First Capital REIT Locks in Long-Term Debt in Strategic Refinancing

TORONTO, ON – December 01, 2025

In a decisive move that reflects a broader trend across the Canadian real estate sector, First Capital Real Estate Investment Trust (TSX: FCR.UN) has announced a significant debt refinancing operation. The REIT is issuing C$250 million of new senior unsecured debentures at a higher interest rate to redeem C$300 million of shorter-term debt, a strategic trade-off that prioritizes long-term balance sheet stability over near-term interest costs.

This maneuver provides a clear window into how sophisticated entities are navigating a complex capital environment. While the headline numbers show an increase in borrowing costs, the underlying strategy reveals a proactive approach to de-risking its financial structure and locking in certainty for the next decade. For investors, this action serves as a crucial indicator of both management's foresight and the enduring appeal of well-positioned retail real estate assets.

The Price of a Longer Runway

At the heart of the announcement is a C$250 million offering of Series G senior unsecured debentures carrying a 4.760% annual interest rate and maturing in February 2035. The proceeds will be used to help fund the early redemption of C$300 million in Series T debentures, which were set to mature in May 2026 with a coupon of just 3.604%.

The immediate financial impact is a notable increase in interest expense. The 1.156% rate differential on the C$250 million being refinanced translates to approximately C$2.89 million in additional annual interest payments. On the surface, swapping lower-cost debt for a more expensive alternative seems counterintuitive. However, the strategic gain lies in the maturity extension. By pushing a significant debt obligation from 2026 out to 2035, First Capital is effectively buying nearly nine years of financial certainty and insulating itself from potential interest rate volatility in the near to medium term.

This move is a classic example of proactive liability management. Rather than waiting until the 2026 maturity date and facing the prevailing market conditions of that moment, the REIT is capitalizing on its current access to capital markets to build a more resilient and predictable long-term debt ladder. This provides significant flexibility for future capital planning, property development, and acquisitions without the looming pressure of a large, near-term refinancing event.

A Barometer for the REIT Market

First Capital's refinancing is not happening in a vacuum; it is reflective of a sector-wide recalibration. The 4.760% coupon on its new 10-year debentures is well-aligned with recent issuances from its peers. For instance, SmartCentres REIT issued debentures in February 2025 at a rate of 4.737%, while RioCan REIT recently priced debt maturing in 2032 between 4.4% and 4.7%.

This consistency across major players underscores the new reality for borrowing costs in the real estate sector. The era of sub-2% or 3% debt, which fueled a decade of expansion, has definitively passed. Today, REITs are adjusting to a higher-for-longer rate environment. The fact that they can successfully raise substantial capital—even at these higher rates—speaks volumes about investor confidence, particularly in resilient asset classes.

First Capital's portfolio, which is heavily concentrated in open-air, grocery-anchored shopping centres in prime demographic areas, is a key factor in this confidence. These assets have proven their durability through economic cycles and the rise of e-commerce, providing stable and predictable cash flows. This stability is precisely what debt investors are looking for, making REITs like First Capital a preferred destination for capital. Industry data shows that Canadian REITs raised a significant amount of capital through debt offerings in 2024, with retail REITs leading the charge, a trend that has clearly continued into 2025.

Reading the Credit Tea Leaves

A critical component of the offering is the condition that the new debentures receive a rating of at least 'BBB' with a 'Positive' outlook from DBRS Morningstar. This rating is more than a technicality; it is a powerful signal to the market about the REIT's perceived creditworthiness.

A 'BBB' rating is solidly in the investment-grade category, indicating that DBRS views First Capital as having an adequate capacity to meet its financial obligations. More telling, however, is the 'Positive' outlook. This designation suggests that the credit rating agency sees underlying trends that could lead to a future ratings upgrade. It acknowledges the company's strong operational performance and strategic financial management, even as leverage metrics have ticked up.

As of its latest reporting period, First Capital's net debt to Adjusted EBITDA multiple stood at 9.2x, up from 8.7x at the end of 2024. While investors watch leverage closely, the positive credit outlook implies that rating agencies are looking beyond the raw number to the quality of the assets, the strength of cash flows, and the prudence of its liability management. Securing this rating and outlook reinforces lender confidence and ensures the REIT can continue to access capital on favorable terms relative to the broader market, a crucial competitive advantage.

Balancing Growth with Financial Prudence

This debt refinancing should be viewed in the context of First Capital's strong operational momentum. The REIT recently posted impressive third-quarter 2025 results, highlighted by a 6.4% growth in same-property net operating income (NOI) and a robust total portfolio occupancy of 97.1%. These strong fundamentals provide the financial cushion necessary to absorb the higher interest costs associated with the new debentures.

The strategic refinancing, coupled with solid operational performance, positions First Capital to navigate the road ahead. By addressing a major debt maturity well in advance, management has cleared the runway for continued execution of its strategy, which includes acquiring and developing its core assets. The move demonstrates a disciplined approach to capital structure management, where the immediate cost of capital is carefully weighed against the invaluable benefit of long-term financial stability and strategic flexibility.