First Capital Realty (OTC:FCRGF) is Canada's leading owner, developer and manager of staple-goods-oriented neighborhood and community shopping centers in urban locations. The firm has positions in more than 160 properties totaling over 24 million square feet of gross leasable area.
- Effective reallocation of capital demonstrated through the sale of low growth income generating properties and the purchase of development opportunities. In Q1, First Capital acquired $57.1 million of property and development land consisting of a 50% interest in Seton Gateway, a 128,000 square feet retail property in Calgary, for $36.7 million, 6 properties adjacent to existing shopping centers aggregating 78,800 square feet of gross leasable area and 0.6 acres in established retail nodes for $16.8 million, and a 67% ownership stake in one development land parcel in Toronto. Meanwhile, the firm disposed of two properties consisting of a 26,800 square feet shopping center in Laval, Quebec for gross proceeds of $3.3 million; and a 0.2 acre land parcel in Edmonton for $0.7 million. Management plans to dispose of a further $100 million to $150 million of low growth properties to enhance FFO growth. As a result of the capital reallocation, First Capital has been able to increase average rent on renewable by 10% or more every year since 2008.
- Top-notch asset quality dominated by well-located food- and drug- anchored retail properties in urban settings: First Capital focuses on high traffic centers in major cities in Ontario, Quebec, Alberta, and British Columbia. Same property occupancy was 96.5% in Q1/14, up from 96.4% year over year, and overall occupancy was 95.3% at Q1/14, up from 95.1% in the previous year. As a result, First Capital has been able to attract high-quality tenants with investment grade rating profiles, such as Loblaws, Sobeys, Metro, Wal-Mart, and Canadian Tire.
- Stable and predictable cash flows derived from lack of competition surrounding owned properties: The majority of First Capital's properties are located in urban settings, where close proximity development is restricted, making their positions highly defensible. In fact, management estimated the market rent to be $23-$25 per square foot versus current rent of $18.06 per square foot, demonstrating strong growth. Furthermore, property distribution is geographically diverse with 40% in Ontario, 26& in Quebec, 23% in Alberta, and 11% in British Columbia.
Given First Capital Realty's strong defensive positioning, high quality properties, and efficient capital allocation, I believe that they would be able to maintain and even increase their yield of 4.6%. In fact, I believe that First Capital should trade as a premium relative to its peers from the comparables table.
As a Canada focused property owner, First Capital is highly exposed to the Canadian real estate market. Although this does pose a sector related risk, I do not believe that the Canadian real estate market would suffer a major downturn in the near term. Similar to my views on the US Housing market, which can be found in this article, I feel that the Canadian housing market still offers upside albeit with greater risk.
|Ticker||(OTC: OTC:CROMF)||(OTC: OTC:CWYUF)||(NYSE: GRP)||(OTC: OTC:MRCBF)||(OTC: OTCPK:RIOCF)||(OTC: OTCPK:HRUFF)|
|Company Name:||FIRST CAP REALTY||CROMBIE REAL EST||CALLOWAY REAL ES||GRANITE REAL EST||MORGUARD CORP||RIOCAN REIT||H&R REAL-REIT UT|
|Latest Fiscal Year:||12/2013||12/2013||12/2013||12/2013||12/2013||12/2013||12/2013|
|Latest Available Period Date:||3/31/2014||3/31/2014||3/31/2014||3/31/2014||12/31/2013||3/31/2014||3/31/2014|
|52-Week High Date||6/4/2014||6/17/2013||5/26/2014||4/30/2014||5/26/2014||5/16/2014||4/16/2014|
|52-Week Low Date||9/9/2013||8/22/2013||6/24/2013||8/7/2013||6/17/2013||8/15/2013||6/24/2013|
|52-Week High % Change||-0.9%||-10.5%||-0.6%||-6.9%||-2.8%||-0.9%||-1.5%|
|52-Week Low % Change||14.5%||7.2%||14.5%||17.6%||41.1%||18.8%||15.9%|
|Total Common Shares (NYSE:M)||208.36||72.7||134.1||46.9||12.6||304.1||270.0|
|- Cash and Equivalents||84.4||1.0||30.4||68.5||121.7||33.5||30.3|
|Current Enterprise Value||6,952.2||3,201.1||6,530.4||1,734.2||3,675.4||13,472.7||11,795.6|
|Revenue Growth||1 Year||9.0%||14.3%||4.1%||12.2%||27.2%||7.4%||41.9%||14.0%||10.6%|
|EBITDA Growth||1 Year||7.8%||14.9%||3.2%||17.9%||16.0%||6.2%||3.6%||8.9%||7.3%|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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