Backdrop remains stable, but valuation is beginning to look more appealing

Canadian & U.S. morning comments

May 16, 2017

Post in line Q1 results, our stable view of FCR is intact. Notwithstanding what appears to be a temporary occupancy slip, fundamentals are in good shape with internal growth expected to remain in the low-2% range. Capital allocation remains mostly aimed at developments with the pace of completions expected to build through 2H/17. As well, aside from our initial estimate, upcoming new disclosure should shed some light on management’s view of the long-term value creation opportunity through intensification. Our target price held firm with only minor revisions to our ~3.5% 2-year AFFOPS CAGR. The shares are trading at 18.8x 2017E AFFO/5.4% implied cap rate/1% below NAV (Exhibits 1-3 in the analyst’s full comment available on Scotiaview.com). Similar to its retail peers, FCR’s premium to the sector has compressed to below average levels which we partly attribute to investor expectations for stronger growth and a weak sentiment on retail. Still, with a best in class portfolio, we see a reasonable entry for patient capital.

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