Nearly a billion dollars of new property acquisitions have helped boost revenue 10.9% at Allied Properties REIT in the most recent quarter.
The shift to remote work poses a risk to the company’s office property model but offices can be converted to mixed-use properties if this trend proves to be a permanent one.
The shares trade for 10.6 times its 2023 forecast cash flow.
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ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST (Toronto symbol AP.UN; www.alliedreit.com) owns 200 office buildings and 13 properties under development, mainly in major Canadian cities.
Most of those are classified as Class I buildings, and together they comprise over 15.0 million square feet of leasable area. The overall occupancy rate is a high 90.7%.
Class I refers to 19th- and early-20th-century industrial buildings that are now used as office space. These buildings often have exposed beams and brick walls, and hardwood floors.
Starting with the January 2023 payment, Allied raised its monthly distribution by 2.9%. The new annual rate of $1.80 a unit yields a high 6.8%.
The REIT has an Above Average TSI Dividend Sustainability Rating.
Dividend Stocks: Revenue is up for Allied Properties REIT after new acquisitions across Canada
Allied acquired six office properties in Toronto, Montreal, and Vancouver from Choice Properties REIT (Toronto symbol CHP.UN) for $774.6 million in March 2022. It also recently paid $126.2 million for a property in Montreal.
The purchases are largely why its revenue in the quarter ended December 31, 2022, rose 10.9%, to $135.9 million from $122.5 million a year earlier. Cash flow per unit also increased by 4.7%, to $0.621 from $0.593.
The REIT now plans to sell three datacentre properties in downtown Toronto. Allied values them at $1.3 billion. The sale of those assets, or merging them into a joint venture, would help Allied pay down its long-term debt of $3.85 billion. That’s a high 112% of its market cap.
Allied still faces several challenges, including the shift to remote work, which is hurting demand for office space. However, the REIT could convert some of its office buildings to mixed-use properties with residential and retail units.
Allied’s cash flow will probably total $2.47 a unit in 2023, and the units trade at 10.6 times that forecast.
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The stock price has dropped from $46 in March 2022 to $25 in March 2023. Please explain the reason for this significant drop in stock price and what the company is doing to address the issue(s) that caused the drop.
Prices of many REITs, like Allied Properties REIT, are down lately from their 2022 highs party due to investor worries that interest rates may keep rising.
Traditionally, REITs, Utilities and so on are said to suffer when interest rates rise—for example, they have a lot of debt, and higher rates make it more expensive to raise money and refinance existing debt. As well, their shares, which typically offer high yields, compete with fixed-income instruments for investor interest.
However, most Canadian REITs—including Allied Properties REIT–have already taken advantage of today’s low interest rates to refinance a lot of their debt at fixed rates. This helps protect them against increases in interest rates.
Now that the pandemic appears to be over can I be put back to the mailed hard copy? Irv Newson