First Capital Real Estate Investment Trust FCXXF

RBC

[retiredcf]

April 30, 2024

First Capital REIT
Underlying Q1 in line; operating metrics sound, continued strategic progress

TSX: FCR.UN | CAD 14.78 | Outperform | Price Target CAD 19.00

Sentiment: Neutral

Our view: Excluding $0.02/unit of other gains/(losses), FCR reported Q1/24 operating FFOPU of $0.36 vs. RBC/Street at $0.29E/ $0.30E and $0.25 last year. However, excluding a development related assignment fee ($0.04/unit) and a sizeable lease termination fee ($0.03/unit), underlying FFOPU was $0.29, in line with our call. Overall, a sound start to the year – high and stable occupancy, healthy organic growth, and progress on the portfolio optimization and debt reduction initiatives. Conference call May 1 (2 pm ET; 1-800-898-3989; ID 2094812).

Highlights:

• Underlying results in line. Operating FFOPU of $0.36 includes a $9.5MM ($0.04/unit) assignment fee related to a small development parcel in Montreal and $5.5MM ($0.03/unit) of lease termination income from Nordstrom at 1 Bloor St. East. Excluding these amounts, Q1 FFOPU was $0.29, in line with our $0.29E.

• SP-stable NOI was +7.9% YoY, with total SP NOI (incl. redevelopments) at +7.8% YoY. Excluding bad debts and lease termination income, total SP NOI was +2.3% YoY, mainly from higher rents (Nordstrom’s June 2023 exit created a ~140 bps drag).

• Total occupancy unchanged at 96.2% (flat QoQ and YoY), with SP-occupancy at 96.2% (flat YoY).

• Renewal leasing spreads were strong at +11%. In-place net rent increased to $23.62/sf (+1% QoQ, +2% YoY).

• Progress on portfolio optimization plan. In Q1, FCR completed $147MM of previously announced dispositions, with a further $149MM of assets held for sale. It also acquired the remaining 50% interest in Seton Gateway, a fully-occupied 128K sf (at 100%) grocery-anchored property in Calgary, AB for $34MM.

• Reported NAVPU edged up to $22.10 (+1% QoQ, -6% YoY). In Q1, FCR booked a nominal net $2MM fair value gain on the portfolio. The IFRS cap rate was stable at 5.5% (flat QoQ, +30 bps YoY) vs. our 5.8% NAV cap rate and the current 6.9% implied cap.

• Debt/assets 44.9% (-10 bps QoQ, +30 bps YoY); 9.3x debt/EBITDA (-0.6x QoQ, -1.1x YoY). Available liquidity looks ample at $867MM from cash ($169MM) and undrawn lines ($698MM).