Allied Properties Real Estate Investment Trust (($TSE:AP.UN)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The latest earnings call from Allied Properties Real Estate Investment Trust (REIT) paints a picture of cautious optimism. The company is experiencing strong leasing activity and making significant progress in its development projects, which are providing positive momentum. However, short-term financial pressures and extended timelines for deal completions pose challenges. The market demand, particularly in urban centers, remains robust, indicating potential for future growth.
Positive Leasing Momentum
Leasing activity has been robust, with over 588,000 square feet leased, including a notable 75,000 square feet of expansion from existing users. The leased area now stands at 87.2%, with a year-to-date retention ratio of 69%. This strong leasing momentum underscores the demand for Allied Properties’ offerings and bodes well for future occupancy rates.
Development Progress
Allied Properties has made significant strides in its development projects, such as M4 in Vancouver, which is 77% leased, and Toronto House, achieving a 48% lease-up. These projects are expected to contribute between $90 million and $103 million in stabilized Net Operating Income (NOI) upon completion, highlighting the company’s strategic focus on growth through development.
Balance Sheet Strengthening
Efforts to strengthen the balance sheet are on track, with a goal to reduce the net debt-to-EBITDA ratio below 10x by the end of 2025 and below 9x by the end of 2026. The company has $200 million in asset sales under contract, which will aid in debt reduction and support financial stability.
Strong Market Demand
There is increased demand for urban workspaces across all sectors and markets, with tour activity up 13% from the previous quarter and 21% from the prior year. This trend indicates a healthy appetite for Allied Properties’ urban-centric real estate offerings.
Short-term Pressure on FFO and AFFO
The company faces short-term pressure on Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) per unit due to higher interest costs from recent acquisitions. This pressure is a temporary challenge as the company navigates the current economic landscape.
Challenges in Vancouver
Performance in Vancouver has been below expectations, with leased area performance not meeting targets. However, the company is making progress in addressing acquired vacancy, which should improve future performance in this market.
Extended Leasing Timelines
Leasing deals are taking longer to complete due to macroeconomic disruptions and the availability of options. This extension in timelines is a challenge that the company is actively working to manage.
Forward-looking Guidance
Looking ahead, Allied Properties REIT has outlined several strategic initiatives and key metrics for the fiscal year. The company reported an NOI growth of 1.1% for the rental portfolio and an increase in the average in-place net rent per occupied square foot to $25.32. The company aims to achieve a net debt-to-EBITDA ratio of under 10x by the end of 2025 and under 9x by the end of 2026. With $200 million in assets under sale contracts, they are contributing to a planned $300 million disposition program for the year. Development projects are on track to be completed by the end of 2027, contributing substantial NOI upon stabilization.
In summary, Allied Properties REIT’s earnings call reflects a cautiously optimistic outlook. While the company faces short-term financial pressures and extended leasing timelines, strong leasing activity and development progress provide positive momentum. The robust market demand, particularly in urban centers, suggests potential for future growth, positioning the company well for continued success.