Bullboard - Stock Discussion Forum 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... see more

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TSX:AP.UN - Post Discussion

Allied Properties Real Estate Investment Trust > Scotia comments

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Post by incomedreamer11 on Oct 31, 2024 9:16am

Scotia comments

Q3 Glance: Occupancy Stuck at Trough; Better Days Still Anticipated

OUR TAKE: Neutral. Reported FFOPU was $0.556, although we est. recurring FFOPU of $0.535 (vs. $0.526 q/q and $0.598 y/y) was 1.5% above our $0.527 and $0.528 consensus (range = $0.516-$0.542).

“2024 Outlook”: Specific mention of FFOPU/AFFOPU/SSNOI was removed in Q1, replaced by “operating results in 2024 will fully support AP current distribution commitment” in Q2. Today, the reference to the distribution commitment was removed, although we suspect no change in that commitment (“Outlook” is simply not just the distribution is our take).

Economic and Leased occupancy were flattish q/q for the 2nd consecutive quarter (Q2 = 1st time in 6 quarters;), a bit better than the broader market (see our note) with AP expecting leasing activity to accelerate in 2024 and into 2025 (our in-place Q3/24E and Q4/24E q/q are +53bp and +122bp), buoyed by seeing higher tenant expansion space.

In our Q3 Preview (link), we noted an expected lack of unit catalysts with Q3 results and on the surface (pending the c/c), that seems to be the case. We still believe higher unit price requires increasing occupancy into the 90%+ range (ultimately providing confidence in the distribution)

Full update post c/c tomorrow at 10am ET (1-800-715-9871; #5448556).

High-level results: Occupancy stable q/q. Disclosed AFFOPU fell 15% y/y (Q2 = -15%; Q3/23 = $0.500). Leased occupancy was +10bp q/q to 87.2% (Q2 = +10bp q/q to 87.1%), while Economic occupancy fell 20bp q/q to 85.6% (Q2 = -10bp q/q to 85.9%); Exhibit 1. We est. 184 Front E, 388 King W and Dominion Square reclass had a +20bp impact, while 3510, 3530-3540 Saint-Laurent and 1001 Robert-Bourassa had a -9bp impact. We estimate PUD reclasses/asset sales had a ~+15bp q/q impact on quoted occupancy. Rental SANOI fell 3.1% y/y vs. -2.3% in Q2/24, with all regions negative. In-place rent was +0.9% q/q at $25.30/sf (Q2= +4% q/q).

Capital Recycling and Debt update. No major update. By review, AP completed 3 dispositions in Montreal ($51M) and expects to complete another 5 in 2024 (for $142M); all net proceeds put towards higher-cost variable debt. Target for 1H/25 remains another $200M of sales. In addition, AP noted mortgage commitments totaling $343M at an avg. ~4.8% also going towards repaying higher-priced variable debt. Lastly, it is finalizing a $340M CMHC-insured loan at ~3.5% at 19 Duncan (10 yrs), which will also go towards paying down higher-cost debt.

IFRS NAVPU fell $0.67 q/q (-1.5%) to $43.76 (Q2 = -0.9% q/q), still well above our $22.25 and $21.30 consensus. FV loss of $47M vs. $45M loss q/q, incl. $24M loss on PUD (Q2 = $48M). Overall IFRS cap rate fell 1bp q/q to 4.81% (Q2 = -2bp q/q) vs. our 6.2%, with Toronto -2bp q/q and Calgary -1bp q/q. We est. flat cap rate in our Q3 CBRE Cap Rate Survey report (see Exhibit 3 in the report). Potential incremental density of 9.8Msf fell 0.1Msf q/q (Q2 = -0.1Msfq q/q).

See page 2 for Operational and Liquidity Update and our Q2 Variance Analysis

Operations. AP tenant tours were +2% q/q to 266 (-13% y/y, Q2 = -13% q/q), leasing 0.62Msf vs. 0.47Msf q/q and 0.4Msf y/y. Tenant retention was flat q/q at 60%, below the historical 70%+. The lease renewal spread was -6.3% on yr.1 (Q2 = 9.7%) and +2.1% over lease term (Q2 = 16%), or +0.5% ex. one temporary Flex lease in Toronto. We est. market rent for 2025 expiries was +1.0% q/q (Q2 = +3.7% q/q), with AP est. MTM of 6% on a gross basis (Q2/24 = 5%). Sublet (as a % of portfolio) was +80bp q/q to 5.8% (Q2 = -30bp q/q to 5.0%). We estimate sub-let space as a % of total vacancy = 29% vs. 26% q/q and ~16.5% national average. We note capitalized interest and G&A were flat and -$0.2M q/q to 36% and 30% of total reported (ex. TR swap), respectively (Q2 = 37% and 33%).

Leverage is flattish. Debt/GBV was +60bp q/q to 39.7% (Q2 = +320bp q/q) but Net Debt/EBITDA fell 0.2x to 10.7x (Q2 = +1.5x q/q). PUD as a % of GBV fell 70bp q/q to 10.7% (Q2 = flat q/q) and above AP target of ~5% by Q4/25 (disclosure stopped in Q1). Q3/24A assets held for sale = $315M (vs. $286M as at Q2/24).