/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE
SERVICES OR DISSEMINATION IN THE UNITED
STATES/
TORONTO, April 11,
2023 /CNW/ - First Capital REIT ("First Capital",
"FCR" or the "REIT") (TSX: FCR.UN) announced today that it has
entered into firm agreements to sell four properties including, (i)
the Hazelton Hotel, together with its 50% interest in ONE
Restaurant, located in Toronto's
Yorkville neighbourhood to Hennick & Company; (ii) 5051 Yonge
Street, a residential condominium development site located in
North York (Toronto) at Hillcrest Avenue ("Hillcrest");
(iii) a residential development site of the final phase of the
intensification at Wilderton Shopping Centre ("Wilderton"), located
in Montreal and (iv) 5146-5164
Queen Mary Road ("Carre Queen Mary"), located in Montreal.
Having an aggregate gross sales price of $184 million, these transactions collectively
advance FCR's Enhanced Capital Allocation and Portfolio
Optimization Plan (the "Optimization Plan" or the "Plan"), which
was announced in September 2022. The
aggregate selling price of the assets, all of which are
unencumbered, exceeds their IFRS value by approximately
18%1. Collectively, these assets generated $6.1 million of 2022 or "run-rate" Net Operating
Income2 representing a 3.3% yield on the aggregate sales
price, and they are expected to generate comparable NOI in 2023.
The sale of these lower-yielding assets in which First Capital's
value-enhancing objectives have been achieved is consistent with
the objectives of the Optimization Plan.
Upon completion of these separate transactions, First Capital
will have monetized approximately $360
million of the more than $1
billion of assets targeted for disposition by year-end 2024,
where value-enhancing goals have been achieved, congruent with the
objectives of the Plan. The weighted-average run-rate NOI
yield on announced asset sales to date is less than 3.0%.
Adam Paul, President and CEO of
First Capital said, "The successful continuation of our Portfolio
Optimization Plan first outlined last September remains a top
priority. Our Plan remains well on track with today's announcement
bringing total dispositions to approximately 36% of the two-year
target and demonstrating significant incremental value and future
potential for First Capital's unitholders".
The Plan aims to unlock value through the monetization of
targeted low-yielding assets in which value-enhancing goals have
been achieved, while maintaining an attractive pipeline of
development opportunities and redeploying capital to generate a
more meaningful near-term impact. Consistent with the objectives of
the Plan, the transactions announced today are accretive to FFO and
NAV per unit, and they are also expected to favourably impact key
debt metrics, including Net Debt to Adjusted EBITDA.
_________________________________________
|
1IFRS value
as of December 31, 2022. The aggregate sales price exceeds the
assets' aggregate June 30, 2022 IFRS value by approximately 20%,
being the IFRS fair value prior to the Plan's
announcement.
|
2Based upon
calendar 2022 actual results for the Hazelton Hotel and ONE
Restaurant as each have seasonal earnings profiles, and fourth
quarter 2022 annualized run-rate Net Operating Income for the
investment properties.
|
|
Additional details related to the assets being sold include:
Hazelton Hotel
First Capital has agreed to sell the Hazelton Hotel and its
interest in ONE Restaurant for $110
million to Hennick & Company, a private firm that
invests in high-quality real estate assets that it can own for the
long-term as well as well-managed, growth-oriented operating
businesses. Hennick & Company was one of the original owners of
the prestigious property. The REIT acquired an initial 60% equity
interest in the hotel in July 2018
and the remaining 40% in October 2020
and subsequently acquired its 50% interest in ONE Restaurant in
January 2022.
The Hazelton Hotel is the top performing five-star hotel in
Canada. The landmark property
includes 77 hotel suites, 11,250 square feet of high-end retail
space along Yorkville Avenue, meeting and banquet spaces, the
renowned Spa by Valmont, ONE Restaurant and 67 underground parking
stalls. It is also Canada's first
and only independent luxury boutique properties to receive the
coveted Forbes Five Star designation and is one of the Leading
Hotels of the World.
The Hazelton is located
adjacent to First Capital's Yorkville Village Shopping Centre and
138 Yorkville, a significant development site (33%-owned by FCR)
that includes a planned residential condominium and retail podium
that will be integrated into Yorkville Village Shopping Centre.
Through the ownership of the of the hotel, First Capital was able
to create an enhanced development plan adjacent to the property
thereby creating significant incremental density and value. With
its strategic objectives now met, the monetization of the
Hazelton and ONE Restaurant more
than meets our objectives while freeing up capital to continue to
drive growth and value for First Capital unitholders.
