Allied Properties Real Estate Investment Trust Q1 2026 Earnings Report

Allied Properties Real Estate Investment Trust EPS Results

• Actual EPS: -C$1.15
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Allied Properties Real Estate Investment Trust Revenue Results

• Actual Revenue: $143.93 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Allied Properties Real Estate Investment Trust Announcement Details

• Quarter: Q1 2026
• Date: 4/29/2026
• Time: After Market Closes
• Conference Call Date: Thursday, April 30, 2026
• Conference Call Time: 10:00AM ET

Allied is a leading owner-operator of distinctive urban workspace in Canada's major cities. Allied's mission is to provide knowledge-based organizations with workspace that is sustainable and conducive to human wellness, creativity, connectivity and diversity. Allied's vision is to make a continuous contribution to cities and culture that elevates and inspires the humanity in all people.

Allied Properties Real Estate Investment Trust Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Leasing momentum is improving — the company leased over 500,000 sq ft in Q1, ended the quarter at 87.1% leased (85.0% occupied), and reports a total pipeline up 20% (new pipeline up 36%), with confidence in reaching the year-end occupancy target of 84%–86%.
• Positive Sentiment: Balance-sheet repair is progressing: Allied completed an equity issuance, reduced net debt/EBITDA to 12.3x, closed CAD 46M of dispositions in Q1 and has gone firm on additional post-quarter assets expected to generate CAD 201M, keeping the CAD 500 million disposition program on track and targeting mid-11x leverage by year-end.
• Negative Sentiment: The King Toronto development is creating near-term risk — management recorded additional impairments and expected credit losses, cites higher completion costs and delays, has taken over on-site construction management, is carrying a 35% assumed condo presale default rate, and raised 2026 capex by CAD 40M–50M.
• Neutral Sentiment: Q1 operating results were broadly in line with guidance — FFO of CAD 0.289 per unit, rental revenue of CAD 144M and operating income of CAD 70M — but included CAD 134M of fair-value/impairment adjustments (CAD 48M residential impairment and CAD 44M increased ECL), while disposition yields are being modelled around ~3.1% (some recent transactions showing ~4.4%).

Presentation

[Operator]

Hello, ladies and gentlemen, and thank you for standing by. Welcome to Allied Properties REIT's Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Thank you. I would now like to turn the conference over to our President and CEO, Cecilia Williams. Please go ahead.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Thanks, Dustin, good morning, everyone. Welcome to our Q1 Conference Call. Please note that certain statements we make during the course of this conference call that are not statements of historical facts may constitute forward-looking information and forward-looking statements about future events or future performance. These statements are based on management's current expectations and are subject to risks, uncertainties, and other factors that may cause actual events or results to differ materially from historical results and/or from our forecasts, including those described under the heading Risks and Uncertainties in our 2025 annual report. Material assumptions underpinning any forward-looking statements we make include those described under the heading Forward-Looking Statements in our 2025 annual report. In addition, certain non-IFRS financial measures may be discussed on this call.

[Cecilia Williams, President and CEO at Allied Properties REIT]

References to non-IFRS financial measures are only provided to assist you in understanding our results and performance trends and may not be appropriate for any other purpose. For further discussion on these matters, please refer to our 2025 annual report under the heading Non-GAAP measures. Turning to the quarter. Q1 marks the first full quarter of executing our action plan, and the results reflect progress. Operating performance was in line with our expectations. Leasing momentum is encouraging as we see improving demand across our core urban markets and a growing pipeline. Our CAD 500 million disposition program is on track, and we completed our equity issuance during the quarter, an important milestone in restoring financial flexibility. This morning, I'll focus on 3 areas. 1, leasing and operating fundamentals. 2, execution of our deleveraging strategy. 3, development and capital allocation.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Nan will review our financial results. J.P. will cover leasing in more detail. Starting with leasing and operating fundamentals. We ended the quarter at 87.1% leased and 85.0% occupied, modestly ahead of expectations. Leasing activity in the quarter was solid. We leased over 500,000 sq ft with strong contribution from both new users and expansions. We also achieved 63% retention on expiries. More importantly, forward indicators are improving. Our total leasing pipeline increased 20%, and our new leasing pipeline increased 36%. This is consistent with what we see across our markets as interest in high-quality urban workspace continues to improve and new supply remains limited. Activity is increasingly focused on smaller format space, which aligns well with our portfolio offering.

