Citi lowers FLCT’s target price to S$1.24, down from previous S$1.48, amid market challenges

SINGAPORE: In the ever-evolving landscape of real estate investment trusts (REITs), Frasers Logistics & Commercial Trust (FLCT) finds itself facing a revised target price and distribution per unit (DPU) estimates, according to Citi Research analyst Brandon Lee.

The Edge Singapore reports that despite the challenges, Lee maintains a “buy” rating on FLCT. Citi lowers FLCT’s target price to S$1.24, down from the previous S$1.48. This adjustment is attributed to revised foreign exchange assumptions, decreased occupancies, primarily in UK business parks, and escalated debt costs.

To align with these changes, Lee has revised the DPU estimates for fiscal years 2024 and 2025 by 8.4%, settling at 6.88 cents and 7.16 cents, respectively. Additionally, he introduces an FY2026 DPU estimate of 7.55 cents.

Lee, however, is quick to highlight specific risks that may impact FLCT’s journey towards Citi’s target price. One significant concern is the cap rate cycle, where industrial cap rates are now lower than pre-financial crisis levels. The influx of foreign capital in transactional activities poses a potential risk, diminishing the relative attractiveness of industrial yields in the sector.

Concentration risks loom over FLCT, with its top tenants contributing about a quarter of its gross rental income. Each of the top 10 tenants represents between 1% and 5% of gross rents, making the fallout of any single tenant more impactful on FLCT’s distributions.

Furthermore, despite FLCT having fully-fledged its distributable income, Lee cautions against unfavourable exchange rate movements beyond the current horizon, as these could adversely affect the realized value for investors. Lastly, according to Lee, the lack of clear synergies with office and business park acquisitions could lead to higher trading yields.

As of December 5, 3:38 p.m., FLCT shares are trading slightly lower at S$1.09, a decrease of 0.9% or 1 cent. /TISG