I read your response on June 24 on Allied REIT and was wondering about your specifics concerns on the company. You mentioned debt, vacancy and payout as main concerns for these office REIT. Allied reports a debt to GBV ratio of 36%, 87% occupancy, 2.8X interest coverage. The payout ratio is probably too high. Allied reports a book value per unit in the mid $40s and it’s trading at about $16. Obviously, Allied reported Cap Rates for their book is too optimistic. Their unsecured debt was downgraded to junk, it seems because of high debt level. What do you think is the main factor explaining the stock price (sentiment towards office or fundamentals)? Their leverage seems to be reasonable but likely higher than investors would like. Occupancy level are better than average. Your general comments are appreciated. Thank you.
The factors mentioned in the question and in our prior answers are all relevant. But we think sentiment is playing a big role also. Investors have more or less written off the office market. They (and we) are not sure of the catalyst that will get occupancy back to the 95% level. Without growth, then of course it is just an income stock, and with concerns on debt investors shy away. Plus, sentiment also impacts investors' perception of the value of the portfolio. Certainly book value is overstated in the current market. Momentum also plays a role. The stock is down 21% YTD and 18% in a year, and selling often begets more selling. With payout ratio near 100%, investors expect a cut as well. It is also (now) fairly small at $2B market cap. Really, the only attractiveness to us in the valuation. Nothing else really is compelling.