Laurentian Bank Securities analyst Frederic Blondeau notes on Oct. 28 that significant macroeconomic risk is in play for Allied Properties REIT – Canada’s dominant Class 1 Office landlord (that’s heavily exposed to the technology sector).
Those macroeconomic concerns are pushing its valuation to 52-week lows, and thus, making the stock “increasingly attractive”, Mr. Blondeau concludes with a “buy” recommendation and target price of $36 per unit for Allied Properties REIT (TSX—AP.UN). Now tech is on the rebound in Toronto — Toronto is the fastest growing tech market in North America. With 80,100 tech jobs created, Toronto’s tech job growth was greater than the job growth in New York City, Seattle, and Boston combined.
“Notwithstanding investors’ perception of technology-related risks potentially translating to Allied Properties, management continues to see relatively solid demand from technology tenants, which extends to biotech and life science tenants. That said, generally speaking, management also mentioned the stretching out of negotiating timeframes, and expects fourth-quarter 2022 to be even more informative in this regard,” the analyst comments.
“In parallel, we think at these levels AP’s value proposition is attractive given the highly institutional quality of the portfolio, notably with the REIT’s units currently trading at a 38 per cent to our forward twelve-month NAV (net asset value) per unit estimate of $44.10, and at a 47 per cent discount to the REIT’s reported NAV per unit of $51.10.”
The REIT will likely acquire $25 million in properties in the fourth quarter of 2022 and $100 million in 2023. Mr. Blondeau admits this estimate could prove to be conservative.
Looking at the development pipeline post-2022, excluding The Well and King & Brant developments in Toronto, the pipeline is relatively light from a REIT’s historic perspective. The analyst forecasts a total estimated completion cost of $185.5 million, with three of the five projects already 100 per cent pre-leased to tenants.
With Mr. Blondeau’s “buy” recommendation, along with seven other “buy” recommendations and one “hold”, Allied Properties is in a two-way tie for third place on our top-10 “buys” list.
This is an edited version of an article that was originally published for subscribers in the November 18, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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Investor's Digest of Canada •1/9/23 •