The market plunge at the start of the COVID-19 crisis hurt the unit price of most REITs. That’s because the pandemic forced many businesses—among them REIT tenants—to temporarily close.
However, the economy is recovering. That lets this REIT maintain, or even raise, its high distributions.
ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST (Toronto symbol AP.UN; www.alliedreit.com) creates value for investors through 200 office buildings in major Canadian cities with 13 more properties under development. Occupancy is 89.5%.
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Allied owns 50% of The Well in downtown Toronto’s King & Spadina neighbourhood. RioCan REIT owns the other 50%.
The Well includes 1.2 million square feet of office space; 320,000 square feet of retail space; 677 underground commercial parking spaces; and significant third-party digital signage on the northwest corner of Front & Spadina.
The partners report that the office component of The Well is now 98% leased to 15 knowledge-based organizations. Most notable, a leading technology organization has agreed to lease 89,964 square feet for a term of 12 years commencing November 1, 2023.
Allied and RioCan also announced that the retail component of The Well is now 66% leased to 41 retail users. As construction nears completion, the retail leasing effort is accelerating. The retail component of The Well is scheduled for grand opening in mid-2023.
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Meanwhile, most of the REIT’s buildings are categorized as Class I buildings, and together they comprise over 14.2 million square feet of leasable area. Class I refers to 19th- and early-20th-century industrial buildings that are now used as office space. In addition to hardwood floors, they often have exposed beams and brick walls.
Allied acquired $359.4 million in properties and air rights in 2021 and a further $840.8 million in the first half of 2022. That’s partly why its revenue rose 11.4% in the quarter ended June 30, 2022, to $154.4 million from $138.7 million. Cash flow per unit rose 0.7%, to $0.606 from $0.602.
The REIT’s 13 development properties (valued at $1.3 billion) will provide 2.1 million square feet of leasable space. About 78% of the office space in these developments is already pre-leased. Allied expects that its current developments will add over $80 million to its annual earnings.
The new assets should also continue to fuel the REIT’s distributions. Meanwhile, with the February 2022 payment, Allied raised its distribution by 2.9%. The REIT’s units now yield a very high 6.6%.
Recommendation in Canadian Wealth Advisor: Allied Properties REIT is a buy.