Another junior real estate company is poised to go public with the announcement that Firm Capital Property Trust (FCPT) is to be listed on the TSX Venture Exchange.
Created by Toronto-based Firm Capital Realty Partners Inc., the trust aims to accumulate “a diversified property portfolio of multi-tenant residential, single and multi-tenant industrial, net lease convenience retail, and core service provider professional space.” While there will be stand-alone buys, the Firm Capital trust’s main focus will be on making acquisitions on a co-ownership basis with strong financial partners through joint acquisitions with management and the acquisition of partial interests from existing co-ownership groups to provide a tax-efficient option for vendors.
Toronto, Firm Capital’s home turf
Firm Capital’s hunting ground will be in the Greater Toronto Area. “One of the things that we think will be a competitive advantage for us is dealing with partial interest acquisitions from wealthy families in the GTA that we have relationships with,” said Robert McKee, President & CEO of Firm Capital Property Trust.
By pledging to buy a mix of assets from multi-res to industrial and retail, the trust is following a trail blazed by the likes of regional REITs such as Quebec’s Cominar, BTB, as well as CREIT, said the trust’s CEO. “There has been a trend that the institutional investors prefer assets to be in one asset class but we are really targeting this product at retail with a slightly slower asset growth trajectory than somebody who wants to do $100-million equity deal and needs institutional investors.”
While the REIT contends that it is open to all forms of commercial real estate, it does not foresee making a big splash in the apartment space. “We will do some multi-res but only on a special situation (basis) because cap rates there are so aggressive because of the extremely low cost of debt financing. Initially we would like to do some retail and mult-tenant industrial.”
The REIT intends to raise a little over $9 million internally through a private placement. To go public it has shareholder approval to acquire existing public company ISG Capital Corporation and converting it into a REIT vehicle. “That plan will get enacted once we raise our initial capital,” said McKee.
First deals on the table
Last week the trust announced that it has entered into a purchase agreement to acquire a portfolio of four retail properties for $27 million. Representing its first purchases, the properties in Ontario and Nova Scotia are relatively new at 12 years old or less, 97% leased with 72% occupied by national tenants.
FCPT intends to fund the purchase price through a $10-million private placement, its equity financing of $9.0 million and a credit facility from a Canadian financial institution secured on the four properties. “That is a retail portfolio that we purchased from Calloway (REIT),” said McKee.
“We like the markets today, we think there are opportunities for us to grow the business in the current environment and we think barring any significant change in the economy that the Canadian real estate commercial market will continue to perform well,” said McKee. The principals of Firm Capital are putting their money behind that optimism, he added. “We are investing into this entity ourselves.
What the Trust will pay
Once it is up and running and selling units to the public, which could happen as early as the end the month, the trust will offer:
· Targeted annual distribution of $0.35 resulting in a 7% distribution yield at $5.00 per unit
· Target AFFO payout ratio of 85% to 95% once excess equity is fully deployed
· Low leverage on closing with a Debt to GBV less than 25% (target 60% to 65%)
· Estimated acquisition capacity of up to $26 million without the requirement to raise additional equity, based on Debt to GBV of 60%.
The acquisition is expected to close by the end of November 2012.
Firm Capital’s nine-member board is studded with real estate veterans:
Chairman, Stanley Goldfarb (President, Treasurer and a director of public real estate investment and development company Consolidated HCI Holdings Inc.);
Manfred Walt, (President and CEO of Walt & Co. Inc., a private investment and management company that provides consulting services to entities owned by or associated with the Reichmann family and other third parties);
Geoffrey Bledin, Trustee, (past President and CEO of The Equitable Trust Company which specializes in residential and commercial real estate lending), and;
Eli Dadouch, Co-Chief Investment Officer and Vice-Chairman (also President of Firm Capital Corp., Firm Capital Properties Inc. (a property management company) and Firm Capital Mortgage Corp.)
“With think we have got a great board with a lot of real estate expertise and also public markets expertise,” said McKee.