at $1.54 at 12.57pm.