First Capital Announces Strong Q1 2011 Results

First Capital Realty Inc. (First Capital Realty) Canada's leading owner, developer and operator of supermarket and drugstore anchored neighbourhood and community shopping centres, located predominantly in growing metropolitan areas, announced strong financial results for the quarter ended March 31, 2011.

OPERATING HIGHLIGHTS

  • Invested $146 million in acquisitions, development activities and property improvements;
  • Added 752,000 square feet of gross leasable area from acquisitions, development and redevelopment coming on line;
  • Acquired two shopping centres and two properties adjacent to existing shopping centres totalling 661,000 square feet and three development land parcels comprising a total of 0.8 acres;
  • 2.6% same property NOI growth; 2.1% excluding redevelopments and expansions. Lease termination fees included in same property NOI totaled $0.3 million which compares to $1.0 million in the same prior year period;
  • 9.9% rate per square foot increase on 576,000 square feet of renewal leases;
  • Occupancy of 96.4% is the same as at December 31, 2010 and compares to 96.3% at March 31, 2010.  Vacancy includes 0.7% of space held for redevelopment;
  • Gross new leasing totalled 278,000 square feet including development and redevelopment coming on line; lease closures totalled 175,000 square feet and closures for redevelopment totalled 64,000 square feet;
  • Completed new leasing on existing space totalling 101,000 square feet at an average rate of $23.02 per square foot;
  • Lease rates on openings and redevelopment coming on line increased by 26.0% versus all lease closures;
  • Average lease rate per occupied square foot increased by 2.8% from March 31, 2010 to $16.30 at March 31, 2011 including first quarter acquisitions at an average lease rate of $12.39.

Main and Main Joint Venture

The Company has entered into a joint venture (Main and Main Developments) with a private developer (who is currently a partner in other joint ventures with the Company) to assemble urban sites within the City of Toronto and to develop and operate them for retail and/or mixed use.  The Company has a 67% equity interest and consolidates the activities of the joint venture in its financial statements.  The joint venture agreement contemplates initially up to $100 million of acquisitions and development investment, including senior and mezzanine debt financing which the Company is committed to provide to the joint venture.  During the quarter, the joint venture completed the acquisition of one property for $2.4 million and has additional acquisitions underway.

"Firstly, we are very pleased with our operating and financial results in the quarter; we are also very excited about the potential of our joint venture, Main and Main Developments," stated Dori J. Segal, President & CEO.  "We believe there are significant opportunities in the City of Toronto retail and mixed-use sector, and over time we expect to see solid growth in this aspect of our business."

FINANCIAL HIGHLIGHTS

These results and all future results will be reported under International Financial Reporting Standards (IFRS).  Comparative figures for 2010 have been restated to IFRS.  There have been no material changes to the Company's operating metrics, including Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) as a result of the adoption of IFRS.  A reconciliation of the 2010 results between Canadian GAAP and IFRS, as well as information on the effect of IFRS adoption, are available in the Company's financial statements and Management's Discussion and Analysis for the first quarter of 2011, which will be filed on the Company's website at www.firstcapitalrealty.ca, in the investors section, and on the Canadian Securities Administrators' website at www.sedar.com.

 Quarter ended March 31st $ millions
2011 2010
Enterprise value $ 5,594 $ 4,688
Debt to aggregate assets(2) 53,1% 51.4%
Debt to total assets - IFRS basis 49.3% 49.9%
Debt to total market capitalization 45.3% 46.4%
Property rental revenue $ 129.4 $  117.6
Net operating income (NOI) $   81.5 $   74.2
 Quarter ended March 31 $ millions 
per share 
2011 2010(1) 2011 2010(1)
FFO(3) $   39.3 $   36.1 $   0.24 $   0.23
Weighted average diluted
shares for FFO (000's)
167,754 155,677    
AFFO(3) $   40.2 $   40.9 $   0.22 $   0.23
Weighted average diluted
shares for AFFO (000's)
185,909 177,396    

Note : In this press release, all per share information is presented on a post-split basis, after giving effect to the May 2010, 3.2:2 stock split.
(1)     Restated for the adoption of IFRS, where applicable
(2)     Calculated in accordance with the indenture in respect to the Company's senior unsecured debentures
(3)     See "Non-IFRS Supplemental Financial Measures" section of this press release

FFO increased to $39.3 million or $0.24 per share (diluted) in the first quarter of 2011 from $36.1 million or $0.23 per share (diluted) in the same prior year period.  The increase is primarily due to the increase in NOI resulting from acquisitions, development and redevelopment projects coming on line, as well as same property NOI growth.  The effects of the increase in NOI were partially offset by an increase in interest expense resulting from financing activities to fund the portfolio growth.  FFO for the first quarter of 2011 included other gains, losses and lease termination income totalling $1.7 million compared to $2.7 million in the same prior year period.

