Have a $19.00 target. GLTA
2024 Investor Day: Hiding In Plain Sight Our Conclusion
FCR held its 2024 Investor Day yesterday, providing an update on and
discussing its growth initiatives and reiterating many of the points in its Q4/23
earnings presentation and its longer-term optimization plan. Key focal points
of the presentation included a discussion on FCR’s proprietary technological
platform and a stark reminder that, unlike some other real estate asset
classes, the retail environment is innately more organic, such that greater
importance is accorded to tenant mix, positioning, and trends, and the
business is not as simple as “filling empty space.”
Ultimately, such initiatives create value by optimizing tenant and customer
experience, while simultaneously maximizing foot traffic and, ostensibly,
tenant sales. The REIT also highlighted the significant embedded value
within its development pipeline and existing portfolio, which should continue
to be unlocked as the REIT’s Portfolio Optimization Plan progresses. With a
market that appears to not incorporate the long-term potential of the REIT’s
long-dated assets, the immediate accretion from the monetization of
low-yielding assets in favor of paying down near-term debt may also serve as
the most prudent use of available capital. Given that the trends we first
observed in the REIT’s Q4/23 report remain largely unchanged, we maintain
our Outperformer rating and our NAV and price target.
Key Points
2024 Outlook: FCR reiterated its 2024 guidance, calling for SP-NOI growth
of ~2%-2.5% (excluding lease termination fees and bad debt
expenses/recoveries), in addition to over $400MM of dispositions with
average expected yields of <3%. The year will also include
~$125MM-$150MM in development expenditure, with a leverage target in the
low-9x range by year-end.
Three-year Business Plan: Through year-end 2026, FCR is targeting
average annual SP-NOI and FFO/unit growth of ~3%. Further, the REIT
plans to dispose of an additional ~$1B of non-core properties with average
yields of <3%, consistent with the strategy first announced at the onset of the
Portfolio Optimization Plan. Part of the proceeds are expected to be rolled
into acquiring ~$100MM-$150MM in core grocery-anchored shopping
centres. Total investment in property development and redevelopment is
expected to be $500MM, with ~$200MM in development completions.
Management also remains committed to reducing its overall leverage profile,
with a net debt/EBITDA ratio in the low 8x range by 2026.
Development Pipeline: FCR has one of the largest development pipelines
within our coverage universe, at over 23.7MM sq. ft. in identified incremental
density. Management has indicated that it intends to divest excess density
with a longer-term horizon, which, in our view, is an appropriate strategy
given that the market historically overlooks the intrinsic value embedded in
long-dated assets.