First Capital Real Estate Investment Trust T.FCR.UN

Alternate Symbol(s): FCXXF

First Capital Real Estate Investment Trust is a Canada-based open-ended mutual fund trust. The Company owns, operates and develops grocery-anchored, open-air centers in neighborhoods with various demographics in Canada. The Company targets specific urban and suburban neighborhoods, which are located in Toronto, Montreal, Vancouver, Edmonton, Calgary, and Ottawa. Its portfolio of properties include Shops at King Liberty, 3080 Yonge Street, 2150 Lake Shore Boulevard West, Avenue and Lawrence Assets, Bayside Village, Leaside Village, Olde Oakville Market Place, Rutherford Marketplace, Edmonton Brewery District, King High Line, York Mills Gardens, False Creek Village, Carre Lucerne, Shops at New West, Wilderton Centre, One Bloor East, 775 King Street West, Yorkville Village, 78-100 Yorkville Avenue, 101 Yorkville Avenue, and 102-108 Yorkville Avenue. Its properties also include 897-901 Eglinton Avenue West, Griffintown-100 Peel, and Griffintown-1000 Wellington Street, among others.

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First Capital Real Estate Investment Trust

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Post by retiredcfon Aug 01, 2024 8:38am

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Post# 36157862

TD 2

Q2/24: OUTLOOK IMPROVES AS DEMAND/ SUPPLY IMBALANCE APPROACHES TIPPING POINT

THE TD COWEN INSIGHT

Near-record leasing spreads, negotiated rent bumps reaching new highs, and a "deep and robust" leasing pipeline all demonstrate solid execution and full participation in today's strong market by FCR's necessity-based shopping centre portfolio. The widening demand/ supply imbalance bodes well for continued growth in market rents, in our view. FCR remains one of our best ideas.

Impact: SLIGHTLY POSITIVE

Following CHP (link), FCR is the second of Canada's retail-focused REITs to report a further strengthening of operating trends in Q2/24. The demand/supply imbalance caused by Canada's population growth (+8% vs. 2019) matched with very minimal new retail property construction is a key factor that cannot be ignored, in our view. Colliers' recent report showing growth in shopping centre foot traffic further demonstrates this.

SPNOI growth guidance was raised 50bps to 2.5%-3.0% for FY2024, while SLR changes at One Bloor East should give a boost in 2025. All other targets (e.g., FFO growth and leverage reduction) for 2024 and 2026 were reiterated. With NOI tracking ahead, we see this as ensuring the 2024 leverage target is met even if disposition volume does not.

Disposition activity slowed in Q2 ($9mm of deals completed, $66mm of new deals — at a 34% FV premium) and some fair value losses on other density/dev't properties were taken. With interest rates now more visibly heading lower, we see activity picking up in the near term.

Forecast Revision. Our OFFO/unit estimates are +3% higher in FY2024 (reflecting the Q2/24 beat), and largely unchanged for FY2025. We are introducing our 2026 per-unit OFFO and AFFO estimates of $1.35 and $1.22, which reflect +3% y/y growth. Our forecasts now call for a +4% three-year AFFO/unit CAGR through 2026E and for ND/EBITDA to fall below 9x (consistent with guidance). Our NAV estimate is raised +2.4% to $21.00/unit.

Valuation. We reiterate our view that FCR (14.9x 24E AFFO) and its Cdn. peers (avg: 12.8x) are trading at an unsustainable valuation discount to U.S. peers (19.2x). Furthermore, we see the recent media report (link) suggesting Blackstone is looking to privatize a highly comparable U.S. grocery-anchored REIT (ROIC-N) as an indication of the growing interest in owning this sector of the property market. ROIC currently trades at a 32% higher P/ AFFO multiple to FCR despite having a lower three-year AFFO CAGR (+1% vs. FCR at +4%), and lower dividend yield (4.0% vs FCR at 5.3%). ROIC's mid-6's implied cap rate is similar to FCR's despite 10-yr gov't bond yields being 90bps lower in Canada.