Q: Good Morning
Today Allied announced that a buyer has been found for their Data Center after six months. A Japanese corporation will pay $1.3 billion. As well, Allied will pay to existing shareholders a special distribution. $1 billion of the proceeds will be used to reduce debt. Aren’t these positive developments? I am wondering why the market is reacting negatively. Allied is down today almost 3% to a level not seen since 2008.
Can you please provide some insight ? Any estimated probability with respect to the dividend cut will be appreciated. Do you advise an income investor to hold or sell ?
Thanks for your on going support.
Today Allied announced that a buyer has been found for their Data Center after six months. A Japanese corporation will pay $1.3 billion. As well, Allied will pay to existing shareholders a special distribution. $1 billion of the proceeds will be used to reduce debt. Aren’t these positive developments? I am wondering why the market is reacting negatively. Allied is down today almost 3% to a level not seen since 2008.
Can you please provide some insight ? Any estimated probability with respect to the dividend cut will be appreciated. Do you advise an income investor to hold or sell ?
Thanks for your on going support.
5i Research Answer:
From a financial standpoint we view it as positive, and the stock did rise initially on the news. But investors likely reconsidered that AP.UN was likely selling its 'best' asset, leaving it more exposure to the commercial space than before. Debt will still be on the high side, at 8X EBITDA, even after the sale. Payout ratio last year was 75%. The sale reduces debt but also cash flow (offset by interest cost savings). With the decision to pay a special distribution we would not expect a cut in the short term (this would make little sense to us). There is risk here still, and units are not acting great, but considering the sale and the very low valuation we would put it into the HOLD category today.