Tuesday, December 15, 2015

First Capital Realty

Sound bite for Twitter and StockTwits is: Div Growth RE. As a Real Estate sector firm it provides a good dividend which is affordable. Shareholders are making a reasonable return. It would be nice of dividend growth was better, but dividends are growing. See my spreadsheet on First Capital Realty.

I do not own this stock of First Capital Realty (TSX-FCR, OTC-FCRGF). In 2011 a reader asked me to review this real estate stock. Also, the site Canadian Dividend Stock site mentions this company as a top Canadian REIT.

According to the Bank of Canada 5 year total inflation is at 1.60% per year and core inflation is at 1.83% per year. The 10 years total inflation is at 1.69% per year and core inflation is at 1.80% per year. When looking at real estate companies, you should expect the dividend growth to be at least at the rate of inflation. This company does not make that. The dividend growth over the past 5 and 10 years is at 1.10% and 1.61% per year.

The other thing you expect is for the dividend yield to be a good one. The current dividend yield at 4.62% is good as is the 5 year median dividend yield also at 4.62%.

Because of good dividends, if you had purchased this stock 5, 10 or 15 years ago and you paid a median price, dividends would have covered 28.3%, 63.6% or 189.5% of the cost of your stock. If you had purchased this stock 5, 10 or 15 years ago and paid a median price, you would be earning 5.86%, 6.54% or 13.76% on your original purchase price.

Because of accounting changes made to IFRS in 2011, the company is showing a much higher EPS than under the old accounting rules. Accounting rules are changing all the time, but the change from CDN GAAP to IFRS was a big one for some types of companies. With this change in accounting, EPS could now cover Dividend payments. The Dividend Payout Ratio for EPS for 2014 was 61%.

The company and some analysts also look at Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) to decide on dividend coverage. For FFO the 2014 DPR was 86.2% and the 5 year median value is 81.6%. The AFFO is the latest calculation for Real Estate and Income Trust companies. For AFFO the 2014 DPR was 83.7% and its 5 year median value is 87.9%. For FFO and AFFO, analysts generally like to see the DPRs in the 75% to 95% range.

Shareholders have done just fine in total return on this company. The 5 and 10 years total return on this company has been 9.33% and 7.84% per year. The portion of this total return attributable to dividends is 5.07% and 5.23% per year. The portion of this total return attributable to capital gain is 4.25% and 2.62% per year.

The outstanding shares have increased by 11.9% and 12.5% per year over the past 5 and 10 years. It seems like the company is always issuing shares, but then it is purchasing real estate. Other increases to outstanding shares are convertible debentures and Stock Options. Because of the high growth in shares, the only growth that matters is the per share growth. In this, the only growth comes from cash flow and that growth is moderate to good. This cash flow is using cash flow excluding working capital.

Revenues have grown at 7.7% and 11.34% per year over the past 5 and 10 years, but the growth that counts is Revenue per Share is this has grown by 0.3% and 1% per year over the past 5 and 10 years. Using Revenue per Share 5 year running averages and growth is not much better with growth at 1.1% per year over the past 5 years and a decline of 3.6% per year over the past 10 years.

FFO growth is low to non-existent. Over the past 5 years FFO has declined by 0.7% per year and over the past 10 years it has grown at 0.7% per year. Growth in AFFO is marginally better with growth at 1.8% per year over the past 5 years and 2.2% per year over the past 8 years.

Cash Flow per Share has grown at 0.2% and 0.5% per year over the past 5 and 10 years. However, if you exclude working capital, CFPS has grown by 11.16% and 5.8% per year over the past 5 and 10 years. There are arguments for going with CFPS excluding WC. (See my blog for further information on Cash Flow.)

The Liquidity Ratios are low at 0.71 for 2014, but this is not unusual for a Real Estate company. The Debt Ratio is good at 1.79 in 2014. The Leverage and Debt/Equity Ratios are basically normal for a Real Estate company at 2.26 and 1.26, respectively.

The Return on Equity is low with the ROE for 2014 being at 5.6% for 2014 and the 5 year median being at 6.5%. The ROE on Comprehensive Income is not much different at 5.4% for 2014 and it has a 5 year median of 6.6%.

This is the first of two parts. The second part will be posted on Wednesday, December 16, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

First Capital Realty is Canada's leading owner, developer and operator of supermarket and drugstore anchored neighbourhood and community shopping centers located predominantly in growing metropolitan areas. Its web site is here First Capital Realty.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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