Allied Properties Real Estate Investment Trust T.AP.UN

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[incomedreamer11]

Allied Properties REIT (AP.UN-T) C$21.89

Allied Announces the Sale of its UDC Portfolio for $1.35B Jonathan Kelcher, CFA Jaz Cumberbatch, CFA (Associate)

Event

This morning, Allied announced that it has entered into an agreement to sell its UDC portfolio in downtown Toronto to KDDI Corporation ("KDDI") for $1.35B — ~10% ahead of the net IFRS value. KDDI is a Global Fortune 500 Japanese telecommunications' provider that owns and operates data centers largely in Asia, Europe, and the U.S. through its subsidiary Telehouse. With Allied's UDC portfolio being Telehouse's entry into Canada, we view the acquisition as strategic. The sale was conducted through a multi-round bidding process, with final bids received on June 2. The sale is expected to close by the end of Q3/23, however, we believe it is likely to close sooner.

Impact: POSITIVE

Our Take: The $1.35B sale price is largely in line with previous management commentary, ~10% above IFRS (net basis including the $107mm lease liability on 250 Front St) and ~3% ahead of where we were carrying the UDC portfolio in our NAV (+11% net). We estimate a 4.6% cap rate on stabilized NOI (~4% on current NOI given a large vacancy at the end of 2022).
Overall, we view the pricing positively. Proceeds of the sale will be used to lower leverage with ~$1B slated for debt repayment, while the remainder will partially fund the REIT's development pipeline over 2023 and 2024. Allied expects to announce a special distribution at year-end, which we expect to be largely satisfied in units (i.e. little to no cash). Pro forma the sale and debt repayment, Allied expects to lower leverage by 380bps to 32.7% and net debt/EBITDA to ~8.0x from 10.5x as of Q1/23.

Net Debt/EBITDA is expected to decline further over the next three years as developments come online. UDC Portfolio: The portfolio consists of three data center assets comprising freehold interests in 151 Front Street West and 905 King Street West along with a leasehold interest in 250 Front Street West.

Valuation: Allied trades at 10.7x 2023E AFFO, a 38% discount to our NAV and a 57% discount to IFRS. Upon incorporating the sale of the UDC portfolio, we estimate Allied to trade at an 8.3% cap rate and $308/sf

[BlueJay2020]

Thanks for sharing.  Very disappointing indeed to see the SP down 3% today!

[incomedreamer11]

Event        Forecast update.  Impact: NEUTRAL Fundamentals continued to soften in the quarter as occupancy declined 120bps to 87.6%. The decline was due to a non-renewal in Toronto (which Allied anticipates filling with a short-term tenant) and upgrade activities at two Montreal assets. Management highlighted that it still expects to achieve full year net occupancy