[Cecilia Williams, President and CEO at Allied Properties REIT]

As expected, we continue to expect timing impacts from non-renewals, and we expect some softness in Q2. However, based on current activity levels, we remain confident in our year-end occupancy target of 84%-86%. Turning to the balance sheet. Our priority remains deleveraging and improving credit metrics. We ended the quarter at 12.3 times net debt to EBITDA, an improvement from 12.9 times in the prior quarter. During the quarter, we made progress across all components of the plan. We completed our equity issuance and advanced our disposition program, selling low yield non-core assets to improve our portfolio composition and earnings potential. In Q1, we closed CAD 46 million of dispositions and continued to advance the remaining CAD 450 million pipeline, which is actively marketed and progressing.

[Cecilia Williams, President and CEO at Allied Properties REIT]

I'm pleased to report that after quarter-end, we went firm on additional assets expected to generate CAD 201 million of proceeds in Q2. This gives us confidence in our ability to reach our CAD 500 million disposition target by year-end. As we noted last quarter, the timing of asset sales is not entirely within our control, but expanding the pipeline improves execution certainty and flexibility. Our objective remains unchanged: get to mid-11 times net debt to EBITDA by year-end, and we're on track to deliver that. Turning to development. We're now at the final stage of our development cycle with King Toronto as the last major project. As expected, this project continues to create near-term volatility. In Q1, we recorded additional expected credit loss and impairment on residential inventory.

[Cecilia Williams, President and CEO at Allied Properties REIT]

These reflect higher costs to complete, construction delays, and increased uncertainty around condominium closings. We're actively addressing these risks and have taken over on-site construction management and are working toward extending the construction loan. While not preferred, these actions are necessary to protect value and maintain project momentum, consistent with the approach we outlined last quarter. Importantly, the underlying fundamentals of the project remain intact. The project is 92% pre-sold. Commercial leasing is progressing and anchored by Whole Foods, and completion is targeted for the second half of 2027. Turning to our outlook. Our 3-year outlook has been updated for 1 item in 2026. Capital expenditures are expected to be higher in the year by CAD 40 million-CAD 50 million due to the higher construction costs of complete King Toronto. All other key metrics over the 3-year period remain within previously communicated ranges.

[Cecilia Williams, President and CEO at Allied Properties REIT]

As we said last quarter, our outlook assumes gradual occupancy improvement, which we're seeing. It also assumes continued de-leveraging, which we're executing on. To conclude, we're at a turning point. With the capital-intensive phase of the business largely behind us, our focus is now on execution. We're leasing space, recycling capital, and strengthening the balance sheet. While risks remain, particularly within development, we're addressing what we can control. Our portfolio is well-positioned and the path forward is clear. Q1 demonstrates we're on track, and the work we continue to do reflects our focus. With that, I'll turn the call over to Nan.

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

Thanks, Cecilia. Good morning everyone. I'll briefly cover our 1st quarter financial results, our ongoing efforts to strengthen the balance sheet. Q1 performance came in line with expectations. FFO was CAD 0.289 per unit. Rental revenue of CAD 144 million and operating income of CAD 70 million were consistent with our budget. Same-asset NOI the quarter also met expectations. Our leverage ratios are slightly better than expected, debt to EBITDA coming in at 12.3x. This was mainly due to funding timelines for King Toronto and M4. Turning to valuations, our Q1 results included CAD 134 million fair value adjustments, CAD 48 million impairment of residential inventory, and a CAD 44 million increase in expected credit loss provisions. During the 1st quarter, we completed dispositions totaling CAD 46 million.

