Lee also highlights several risks specific to the trust that could affect the achievement of Citi’s target price. First is the cap rate cycle — with industrial cap rates now lower than pre-financial crisis levels and foreign capital consisting of a significant portion of transactional activity, a key risk for the sector is diminishing relative attractiveness of industrial yields.
There are also concentration risks. FLCT’s top tenants account for about a quarter of its gross rental income. With the top 10 tenants each accounting for between 1% to 5% of its gross rents, the fallout of any one would have a more noticeable impact on FLCT’s distributions.
Additionally, while FLCT has fully-fledged its distributable income, unfavourable exchange rate movements beyond that horizon could adversely affect the actualised value to investors. Lastly, lack of clear synergies with its office and business park acquisitions could result in higher trading yields, Lee notes.
As at 10.15am, units in FLCT are trading 1 cent lower or 0.9% down at $1.09.
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