DBRS Morningstar Comments on Allied Properties Real Estate Investment Trust's Announcement of the Sale of its Urban Data-Center Portfolio

DBRS, Inc. (DBRS Morningstar) notes that on June 21, 2023, Allied Properties Real Estate Investment Trust (Allied or the REIT) announced the sale of its urban data-center portfolio to KDDI Corporation for $1.35 billion.

Allied has indicated it will use approximately $1 billion of the sale proceeds to repay debt and the remainder will fund its development activity until 2024. The sale will also require Allied to pay a special distribution to all unitholders as at December 31, 2023. Allied’s announcement is consistent and in line with DBRS Morningstar’s expectations, whereby the REIT will use sale proceeds toward debt repayment and deleveraging.

The sale and use of proceeds to repay debt will significantly improve the REIT’s financial risk assessment profile, while its business risk assessment will see modest deterioration, such as diversification. DBRS Morningstar expects Allied’s leverage as measured by the total debt-to-EBITDA ratio will improve in the 9.0 times (x) range upon closing of the transaction.

As stated in the latest rating action, DBRS Morningstar would consider a positive rating action if Allied’s total debt-to-EBITDA ratio were to decline below 8.6x and EBITDA interest coverage were to remain strong, on a sustained basis, all else being equal, while it prudently managed development execution risk, with limited disruption to its operations. DBRS Morningstar would consider a negative rating action if Allied’s total debt-to-EBITDA ratio were to remain above 9.3x on a sustained basis, all else being equal, assuming the successful completion of the transaction is consistent with DBRS Morningstar’s expectations.

DBRS Morningstar anticipates revisiting the ratings when the transaction closes, which is expected to be by the end of Q3 2023, subject to the necessary approvals.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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