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

These proceeds were used in conjunction with our equity raise to repay the balance owing on our 1.7% Series H debentures, which came due in February. Subsequent to the quarter end, we entered into a firm contract to sell 8 properties in Toronto for CAD 123 million and 1 property in Montreal for CAD 78 million. We expect these proceeds to close in the 2nd quarter. We continue to focus on reducing our leverage metrics to maintain our investment-grade credit rating. Disposing of non-core low-yielding assets is a key component of our strategy to strengthen the balance sheet. This will reinforce our financial stability and flexibility. In closing, the start to 2026 has largely tracked as expected. I'll now turn the call over to J.P., thank you.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

Thanks, Nan. I'll start by providing a summary of our leasing performance in Q1, followed by commentary on our leasing pipeline and the associated risks, and conclude with observations on the market and operating fundamentals. Starting with leasing performance. In Q1, we captured strong market share. We completed 10% of the total leasing activity while representing 5% of the total rental stock. This 2-to-1 ratio underscores the quality of our portfolio and strength of our operating platform. Equally encouraging, our new leasing pipeline increased 36%, demonstrating continued improvement in operating fundamentals. Our occupied and leased area in the quarter ended modestly ahead of expectations and flat relative to year-end 2025 at 85% and 87.1% respectively. We anticipate a decline in occupancy in Q2 because of known non-renewals.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

However, we expect to end the H1 of the year higher than our outlook of 82%. To achieve our occupancy target of 84%-86% by the end of the year, we need to lease between 1.05 million and 1.35 million sq ft in our rental portfolio through new leasing and renewal activity that impacts occupancy in 2026. This is consistent with the volume leased in 2025. Year to date, we've leased 414,000 sq ft against our target, and there have been no material unanticipated non-renewals or terminations that would alter our goal. In Q1, we completed 529,000 sq ft of total leasing activity. 518,000 sq ft of leasing activity occurred in the rental portfolio, and 11,000 sq ft occurred in the development portfolio.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

Within the rental portfolio, 324,000 sq ft represented new leasing and 195,000 sq ft represented renewals. New leasing activity in the rental portfolio measured in sq ft was in line with our quarterly average in 2025, and new leasing activity measured in number of transactions was up 7%. Our conversion rate for new leasing was 45%. Of the 324,000 sq ft of new leasing activity, 133,000 sq ft represented expansions of existing users in line with our quarterly average in 2025. New leasing activity in Q1 across our three workspace formats was proportional to total GLA. Forty-seven percent of total leasing activity occurred within our Heritage portfolio, 44% occurred in our Modern portfolio, and 9% occurred in our Flex portfolio.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

Our Heritage portfolio is 88.4% leased, our Modern portfolio is 87.2% leased, and our Flex portfolio is 75.3% leased. New leasing spreads were up 1% in our Modern portfolio and up 5% in our Heritage portfolio when excluding Calgary. Average total leasing costs in Q1 were CAD 7.62 per sq ft per annum within the range achieved in 2025 of CAD 4.38-CAD 8.57. Average leasing costs for new leases were CAD 10.78 per sq ft per annum and CAD 2.39 for renewals. The composition of our leasing profile remains anchored by professional services and TAMI users, which collectively represented more than three-quarters of the transaction volume in Q1.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

We continue to observe more demand from the professional services sector, representative of the ever-diversifying nature of our tenant profile. Our retention and replacement rate was 63%, higher than our forecast for Q1. The average rental rate increased 1.2% when comparing the ending to starting base rent and 7.7% when comparing average to average, in line with our forecast. In 2025, we successfully renewed Google at the Breithaupt Block in Kitchener, which addressed our largest 2026 maturity, representing 97,000 sq ft at our 50% share. Our largest known non-renewal in 2026 is Sun Life at our De Gaspé portfolio in Montreal, representing 56,000 sq ft expiring at the end of August.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

We are in advanced discussions with a TAMI user to backfill up to 40,000 square feet of the Sun Life space with lease commencement in Q4 2026. We are forecasting a replacement and retention rate of 69% in 2026. Our largest known non-renewal is SQI, a Crown corporation of the province of Quebec at 747 Square Victoria. Part of a broader public sector consolidation, SQI will return 18,000 square feet in June 2026 and approximately 100,000 square feet in December 2027. We are actively touring users with 2028 requirements through the SQI space. There are no material non-renewals known at this time for 2028. Sublease availability dropped by 20 basis points relative to Q4 and is 2.4% of GLA.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

