FirstService Corporation is a leading real estate services company in North America. The company is the largest manager of residential communities and a leading provider of essential property services to residential and commercial customers.
FirstService deals in various property types ranging from Condominiums / Cooperatives, Homeowner Associations, Master-planned to Active adult / Life-style, and High-rise, mid-rise, townhouse, single-family home. The company has a portfolio of more than 8,500 properties including 3,200 high-rise condos. It operates through FirstService Residential (accounting for 54% of revenues) and FirstService Brands (~46%). Each of FirstService’s businesses is the #1 or #2 player in their respective markets. The company derives ~90% of its from the U.S. and the balance 10% from Canada.
FirstService became an independent company as a result of separation from Colliers International in June 2015.
Investment Data
- Opportunity Score: 36
- Ticker: TSE:fsv
- Sector: Real Estate
- Industry: Real Estate Services
- Market Cap: 7.70B
- P/E: 83.13
- Dividend Yield: 0.50%
- Payout Ratio (Earnings): 41.49%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 4/10
- Dividend Income Fit: 3/10
Revenue Growth & Market Exposure
FirstService enjoys leadership positions with well-recognized brands. It partners with popular industry names like Paul Davis, Century Fire, California Closets, Global Restoration Holdings, etc. who enjoy leadership positions in the markets they serve. The company’s focus on customer service has resulted in strong client retention and growth through repeat business and referrals. FirstService has a contract retention rate in the mid-90% range. It provides a broad range of services including traditional property management, development consulting, etc. to on-site staff management and transactional services. The company also has a strong presence in both residential and commercial real estate space. FirstService caters to a diversified client base and has a well-balanced property portfolio with specialized operating expertise providing the necessary protection if the housing market does not perform well. Predictable and recurring contractual revenue grants top-line consistency and visibility to cash flows.
FirstService made its biggest acquisition of Global Restoration, the second largest commercial and large loss property restoration firm in North America in 2019. The company also expanded its presence in Chicago with the acquisitions of Lieberman Management Services and DK Condo. FirsService deployed $580 million and made 15 acquisitions in the last year. The company is targeting revenue growth of 10%+ CAGR in the long-term.
FirstService’s Q2 revenues declined by 9% versus the prior year quarter due to client facility closures as a result of the global pandemic. However, aggressive cost reduction initiatives and lower than expected decline in higher margin ancillary revenue led to margin expansion during the quarter.
Dividends
FirstService has a sound track record of consistent dividend increases. It is a Canadian Dividend Aristocrat. The company sports a modest yield of 0.5% and a reasonable payout ratio of 48%. It last raised its dividend by more than 6% and has a dividend growth rate of 10% CAGR in the last three years. FirstService has been increasing its dividend by more than 10% in five years since the spin-off in 2015 while the former FirstService had an impressive 20-year track record of dividend payments. The company is committed to distribute an annual dividend of at least $0.40 per share to shareholders, in-line with the dividend payout by the former FirstService company.
FirstService operates in the non-discretionary, essential property service, which is relatively recession-resistant. The company stands a good chance to benefit from the attractive property restoration market with a potential $60 billion market size as it is the No.2 player in both commercial and residential segments. These are non-discretionary, essential property services. The Global Restoration acquisition further grants FirstService an entry into the large commercial restoration market. The strategic acquisitions should help FirstService accelerate growth for the next several years. FirstService is focusing on expanding its national platform and broadening its client relationships.
The company has a high recurring revenue model, strong free cash flow with modest capital expenditures, and a conservative balance sheet that grants visibility to the future dividend.
Competition
FirstService operates in large, fragmented markets having significant growth opportunities. The company competes with the likes of Altus Group Ltd, Brookfield Property Partners, Tricon Capital Group, Colliers International, etc. Altus Group is a leading provider of software, data solutions and advisory services to the global commercial real estate industry. It is a market leader for core CRE practices and is known for its large global blue chip client base. Colliers is another leading real estate services and investment management company in Canada. FirstService has a modest market share implying enough room for future growth. Its large scale, proprietary products and services, and a huge national presence are strong competitive differentiators.
| TickerKey | Ticker | Company | Sector | Industry | Score | Quote | Market Cap | P/E | FPE | EPS | Yield Raw | Yield | PayoutRatio | Payments | Dividend | Chowder | GrowthRating | IncomeRating | Tollbooth | Ambassador | Achiever | Aristocrat | King | Country | Graph |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| TSE:BPY.UN | BPY.UN | Brookfield Property Partners | Real Estate | Real Estate Services | 0.54 | 20.96 | 15.09 | 10.80 | 10.80 | 1.94 | 0.0825 | 8.25 | 0.8909 | 4 | 1.33 | 0.1388 | 6 | 5 | Tollbooth - Unregulated | NO | NO | NO | NO | Canada | 1 |
| TSE:FSV | FSV | FirstService Corp | Real Estate | Real Estate Services | 0.36 | 176.74 | 7.70 | 83.13 | 83.13 | 2.13 | 0.0050 | 0.50 | 0.4149 | 4 | 0.68 | 0.1072 | 4 | 3 | Intermediate | NO | NO | YES | NO | Canada | 1 |
| TSE:CIGI | CIGI | Colliers International Group Inc. | Real Estate | Real Estate Services | 0.22 | 119.32 | 4.78 | 58.38 | 58.38 | 2.04 | 0.0011 | 0.11 | 0.0637 | 2 | 0.10 | 0.0011 | 2 | 3 | Intermediate | NO | NO | NO | NO | Canada | 1 |
| TSE:TCN | TCN | Tricon Capital Group | Real Estate | Real Estate Services | 0.51 | 10.98 | 2.11 | 24.78 | 24.78 | 0.44 | 0.0255 | 2.55 | 0.6364 | 4 | 0.28 | 0.0505 | 4 | 3 | Tollbooth - Unregulated | NO | NO | NO | NO | Canada | 1 |
| TSE:AIF | AIF | Altus Group Limited | Real Estate | Real Estate Services | 0.24 | 49.99 | 2.03 | 119.37 | 119.37 | 0.42 | 0.0120 | 1.20 | 1.4286 | 4 | 0.60 | 0.0120 | 1 | 2 | Tollbooth - Unregulated | NO | NO | NO | NO | Canada | 1 |
Bottom Line
FirstService’s focus on customer service excellence is a key driver of its growth strategy across all operations. The company has strong leadership positions and scale advantages in huge service markets providing significant organic as well as acquisition growth opportunities given its competitive advantages in attractive markets. FirstService’s tuck-under acquisitions further increase the geographic footprint and broaden its service offerings. The company has significant room for growth and increased market share which positions it for future consolidation opportunities.
