First Capital Real Estate Investment Trust FCXXF

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April 11, 2023

First Capital REIT
Moving the needle forward with $184MM of dispositions

TSX: FCR.UN | CAD 15.50 | Outperform | Price Target CAD 21.00

Sentiment: Positive

Our view: From our lens, the announced dispositions mark advances on multiple strategic fronts. Notably, the sales are accretive to NAV, with the $184MM aggregate pricing 18% above FCR’s Q4/22 IFRS values, reflecting a 3.3% yield on run-rate NOI (with comparable NOI in 2023). With proceeds to be applied to pay down higher cost debt, we expect the transactions to be accretive to earnings as well, while advancing its leverage reduction initiatives (10.2x D/EBITDA at Q4/22). Our 2023E already reflect $330MM of dispositions this year, albeit at a lower cap rate of ~2% (we expect lower yields on future dispositions, with more tied to density sales). Importantly, with $360MM of dispositions to date (at ~3% run-rate NOI yield), FCR has made good progress toward its ~$1B target by the end of 2024, as part of its portfolio optimization plan announced last September. Finally, the transactions highlight the REIT’s ability to monetize value created amid broader challenges in investment markets. Bottom line, at a 6.6% implied cap rate/15x 2023E AFFO (28% below NAV), we continue to see an attractive risk-adjusted return.

Disposition details: FCR has entered agreements to sell four properties for an aggregate $184MM, with closings anticipated in Q2 and Q3 2023. The properties are all unencumbered and include:

1. The Hazelton Hotel and its 50% interest in ONE Restaurant in Yorkville (Toronto) for $110MM. The properties were sold to privately owned Hennick & Company. We estimate the price for the luxury hotel equates to a substantial >$1.3MM/room.

2. 5051 Yonge Street (“Hillcrest”) in North York, ON, a multi-level retail centre slated for residential condo development.

3. A residential development site of the final phase of intensification at Wilderton Shopping Centre in Montreal, QC. The site

   was recently rezoned for ~200K sf of primarily residential density. The buyer is a local developer.

4. 5146-5164 Queen Mary Road (“Carre Queen Mary”) in Montreal, QC, a small apartment building with ground floor retail.