Firm Capital sees stability in asset-mix diversity

Given the popularity of single asset class real estate trusts these days, Firm Capital Property Trust (FCD.UN-X) finds itself something of an outlier.

Firm Capital Property TrustThe Toronto-based trust prizes diversification, both in the geographic reach of its properties and also in property type: it owns retail, industrial and multi-residential assets.

“We’re contrarian,” joked president and chief executive officer Robert McKee. “Especially at our current size, we are really looking for diversity and not being overly exposed to any one asset class or any one tenant.”

The diversified approach also allows Firm Capital to buy properties in sectors or locations that are not at the top of the cycle, he noted.

It also hopefully appeals to investors.

“One of the models that we were trying to employ is we are really looking at our entity as a way for retail investors to invest alongside seasoned real estate owners. These are assets that we are happy owning and generally we are buying 50 per cent. Generally, the board and management are putting their money into each of the assets that we acquire.”

It’s a model McKee and management expect to rely on in the future. “We expect to be doing most of these deals alongside the public entity. The board and management will be putting capital to play in almost every acquisition we do.”

All quiet on the acquisition front

The company has been relatively quiet of late. Its last acquisition came in November, when it purchased a 50% interest in a two-building multi-res property in Ottawa for $5.6 million. The total price for the 135-unit complex was approximately $11.2 million and the deal marked the first multi-residential acquisition for the trust.

“We think we bought that one at a pretty reasonable price and very competitive from what other multi-residential properties had traded for in the Ottawa market.”

McKee said the company is open to deals in any of the four asset classes it is concentrating on. (Besides industrial/flex industrial, net lease/convenience retail and multi-res it also owns core service provider/health-care property).

“We really like the industrial space, especially the multi-tenant industrial,” said McKee. In that product type, he expects very targeted additions. “We would have a very tight group of markets that we would want to invest in.”

As for apartments and retail, “that market would be substantially larger. We are much more comfortable owning retail in secondary markets. We would be very unlikely to want to own industrial in secondary-type markets.”

That determination is based on the degree of difficulty of replacing tenants, a calculation Firm Capital views as more difficult in smaller centres.

War chest ready

This week the trust announced its first-quarter results and declared it has more than $30 million in acquisition capacity, based on $4.7 million of cash and $8.0 million of credit facility availability and assuming 60% leverage.

Don’t expect a barrage of acquisition announcements over the balance of 2015, however.

“We are going to continue to be conservative on our acquisition front and wait for the right opportunities,” said McKee. “But we do have our full line available to us and just under $5 million of cash available, sitting on the balance sheet right now.

“So with a little bit of leverage that can go a fairly sizable way – especially if we partner with the board and management – that would double that capacity again. It would be easy for us to go out and buy $30 million worth of assets.”

McKee said any new acquisitions this year would likely be in the retail and industrial space.

B.C. and Alberta remain pricey, he noted. “Alberta and B.C. have tended to be expensive; we are only likely to get into opportunities there if it is on a portfolio basis. The East Coast, Ontario, Quebec are probably more likely growth markets for us in the short term.”

What it has

The trust currently owns 55 commercial properties with a total gross leasable area of 833,373 square feet and the one Ottawa apartment complex. Its portfolio is geographically diversified with 56% of the net operating income generated from Ontario, 30% from Quebec, nine per cent in Nova Scotia and five per cent from BC, Alberta, Manitoba and New Brunswick.

By asset class, 57% of net operating income is generated from net-lease convenience retail, 30% from industrial, 8% from core service provider office and five per cent from multi-residential.

It has room for organic growth, given its buildings are not full. In the first quarter, it reported commercial and multi-residential portfolio occupancies  of 90.5% and 91.9%, respectively.

The trust has the advantage of a larger organization and well-connected real estate players behind it. It is part of the Firm Capital Corp. group that operates a number of real estate companies under its umbrella. 

Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

Read more

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