DBRS Morningstar Confirms Ratings on Allied Properties Real Estate Investment Trust at BBB, Stable

On August 16, 2023, DBRS, Inc. (DBRS Morningstar) confirmed the Issuer Rating and the Senior Unsecured Debentures rating of Allied Properties Real Estate Investment Trust (Allied or the REIT) at BBB. All trends remain Stable. These rating actions take into consideration the use of proceeds from the sale of Allied’s urban data-center portfolio in Downtown Toronto (the Transaction) to repay debt (approximately $1 billion) and the remainder will fund its development activity until 2024.

With the sale, the financial risk assessment has been negatively affected due to EBITDA interest coverage declining to 2.44 times (x), but offset by the leverage as calculated by total-debt-to-EBITDA, improving to 9.8 times (x). The ratings are also supported by (1) strong asset quality with niche property segments; (2) high-quality real estate portfolio underpinned by defensible properties; (3) superior diversification by tenants with well-laddered lease maturities; and (4) low secured debt-to-total debt with well-laddered debt maturity schedule. The ratings are constrained by (1) lag in office leasing activity; (2) capital intensive growth plans and execution risks; and (3) concentration risks in terms of segment, geography, and property.

The Stable trends are a result of DBRS Morningstar’s expectation that the REIT’s total debt-to-EBITDA and EBITDA interest coverage will operate in the 9.8x range in the near to medium term, compared with 12.5x (pro forma use of proceeds from the Transaction) for the last 12 months (LTM) ended June 30, 2023, and 2.44x in the near to medium term, compared with 2.26x (pro forma use of proceeds from the Transaction) for the LTM ended June 30, 2023, respectively. The Stable trends also considers Allied’s ability to execute leasing on its current portfolio as well as manage its development properties.

DBRS Morningstar would consider a negative rating action if leverage targets as measured by total debt-to-EBITDA and coverage ratio expectations as measured by EBITDA interest coverage are not met pursuant to expectations previously outlined. A positive rating action is not considered at this time.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784.

Notes:
DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Entities in the Real Estate Industry (April 11, 2023; https://www.dbrsmorningstar.com/research/412477)

The following methodologies have also been applied:
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023; https://www.dbrsmorningstar.com/research/416784)

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate- finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

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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