On Wednesday, Allied Properties REIT delivered lower-than-expected second quarter results which remained less than our estimate to some extent and a 4.89 million unit equity offering for gross earnings of $172.78 million. We noticed that Richmond Street West congeals Downtown West supremacy. Firm put in $100 million of the offer earnings to purchase the 300,000 square feet property at a strong 6.4% capital rate. The asset is well secured (almost 95% occupied), but a splintered tenant basis and 21,000 square feet of additional land provides a prospect to include higher tenants down the road. Moreover, the additional $6.4 million of annual net operating income should drive to an investment grade rating.
While firm finished 15,000 square feet of leasing (at estimated net rent), we believe profitable implementation on a 70,000 square feet tenant dialogue pipeline is important for its unit price. Leasing impetus at the property seems to be happening. We reviewed that second quarter fund from operations per unit to some extent remained below our estimate. Timing of acquisition net operating income and 60,000 square feet fall in occupancy at 5455 De Gaspe affected results. Our 2014 estimated fund from operations per unit is dropped by $0.04 while 2015 estimated fund from operations per unit is consistent.
Our upward model remains intact with striking growth possible separates firm from the remaining. We reiterate our “Sector Outperform” rating, increasing our target price up a moderate $0.25 to $37.75. As the second quarter is to some extent less than our and consensus expectations, we review the disclosed acquisition of 555 Richmond Street West in Toronto as a optimistic, while leasing impetus for its business is optimistic. Few leasing growth was declared at 250 Front Street in Toronto, however we doubt furthermore is required to take the unit price greater from current position.
We believe that firm is an ideal REIT to hold in a prospective growing interest rate environment. We anticipate it can gain superior organic growth, higher annual distribution per unit growth (3.5% versus 1.8%), and overall reiterating more or less conservative leverage (6.9 times debt/EBITDA versus 8.5 times). We still advise firm to investors looking for quality urban office exposure and safety against rising interest rates.