Allied Properties Real Estate Investment Trust T.AP.UN

Alternate Symbol(s): APYRF

Allied Properties Real Estate Investment Trust (Allied) is a Canada-based open-end real estate investment trust (REIT). Allied is an owner-operator of distinctive urban workspace in Canada's cities. Its business is providing knowledge-based organizations with workspace that is sustainable and conducive to human wellness, creativity, connectivity and diversity. Allied operates in seven urban markets in Canada, which includes Montreal, Ottawa, Toronto, Kitchener, Calgary, Edmonton and Vancouver. Its urban office properties are managed by geographic location consisting of approximately four groups of cities. Its subsidiaries include Allied Properties Management Trust, Allied Properties Management Limited Partnership, and Allied Properties Management GP Limited.

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Allied Properties Real Estate Investment Trust

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Post by incomedreamer11on Apr 20, 2023 9:16am

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Post# 35404902

Scotia comment

Q1 Preview: All Eyes on the UDCs

OUR TAKE: Neutral. Our TP and Current NAVPU estimate fall 11% and 4% to $35.00 and $38.00 (cap rate is +22bp to 5.3%; now +42bp vs. pre-COVID). AP reports Q1 results next Wed, April 26 (AMC). We think key unit price drivers (in order) = an update on its UDC portfolio sale process, 2023 guidance, and q/q occupancy trends; the latter two shape investor sentiment on distribution sustainability, a frequent question this year on the back of unit price pressure and U.S. peer cuts in October – January. Bottom line, we continue to think AP looks very cheap (7.4% implied cap, 38% discount to NAV, 11.0x 2023E AFFO, implied $356/sf; Exhibits1-2), even at our lower target AFFO multiple (to 16x vs. 18x before vs. 17.4x historical avg.; Exhibit 2). We think the near-term opportunity (i.e., what has changed) = increased market concern over a failed UDC portfolio sale process at a reasonable valuation (i.e., ~IFRS) post-SVB collapse and broader CRE debt concerns (and elevated AP leverage; Exhibits 3-4). As a result, we think unit price responds positively to an announced sale at ~IFRS ($1.35B), all else equal.

KEY POINTS

We think a smooth UDC sales process = announcement next week. AP announced the possible sale of its UDC portfolio on Nov 24 (Q4/22A IFRS value = $1.35B vs. $1.44B in our NAV; we felt upside value = $1.5B+; Exhibit 5). On Jan 16, it noted pursuing a 100% stake disposition and no expected earnings dilution. On the Q4/22 Results call, AP noted redeployment of significant disposition proceeds would NOT fund acquisitions, but rather debt repayment (good). Based on the Q4 results and Call, we felt that a smooth UDC sales process (i.e., strong demand) could result in an announced sale with Q1/23 results. We still view 151 Front Street (in particular) as a marquee asset coveted by global and domestic real estate and infrastructure investors alike. Our model reflects a sale at $1.5B (~4.25% cap rate) and debt repayment at a similar rate (we est. ~$472M due through 2024 and $650M of unsecured term loans that can be repaid).Q1 Market Leasing Update: not great. AP refrained from providing a 2023 occupancy target with Q4 results (SP occupancy was +0-35bp q/q), although they highlighted that Q3/22 was most likely a trough occupancy. Market data suggests that AP Q1/23 occupancy should fall ~100bp q/q based on AP’s portfolio weighting (Exhibit 6), but our estimates are flat q/q at 89.6%, implying outperformance in Q1/23 relative to broader market. After all, not all office are created equal. AP’s portfolio was much more resilient during COVID relative to the broader market (Exhibit 7), while maintaining higher occupancy levels.