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Allied acquiring majority stake in Van.'s 400 West Georgia, Toronto's 19 Duncan

Converting financing to equity to fund acquisitions of $920.7M properties from Westbank

The distinctive 400 West Georgia tower in Vancouver (Courtesy Westbank)
The distinctive 400 West Georgia tower in Vancouver (Courtesy Westbank)

UPDATED: Allied Properties REIT is acquiring a 90 per cent stake in the distinctive 400 West Georgia office tower in Vancouver from Westbank in a financing transaction which values the property at $395 million. 

Allied (AP-UN-T) is also increasing its ownership interest in 19 Duncan St. in Toronto to 95 per cent in a transaction that values that property at $525.7 million. Westbank is also the vendor in that deal as it looks to reduce debt.

The Toronto-based REIT also noted in the release it has several other property sales pending as a result of "unsolicited offers" in Toronto and Montreal, and it intends to complete the ownership reorganization of Calgary’s TELUS Sky tower in the second quarter of this year.

“The three transactions (TELUS Sky, 400 West Georgia and 19 Duncan), along with our contemplated property sales in Montréal and Toronto, will continue the ongoing upgrade of our urban workspace portfolio and establish our urban rental-residential portfolio in a concrete, material and timely way,” Michael Emory, Allied’s founder and executive chair, said in the release.

”Within a short period of time, these transactions will continue the ongoing strengthening of our debt-metrics and propel growth in our cash-flow per unit.”

400 Westbank and 19 Duncan

400 West Georgia is comprised of 345,034 square feet of office space, 5,525 square feet of retail and 163 underground parking stalls. The property is 82 per cent leased to Deloitte, Apple, Northeastern University, Spaces, RBC, a local café and a local restaurant, with a weighted-average lease term of just over 11 years. 

The property was designed to a LEED Platinum standard. Westbank developed and currently owns the property. 

Allied provided a $198-million secured mezzanine loan to Westbank in connection with the development. The property is also subject to $250 million in secured financing.

19 Duncan is a redevelopment of the former Southam Press Building which is comprised of 154,074 square feet of office space, 15,411 square feet of retail, 464 rental-residential units, plus common areas and other facilities, and 131 underground parking stalls. 

Designed to a LEED Gold standard, the office component of the 57-storey tower is leased to Thomson Reuters with a remaining lease term of 9.4 years. 

The rental-residential component is expected to be leased over the remainder of 2024. Allied and Westbank currently own the property in equal shares. The property is also subject to construction financing of up to $295 million.

How the finances work

Allied will convert $130.5 million of the mezzanine loan to equity in exchange for the 90 per cent interest in 400 West Georgia.

Allied plans to reduce the secured financing over the course of 2024 and into 2025 by selling less-strategic properties in Toronto. Allied will take over property management at 400 West Georgia as of Jan. 1, 2025.

At 19 Duncan, Allied will increase its position to a 95 per cent interest by converting the remaining $67.5 million of the mezzanine loan to equity and making a cash payment to Westbank of $36.3 million. 

The amount payable in cash will be funded in part with the proceeds from the TELUS Sky reorganization and in part through the sale of less-strategic assets in Montréal.

Allied expects the 400 West Georgia and 19 Duncan transactions to close in early April. 

“The transactions will reduce Westbank’s debt to Allied materially and afford Allied a large ownership position in two triple-A urban properties as they near successful completion and full lease-up,” the announcement states. 

Allied's debt position

The transactions will increase Allied’s own debt position, but the trust expects this to be temporary as a result of the planned property sales and EBITDA growth courtesy of the lease-up of other development properties, particularly the rental-residential component of 19 Duncan.

After Allied completed the sale of its urban data centre portfolio in 2023, several other firms made “unsolicited offers” for some of its properties in Montréal and Toronto. 

“Over the course of 2024 and into 2025, Allied will work toward selling less-strategic properties in its portfolio at IFRS value for aggregate proceeds of up to $200 million,” the release states.

Proceeds will help fund the 400 West Georgia and 19 Duncan transactions, and continue to lower the company’s debt.

The TELUS Sky reorganization will result in TELUS owning 100 per cent of the commercial component of the 60-storey tower, which was completed in 2019, while Allied and Westbank will own equal shares of the residential. The three entities were equal partners in the development.

Allied's website lists about 110,000 square feet of space for lease in the tower.

The trust had a relatively conservative debt ratio of 34.7 per cent at the end of fiscal 2023, down from 35.6 per cent a year earlier. It reported approximately $1.1 billion in liquidity.

Its financial position was further strengthened by the completions and transfer of over 567,000 square feet of space from development to its rental portfolio during the final six months of the year.

CEO Cecilia Williams reported, during Allied's Q4 2023 investor call, the REIT expects to complete all its current major development projects by the end of 2025.

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