Larry Berman CFA, CMT, CTAAllied Properties REITAP.UN.TOBUY ON WEAKNESSAug 14, 2023

Some tenants have pulled out of its big Toronto project, The Well. Its smaller spaces have hurt them, as people can work from home just as easily. Interest rates hurt real estate. Good company, lots of really interesting, character-rich properties. Owning something like this should do well for you in a better interest rate environment.

80% of asset value is in Toronto and Montreal. Good operators in a difficult market. Discount to NAV. Committed to distribution of 10%, sustainable if they can continue executing into 2024. Sold data centres, giving breathing room.

Bankruptcy is extreme. And he bought it just a week ago. He's not bullish on office or retail, but it gets to the point where it's been hit so hard, you have to put in 1 of 3 real estate chips on a name like this. Premier asset, trading at a 30% discount. There will be a recovery, but it will take a while. Its smaller floor plans are appealing. 

Yields almost 11%, but he thinks it's sustainable. Sold data centres earlier this year, so that helped their leverage.

AP.UN reported EPS of ($0.1842) and revenues of $138.455M, slightly beating estimates of $138.4M. FFO per unit was $0.598, a slight increase from its prior quarter, and AFFO per unit increased to $0.545. Management noted high demand for workspace in urban areas of major cities. Its dividend has risen to 11% and the stock remains cheap. Sales of its UDC portfolio have helped bolster its balance sheet and liquidity. We think a drop in rates can help this name, but we would like to see more catalysts here to get more interested in the name. For now, its small size and office exposure is not overly compelling, and we feel these are getting reflected in the company's valuation.
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80% of portfolio in Toronto and Montreal. Availability rates are over 16%, yet new builds continue. Sold data centres. Good position on cashflow. Valuation now more compelling. Enticing 9% yield if you're willing to take the risk. Difficult asset class going forward, perhaps better value elsewhere. Many of these stocks look oversold, though he's not willing to place bets today.

Thinks office use will continue despite remote work.
Interest rates tough on business (debt levels & alternative bond yields).
Well run business with solid management team.
Pressure on stock lately - unsure on future of the business.
Difficult to ascertain future of office REIT sector. 

Interest rates not only factor negatively impacting company.
Work from home, and overall economy also impacting share price.
Looking into company - has met with management. 
Good long term assets - waiting to see how economy performs in the fall.
Major change in how people work balanced with low share price buying opportunity.

Focus on office properties has put pressure on. We won't be working from home forever, but looks that way in the short term. Asset sales should help. Interest rates going up makes borrowing more expensive. Be cautious. Residentials and industrials offer more positive news in the short term.

Careful. Some companies base the ratio on earnings, others on free cash flow because their earnings are depleted by non-cash expenses for tax purposes. AP.UN is down by two-thirds and he's watching it carefully. Their downtown core assets are depleted, because office and commercial RE are radioactive, but this is the time to start looking at this. Has been best in class historically. Is watching this very carefully.

Way off from highs. Covid has changed how and where we work. What is your conviction level that office occupancy will revert to the pre-Covid mean? What's the timeline for that? He doesn't have the answers. It's in the "too hard" pile. If looking for a similar yield, try BCE.

It has great assets in Toronto and its stores are boutique style so demand will decline between 10 to 15% in a recession. It wants to raise capital by putting the data centre portfolio on the market. Will go to future development and reduce debt. It is in a bit of a difficult spot so wait and see.