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First Capital Real Estate Investment Trust FCR-UN-T sold Toronto’s upscale Hazelton Hotel and three other properties on Tuesday for a total of $184-million, the latest step in a plan to raise up to $1-billion for investment in new developments.

First Capital, one of the country’s largest owners of grocery-store-anchored malls, sold the boutique Hazelton property in Toronto’s Yorkville neighbourhood and a 50-per-cent stake in the attached One restaurant for $110-million to Hennick & Co., a private real estate company founded by billionaire Jay Hennick.

The REIT also sold a condominium development site in north Toronto that is currently a retail centre and two properties in Montreal, an apartment building and a residential site that was previously part of a First Capital mall.

The property sales come after First Capital faced an activist investor campaign that began with its announcement last September of a plan to aggressively sell assets to pay for building new malls. Several fund managers initially objected to selling properties when rising interest rates and the threat of a recession could depress prices.

The showdown ended last month with two new directors joining the board, and former Toronto-Dominion Bank executive Paul Douglas becoming First Capital’s chair, but no shift in strategy.

Adam Paul, the REIT’s chief executive, said in the news release the company is now more than a third of the way to its target of $1-billion in assets sales over two years, and the plan is “demonstrating significant incremental value and future potential for First Capital’s unitholders.”

The four properties First Capital sold generated a total of $6.1-million in income last year and were forecast to earn the same amount this year, which translates into a 3.3-per-cent yield on the price they fetched. Mr. Paul said sale of these low-yield projects is consistent with the REIT’s growth plan. The REIT is also paying down debt with proceeds from the sales. The four properties sold for 18 per cent above their net asset value.

The Hazelton sale took place at a premium hotel valuation of $1.3-million a room, RBC Capital Markets analyst Pammi Bir wrote in a report. He said: “The transactions highlight the REIT’s ability to monetize value created amid broader challenges in investment markets.”

First Capital acquired the Hazelton and a stake in One in three transactions over the past five years. In a report, analyst Mario Saric at Bank of Nova Scotia estimated the REIT paid $79-million for the property, with the sale “representing a nice gain for First Capital.”

The REIT used its ownership of the 77-room hotel to negotiate increases in the density of its developments at an adjacent mall – Yorkville Village Shopping Centre – owned by First Capital, and an attached condo and retail project that is 33 per cent owned by the REIT.

Hennick & Co. was a founding investor in the Hazelton, which opened in 2007. The family-owned company also owns a stake in the St. Regis Hotel Toronto, formerly known as the Trump International Hotel; a number of properties in Toronto and Boston; and a collection of real estate-related businesses.

Chairman Jay Hennick is also CEO of real estate management company Colliers International Group Inc. and chairman of property manager FirstService Corp.

In Montreal, First Capital sold a portion of mall called Wilderton, which is anchored by a Metro grocery store. The REIT rezoned the 1.5 acre site for residential development. The company also sold an apartment building, Carre Queen Mary, after renovating the building and releasing its first floor retail space, with drugstore Jean Coutu as anchor tenant.

First Capital projects the four sales will close by the third quarter of 2023. The REIT owns approximately 145 properties in British Columbia, Alberta, Ontario and Quebec, valued at $9.6-billion.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/04/24 0:14pm EDT.

SymbolName% changeLast
FCR-UN-T
First Capital REIT Units
-0.79%15

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