RE:#3 top pick bnn Allied Properties Real Estate Investment Trust (AP.UN TSX)
Allied Properties is an office and retail landlord, best known for gentrifying the former industrial and warehouse corridor along King Street and Front Street in Toronto. More recently building the iconic The Well retail/office/residential complex nearby, but it also has six million square feet of space in Montreal and another three million across Vancouver, Calgary, Ottawa and Kitchener. The shares are former darlings, having compounded at a 17 per cent annual rate from the 2003 initial public offer (IPO) to the pre-COVID-19 days but now trade below 0.4 times book value and 70 per cent off their pre-COVID highs. This is despite ample precedent in the private market for buildings to trade at book value and portfolios of buildings to trade at 0.65 times – 0.7 times book value in a full privatization scenario. The 10 per cent yield, we believe, is sustainable, even in a more stressed occupancy scenario - which we don’t expect. This is a deep value, turnaround situation with a wide margin of safety and with catalysts looming including: a forecasted improvement in occupancy, de-leveraging via non-core asset sales, debt refinancing opportunities as construction financing is replaced with secured CMHC loans and a macro tailwind from falling interest rates
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