Allied Properties Real Estate Investment Trust T.AP.UN

Debt

[Farmer12]

Investment and debt restrictions re Declaration of Trust require Allied to maintain debt to gross book value of less than 60% (65% including convertible debentures, if any). As of March 31, 2024, Allied debt to gross book value was 35.9%. The payout ratio, if I remember right, is around 83%. The average lease terms are fairly long, price to book around 0.34. Allied has already written down the value of several properties, and they have a lot of unencumbered assets. The questions are: Has the office market bottomed and the interest rate peaked? Can Allied hold on, with its huge monthly dividend, until better times arrive?

[MyHoneyPot]

My take is this, it looks like they have done everything right. The dividend is large but the share count is not.  They should sell some properties and buy back share right now, when you are trading at 3X you Nav why would you do anything else. It would also reduce their payout ration. IMHO

[BlueJay2020]

Debt rating cut to junk by Moody's!  

[Northforce13]

Allied's debt got cut to junk?

[Northforce13]

Just saw the article.  Makes me feel a bit less comfortable.  Might affect refi rates.   "well you guys are brave down another 20 cents today this reit is really scaring the chit out me I was going to add and now  thinking about dumping and cut my loss before it gets any worse" "balls of jello"?  ;-) GLTA

[BlueJay2020]

Very frustrating action by Moody's which is premature, pre-emptive and quite possibly self-fulfilling. I think they have looked at the distribution rate and concluded it cannot possibly be sustainabke. It will make debt more expensive on renewal.  It could force action to get the debt down (although no particulsr need to at 35 per cent leverage) - hopefully not a distribution cut

[jmkOttawa]

If they do decide to trim the distribution (which I do not think will be the case, this will only make a well run and valuable REIT even more valuable since it will allow it to use excess funds to buy back shares and reduce debt even further. Allied will outperform in my opinion.

[BlueJay2020]

I don't think trimming would cut it (pardon the pun) - IF there was a cut, it would need to be at least 50% to be meaningful financially and optically get the yield back to more of a normal channel for a REIT like this. But I agree with you about maintaining the distribution.  Having said that, it seems to me that matters are often taken out of the boards hands and lenders can demand

[stockrook86]

Except there is nothing saying they need to keep funding debt with debentures (i.e. what is rated by the ratings agencies). Yes other large REITS do, but many REITs finance exclusively with asset level debt.  Office as a sector is somewhat toxic, and the narrative is a flight to quality - Allied could easily cherry pick its most stable properties with long-term leases and get very good

[jmkOttawa]

I had 50 per cent in mind when I said trimming ;), so we are on the same wavelength. I don't think it will be neccessary though.