REIT Aims To Improve Value for Unitholders

Source: David Chrystal (12/1/22)

To achieve this end, the board of trustees is currently weighing various options, noted an Echelon Capital Markets report.

The Firm Capital Apartment REIT (FCA.U:TSX.V) posted a year-over-year AFFO/unit, or adjusted funds from operation per unit, gain in Q3/22 and during the quarter, commenced a strategic review, reported Echelon Capital Markets analyst David Chrystal in a Nov. 15 research note. Firm Capital invests in U.S. multifamily properties, owns assets and interests in joint venture investments, and provides debt financing.

The Canada-based real estate investment trust’s Q3/22 AFFO/unit was US$0.09, a 7% increase over Q3/21, Chrystal relayed. The figure beat Echelon’s estimate of US$0.06 due to a foreign exchange gain.

Target Price Decreased

However, Echelon reduced its target price on the REIT to US$7 per share from US$7.50, following the release of its Q3/22 results, to reflect writedowns carried out during the quarter on certain investments. The trust’s current share price is about US$4.67.

“Given the current capital market environment, a significant NAV discount is likely to persist under the trust’s current structure,” wrote Chrystal.

---

Free Reports:

Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.

Sign Up for Our Stock Market Newsletter – Get updated on News, Charts & Rankings of Public Companies when you join our Stocks Newsletter

---

The target price could be raised in the future, Chrystal noted, if First Capital were to divest certain assets at an international financial reporting standards net asset value (NAV) of US$8.44 per unit.

This is because Echelon predicts near-term “incremental impairment of certain assets in the trust’s Northeast markets, where operations remain challenged due to regulatory issues delaying evictions and collections.”

Strategic Review Underway

The REIT’s board of trustees, in fact, may decide, during its strategic review, to dispose of some assets. The objective of the review is to “identify, evaluate and pursue potential strategic alternatives aimed at maximizing unitholder value,” Chrystal relayed.

Other options under consideration include effecting some type of merger or acquisition, privatizing, and changing the business to a real estate merchant bank or value-add model.

“Given the current capital market environment, a significant NAV discount is likely to persist under the trust’s current structure,” wrote Chrystal.

Distributions Paused

The analyst pointed out that while the review, in progress, is taking place, distributions by the REIT are and will remain on hold.

“A quarterly review will determine if the trust will allocate capital to unitholder distributions, unit repurchases, or reinvestment,” Chrystal added.

Echelon maintained its Buy rating on the First Capital Apartment REIT.

Disclosures:
1) Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.

4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures For Echelon Wealth Partners Inc., Firm Capital Apartment REIT, November 15, 2022

Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. Echelon Wealth Partners Inc. employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients.

Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.

U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.

ANALYST CERTIFICATION

Company: Firm Capital Apartment REIT | FCA.U-TSXV

I, David Chrystal, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.