5051 Yonge Street
("Hillcrest")
5051 Yonge Street has a long operating history as a multi-level
retail centre and is accordingly classified as an income producing
property for financial reporting purposes. Over time,
Hillcrest's location on Yonge Street within the rapidly evolving,
transit-connected North York Centre, made it an ideal candidate for
intensification and conversion into a high-rise development site.
As part of First Capital's 24 million square feet entitlements
program, FCR initiated work on an Official Plan and Zoning By-Law
Amendment application for the property that was submitted in
December 2020. During this ongoing
process, First Capital was able to successfully remove lease
encumbrances that might otherwise have prevented the near-term
redevelopment of Hillcrest, thus accelerating FCR's ability to
monetize the property based on parameters that meet the objectives
of the Plan.
Wilderton
First Capital recently completed a major redevelopment of
Wilderton, including the total demolition of the former shopping
centre and construction of a new low-rise primarily retail building
as well as a grocery-anchored, mixed-use building anchored by
Metro, with a major residential component in the form of a seniors
housing community. As part of the REIT's entitlements program, the
1.5 acre northern portion of the site was rezoned to provide for
the development of approximately 200,000 square feet of primarily
residential density. First Capital has entered into an agreement to
sell this density to an established local residential
developer.
Carre Queen
Mary
Carre Queen Mary is a small
apartment building with ground floor retail. First Capital
identified the property as a potential disposition candidate as it
is an outlier amongst its portfolio of primarily grocery and
pharmacy anchored shopping centres in Greater Montreal and it is located in a
non-strategic node for the REIT. Through active asset management,
including the renewal of a key retail lease and façade upgrades,
FCR was able to increase both retail and residential rents now
enabling it to achieve value-enhancing goals and monetize the asset
in accordance with the objectives of the Plan.
The four transactions are scheduled to close between late Q2
through the third quarter of 2023, and they remain subject to
certain closing conditions typical for transactions of their
type.
About First Capital REIT (TSX:
FCR.UN)
First Capital owns, operates and develops grocery-anchored,
open-air centres in neighbourhoods with the strongest demographics
in Canada.
NON-IFRS FINANCIAL
MEASURES
First Capital prepares and releases unaudited interim and
audited annual consolidated financial statements prepared in
accordance with International Financial Reporting Standards
("IFRS"). As a complement to results provided in accordance with
IFRS, First Capital discloses certain non-IFRS financial measures
in this press release, including but not limited to FFO, NOI and
EBITDA. Since these non-IFRS measures do not have standardized
meanings prescribed by IFRS, they may not be comparable to similar
measures reported by other issuers. First Capital uses and presents
the above non-IFRS measures as management believes they are
commonly accepted and meaningful financial measures of operating
performance. These non-IFRS measures should not be construed as
alternatives to net income or cash flow from operating activities
determined in accordance with IFRS as measures of First Capital's
operating performance.
Funds from Operations ("FFO")
FFO is a recognized measure that is widely used by the real
estate industry, particularly by publicly traded entities that own
and operate income-producing properties. First Capital calculates
FFO in accordance with the recommendations of the Real Property
Association of Canada ("REALPAC")
as published in its most recent guidance on "Funds from Operations
and Adjusted Funds From Operations for IFRS" dated January 2022. Management considers FFO a
meaningful additional financial measure of operating performance,
as it excludes fair value gains and losses on investment properties
as well as certain other items included in FCR's net income that
may not be the most appropriate determinants of the long-term
operating performance of FCR, such as investment property selling
costs; tax on gains or losses on disposals of properties; deferred
income taxes; distributions on Exchangeable Units; fair value gains
or losses on Exchangeable Units; fair value gains or losses on
unit-based compensation; and any gains, losses or transaction costs
recognized in business combinations. FFO provides a perspective on
the financial performance of FCR that is not immediately apparent
from net income determined in accordance with IFRS.
Net Debt
Net debt is a measure used by Management in the computation of
certain debt metrics, providing information with respect to certain
financial ratios used in assessing First Capital's debt profile.
Net debt is calculated as the sum of principal amounts outstanding
on credit facilities and mortgages, bank indebtedness and the par
value of senior unsecured debentures reduced by the cash balances
at the end of the period on a proportionate basis.
