Retail REIT reports solid earnings amidst strong investor appetite for real estate debt
First Capital Real Estate Investment Trust has reported a solid financial performance for the second quarter ended June 30, reflecting continued strength in the Canadian REIT market.
Despite broader economic uncertainties, the REIT sector has demonstrated resilience, with investors showing a strong appetite for REIT debt. According to S&P Global, Canadian REITs more than doubled their debt financing in the second quarter compared to the previous year, raising a total of $1.10 billion.
First Capital, which owns and operates grocery-anchored, open-air shopping centers in Canada, saw notable growth across key metrics.
Same Property Net Operating Income (NOI) increased by 4.6% year-over-year, driven by higher base rent, reduced non-recoverable expenditures, and improved bad debt recovery. Excluding these factors, Same Property NOI growth stood at 3.7%.
Portfolio occupancy saw a slight uptick to 96.3% at the end of the quarter, reflecting ongoing strength in the retail sector. The REIT achieved higher lease renewal rates, with net rental rates surging 13.2% on a volume of 720,000 square feet of lease renewals.
When comparing the average rental rate over the renewal term to the last year of the expiring term, the increase was even higher at 18.9%.
“I am pleased with the successful execution of our strategy and strong leasing activity which continue to deliver solid operating and financial results,” Adam Paul, president and CEO of First Capital, said in a media release.
First Capital also made strategic investments, allocating approximately $37 million towards property development and redevelopment. Additionally, the REIT announced plans to dispose of properties valued at $66 million, contributing to its overall optimization strategy.
Read more: Canadian retail REITs on debt-financing spree
The REIT’s balance sheet showed improvement, with the net debt to Adjusted EBITDA multiple decreasing to 9.2x from 9.9x at the end of 2023. Liquidity remained strong at approximately $1.2 billion.
Operating Funds from Operations (FFO) per diluted unit was $0.32, an increase of $0.02 over the prior year period. Net income attributable to unitholders reached $16.9 million or $0.08 per diluted unit, a significant improvement from a loss of $29.0 million or $0.14 per diluted unit in the same period last year.
“Looking ahead, we remain well positioned and on track to achieve the key one- and three-year objectives we presented earlier this year at our investor day,” Paul added.
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