First Capital Real Estate Investment Trust T.FCR.UN

Scotiabank

[retiredcf]

Scotiabank recently held a retail REIT conference and the resulting summary report was called Lots of Friends Battling One Foe,

“We felt it was quite bullish on operations (peak occupancy/accelerating blended rent growth; CT REIT felt more balanced though), a view corroborated by our next-day Property Tour and CBRE lunch presentation. Post last year’s event, we asked if it was premature to aggressively buy CAD Retail REITs. Patience proved proper for most of 2023. We’re in the same camp for now, with catalysts to change our mind = market valuation focus reverting to P/NAV on more private market deals (we think later this year), more aggressive REIT “accretive dispositions”, a big narrowing in credit spreads (i.e., improved FFOPU [funds from operations per unit] growth) on a “Soft Landing” or strong recovery in residential land demand/values. Our top picks = CHP, CRR, CRT, and REI. Here is where we struggle. Near-peak occupancy + high lease spreads (Exhibit 7) + modest new supply (Exhibit 8) and yet our 2023A-2025E Retail REIT FFOPU CAGR is 2.7% (FCR best at 4.6%; SRU least at -0.4%), better than the 0% 2018A-2023A avg., but below our 3.5% sector forecast, incl. just using 2024. The issue = higher debt costs on refi are a formidable foe”