TSX:FCR.UN - Post by User
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retiredcfon Feb 07, 2024 9:22am
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Post# 35867115
RBC Reaction
RBC ReactionFebruary 6, 2024
First Capital REIT
Underlying Q4 results modestly ahead; solid progress on dispositions
TSX: FCR.UN | CAD 16.01 | Outperform | Price Target CAD 17.00
Sentiment: Positive
Our view: FCR reported headline Q4/23 FFOPU of $0.27 vs. RBC/Street at $0.304E/$0.30E and $0.37 last year. However, excluding other gains/losses, Q4/23 FFOPU was $0.317, ahead of our $0.304E. On balance, our read is slightly positive. The negative SP NOI print was mainly from tougher comps as the prior year included materially higher lease termination fees and bad debt recoveries (excl. these amounts, SP NOI growth was positive). Importantly, occupancy ticked higher, renewal leasing spreads accelerated, and remaining vacancy at 1 Bloor East is addressed. FCR also continues to make strong progress on dispositions (at prices above book value), with debt/EBITDA declining further (now <10x). Conference call Feb-7 (2 pm ET; 1-800-898-3989; ID 4055798).
Highlights:
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Some noise, but underlying print modestly ahead. Headline Q4 results included $10MM ($0.05/unit) of other net losses, most of which relate to unrealized mark-to-market losses on derivatives related to certain debt. Excluding other gains/losses, the + $0.01/unit variance to our call was mostly from higher NOI and interest/other income.
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SP-stable NOI was -2.4% YoY (+1.2% YTD), while total SP NOI (incl. redevelopments) was -1.8% YoY (+1.3% YTD). The drop was principally due to lower lease termination fees and lower bad debt recoveries, partly offset by higher current and prior year operating cost and realty tax recoveries. Excl. bad debts and lease termination fees, total SP NOI was +3.3% YoY (+2.5% YTD). Nordstrom Rack’s vacancy at 1 Bloor East was a 140 bps drag on Q4 SP NOI (-70 bps YTD). Notably, in addition to leases announced last quarter, FCR leased Nordstrom's remaining vacancy (tenants include Altea Active, Nike, Mango, The Ballroom, a bank, QSR).
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Total occupancy rose to 96.2% (+30 bps QoQ, +40 bps YoY), with SP-occupancy at 96.3% (+20 bps YoY).
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Renewal leasing spreads accelerated to +13.5% (12.1% YTD). In-place net rent increased to $23.34/sf (+1% QoQ, +2% YoY).
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Reported NAVPU increased to $21.95 (+3% QoQ, -7% YoY). In Q4, FCR booked a $168MM ($0.78/unit) fair value gain on the portfolio. The IFRS cap rate declined to 5.5% (-10 bps QoQ, +30 bps YoY) vs. our 5.7% NAV cap rate and current 6.5% implied cap.
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Good progress on portfolio optimization. In Q4, FCR completed $58MM of previously announced dispositions, with another $157MM slated to close in Q1/24. In total, FCR has completed/firm agreements on $633MM of asset sales (vs. $1B target by end of 2024) at an in-place yield of <3%, or an average 21% above IFRS values. This includes $116MM of new dispositions (68% premium to IFRS value), incl. development sites in Toronto, rental residential suites in BC, and a GTA medical office building.
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Debt/assets 45% (-130 bps QoQ, +100 bps YoY); 9.9x debt/EBITDA (-0.2x QoQ, -0.3x YoY), or 9.8x excl. activism costs. Available liquidity ample at $790MM from cash ($92MM) and undrawn lines ($698MM).