Press Releases

FIRST CAPITAL REALTY ANNOUNCES CONTINUED STRONG Q2 FINANCIAL RESULTS

August 07, 2008

Toronto, Ontario (August 7, 2008) - First Capital Realty Inc. (“First Capital Realty”) (TSX:FCR) Canada’s leading owner, developer and operator of supermarket and drugstore-anchored neighbourhood and community shopping centres, located predominantly in growing metropolitan areas, announced today strong financial results for the second quarter ended June 30, 2008.

 

SECOND QUARTER 2008 HIGHLIGHTS:

($ millions, except per share amounts 30 June 2008 30 June 2008 Percentage Change

Enterprise value

$4,328

$4,165

3.9 %

Property rental revenue

$101.9

$93.5

9.0 %

Net operating income (NOI)

$64.0

$60.2

6.3 %

Funds from operations (FFO)

$34.5

$30.0

15.0 %

FFO per diluted share

$0.40

$0.39

2.6 %

Adjusted funds from operations (AFFO)

$35.1

$30.6

14.7 %

AFFO per diluted share

$0.37

$0.36

2.8 %

Debt to aggregate assets

(Properties at 8.3% Cap rate and EQY at $14 USD per share)

53.6%

55.5%

 

Debt to total market capitalization

46.8%

46.4 %

 

Weighted average diluted shares for FFO (000’s)

87,269

77,904

12.0 %

Weighted average diluted shares for AFFO (000’s)

95,899

85,251

12.5 %

 

OPERATIONS HIGHLIGHTS:

  • Invested $71 million in development activities, property improvements and acquisitions
  • 49,000 square feet of gross leasable area from development and redevelopment coming on line
  • 2.8% same property NOI growth; 1.6% excluding redevelopment and expansion space
  • 15.9% increase on 281,000 square feet of renewal leases
  • Occupancy of 95.5% compares to 95.3% at December 31, 2007. Vacancy includes 1.4% of space held for redevelopment
  • Gross new leasing totalled 122,000 square feet including development and redevelopment coming on line; lease closures totalled 72,000 square feet and closures for redevelopment totalled 54,000 square feet
  • Average lease rate per occupied square foot increased by 4.2% to $14.80 at June 30, 2008 compared to $14.20 at June 30, 2007

 

SIX MONTHS HIGHLIGHTS:

($ millions, except per share amounts) 30 June 2008 30 June 2007 Percentage

Change

Property rental revenue

$203.7

$184.1

10.6 %

Net operating income (NOI)

$127.0

$116.9

8.6 %

Funds from operations (FFO)

$68.8

$61.1

12.6 %

FFO per diluted share

$0.82

$0.79

3.8 %

Adjusted funds from operations (AFFO)

$66.8

$58.7

13.8 %

AFFO per diluted share

$0.72

$0.69

4.3 %

Weighted average diluted shares for FFO (000’s)

84,316

77,351

9.0 %

Weighted average diluted shares for AFFO (000’s)

92,793

84,831

9.4 %

 

  • Invested $122 million in development activities, property improvements and acquisitions
  • 192,000 square feet of gross leasable area coming on line from development and redevelopment activities and acquisitions
  • Acquired one income-producing property totalling 49,000 square feet, one land site and six land parcels adjacent to existing properties comprising a total of 15.1 acres of commercial land for future development
  • 3.9% same property NOI growth; 2.1% excluding redevelopment and expansion space
  • 15.1% increase on 504,000 square feet of renewal leases
  • Gross new leasing totalled 296,000 square feet including development and redevelopment coming on line; lease closures totalled 250,000 square feet and closures for redevelopment totalled 99,000 square feet;
  • Lease rates on openings and redevelopment coming on line increased by 21.7% versus all lease closures
  • In aggregate, 9.8 million common shares were issued year-to-date, including equity offerings, dividend reinvestment plan, payment in shares of the interest due to holders of the 5.50% convertible debentures, options and warrants exercised for total equity of $215 million

“We continue to generate strong organic growth through our development and redevelopment activities, as well as higher lease rates” said Dori J. Segal, President & CEO. “Looking ahead we remain focussed on creating value from our existing portfolio of shopping centres and land assets. Over the next six to twelve months we expect to bring on line approximately 1.3 million square feet of leaseable space with a gross book value of approximately $350 million, all in keeping with our strategy of operating in major urban markets with high barriers to entry and home to tenants providing shopping for everyday life.

 

FINANCIAL HIGHLIGHTS

FFO and AFFO presented herein are key financial measures used by the real estate industry to measure and compare the operating performance of real estate organizations. FFO and AFFO are supplemental non-GAAP financial measures and a complete reconciliation containing adjustments from GAAP net income to FFO and AFFO is included in this press release.

