Our view: From our lens, FCR laid out a credible framework to deliver healthy earnings and NAV growth over the next three years, while simultaneously further reducing leverage – all key elements we view as supportive of a stronger valuation. Building on the success to date, the plan essentially marks an extension of its portfolio optimization strategy announced in Sept-2022. As for the year ahead, FCR’s 2024 outlook is relatively in line with our call, as is its average annual FFOPU growth target of at least 3% (vs. our 2023A-25E CAGR of 3%, excl. other gains/losses). We’re particularly encouraged by its target for another ~$1B of dispositions. The figure exceeds our current forecast but should pave the way for debt/EBITDA to fall to the low-8x range by Q4/26 (vs. current 9.9x). While execution will be paramount, FCR’s track record to date underpins our confidence in its abilities (~$630MM of closed/ firm sales since Q4/22 at <3% yield, 21% above IFRS value). Bottom line, we believe the plan should resonate well with investors.
Investor day highlights:
FCR held its investor day on Feb-21, which included its 2024 outlook and 3-year business plan. The day focused on strategic initiatives to support stability and growth in FFOPU, NAVPU, and distributions, while further solidifying the balance sheet. Panel discussions also highlighted the strengths of its operating platform. Management’s 2024 expectations are relatively in line with our estimates, while its 3-year forecast reflects healthy organic NOI growth and earnings upside.
For 2024, FCR expects: a) ~2-2.5% SP NOI growth (bit ahead of our ~1.5-2% 2024E), b) >$400MM of dispositions at a <3% yield (vs. our $430MM estimate), most of which are development sites and low-yielding income properties, c) development spending of $125-150MM (in line with our estimate), and d) debt/EBITDA in the low-9x range by end of year (vs. our 9.1x estimate). We note that our $1.21 2024E FFOPU is relatively in line with FCR’s $1.20+ target.
For 2024-2026, FCR expects: a) average annual SP NOI growth of at least 3% (relatively in line with our 24E-25E avg), b) cumulative $1B of dispositions at a <3% yield (ahead of our $430MM 24E-25E total), c) cumulative $500MM of development spending (approx. $300MM income properties + $200MM condos in progress), d) $200MM of project completions (2026-weighted, incl. $100MM income properties at ~7% yield + $100MM gross condo sale proceeds), e) $100-150MM of acquisitions, f) low-8x debt/EBITDA by Q4/26, and g) FFOPU growth averaging at least 3%, excluding condo profits (in line with our 24E/25E of +3%/+3%).
Importantly, the $1B of targeted dispositions are mostly non-grocery anchored assets which currently comprise ~$1.7B (20%) of FCR’s portfolio value, with a low in-place yield of ~2.2%. This includes portions of its 24MM sf density pipeline, where FCR expects to unlock value through re-zoning. The remaining $7.1B of FCR’s portfolio are core & core value-add properties (5.5% yield).
Based on its 3YR outlook and holding its current 14x FFO multiple constant, FCR cited a potential base-case annualized total return of ~8% over the next three years (i.e., 5% distribution yield + 3% annual FFOPU growth). Should its multiple expand to the 16-18x range (vs. 18x LTA), FCR cited a potential unit price of $21-24, implying a 14-18% annualized total return.