One of Canada's largest office REITs is moving ahead with a plan to sell off its data centres, valued at $1.3 billion, as it looks to pay down debt.
Toronto-based Allied Properties, which has a portfolio worth almost $12 billion, first said it was exploring the sale in November and has now hired Scotiabank and CBRE Limited as exclusive selling agents.
The data centre portfolio includes freehold interests in 151 Front St. West and 905 King St. West, as well as a leasehold interest in 250 Front St. West.
The REIT said that Allied had connected the properties through high-count, diverse fibre that enables more telecommunication, cloud and content networks than at any other data-centre portfolio in Canada. The portfolio has no debt.
"Our principal motivation here is two-fold. First, we want to reaffirm our mission and pursue it over the next few years with low-cost capital. Second, we want to supercharge our balance sheet and reduce our dependence on the capital markets going forward," said Michael Emory, president and CEO of the REIT, in a statement.
"If successful in selling the portfolio, Allied expects to use a significant portion of the sale proceeds to retire debt and the balance to fund its current development activity. Allied may elect to use a portion of the sale proceeds to buy back units."
Office Advocate
Emory has been an outspoken proponent of return-to-office policies, including publishing papers on the company's website about "enduring" Canadian cities. The REIT's 14 million square feet of property are in Vancouver, Calgary, Edmonton, Montreal, Ottawa, Toronto and Kitchener.
But Allied sees itself as mainly an operator of distinctive urban workspace targeting knowledge-based organizations. The REIT started in Toronto with so-called brick-and-beam space, which focused on converting old industrial buildings into offices. Its initial public offering was in 2003.
"Our urban data centre portfolio was connected to our mission from the beginning, but it is not core to our mission in the way urban workspace is," Emory said.
"As a stabilized asset in a currently favoured sector, the portfolio represents a promising and timely monetization opportunity, one that could enable Allied to grow its business going forward in the most flexible and prudent manner."
Management expects the interest savings from any sale to offset fully the decline in earnings resulting from the sale.
Still, the office market continues to show signs of weakness, with the latest report from CBRE suggesting demand has declined after two quarters of improvement.
"The overall national office vacancy rate increased after holding steady at 16.4% for two consecutive quarters and ended the year at 17.1%. Few markets escaped the rising tide with seven of 10 markets experiencing growing vacancy this quarter," the real estate company stated in a report issued this month.