Funds from Operations

Funds from operations for the three months ended June 30, 2008 totalled $34.5 million or $0.40 per diluted common share and increased from $30.0 million or $0.39 per diluted common share in the same period in 2007. FFO for the six months ended June 30, 2008 totalled $68.8 million or $0.82 per diluted common share, and increased from $61.1 million or $0.79 per diluted common share in the same period in 2007. The increase in FFO for the quarter and year-to-date was primarily due to an increase in net operating income resulting from acquisitions and development projects coming on line, same property NOI growth, lower interest expense and corporate expenses; partially offset by a decrease in Equity One FFO. In addition, there was an increase in the basic and weighted average diluted shares outstanding compared to the same prior year period.

Adjusted Funds from Operations

Management views AFFO as an effective measure of cash generated from operations. For the three months ended June 30, 2008, AFFO rose 2.8% to $0.37 per diluted common share from $0.36 per diluted common share in the same period in 2007. AFFO for the first six months of 2008 totalled $66.8 million or $0.72 per diluted common share compared to $58.7 million or $0.69 per diluted common share in the first six months of 2007. AFFO is calculated by adjusting FFO for amortization of non-cash financing costs, accretion of debt discounts, straight-line and market rent adjustments, non-cash compensation expenses, interest payable in shares, non-cash gains or losses on debt, hedges and land sales and actual costs incurred for capital expenditures and leasing costs for maintaining shopping centre infrastructure and current lease revenues. The Company’s proportionate share of Equity One FFO is excluded and only the regular cash dividends received are included in AFFO. The weighted average diluted shares outstanding for AFFO is adjusted to assume conversion of the outstanding convertible debentures.

 

Net Income

($ thousands, except per share amounts) Three months ended June 30 Six months ended June 30
  2008 2007 2008 2007

Net income

$10,168

$6,286

$18,529

$14,161

Earnings per share (diluted)

$0.12

$0.08

$0.22

$0.18

Weighted average common shares - diluted (000’s)

87,269

77,904

84,316

77,351

Net income for the three and six months ended June 30, 2008 amounted to $10.2 million or 12 cents per share (basic and diluted) and $18.5 million or 22 cents per share (basic and diluted), respectively. This compares to $6.3 million or eight cents per share (basic and diluted) and $14.2 million or 18 cents per share (basic and diluted), respectively, for the three and six months ended June 30, 2007. The increase in net income is primarily due to the Company’s income-producing property acquisitions and development projects coming on line, offset by increased amortization expense. In addition, there was an increase in the basic and weighted average diluted shares outstanding compared to the same prior year period.

 

DEVELOPMENT AND ACQUISITION HIGHLIGHTS

During the second quarter of 2008, the Company invested $70 million in active development projects and improvements to existing properties bringing the six month total investment to $101 million.

Development of 39,100 square feet was brought on line in the second quarter with 38,600 square feet leased at an average rate of $19.55 per square foot. The Company also reopened 10,200 square feet of redeveloped space at an average rate of $15.30 per square foot. Year-to-date the Company brought on line 111,000 square feet with 92,100 square feet leased at an average rate of $20.20 per square foot and reopened 32,000 square feet of redeveloped space at an average rate of $19.64 per square foot.

In addition, the Company acquired one land parcel in the second quarter adjacent to an existing property comprising a total of 0.8 acres of commercial land for future development. Through the first six months of 2008, the Company invested $20.7 million in one income-producing property comprising 49,000 square feet and one land site and six land parcels adjacent to existing properties comprising a total of 15.1 acres of commercial land for future development.

On August 6, 2008, the Company acquired Deer Valley Shopping Centre, a 196,000 square foot shopping centre located in Calgary, Alberta. Major tenants include Co-op Grocery Store, Zellers, Shoppers Drug Mart and Royal Bank. The purchase price of $31.6 million including closing costs was satisfied in cash. The Company intends to redevelop the property.

 

OPERATING HIGHLIGHTS

Net operating income for the three months ended June 30, 2008 totalled $64.0 million, compared to $60.2 million in the second quarter of 2007, an increase of $3.8 million or 6.3%. Same property NOI increased 2.8% generating growth of $1.4 million in the second quarter 2008 over the second quarter of 2007, due to redevelopment and expansion space and increases in lease rates and occupancy. Same property NOI excluding expansion or redevelopment space increased by $0.8 million or 1.6% over the same prior year period.

Year-to-date, acquisitions completed in 2008 and 2007 contributed $6.4 million, while greenfield development activities contributed a further $9.7 million. Same property net operating income increased 3.9%, generating growth of $4.0 million in the six month period ended June 30, 2008. Excluding redevelopment and expansion space, same property NOI grew by $2.1 million or 2.1% over the same period in 2007.