AFFO decreased to $40.2 million or $0.22 per share (diluted) in the first quarter of 2011 from $40.9 million or $0.23 per share (diluted) in the same prior year period.  AFFO included $1.5 million of other gains, losses and lease termination income in the first quarter of 2011 compared to $5.6 million for the same prior year period.

NET INCOME

Three months ended March 31
($ thousands, except per share amounts) 2011 2010
Net income attributable to common shareholders $ 46,431 $ 20,422
Net income per share attributable to common shareholders (diluted) (1) $    0.27 $   0.13
Weighted average common share - diluted (1) 185,908,645 155,676,590

 (1)    Prior period restated to reflect the May 2010, 3.2:2 stock split.

Net income attributable to common shareholders for the three months ended March 31, 2011 was $46.4 million or $0.27 per share (diluted) compared to $20.4 million or $0.13 per share (diluted) for the three months ended March 31, 2010. The increase in net income is primarily due to the increase in the value of investment properties in the first quarter of 2011, as well as increases in NOI resulting from acquisitions, development and redevelopment projects coming on line and same property NOI growth. The effects of the increases in net income were partially offset by an increase in interest expense resulting from financing activities to fund portfolio growth, as well as increased deferred income tax expense due to the growth in net income. In addition, there was an increase in the weighted average basic and diluted shares outstanding compared to the same prior year period.

Financing and Capital Markets

The Company completed the following debt financing activities for the quarter ended March 31, 2011:

  • Issued $150 million principal amount senior unsecured debentures, Series L, with a coupon rate of 5.48%, maturing July 2019;
  • Issued $110 million principal amount senior unsecured debentures, Series M, with a coupon rate of 5.60% maturing April 2020;
  • Repaid on maturity $99 million principal amount of senior unsecured debentures, Series B, with a coupon rate of 5.25%.

In addition, the Company completed the following equity issuances for the quarter ended March 31, 2011:

  • 0.6 million common shares were issued as payment-in-kind of the interest, in the aggregate amount of $9.7 million, due to holders of the 5.50%, 5.70% and 6.25% convertible debentures, consistent with existing practice;
  • 0.3 million common shares were issued through the exercise of options for proceeds of $3.6 million.

On April 28, 2011, the Company completed the issuance of $57.5 million principal amount of 5.40% convertible unsecured subordinated debentures, due January 2019. Consistent with existing practice, it is the Company's current intention to continue to satisfy its obligations of principal and interest payments in respect of all of its outstanding convertible debentures by the issuance of common shares.

The Company also announced that it will pay a second quarter dividend of $0.20 per common share on July 12, 2011 to shareholders of record on June 29, 2011.

OUTLOOK

Over the past several years, First Capital Realty has made significant progress in growing its business across the country, generating modest accretion in funds from operations while dramatically enhancing the quality of its portfolio.

The current property acquisition environment remains competitive for assets of similar quality to those the Company owns, with increasing competition for transactions. Both equity and long-term debt markets are accessible but continue to represent tight spreads (if at all), relative to pricing currently being asked by vendors of high quality, well-located urban properties. The Company will continue to selectively acquire properties that are well-located and of high quality, when they add strategic value and/or operating synergies, provided that they will be accretive to FFO over the long term, and provided that equity and long-term debt capital can be priced and committed to maintain conservative leverage.

Development and redevelopment activities continue to provide the Company with opportunities to grow within its existing portfolio of assets. These activities typically generate higher returns on investment over the long term and improve the quality and growth of property rental income.

With respect to acquisitions of both income-producing and development properties, as well as in its existing portfolio, the Company will continue to focus on the quality, sustainability and growth potential of rental income. Consistent with First Capital Realty's past practices and in the normal course of business, First Capital Realty is engaged in discussions, and has various agreements, with respect to possible acquisitions of new properties and dispositions of existing properties in its portfolio. However, there can be no assurance that these discussions or agreements will result in acquisitions or dispositions, or if they do, what the final terms or timing of such acquisitions or dispositions would be. The Company expects to continue current discussions and actively pursue other acquisition, investment and disposition opportunities.

With respect to financing activities, the Company will continue to focus on maintaining access to all sources of long-term capital at the lowest possible price. In particular, the Company is focussed on both extending the term and staggering the maturity of its debt.

Specifically, Management has identified the following six areas to achieve its objectives going forward into 2011 and 2012:

  • continued focus on proactive asset management that results in higher rent growth;
  • development, redevelopment and repositioning activities on existing and newly acquired properties;
  • selective acquisitions of strategic assets and adjacent sites;
  • densification activities in the existing portfolio;
  • increasing efficiency and productivity of operations; and
  • improving the cost of both debt and equity capital.

Overall, Management is confident that the quality of the Company's balance sheet and the defensive nature of its assets and operations will continue to serve it well in the current environment.

 

 

 

on May 12, 2011