Thoughts on Allied REIT (AP.UN)

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Hi there,

What are your thoughts on Allied REIT (AP.UN)?  They have strong properties in great areas but are getting hit right now because of people working from home.  Is this a good time to still buy since it is currently below book value?

Thanks,

Phil

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Asked on June 3, 2020 6:53 am
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Private answer

So, one major thing you'll find with Allied if you do some digging is that Shopify is a major tenant. It's fifth largest.

Recently, Shopify CEO Tobi Lutke essentially said the era of office work spaces is over, and he plans for a more work-from-home business model. The company has stated that they will keep offices closed until 2021, and test out how well they can function.

With it being the REIT's fifth largest client, it would definitely hurt, but wouldn't be an absolute deal breaker if Shopify were to not renew its leases.

However, Shopify starting and building a trend is what is way more concerning.

In terms of the REIT itself, it collected a healthy amount of rent in April, and the distribution is well covered and should be safe (but ultimately unpredictable in this environment, as we've seen a ton of dividend cuts we didn't expect.)

Right now the REIT is trading at pretty low valuations, like you've suggested. The thing that is keeping it down is simply the uncertainty. And in terms of analysis in the future, it's very very hard to determine if this trend will continue.

If the work-from-home model catches on, there is no doubt Allied would suffer significantly. Maybe not in the short term because of its current leases, and pre-leases extending into 2022, but beyond that revenue would inevitably drop.

If the work-from-home model doesn't catch on, and businesses return to "normal" operations, you've got a REIT trading at a pretty big discount, and one that has been seeing very fast growth.

You've got a great company with a cloudy future. This would all come down to personal opinion, as there is really no fundamental basis to rely on in terms of whether or not the stay at home model will keep growing.

Hope this helps

Dan

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Posted by Dan Kent
Answered on June 4, 2020 10:14 am
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Hey there, sorry for the delayed response! I'm going to have a look at this and let you know by the end of the day tomorrow.

Cheers

Dan

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Posted by Dan Kent
Answered on June 3, 2020 4:08 pm