Allied Properties REIT: Data Center Asset Sale on The Table From Allied Properties

Mar 03, 2023 | Posted by Abdul-Rahman Oladimeji

As doubt spreads about the future of office buildings, Allied Properties Real Estate Investment Trust, a landlord to corporations like Google and Morgan Stanley, is strengthening its financial sheet. According to Chief Executive Officer Michael Emory, the Canadian firm is generating a lot of interest for its projected sale of data centers in downtown Toronto, which it values at around $883 million on its balance sheet. The business anticipates concluding a deal in the second quarter. Given that rates and prices, today reflect a gloomy perspective on office real estate, and Allied will use the money to pay down debt, which should prevent the firm from needing to issue bonds or raise stock for the next five years, he added. 

Investors and bankers are skeptical about the long-term outlook of office landlords due to the increase of remote work and wonder if the spaces will ever be as full as they were prior to Covid. Office occupancy in the ten largest US cities, according to data from Kastle Systems, was lower than 50% of pre-pandemic rates last week, while Canadian metropolitan areas like Toronto, where many of Allied's most valued buildings are located, have persistently trailed behind their American counterparts. These concerns have affected office landlords like Allied's shares and bonds. According to Bloomberg data, its stock has dropped more than 50% from its peak in 2020, and the market yield of Allied's most recent bond issue is somewhere around 6%, roughly double what it was when the securities were valued in August 2021. This shows how much more it would eventually cost to borrow if it tried again at this time. 

Moody's Investors Service added to the pressure on Thursday by putting Allied's Baa2, the second-lowest investment-grade credit rating, on review for a prospective downgrade. The rating agency mentioned high levels of debt, lease risk, and poorer near-term liquidity; however, it added that a successful sale of the data centers would be beneficial. Emory asserted that Moody's analysis supports the company's choice to sell the properties, which will lower Allied's debt levels over the following two years with improved revenues from the successful completion of development projects.