CIBC ReportEQUITY RESEARCH
October 29, 2024 Earnings Update
FIRST CAPITAL REAL ESTATE
INVESTMENT TRUST
“I Love It When A Plan Comes Together”
Our Conclusion
Apropos George Peppard in The A Team, FCR is delivering right to plan,
reporting a strong headline beat, which after adjusting for certain one-time
items was right in line with expectations. The REIT continues to advance its
optimization plan, firming up an agreement for an additional ~$30MM of
dispositions during the quarter, reducing development risk, and bolstering an
already strong balance sheet. With ~$900MM of liquidity, FCR remains well
positioned to fully settle its upcoming debt maturities, with any excess likely
allocated towards the repayment of variable rate debt exposure.
Concurrent with the rolling out of our inaugural 2026 estimates, we are
increasing our price target to $21.00 (from $19.00), representing parity to our
forward NAV estimate given the potential for continued outperformance on
the expectation of both a soft landing (a dynamic we believe the market has
correctly implied) and increased funds flow in the real estate space as
investors seek income alternatives.
Key Points
Earning Results: FCR reported headline Q3/24 OFFO per unit of $0.36,
which when adjusted for an $11.3MM density bonus payment on a previously
sold property was $0.32/unit, an increase of ~1% Y/Y and in line with our
estimate. The beat was driven by a 20 bps pick-up in occupancy to 96.5%.
Reported SPNOI increased 2.5%, however after excluding bad debt expense
and lease termination fees the resulting growth in SPNOI was 3.7%. On a
YTD basis, results are well ahead of the REITs 3-year plan as previously
outlined.
Capital Recycling: During the quarter, FCR invested ~$52MM into its
properties, primarily through development and redevelopment. Additionally,
the REIT entered into a firm agreement to sell its 50% interest in 200 West
Esplanade, North Vancouver for ~$29MM. The transaction is expected to
close in Q4/24. FCR has ~$236MM of investment properties currently
classified as held for sale. FCR’s YTD outperformance is a function of the
market ascribing a premium not only to the super urban locations, but we
believe to a certain extent the decreased reliance on development
completions to fuel growth. Where we are at in this phase in the market, it
doesn’t appear that the market is overly willing to take on development risk.
In an environment that is more adverse to risk, we continue to view the
REIT’s strategy of capital recycling and offloading development upside
through sales transactions as positive, with the majority of proceeds going to
de-levering the balance sheet.
Balance Sheet: Net debt to total assets decreased 110 bps Y/Y to 45.2%.
Additionally, the REIT remains within its target reporting net debt/EBITDA of
9.0x, an improvement from 10.1x Y/Y. The REIT reported a NAV per unit of
~$21.92 on an unchanged IFRS cap rate of 5.5%, increasing ~3% Y/