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.
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.
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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.
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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.
