First Capital Real Estate Investment Trust reported higher operating earnings in the third quarter of 2026, with operating funds from operations (FFO) per diluted unit increasing 9.2 per cent year over year as rental rates climbed and leasing activity remained strong.
The Toronto-based real estate investment trust reported operating FFO of $78.5 million for the three months ended Sept. 30, up from $71.6 million in the same period last year. Operating FFO per diluted unit rose to 36 cents from 33 cents, while net income attributable to unitholders increased to $116.1 million from $66.6 million.
The results reflect higher net operating income from the portfolio, increased rental rates on renewed leases and additional income from the company’s 400 King St. West condominium development project. However, portfolio occupancy declined slightly compared with both the previous quarter and the same period in 2025.
Rental income and lease renewals support growth
First Capital reported same-property net operating income (NOI) growth of 5.2 per cent in the third quarter compared with a year earlier. Excluding lease termination fees and bad debt expense or recoveries, same-property NOI growth was 5.6 per cent.
The company said the increase was primarily driven by rental rate growth and certain non-recurring adjustments. Excluding non-recurring adjustments, bad debt expense or recoveries and lease termination fees, same-property NOI increased 2.8 per cent.
Operating FFO increased by $6.9 million compared with the third quarter of 2025, primarily reflecting a $6.6-million increase in NOI and $900,000 in additional interest and other income. That included $800,000 in interim occupancy fees and other income associated with the 400 King St. West condominium development.
Those gains were partially offset by higher corporate general and administrative expenses and interest costs.
Total FFO reached $79.2 million, up from $69.6 million in the third quarter of 2025. FFO per diluted unit increased to 37 cents from 32 cents.
Net income attributable to unitholders was $116.1 million, or 54 cents per diluted unit, compared with $66.6 million, or 31 cents per diluted unit, a year earlier. The increase was primarily attributable to a $47.9-million year-over-year improvement in the fair value of investment properties, on a proportionate basis.
Occupancy edges lower as rental rates climb
First Capital’s total portfolio occupancy was 96.9 per cent at Sept. 30, compared with 97.1 per cent at both June 30, 2026, and Sept. 30, 2025. Same-property occupancy, meanwhile, was 97.4 per cent, up from 97.2 per cent a year earlier.
The REIT renewed approximately 603,000 square feet of leases during the quarter, compared with 543,000 square feet in the same period last year. Rental rates on those renewals increased by 13.2 per cent when comparing the first-year rent of the renewed terms with the final-year rent of the expiring leases.
When measured against the average rent over the full renewal terms, rental rates increased 18.7 per cent. First Capital attributed the difference to higher contractual rent increases built into the renewed leases.
For the first nine months of 2026, the company completed 1.79 million square feet of lease renewals, up from 1.68 million square feet during the same period in 2025. The first-year rental rate increase on those renewals was 14.6 per cent, compared with 14.5 per cent a year earlier.
The portfolio’s average net rental rate reached a record $25.21 per occupied square foot, an increase of 1 per cent, or 26 cents per square foot, from the previous quarter. The company attributed the increase to lease renewal gains, contractual rent escalations and tenant openings, net of closures.
Development spending and property sales
First Capital invested approximately $43 million in property development, redevelopment, residential inventory and acquisitions during the third quarter.
Development expenditures totalled $26.7 million, compared with $24.6 million in the third quarter of 2025. Investment in residential inventory was $6.6 million, down from $18.5 million a year earlier, while acquisitions of investment properties totalled $10 million, compared with $5.5 million.
The REIT also completed two property dispositions in Toronto during the quarter, generating approximately $10 million in proceeds. In addition, it entered into firm agreements to sell two properties in Greater Montreal and Toronto for a combined $150 million. The transactions are expected to close in the fourth quarter of 2026, subject to required approvals and the satisfaction of other conditions.
For the first nine months of 2026, property disposition proceeds totalled $30.1 million, compared with $109 million during the same period last year.
Debt and liquidity position
First Capital reported net debt of approximately $4.12 billion at Sept. 30, compared with $4.09 billion at the end of 2025. Its net debt-to-adjusted EBITDA ratio was 8.9 times, down from 9.1 times at Dec. 31, 2025, and 9.2 times at Sept. 30, 2025.
The company reported approximately $600 million in available liquidity, including $523 million in availability under revolving credit facilities and $34 million in cash, on a proportionate basis.
Unencumbered assets totalled approximately $6.6 billion, representing 70 per cent of total assets. Total assets were approximately $9.49 billion at the end of the quarter, compared with $9.23 billion at Dec. 31, 2025.
Net asset value per unit increased to $23.16 from $22.57 at the end of 2025.
First Capital owns, operates, acquires and develops open-air, grocery-anchored shopping centres in Canadian neighbourhoods.
More from Retail Insider:
