Allied Properties Real Estate Investment Trust (“Allied”) (TSX:
“AP.UN”) today announced that it has entered into an agreement to
sell its network-dense, carrier-neutral, urban-data-centre (UDC)
portfolio in Downtown Toronto (the “Portfolio”) to KDDI Corporation
(“KDDI”) for $1.35 billion, $118 million above IFRS net asset
value.
The Portfolio is comprised of freehold interests
in 151 Front Street West (“151 Front”) and 905 King Street West
(“905 King”) and a leasehold interest in 250 Front Street West
(“250 Front”). Allied has connected the properties through
high-count, diverse fibre, enabling the Portfolio to support more
telecommunication, cloud and content networks than any other
data-centre portfolio in Canada. The Portfolio is unencumbered and
does not include 20 York Street and Skywalk, the 2.5-acre site for
Union Centre that is now zoned for just over 1.3 million square
feet of urban workspace.
KDDI is a Japanese telecommunications provider
and Fortune Global 500 company that owns and operates data-centres
in Asia, Europe and the United States through its subsidiary,
Telehouse. As a carrier-neutral data-centre provider, Telehouse
hosts more than 1,000 connectivity partners, including leading
internet exchanges, Tier 1 carriers, major mobile, cloud and
content providers, as well as enterprise and financial services
companies.
“With global data-centre operating capability,
KDDI is an ideal successor owner-operator for our UDC portfolio,”
said Michael Emory, Allied’s Founder and Executive Chair. “We’ll
work closely with KDDI over the next 18 months to transition local
expertise in relation to the portfolio. We’ll also work
collaboratively with KDDI as the site for Union Centre continues to
evolve toward the large-scale development of urban workspace in the
coming decade.”
The Sale
Allied acquired 151 Front in 2009 and has driven
significant earnings and value growth since then, both organically
and through the addition of 905 King and 250 Front. Over the past
five years, Allied has successfully propelled the Portfolio toward
earnings and value optimization.
Allied explored a variety of monetization
alternatives for the Portfolio through Scotiabank in the second
half of last year and determined that the best course of action
financially and operationally was to sell the Portfolio in its
entirety. As announced on January 16 of this year, Allied initiated
a comprehensive sale process through Scotiabank and CBRE Limited
(“CBRE”) as exclusive selling agents. Scotiabank and CBRE contacted
97 potential buyers worldwide and conducted a multi-round process
that culminated in final bids on June 2.
Use of Proceeds
The sale is expected to close before the end of
the third quarter this year, subject only to Competition Act
approval and customary closing conditions. The sale proceeds will
be payable in cash. Allied will use approximately $1 billion of the
proceeds to retire debt and the balance to fund its upgrade and
development activity over the remainder of 2023 and into 2024.
The sale will result in a significant increase
in taxable income for fiscal 2023, requiring Allied to declare and
pay a special distribution to all Unitholders of record as at
December 31, 2023. Allied will determine how best to make the
special distribution as the year unfolds.
Reaffirmation of Mission
Allied is first, foremost and above all an
owner-operator of distinctive urban workspace in Canada’s major
cities. Allied’s mission is to serve knowledge-based organizations
ever more successfully over time. The sale of the Portfolio will
enable Allied to reaffirm its mission and to pursue continued
growth in NOI and IFRS value in a more focused and prudent
manner.
Over the past two decades, Allied assembled the
largest and most concentrated portfolio of economically-productive,
underutilized urban land in Canada, one that affords extraordinary
mixed-use intensification potential in major cities going forward.
Allied believes deeply in the continued success of Canadian cities
and has the operating platform and the breadth of funding
relationships necessary to drive value in the coming years and
decades for the benefit of its constituents.
“As a public real estate entity committed to
distributing a large portion of free cash flow regularly, we’ve
funded growth primarily through equity issuance,” said Mr. Emory.
“The sale proceeds will enable us to fund near-term growth,
primarily in the form of upgrade and development completions, while
maintaining unprecedented levels of liquidity and targeted
debt-metrics. In the longer-term, we plan to take advantage of a
broader range of funding opportunities than we have in the past.
Regardless of how we fund growth going forward, we’ll remain fully
committed to our distribution program.”
