Canadian office space operator takes C$500 mln writedown, shares slump

Allied Properties Real Estate Investment Trust

01/02/2024 20:50

By Nivedita Balu
       TORONTO, Feb 1 (Reuters) - Shares of Canadian office
space operator Allied Properties REIT  AP_u.TO  slumped nearly
10% on Thursday after it disclosed a C$499 million ($372.83
million) writedown as offices remained sparsely staffed in big
Canadian cities including Toronto and Montreal. 
    The REIT, or real estate investment trust, which issues
shares to investors against a portfolio of office real estate
holdings, said the about C$70 million losses came from
development property valuations in Toronto and Montréal and
about C$425 million came from rental-property valuations in
Toronto, Montréal, Calgary and Vancouver.
    Allied Properties said occupancy at its properties fell to
86.4% from nearly 90% a year ago. 
    The Toronto-based firm's shares were on track for their
worst day in nearly four years and dragged down peer Dream
Office Real Estate Investment Trust  D_u.TO .
    The results come just a day after New York Community Bancorp
 NYCB.N  renewed fears about the industry's health after it
reported pain in its commercial real estate portfolio and
slashed divided.
    Canada's big banks, which are preparing to report
first-quarter earnings, have warned about weakness in office
real estate space, especially in the U.S. 
    Last month, the head of the banking regulator Peter
Routledge warned that global banks were poised to take a hit as
the risk of commercial real estate grows. 
    Office spaces, once seen as lucrative investments, are under
stress. Property valuations declined and revenue opportunities
slimmed as companies shifted to hybrid work arrangements after
the pandemic, leaving many office spaces in downtown core areas
empty. 
    Canada's No.5 bank CIBC  CM.TO  in August said it would
reduce focus on U.S. commercial real estate to grapple high bad
loan provisions, marking a shift in its portfolio composition.
    Allied Properties said it now expects financial metrics that
measure the cash generated by the REIT to contract up to 5% in
the first half of the year. 
    "Management does expect economic occupancy gains in the
second half of the year, but cannot be certain as to the
magnitude of those gains, given the current macroeconomic
environment," it said in a statement. 
    Raymond James analyst Brad Sturges noted that he was moving
the stock to the "sidelines until office fundamentals
stabilized" and downgraded the stock citing the near-term
challenges for Canadian office assets.


($1 = 1.3384 Canadian dollars)

 (Reporting by Nivedita Balu in Toronto; Editing by David
Gregorio)
 ((Nivedita.Balu@thomsonreuters.com; X: @niveditabalu;))