FLCT Earnings: Trimming Valuation by 4% on Miss; Pivoting Into Data Centers Is a Positive Move

Frasers Logistics and Commercial Trust's, or FLCT's, fiscal-year 2023 (ending September) results were below our expectations with net property income, or NPI, coming in 6% below our estimate. The miss is largely attributed to currency headwinds and lower-than-expected NPI margins due to higher energy and utility expenses. The trust also took a bigger-than-expected write-down on the fair value of its investment properties, writing off SGD 359 million from its balance sheet. The largest decline came from its commercial portfolio that was down 8.8% year on year due to higher vacancy rates, cap rate expansion, and translation impact. Meanwhile, its logistics and industrial portfolio's valuation was down 2.8% year on year, with cap rate expansion offset by strong rental growth of its Australian properties. While the fair value write-down is a noncash adjustment, we think it reflects a lower value that can be crystallized by the trust in the event of a divestment.