With a recent proxy battle in the rearview mirror, First Capital REIT (FCR-UN-T) has returned to the execution of its optimization strategy, announcing firm agreements to sell four Toronto and Montreal properties for $184 million.

The transactions include divesting the Hazelton Hotel in Toronto’s Yorkville neighbourhood, along with its 50 per cent interest in ONE Restaurant, to Hennick & Company for $110 million. 

The Toronto-based REIT also has deals to sell:

• 5051 Yonge St., a residential condominium development site in North York (Toronto);
• a 1.5-acre residential development site, part of the final phase of the intensification at Wilderton Shopping Centre in Montreal;
• and 5146-5164 Queen Mary Rd. (Carre Queen Mary) in Montreal.

First Capital's divestment strategy

"The successful continuation of our Portfolio Optimization Plan first outlined last September remains a top priority,” Adam Paul, First Capital’s president and CEO, said in the announcement Tuesday. “Our plan remains well on track, with today's announcement bringing total dispositions to approximately 36 per cent of the two-year target, and demonstrating significant incremental value and future potential for First Capital's unitholders.”

Upon completion of the transactions, First Capital will have monetized approximately $360 million of the $1 billion of assets targeted for disposition by year-end 2024. The weighted-average run-rate NOI yield on announced asset sales to date is less than three per cent.

First Capital said the aggregate selling price of the assets, all of which are unencumbered, exceeds IFRS value by approximately 18 per cent. The assets generated $6.1 million of 2022 NOI, representing a 3.3 per cent yield on the aggregate sales price, and are expected to generate comparable NOI in 2023 according to data supplied by the REIT. 

“The sale of these lower-yielding assets in which First Capital's value-enhancing objectives have been achieved is consistent with the objectives of the Optimization Plan,” the First Capital announcement states.

The plan, and First Capital’s financial performance in recent years, had been the focus of a six-month dispute between a group of disgruntled shareholders and First Capital’s management. However, First Capital and those shareholders announced a series of agreements earlier this year bringing that to a conclusion with only two changes to its board of directors – a new chair and one new appointee.

The Hazelton and 5501 Yonge sales

Hennick & Company, which will acquire the Hazelton and the interest in ONE Restaurant, is a private Toronto firm that makes long-term investments in what it considers high-quality real estate assets. 

First Capital had acquired an initial 60 per cent interest in the hotel in July 2018 and the remaining 40 per cent in October 2020. It subsequently acquired the 50 per cent interest in ONE Restaurant in January 2022. 

First Capital called Hazelton Hotel the “top-performing five-star hotel in Canada.” The property includes 77 hotel suites, 11,250 square feet of high-end retail space along Yorkville Avenue, meeting and banquet spaces, the Spa by Valmont, ONE Restaurant and 67 underground parking stalls.

It is also Canada's only independent luxury boutique property to receive the Forbes Five Star designation and is one of the Leading Hotels of the World.

It is located adjacent to First Capital's Yorkville Village Shopping Centre and 138 Yorkville, a significant development site (33 per cent-owned by First Capital) which includes a planned residential condominium and retail podium that will be integrated into Yorkville Village. Through ownership of the hotel, First Capital was able to create an enhanced development plan, leading to incremental density and value.

5051 Yonge Street operated for many years as a multi-level retail centre. Over time, Hillcrest's location within the rapidly evolving, transit-connected North York Centre, made it a candidate for intensification and conversion into a high-rise development site.

As part of First Capital's 24 million square feet entitlements program, it initiated work on an Official Plan and Zoning By-Law Amendment application for the property that was submitted in December 2020. First Capital has also removed lease encumbrances, thus accelerating its ability to monetize the property.

Wilderton and Carre Queen Mary in Montreal

First Capital recently completed a redevelopment of the Wilderton property in Montreal, including demolition of the former shopping centre and construction of a low-rise retail building and a mixed-use building anchored by grocer Metro. That building also features a residential seniors housing community. 

A 1.5-acre northern portion of the site was rezoned to allow development of approximately 200,000 square feet of primarily residential density. This density is being sold to an unnamed local residential developer.

The Carre Queen Mary is a small apartment building with ground-floor retail which had been identified as an “outlier” amongst First Capital’s portfolio of primarily grocery and pharmacy anchored shopping centres in Greater Montreal.

The four transactions are scheduled to close through the second and third quarters of 2023 and remain subject to closing conditions.

First Capital owns, operates and develops grocery-anchored, open-air centres in neighbourhoods with the strongest demographics in Canada.