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization ("Adjusted EBITDA")
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization, ("Adjusted EBITDA") is a measure used by Management
in the computation of certain debt metrics. Adjusted EBITDA, is
calculated as net income, adding back income tax expense, interest
expense and amortization and excluding the increase or decrease in
the fair value of investment properties, fair value gains or losses
on Exchangeable Units, fair value gains or losses on unit-based
compensation and other non-cash or non-recurring items on a
proportionate basis. FCR also adjusts for incremental leasing
costs, which is a recognized adjustment to FFO, in accordance with
the recommendations of REALPAC. Management believes Adjusted EBITDA
is useful in assessing the Trust's ability to service its debt,
finance capital expenditures and provide for distributions to its
Unitholders.
A reconciliation from net income (loss) attributable to
Unitholders to FFO can be found in the table below:
($
millions)
|
Three months ended
December 31
|
|
Year ended December
31
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
Net income (loss)
attributable to Unitholders
|
$
42.4
|
|
$
28.6
|
|
$
(160.0)
|
|
$
460.1
|
Add
(deduct):
|
|
|
|
|
|
|
|
(Increase) decrease in
value of investment properties (1)
|
$
31.2
|
|
$
(25.8)
|
|
$
410.5
|
|
$
(181.5)
|
(Increase) decrease in
value of hotel property (1)
|
$
(6.9)
|
|
$
2.2
|
|
$
(6.9)
|
|
$
1.1
|
Adjustment for equity
accounted joint ventures (2)
|
$
0.8
|
|
$
0.4
|
|
$
2.7
|
|
$
2.5
|
Adjustment for
capitalized interest related to equity accounted joint ventures
(2)
|
$
0.8
|
|
$
—
|
|
$
3.0
|
|
$
—
|
Incremental leasing
costs (3)
|
$
1.8
|
|
$
1.4
|
|
$
6.6
|
|
$
5.9
|
Amortization expense
(4)
|
$
0.1
|
|
$
0.5
|
|
$
0.5
|
|
$
1.9
|
Transaction costs
(5)
|
$
—
|
|
$
—
|
|
$
0.6
|
|
$
—
|
Increase (decrease) in
value of Exchangeable Units (6)
|
$
0.1
|
|
$
0.1
|
|
$
(0.3)
|
|
$
0.5
|
Increase (decrease) in
value of unit-based compensation (7)
|
$
4.4
|
|
$
2.5
|
|
$
(5.3)
|
|
$
9.3
|
Gain on Option
(8)
|
$
—
|
|
$
—
|
|
$
—
|
|
$
(80.8)
|
Investment property
selling costs (1)
|
$
0.1
|
|
$
3.1
|
|
$
4.4
|
|
$
7.1
|
Deferred income taxes
(recovery) (1)
|
$
5.8
|
|
$
47.8
|
|
$
7.3
|
|
$
24.8
|
FFO
|
$
80.5
|
|
$
60.8
|
|
$
263.2
|
|
$
251.0
|
(1)
|
At FCR's
proportionate interest.
|
(2)
|
Adjustment related
to FCR's equity accounted joint ventures in accordance with the
recommendations of REALPAC.
|
(3)
|
Adjustment to
capitalize incremental leasing costs in accordance with the
recommendations of REALPAC.
|
(4)
|
Adjustment to
exclude hotel property amortization in accordance with the
recommendations of REALPAC.
|
(5)
|
Adjustment to
exclude transaction costs incurred as part of a business
combination in accordance with the recommendations of
REALPAC.
|
(6)
|
Adjustment to
exclude distributions and fair value adjustments on Exchangeable
Units in accordance with the recommendations of
REALPAC.
|
(7)
|
Adjustment to
exclude fair value adjustments on unit-based compensation plans in
accordance with the recommendations of REALPAC.
|
(8)
|
Adjustment to
exclude the gain on option in accordance with the recommendations
of REALPAC.
|
Net Debt to Adjusted EBITDA multiple
The Following table reconciles Net Debt to Total Debt for the
years ended December 31, 2022 and
2021:
As at
|
December 31,
2022
|
December 31,
2021
|
Liabilities
(principal amounts outstanding)
|
|
|
|
|
Bank
indebtedness
|
|
$
1,594
|
|
$
2,476
|
Mortgages
(1)
|
|
1,235,767
|
|
1,216,872
|
Credit facilities
(1)
|
|
1,098,235
|
|
893,958
|
Senior unsecured
debentures
|
|
1,900,000
|
|
2,350,000
|
Total Debt
(1)
|
|
$ 4,235,596
|
|
$ 4,463,306
|
Cash and cash
equivalents (1)
|
|
(39,827)
|
|
(37,512)
|
Net Debt (1)
(2)
|
|
$ 4,195,769
|
|
$ 4,425,794
|
(1)
|
At First Capital's
proportionate interest. Refer to the "Non-IFRS Financial Measures"
section of the REIT's MD&A for the year ended December 31,
2022.