Commitment to the Balance
Sheet
Allied has demonstrated commitment to the
balance sheet over its life as a public real estate entity. Allied
utilized its balance sheet flexibility in the past three years to
fund upgrade and development activity and to take advantage of
strategic in-fill acquisition opportunities that would not have
arisen in a stable economic environment, pushing its debt-metrics
to the high end of Management’s target ranges.
On completion of the sale and utilization of
approximately $1 billion of the proceeds to retire indebtedness,
Allied expects the following at the end of the fourth quarter of
this year:
(i) that its total indebtedness
ratio will be approximately 32.7%;
(ii) that its net debt as a multiple
of Annualized Adjusted EBITDA will be approximately 8.0x; and
(iii) that its interest-coverage
ratio will be approximately 3.0x.
Allied also expects that its net debt as a
multiple of Annualized Adjusted EBITDA will decline steadily over
the next three years as the large-scale developments in its
pipeline are completed.
“Our debt-metrics will be back within targeted
ranges and will continue to improve as our upgrade and development
activity drives EBITDA growth,” said Cecilia Williams, Allied’s
President and Chief Executive Officer. “The transaction will also
be accretive to FFO and AFFO per unit, as the interest savings will
more than offset the decline in NOI resulting from the sale of the
portfolio.”
Advisors
Scotiabank, CBRE and Aird & Berlis LLP are
acting as advisors to Allied in connection with the
transaction.
BofA Securities, Borden Ladner Gervais LLP and
Nishimura & Asahi are acting as advisors to KDDI in connection
with the transaction.
Cautionary Statements
NOI, total indebtedness ratio, net debt as a
multiple of Annualized Adjusted EBITDA, interest-coverage ratio,
FFO and AFFO are not financial measures defined by International
Financial Reporting Standards (“IFRS”). Non-IFRS measures do not
have any standardized meaning prescribed under IFRS, and therefore,
may not be comparable to similarly titled measures presented by
other publicly traded entities, and should not be construed as
alternatives to net income or cash flow from operating activities
calculated in accordance with IFRS. Refer to the Non-IFRS Measures
section in Allied’s most recent MD&A for an explanation of the
non-IFRS measures used in this press release, their usefulness for
readers in assessing Allied’s performance and their reconciliation
to financial measures defined by IFRS as presented in Allied’s most
recent financial statements. Such explanation is incorporated by
reference herein. These statements, together with accompanying
notes and MD&A, have been filed on SEDAR, www.sedar.com, and
are also available on Allied’s website, www.alliedreit.com.
This press release may contain forward-looking
statements with respect to (i) Allied, (ii) its operations,
strategy, financial performance and condition and (iii) the closing
and expected impact of the transactions contemplated in this press
release. These statements generally can be identified by use of
forward-looking words such as “may”, “will”, “expect”, “estimate”,
“anticipate”, “intends”, “believe” or “continue” or the negative
thereof or similar variations. The actual results and performance
of Allied discussed herein could differ materially from those
expressed or implied by such statements. Such statements are
qualified in their entirety by the inherent risks and uncertainties
surrounding future expectations, including that the transactions
contemplated herein are completed and have the expected impact on
funding and earnings. Important factors that could cause actual
results to differ materially from expectations include, among other
things, general economic and market conditions, competition,
changes in government regulations and the factors described under
“Risk Factors” in Allied’s Annual Information Form, which is
available at www.sedar.com. These cautionary statements qualify all
forward-looking statements attributable to Allied and persons
acting on Allied’s behalf. Unless otherwise stated, all
forward-looking statements speak only as of the date of this press
release and Allied has no obligation to update such statements.
About Allied
Allied is a leading owner-operator of
distinctive urban workspace in Canada’s major cities. Allied’s
mission is to provide knowledge-based organizations with workspace
that is sustainable and conducive to human wellness, creativity,
connectivity and diversity. Allied’s vision is to make a continuous
contribution to cities and culture that elevates and inspires the
humanity in all people.
FOR FURTHER INFORMATION, PLEASE
CONTACT:
Michael EmoryFounder and Executive Chair(416)
977-9002memory@alliedreit.com
Cecilia WilliamsPresident and Chief Executive Officer(416)
977-9002cwilliams@alliedreit.com
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