Brokers’ take: Analysts cut targets on FLCT after revising estimates, positive on growth prospects

ANALYSTS shaved their target prices on Frasers Logistics & Commercial Trust (FLCT) after revising their estimates to account for higher financing costs, exchange rate adjustments and potential for lower vacancies.

In a report on Thursday (Nov 2), DBS Group Research lowered its target price on FLCT to S$1.44 from S$1.55.

This implies a potential upside of about 30.9 per cent from the counter’s last trading price of S$1.10 as at the midday trading break on Friday. FLCT’s units were up 1.9 per cent or S$0.02 at the time.

DBS’ target price cut came after the research team rolled forward its valuations to FY2024 and adjusted some of its assumptions on financing costs and foreign exchange.

It now expects a further 20-basis-point increase in borrowing costs over the next two years for the real estate investment trust (Reit), amid a prolonged high-interest-rate environment. DBS also modified its exchange-rate assumptions to account for the current weakness in the Australian dollar.

That being said, DBS maintained its “buy” recommendation on the counter for its “highly attractive” forward yield of more than 6.7 per cent.

In a separate report on the same day, CGS-CIMB reduced its target price on FLCT by 16.4 per cent to S$1.27 from S$1.52, implying a potential upside of 15.5 per cent.

The research team trimmed its FY2024-25 distribution per unit (DPU) estimates by 8.2 per cent to 8.8 per cent to account for potentially lower occupancies and a longer frictional vacancy period at the Reit’s Alexandra Technopark property.

Previously, Google confirmed it would vacate some of its space there in February 2024. Analysts also voiced concerns over the potential for non-renewal of the remaining lease, which expires in December 2024.

SEE ALSO

FLCT’s H2 DPU down 6.6% to S$0.0352 on lower income, higher expenses

Frasers Logistics and Commercial Trust reports positive rental reversions for Q3

FLCT’s Robert Wallace to stay on until Aug 1

FLCT posts 8.6% lower H1 DPU of S$0.0352 on foreign exchange weakness

Google to give up part of premises leased at FLCT’s Alexandra Technopark from Feb 2024

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Although the management has indicated that there have been leasing enquiries for 40 per cent of this space, analysts from DBS and CGS-CIMB believe there could be some downtime once Google’s lease expires in February 2024.

However, the completion of FLCT’s logistics and industrial property in Ellesmere, the UK, in the fourth quarter of 2023 could help fill in some of the income slack from Alexandra Technopark, CGS-CIMB said.

It continues to like FLCT for its visible inorganic growth potential and robust balance sheet.

Echoing the sentiment, DBS believes FLCT boasts “one of the most robust balance sheets in the industry”. The Reit will also be able to rely on its recently completed and ongoing development projects to drive organic growth in its earnings.

“Despite the recent valuation declines, the Reit has managed to maintain a remarkably healthy financial position,” said DBS analysts Dale Lai and Derek Tan. They noted that FLCT has the lowest gearing among its peers and a debt headroom of S$1.1 billion before gearing reaches the 40 per cent mark.

The Reit also has a large cash balance following its divestment of Cross Street Exchange, which can be immediately utilised to fund an acquisition and drive a further accretion to earnings, Lai and Tan said.