|
(2)
|
Net Debt is a non-IFRS
measure that is calculated as the sum of total debt including
principal amounts outstanding on credit facilities and mortgages,
bank indebtedness and the par value of senior unsecured debentures
reduced by the cash balances at the end of the period on a
proportionate basis.
|
(3)
|
Equity market
capitalization is the market value of FCR's units outstanding at a
point in time. The measure is not defined by IFRS, does not have a
standard definition and, as such, may not be comparable to similar
measures disclosed by other issuers.
|
The following table reconciles First Capital's net income (loss)
to Adjusted EBITDA for the three months and years ended
December 31, 2022 and 2021:
|
Three months ended
December 31
|
|
Year ended December
31
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
Net income (loss)
attributable to Unitholders
|
$
42,372
|
|
$
28,629
|
|
$
(159,997)
|
|
$
460,131
|
Add (deduct)
(1):
|
|
|
|
|
|
|
|
Deferred income tax
expense (recovery)
|
5,849
|
|
47,773
|
|
7,287
|
|
24,782
|
Interest
Expense
|
39,637
|
|
37,941
|
|
152,930
|
|
154,013
|
Amortization
expense
|
2,100
|
|
1,850
|
|
8,364
|
|
8,473
|
(Increase) decrease in
value of investment properties
|
31,184
|
|
(25,833)
|
|
410,474
|
|
(181,490)
|
(Increase) decrease in
value of hotel property
|
(6,908)
|
|
2,161
|
|
(6,908)
|
|
1,122
|
Increase (decrease) in
value of Exchangeable Units
|
102
|
|
140
|
|
(321)
|
|
548
|
Increase (decrease) in
value of unit-based compensation
|
4,386
|
|
2,528
|
|
(5,250)
|
|
9,286
|
Incremental leasing
costs
|
1,764
|
|
1,448
|
|
6,626
|
|
5,859
|
Abandoned transaction
(costs) recovery
|
122
|
|
146
|
|
(2,770)
|
|
248
|
Other non-cash and/or
non-recurring items
|
(12,658)
|
|
6,696
|
|
2,590
|
|
(87,303)
|
Adjusted EBITDA
(1)
|
$
107,950
|
|
$
103,479
|
|
$
413,025
|
|
$
395,669
|
(1)
|
At First Capital's
proportionate interest. Refer to the "Non-IFRS Financial Measures"
section of the REIT's MD&A for the year ended December 31,
2022.
|
FORWARD-LOOKING STATEMENT
ADVISORY
This press release contains forward-looking statements and
information within the meaning of applicable securities law,
including but not limited to expectations related to the REIT's
ongoing performance and enhanced capital allocation and portfolio
optimization plan, including the anticipated monetization of
certain properties, the realization and deployment of proceeds and
anticipated accretive impact on NAV and FFO per unit resulting from
the sale of FCR's interest in certain properties. These
forward-looking statements are not historical facts but, rather,
reflect First Capital's current expectations and are subject to
risks and uncertainties that could cause the outcome to differ
materially from current expectations. Such risks and uncertainties
include, among others, the ability of First Capital to close the
disposition transactions, general economic conditions; tenant
financial difficulties, defaults and bankruptcies; increases in
operating costs, property taxes and income taxes; First Capital's
ability to maintain occupancy and to lease or release space at
current or anticipated rents; development, intensification and
acquisition activities; residential development, sales and leasing;
risks in joint ventures; environmental liability and compliance
costs and uninsured losses; and risks and uncertainties related to
the impact of the ongoing pandemic, epidemics or other outbreaks on
First Capital which are described in First Capital's MD&A for
the year ended December 31, 2021
under the heading "Risks and Uncertainties - Ongoing Pandemic,
Epidemics or New Outbreaks". Additionally, forward-looking
statements are subject to those risks and uncertainties discussed
in First Capital's MD&A for the year ended December 31, 2022 and in its current Annual
Information Form. Readers, therefore, should not place undue
reliance on any such forward-looking statements. First Capital
undertakes no obligation to publicly update any such
forward-looking statement or to reflect new information or the
occurrence of future events or circumstances except as required by
applicable securities law. All forward-looking statements in this
press release are made as of the date hereof and are qualified by
these cautionary statements.
www.fcr.ca
TSX: FCR.UN
SOURCE First Capital Real Estate Investment Trust