First Capital Realty

I do not own this stock (TSX-FCR). I was asked to take a look at this Real Estate stock, so I am. First of all, most Real Estate stocks are having a hard time. It would be ideal for the dividend increases to at least keep up with inflation. Some are not, including this stock which over the last 5 years has not.

The 5 year growth in dividends is just 1.03% per year. Inflation is currently running around 2% per year. (Long Term inflation tends to be around 3 %.) The reason for this is that there has been no distribution increases since 2008. The 10 year growth in dividends is better at 3.63% per year.

Since Real Estate stocks tend to growth their number of shares outstanding, the values as a shareholder you want to be concerned with is always values per shares. One of the problems I see with this stock is lack of growth in Revenue. The 5 year growth is 4.8% per year. However, the 10 year growth is a negative 6.7% per year. That is revenue is less now than 10 years ago.

The thing with this stock is that it was doing well until 1999 when it lost money. It also had negative earnings in 2000. The stock was severely punished. This is the reason the 10 year total return is at 19.7% per year. The distribution portion of this stock was some 9.2%. The 5 year grow is not as good at 6.7% per year, with distribution contributing 5.7% per year.

Another problem with the stock is that Funds from Operations (FFO) is down slightly over the past 10 years. Over the past 5 years, it is up by 1.6% per year. The thing is that distributions have grown from 61% of FFO to an expected 83% for this year.

Although only 1999 and 2000 had negative earnings, earnings have only gone down over the last 5 and 10 years, by 3.6 and 9.6% per year, respectively. Cash flow is up over the past 5 years at 4.5% per year, but it is down by 6.9% per year over the past 10 years. They only had one year of negative cash flow in 2000. Although, for Real Estate stock, FFO rather than earnings are looked at, cash flow does count.

Book Value has gone down over the past 5 and 10 years. However, this should improve with the new account rules of IFRS. Another thing that might improve, for all Real Estate, stock is earnings. However, the Return on Equity for this stock has been very low with a 5 year ROE of just 3.6%. (Do not forget that this is relatively low for a Real Estate company. It will improve under the new accounting rules, but it will also improve for all other Real Estate companies.)

In comparison, Canadian Real Estate has a 5 year median ROE of 12.9% and RioCan Real Estate has a 5 year median ROE of 9.9%. The ROE on this stock ranges from 3.2% to 7.7% over the past 10 years. Canadian Real Estate ranges from 7.7% to 12.9% over the past 10 years. RioCan range ranges from 6.1% to 14.1% over the past 10 years.

As far as debt ratios go, the Asset/Liability Ratio has often been low with a 5 year median ratio of just 1.42. However, the latest one is better at 1.61. Leverage and Debt/Equity Ratios have been a bit high, but are at probably normal Real Estate stock levels currently at 2.65 and 1.65.

The insider trading report shows some $3M of insider selling and minor insider buying. All insiders but directors have lots more stock options than shares. I cannot find any information on institutions holding this stock, so they probably do not.

The current Price/FFO Ratio is 18. The 10 year median low P/FFO is 10 and the high is 14, so this price looks a bit high. Current distribution yield is 4.63% and the 5 year median is 5.45%, a distribution some 15% higher. So by this measure the price is on the high side.

The Price/Book Value Ratio is currently at 1.38 and this is 80% lower than the 10 year median P/B Ratio of 1.73. This ratio points to a good price, but Book Value has increased significantly (81%) due to new account rules, so not a fair measurement. I cannot really compare stock price to Graham Price as it looks like this will change substantially with new calculations of the EPS under the new accounting rules.

When I look at analysts’ recommendations I find Strong Buy, Buy and Hold recommendations with the Buy being the consensus recommendation. One buy recommendation comes with a 12 month stock price of $20. Another has a 12 month stock price of $18. One Analyst says he is cautious on shopping centers because retail sales remain soft, but does own shares in First Capital Realty Inc.

The site Canadian Dividend Stock mentions this company as a top Canadian REIT.

I am not personally interested in this stock as I already have RIOCAN and Canadian Real Estate Investment Trust REITs.

Because of the New Year’s holidays, my next blog entry will be Tuesday, January 3rd, 2012.

First Capital Realty is Canada's leading owner, developer and operator of supermarket and drugstore anchored neighborhood and community shopping centers, located predominantly in growing metropolitan areas. Its web site is here First Capital Realty. See my spreadsheet at fcr.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.