Allied Properties is selling its urban data centre portfolio in downtown Toronto to a Japanese telecommunications company for more than $1B.

Allied Properties Real Estate Investment Trust announced on Wednesday that it has entered into an agreement to sell its network-dense, carrier-neutral urban data centre portfolio to KDDI Corporation for $1.35B, $118M above International Financial Reporting Standards (IFRS) net asset value.

The portfolio consists of freehold buildings at 151 Front Street West and 905 King Street West, as well as a leasehold at 250 Front Street West. The properties are connected thorough high-count, diverse fibre, which, according to Allied, enables them to "support more telecommunication, cloud, and content networks than any other data centre portfolio in Canada."

The sale, which is subject to Competition Act approval, is expected to close before Q4 2023. Allied plans to use roughly $1B of the proceeds to retire debt, while the remaining funds will be directed towards upgrade and development activity through early 2024.

"The sale proceeds will enable us to fund near-term growth, primarily in the form of upgrade and development completions, while maintaining unprecedented levels of liquidity and targeted debt-metrics," said Michael Emory, Allied’s Founder and Executive Chair.

"In the longer-term, we plan to take advantage of a broader range of funding opportunities than we have in the past. Regardless of how we fund growth going forward, we’ll remain fully committed to our distribution program."

After exploring a "variety of monetization alternatives" for the urban data centre portfolio in the second half of 2022, Allied determined the best course of action, both financially and operationally, was to sell it in its entirety.

A comprehensive sale process began in January 2023, with Scotiabank and CBRE as exclusive agents. The companies contacted 97 potential buyers across the world, which culminated in final bids on June 2.

KDDI is a Fortune 500 company that owns and operates data centres in more than 60 cities across the United States, Europe, and Asia through its subsidiary, Telehouse. The data centre company hosts more than 1,000 connectivity partners, including major mobile and content providers.

The company's global data centre operating capabilities make KDDI "an ideal successor owner-operator" for Allied's urban data centre portfolio, noted Emory.

"[This is] an exciting investment which will enhance connectivity capabilities for Canadian businesses," said Yasuaki Kuwahara, Member of the Board, Senior Managing Executive Officer, and Head of Business Solution at KDDI.

"With many North American organizations accelerating their digital transformation and innovation initiatives, we're delighted to be able to play a part in their success, offering reliable, scalable, flexible, and secure services to modernize and future-proof IT environments."