Gross new leasing in the second quarter totalled 122,000 square feet including development and redevelopment coming on line. Lease rates on openings and redevelopment coming on line increased by 27.9% versus all lease closures. The Company achieved a 15.9% increase on 281,000 square feet of renewal leases over the expiring rates. For the six months ended June 30, 2008, gross new leasing totalled 296,000 square feet. Renewal leasing totalled 504,000 square feet with a 15.1% increase over expiring rates.

The average rate per occupied square foot at June 30, 2008 increased to $14.80. This compares to an average rate of $14.56 per square foot at December 31, 2007.

Portfolio occupancy at June 30, 2008 of 95.5% up from 95.3% at December 31, 2007 and 95.0% at June 30, 2007. Closures for redevelopment totalled 54,000 square feet for the second quarter of 2008 providing potential for future income growth through leasing and redevelopment activities.

 

FINANCING AND CAPITAL MARKET HIGHLIGHTS

For the six month ending June 30, 2008, First Capital Realty issued common shares to further enhance the Company’s financial flexibility and provide capital for continued growth. In the aggregate, 7.1 million common shares were issued primarily from the following activities:

  • On January 9, 2008, the Company issued 862,363 common shares at a net price of $22.79 to participants in the Dividend Reinvestment Plan (“DRIP”);
  • On March 26, 2008, the Company issued 4,900,000 common shares at a price of $22.25 for gross proceeds of $109 million;
  • On March 31, 2008, the Company issued 301,432 common shares at a net price of $21.51 as payment of the interest due to holders of the 5.50% convertible debentures;
  • On April 9, 2008, the Company issued 908,107 common shares at a net price of $21.84 to participants in the DRIP.

 

SUBSEQUENT EVENT HIGHLIGHTS

Common Share Issue

On July 3, 2008, the Company completed the sale of 1,600,000 common shares as well as 240,000 additional shares pursuant to the exercise of the over-allotment option by the underwriters at a price of $23.60 per common share for gross proceeds of $43.4 million.

Dividend Reinvestment Plan

On July 10, 2008, the Company issued 914,578 common shares at a net price of $22.42 to participants in the DRIP.

The Company announced today that it is suspending the DRIP. Accordingly, any dividend payable to shareholders after this date, including the third quarter dividend will not be subject to the DRIP. The suspension will be in effect unless and until further notice is given. The Company will consider from time-to-time reinstating the DRIP.

Quarterly Dividend

The Company announced that it will pay a third quarter dividend of $0.32 per common share on October 9, 2008 to shareholders of record on September 26, 2008.

 

OUTLOOK

Over the past several years First Capital Realty has made significant progress in growing its business and generating accretive growth in funds from operations.

The current environment remains extremely competitive, however the competition seems to have shifted to the capital side of the Company’s business. Both debt and equity markets are challenging relative to pricing currently being asked by the vendors. The Company will continue to selectively acquire properties that are well-located and of high quality, where they add strategic value and/or operating synergies provided they will be accretive to FFO over the long term.

Development and redevelopment activities continue to provide the Company with opportunities to grow within its existing portfolio and to participate in new growth markets. Once completed, these activities typically generate higher returns on investment.

With respect to acquisitions of both income-producing and development properties, the Company will continue to focus on maintaining the sustainability and growth potential of rental income to ensure that among other things, refinancing risk is minimized. This is particularly important in the current environment of low capitalization rates and the increasing cost and scarcity of capital.

Specifically, Management will focus on the following four areas to achieve its objectives in 2008:

  • same property net operating income growth;
  • development and redevelopment activities;
  • increasing efficiency and productivity of operations; and
  • capital preservation in order to decrease dependence on capital markets.

Overall, Management is confident that the quality of the Company’s real estate will continue to generate sustainable and growing cash flows while producing superior returns on investment over the long term.

 

2008 GUIDANCE

(per share amounts) Low High

Projected diluted net income

$0.41

$0.43

Adjustments

 

 

Projected FFO from Equity One

0.22

0.23

Projected equity income from Equity One

(0.15)

(0.17)

Projected amortization and future income taxes

1.16

1.18

Projected FFO

$1.64

$1.67

 

Projections involve numerous assumptions such as rental income (including assumptions on timing of lease-up, development coming on line and levels of percentage rent), interest rates, tenant defaults, the U.S. - Canadian foreign currency exchange rate, corporate expenses, level and timing of acquisitions of income-producing properties, number of shares outstanding and numerous other factors. In addition, the projected range of funds from operations includes Equity One based on publicly available information. Not all factors which affect our range of projected funds from operations are determinable at this time and actual results may vary from the projected results in a material respect, and may be above or below the range presented in a material respect. Specific assumptions include same property NOI growth of 2-3% (excluding redevelopment and expansion activities), income producing property acquisitions totalling $50 million, development coming on line of 700,000 to 800,000 square feet with approximate gross book value of $200 million to $230 million and the current interest rate environment and current US-Canadian foreign exchange rate. The range presented represents Management’s estimate of results based upon these assumptions as of the date of this press release.

