Acquisition is now viable, but not the immediate focus. With the recent rally in the share price, we believe yield accretive acquisition is viable for the trust again now with WACC at 6.2% on our estimates versus physical asset yield averaging 7%. However, given the 2 major AEIs coming onstream in 2H09 and the still challenging operating environment in some of the key retail markets, we believe management would focus more on ensuring organic growth in the near term. That said, a further re-rating of the stock price would push CRCT into a virtuous cycle, in which accretion from acquisition could be more attractive, in our view.
Stock to price in China growth premium, introduction of China REIT code the key catalyst. We have raised our Jun-10 price target to S$1.30/unit as we price in a higher growth expectation. The increase in price target is a result of our lower discount rate, higher LT growth rate and rolling forward our time frame. Key catalyst for the stock would be the introduction of China REIT code and the potential listing of the first China REIT expected in 4Q09 / 1Q10, which is likely to be at a premium valuation to CRCT, in our view.
We remain OW on CRCT, but remove the stock from Analyst Focus List as CRCT has outperformed YTD by 74%. Key risks to our rating and price target include a worse than expected rental reversion cycle or a delay in the introduction of China REIT which is expected in 4Q09/1Q10.
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