Valued at $3.7 billion by market cap, First Capital REIT (TSX:FCR.UN) has delivered stellar returns to long-term shareholders. Within the final 25 years, the true property funding belief (REIT) has returned near 750% after adjusting for dividend reinvestments. Comparatively, the TSX index has returned 550% to shareholders on this interval.
Nevertheless, within the final decade, cumulative positive aspects for First Capital REIT are round 49%, decrease than the TSX index positive aspects of 132%. In the present day, First Capital inventory is down 23% from all-time highs, nevertheless it provides shareholders a tasty dividend yield of 4.8%.
Let’s see if First Capital is an effective inventory to personal proper now.
Is First Capital inventory a superb funding?
First Capital develops, owns, and manages mixed-use actual property in Canada’s most densely populated cities. It goals to generate steady and rising money move for buyers, the vast majority of which is distributed by way of dividends. It ended the third quarter (Q3) of 2024 with 22.2 million sq. ft of gross leasable space and $9.2 billion in complete property.
First Capital’s robust fundamentals are supported by its grocery-anchored actual property. A part of a recession-resistant sector, First Capital noticed a rise in occupancy charges and same-property internet working earnings in Q3 of 2024. It additionally noticed robust progress in rental charges on lease renewable spreads. The REIT continues to safe greater contractual progress charges throughout renewal phrases, which ought to drive future money move greater.
First Capital defined that its lease renewal unfold is calculated by measuring the rise in internet lease per sq. foot from the final 12 months of the expiring time period to the primary 12 months of the renewal time period. In Q3, this unfold was 12.4%, and the REIT confirmed it has efficiently negotiated rental hikes all through the renewal time period.
Traditionally, yearly rental hikes have averaged between 1% and 1.5% yearly. Notably, these rental hike charges have nearly doubled within the final three quarters.
Is First Capital REIT a superb dividend payer
Within the first 9 months of 2024, First Capital reported an FFO (funds from operations) of $1.Four per share, up from $0.87 per share within the year-ago interval. Comparatively, its dividend payout has totalled $0.645, indicating a payout ratio of simply 46%.
A low payout ratio permits First Capital to reinvest in acquisitions and decrease steadiness sheet debt. The corporate ended Q3 with a internet debt of $4.1 billion and paid $163 million in complete curiosity within the final 12 months, in comparison with $154 million in 2023.
Nevertheless, buyers ought to be aware that First Capital has lowered its dividend payouts a number of occasions previously. For example, its annual dividend fell from $0.86 per share in December 2020 to $0.43 per share in January 2021.
In the present day, First Capital advantages from excessive and steady occupancy charges, a top-tier renewal unfold, and industry-leading internet working earnings progress. It expects FFO to develop by 3% yearly on common within the close to time period, which ought to help its dividend payouts.
Within the final 5 years, First Capital has spent $667 million on property acquisitions and earned greater than $2.2 billion from asset tendencies, a portion of which strengthened its steadiness sheet.
Analysts stay bullish and count on the REIT to achieve over 12% within the subsequent 12 months. If we modify for dividends, complete returns could also be nearer to 17%.