Readers should refer to the section below titled “Forward Looking Statements” for important information relating to our guidance, including risk factors.

 

MANAGEMENT CONFERENCE CALL AND WEBCAST

Management will hold a conference call on Friday, August 8, 2008 at 1:00 p.m. EST. Second quarter financial results will be released prior to the call and made available on First Capital Realty’s website in the News section. The Supplemental Package link will be on our Home Page at www.firstcapitalrealtv.ca or click on Investor Relations, Downloads.

Teleconference:

You may participate in the live conference toll free at 866-299-6657 or at 416-641-6135. To ensure your participation, please call five minutes prior to the scheduled start of the call. The call will be archived through August 15, 2008 and can be accessed by dialing toll free 800-408-3053 or 416-695-5800 with access code 3266666.

Webcast:

To access the webcast, go to First Capital Realty’s website at www.firstcapitalrealty.ca, and click on the link for the webcast at the bottom of our Home Page. The webcast will be archived on our Home Page for 30 days and can be accessed, thereafter, in our Conference Calls section of our website.

Slide Presentation

A slide presentation to accompany Management’s comments during the conference call will be available. To view the slides, please go to First Capital Realty’s website at www.firstcapitalrealty.ca, and click on the link for the Conference Call at the top of our Home Page.

Management’s presentation will be followed by a question and answer period. To ask a question, press ‘* 1’ on a touch-tone phone. The conference call coordinator is immediately notified of all requests in the order in which they are made, and will introduce each questioner. To cancel your request, press the pound key ‘#’. If you hang up, you can reconnect by dialing 866-299-6657 or 416-641-6135. For assistance at any point during the call, press ‘*0’.

 

ABOUT FIRST CAPITAL REALTY (TSX:FCR)

First Capital Realty is Canada’s leading owner, developer and operator of supermarket and drugstore- anchored neighbourhood and community shopping centres, located predominantly in growing metropolitan areas. The Company currently owns interests in 169 properties, including eleven under development, totalling approximately 19.5 million square feet of gross leasable area and seven land sites in the planning stage for future retail development. In addition, the Company owns 14.0 million shares of Equity One (approximately 19.05%), one of the largest shopping centre REITS in the southern U.S., that trades on the New York Stock Exchange under the ticker symbol EQY. Including its investment in Equity One, the Company has interests in 327 properties totalling approximately 35.4 million square feet of gross leasable area.

* * * *

Forward Looking Statements

Certain statements included in this press release constitute forward-looking statements, including those identified by the expressions “anticipate ", “believe ", “plan ", “estimate ", “expect", “intend" and similar expressions to the extent they relate to the Company or its Management. The forward-looking statements are not historical facts but reflect the Company's current expectations regarding future results or events and are based on information currently available to Management. Certain material factors and assumptions were applied in providing these forward-looking statements.

Management believes that the expectations reflected in forward-looking statements are based upon reasonable assumptions; however, Management can give no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the matters discussed under “Risk Management" in the Management's Discussion and Analysis (“MD&A") contained in the Company's 2007 Annual Report which is available on SEDAR at www.sedar.com.

Factors that could cause actual results or events to differ materially from those expressed, implied or projected by forward­looking statements in addition to those described in the MD&A, include, but are not limited to, general economic conditions, the availability of new competitive supply of retail properties which may become available either through construction or sublease, First Capital Realty's ability to maintain occupancy and to lease or re-lease space at current or anticipated rents, tenant bankruptcies, financial difficulties and defaults, changes in interest rates and credit spreads, changes in the U.S.- Canadian foreign currency exchange rate, changes in operating costs, First Capital Realty's ability to obtain insurance coverage at a reasonable cost and the availability of financing.

Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made. First Capital Realty undertakes no obligation to publicly update any such statement or to reflect new information or the occurrence of future events or circumstances except as required by securities laws.

These forward-looking statements are made as of August 7, 2008.

For further information:
Dori J. Segal, President & C.E.O., or
Karen H. Weaver, C.F.O.
First Capital Realty Inc.
85 Hanna Avenue, Suite 400
Toronto, Ontario, Canada M6K 3S3
Tel: (416) 504-4114
Fax: (416) 941-1655
www.firstcapitalrealty.ca

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