On Wednesday, Truist Securities adjusted its outlook on Sila Realty Trust Inc. (NYSE: SILA), reducing the price target to $28 from the previous $29 while sustaining a Buy rating on the stock. The revision reflects a conservative stance in anticipation of the company's funding strategy and acquisition rates, as well as minor disruptions affecting the portfolio.
The analyst from Truist Securities highlighted that due to Sila Realty Trust's very low financial leverage, the company is likely to finance its investments mainly through credit facility borrowings until at least late next year. Management's recent indications of mid-6% to high-7% acquisition cap rates in the near term could offer an attractive spread above the cost of capital, which will hinge on the trajectory of short-term interest rates.
Despite some disturbances from GenesisCare and Steward, the core portfolio remains well-leased, presenting relatively low risk. The analyst pointed out that at approximately 13.5 times enterprise value to EBITDA and an 8.1% implied cap rate, Sila Realty Trust's stock appears to have upside potential.
The new 12-month price target of $28 is based on a $33.16 discounted cash flow estimate with a one-third weighting, a 10% assumed discount to the projected net asset value (NAV) a year from now with one-third weighting, and 11.8 times the forecasted funds from operations (FFOps) for 2025 with the remaining one-third weighting.
Currently, Sila Realty Trust is trading at a 12% discount to Truist Securities' NAV estimate, compared to an 11% average discount to the consensus NAV since its listing in June earlier this year, and at 11.5 times 2024 FFO, versus an average of 12.4 times since the listing.
The downward adjustment in the price target from $29 to $28 reflects a shift in valuation based on the discounted cash flow, the estimated NAV, and the FFOps multiple. The previous price target was established using a $34.79 discounted cash flow, a 10% discount to the estimated NAV one year forward, and an 11.8 times target FFO multiple.
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