First Capital REIT (FCR-UN-T) says it has agreements to dispose of an additional $116 million of non-core or low-yielding assets, including interests in a Greater Toronto Area development site and office building as well as a Greater Vancouver apartment property.
The trust says these latest dispositions – combined with the sale of another Toronto development site and a single-tenant Vancouver property earlier in Q4 2023 – bring to $633 million the value of assets which it will have divested since announcing a portfolio optimization plan just over a year ago.
All of this activity is part of its previously announced strategy to monetize over $1 billion of properties by the end of 2024. The aim is to “increase short-to medium-term FFO growth while continuing to reduce debt,” FCR states in its Q4 and year-end financial report which was released on Tuesday.
The properties in the latest round of divestments are:
- First Capital’s 50 per cent interest in the Royal Orchard development site in Thornhill, just north of Toronto;
- Circa Residences, containing 68 residential rental suites in Richmond, B.C.;
- a 41.7 per cent interest in an iconic flatiron commercial and office building at 1071 King St. W. in Toronto, (which reduces FCR’s interest in the property to 25 per cent); and
- 71 King St. W., a small medical office building in Mississauga.
Sales to close during next two months
The aggregate sales price of the four properties is a 68 per cent premium to its IFRS carrying values, FCR states in the report.
All of the sales are all-cash purchase agreements and remain subject to closing conditions. Scheduled closing dates range through the end of March 2024.
Also during the quarter, First Capital had previously announced the sales of a 25 per cent interest in its Yonge and Roselawn development site in Toronto and a single-tenant property at 6455 West Blvd. in Vancouver.
The $633 million of divestments completed or under contract were made at a cumulative in-place yield below three per cent and an average premium to IFRS carrying value of 21 per cent, FCR states.
“First Capital’s leading grocery-anchored portfolio delivered strong results with full-year 2023 lease renewal spreads accelerating to 12.1 per cent, increased portfolio occupancy of 96.2 per cent and an all-time high average in-place rent of $23.34 per square foot,” said Adam Paul, president and CEO, in a statement in the release.
“In the quarter we also advanced our portfolio optimization plan, announcing new asset sales of $116 million at a significant premium to their carrying value. More importantly, we are tracking ahead of targets with respect to the plan’s key objectives of FFO per unit growth while continuing to further strengthen FCR’s credit metrics.”
Property value declines lead to net loss
In its financial results, First Capital reports a net loss of $134.1 million, or $0.63 per diluted unit, compared to $160 million or $0.73 per diluted unit for the previous year. The loss was primarily due to a $376.4 million decrease in the fair value of the REIT’s investment properties.
First Capital also reported $410.5 million of fair value property decreases in 2022 (on a proportionate basis).
Net asset value per share declined to $21.95 at the end of Q4 2023, compared to $23.48 at the end of 2022.
First Capital reports it held $9.2 billion in assets at the end of Q4, compared to $9.6 billion in assets a year earlier.
Properties held for sale were listed as $168 million as of Q4, compared to $188 million a year earlier.
Funds from operations for 2023 were $244 million compared to $263 million in 2022.
Its debt-to-gross-book-value ratio stood at 45 per cent, up one per cent year-over-year, although its net-debt-to-adjusted-EBITDA declined to 9.9 times from 10.2 times at the end of 2022.
REIT management did note several improvements in Tuesday’s release accompanying the financials, including what it calls “strong leasing activity” which led to renewal spreads of 13.5 per cent on renewals during Q4. FFO per unit was $0.32.
Total portfolio occupancy rose to 96.2 per cent at the end of 2023, from 95.8 per cent a year earlier.
EDITOR’S NOTE: Check back later for updates. RENX will update this article with additional insights following today’s investor conference call featuring First Capital management.
