TORONTO
Allied Properties Real Estate Investment Trust has slashed its monthly cash distribution to unitholders by 90 per cent, its second payout cut in the past year, as it focuses on repaying debt and selling properties.
The Toronto-based REIT reduced its distribution to 0.006 cents per unit, or seven cents annually, the company said late Wednesday.
"We recognize that Allied’s performance has been disappointing for our unitholders and that this distribution reduction adds to that disappointment," Allied chief executive officer Cecilia Williams said on a conference call Thursday.
"We’re accountable for improving Allied’s financial position, and these decisions are both difficult and necessary steps toward that goal," Williams said.
The move will boost Allied's cash flow by $126 million a year. The price of Allied units dropped about 19 per cent Thursday to close at $4.32 on the Toronto Stock Exchange.
Analysts had predicted a cut but were surprised by its scale.
"The 90-per-cent distribution reduction is far greater than our 50-per-cent forecast," said analyst Mario Saric at Bank of Nova Scotia in a report.
RBC Capital Markets analyst Pammi Bir said the cut "underscores the depths of Allied Properties’ challenges, including raised leverage."
Allied owes lenders $4 billion. The REIT owns $8.2 billion in properties and has boosted its long-term target for property sales to a range of $750 million to $1.5 billion.
Chief financial officer Craig MacIntyre said, "No asset in the portfolio is off limits."
Allied management won praise from National Bank Capital Markets analyst Matt Kornack, who called the distribution cut "a positive move for the REIT" that "should have been done sooner."
"It will go a long way to aiding in the goal of deleveraging, especially when combined with an accelerated disposition program," Kornack said.
The REIT reported stronger-than-expected leasing in its third-quarter update, raising its year-end occupied area outlook to between 86.0 and 86.5 per cent.
It has sold $321 million of properties this year and expects to dispose of another $340 million by the end of December, putting it on track to exceed its goal of $500 million in asset sales this year.
An expanded disposition program is expected to generate between $650 million and $700 million in 2026.
One of Allied's problem properties is an office-to-data centre conversion in Vancouver called 150 West Georgia. Allied lent $268 million to its partner on the project, Westbank Corp., and expected partial repayment of $125 million this year.
On Wednesday, Allied said it no longer expected payment on that loan by December "due to construction delays being managed by a third party and ongoing discussions with prospective purchasers."
The REIT has hired consulting firm Finnegan Marshall Inc. as its "development monitor and cost consultant" on the Vancouver project and said it "is actively engaged with its advisers to evaluate and pursue alternatives to maximize recovery of its outstanding loan."
Allied's landmark buildings include The Well, a 3.1-hectare office-and-residential development in downtown Toronto developed in partnership with RioCan REIT. Tech company Shopify Inc. was meant to be a major tenant but opted out of its lease.
On Thursday, Allied executives said they have released Shopify's space to other commercial tenants.
In February, Allied raised $560 million by selling units to investors for $10 each, including $160 million of units sold to the Alberta Investment Management Corp.
Last December, Allied cut its distributions by 60 per cent. The price of the REIT’s units has fallen by 78 per cent over the past year.
This story was written by the e2gold.ca newsroom from reporting by The Globe and Mail and TipRanks. Quotes are checked word for word against that reporting.