Topic: How To Invest

Allied Properties REIT aims to boost revenues in joint venture with RioCan

Allied Properties REIT aims to boost revenues in joint venture with RioCan

ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST (Toronto symbol AP.UN; owns 134 office buildings, mostly in major Canadian cities. These mainly Class I properties contain over 9.5 million square feet of leasable area.

Class I refers to 19th- and early-20th-century light industrial buildings that have been converted to retail space. They usually feature exposed beams, interior brick and hardwood floors.

Allied has 37.5% of its properties in Toronto, 33.3% in Montreal and 9.5% in Calgary, with the other 20% spread across seven other Canadian cities. The REIT’s ten largest tenants are: Equinix; National Capital Commission; Ubisoft; Visa Desjardins; Allstream; Cologix; SAP Canada; Bell Canada; Telus; and Verizon.

The trust bought $400 million worth of properties in 2012. In the first half of 2013, it added a further $170.2 million worth. Allied has a 92.0% occupancy rate.

Allied’s new buildings helped increase its revenue by 17.1% in the three months ended June 30, 2013, to $73.4 million from $62.7 million a year earlier. Cash flow per unit rose 9.1%, to $0.48 from $0.44. Allied yields 4.2%.

REITs: Joint venture with RioCan aims to “intensify” urban buildings for increased revenue

In July 2012, Allied entered into a joint venture with RioCan REIT (Toronto symbol REI.UN) to buy buildings in urban areas that they can “intensify” to increase revenue and cash flow, mainly by adding tenants.

Allied and RioCan are combining their expertise to make these buildings into mixed-use office/retail/residential developments. So far, they have three projects underway, all in Toronto.

For example, earlier this year, Allied and RioCan joined forces with privately held Diamond Corp. to buy the Globe & Mail lands in downtown Toronto. Currently the home of The Globe & Mail newspaper, the 252,617-square-foot property is on 6.47 acres of land forming part of the large city block bounded by Spadina Avenue and Front, Draper and Wellington Streets.

The partners plan to redevelop the property into a retail-office complex. RioCan and Allied will each own 40%, while Diamond will hold 20%. RioCan and Allied will each pay $14.9 million for their stakes.

In the latest issue of Canadian Wealth Advisor, we examine the prospects for a significant increase in revenue and earnings for Allied Properties, including its joint venture with RioCan. We conclude with our clear buy-hold-sell advice on this REIT.

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow members

Do you worry that REITs focusing on industrial, office and shopping complexes could be vulnerable to an economic downturn? Or to a fall in real estate values? Or do you treat REITs as a steady source of income, relatively immune to changes in the economy?


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