The weighted average lease term of space available for sublease is 4.6 years, which reduces the risk of imminent direct vacancy and loss of economic productivity. Moving to our leasing pipeline. We currently have 1.57 million sq ft of leasing activity underway, comprising 985,000 sq ft of new opportunities and 583,000 sq ft of renewals. Of the new activity, 411,000 sq ft is at the prospect stage and 574,000 sq ft has progressed to the offer stage. Our total leasing pipeline increased 20% since the beginning of the year, and our new leasing pipeline increased 36%. For context, we averaged a pipeline of 1.3 million sq ft each quarter in 2025 and 950,000 in 2024.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

There was some commentary among brokers at the beginning of the year that the momentum experienced in the second half of 2025 had not carried over into 2026. Our pipeline suggests a different narrative, though we are monitoring this dynamic closely. We are also monitoring the conflict in the Middle East for its impact on energy prices, inflation, and interest rates, and whether it will adversely impact office space demand. So far, we have not observed an impact, though the risk increases the longer the conflict continues. Turning to market commentary. The increase in our leasing pipeline reflects improving fundamentals driven by, 1, increased demand resulting from higher physical utilization as organizations continue to revert to an office-centric model.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

2, limited availability in triple A assets in the CBD of Montreal, Toronto, and Vancouver, which is at or near pre-pandemic levels, driving an increase in demand for class A assets in and around the CBD. 3, reduced sublease availability, which declined for the 11th consecutive quarter to 2.4% for the national rental stock and sits closer to pre-pandemic levels of 1.5%-2%. 4, a decline in total construction, which has fallen to a 22-year low. As a result, no new urban supply is expected in the near term. For these reasons, we continue to see positive leasing momentum in our core concentrations of downtown West Toronto and downtown South Montreal.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

This trend began in the second half of 2025 as triple A assets were leased and demand extended to class A buildings in and around the CBD. Leasing activity in Kitchener remains slow as demand is currently concentrated in the suburban market. Calgary's recovery remains tempered by consolidation in the energy sector, though the market is benefiting from structural supply-side corrections resulting from conversions, particularly in the Beltline where our portfolio is concentrated.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

In Vancouver, Gastown and Yaletown continue to lag the financial district, though both show signs of improvement in Q1. At the beginning of March, we introduced several initiatives to make it easier for small to mid-sized organizations to lease space in our portfolio. These tactics aim to reduce friction in the leasing process and align with how tenants screen tour and shortlist properties. By removing these obstacles related to fit and readiness early in the process and investing in areas where tenants perceive the most risk, specifically speed to transact, price certainty, and space delivery, we're able to further differentiate our product. To date, these initiatives have been well-received and demonstrate Allied's willingness to be more adaptive in growing occupancy. I will now turn the call back to Cecilia Williams.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Thanks, J.P. to conclude, Q1 reflects how we're progressing through a transition phase. We've made deliberate moves to strengthen the balance sheet and better position the portfolio. Although we expect some softening from non-renewals in Q2, we're encouraged by signs of improvement in leasing activity beyond. Our focus remains on execution and on the areas within our control. We know the path forward, and we know it will take time and consistent delivery to achieve our objectives. With that, we'll open the line for questions.

[Operator]

Thank you. Quick reminder before we start the Q&A. If you'd like to ask a question, please press star and the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question or your question has been answered, simply press star and the number one again. Thank you. We will take our first question from Lorne Kalmar from Desjardins. Please go ahead.

[Lorne Kalmar, Director, Institutional Equity Research of Real Estate at Desjardins]

Thank you. Good morning, and thank you for all the color in terms of the operating fundamentals. That was very helpful. I just wanted to touch on the King Toronto for a second. Firstly, sorry if I missed this, but can you confirm whether or not you're recognizing interest income based on the full amount of the loan or the amount net of the impairment?

[Cecilia Williams, President and CEO at Allied Properties REIT]

The loan is the full amount.

[Lorne Kalmar, Director, Institutional Equity Research of Real Estate at Desjardins]

Okay, maybe I guess.

[Cecilia Williams, President and CEO at Allied Properties REIT]

The loan is not credit impaired.

[Lorne Kalmar, Director, Institutional Equity Research of Real Estate at Desjardins]

Sorry? I missed that.

[Cecilia Williams, President and CEO at Allied Properties REIT]

The loan is not credit impaired, so it's on the full amount.

[Lorne Kalmar, Director, Institutional Equity Research of Real Estate at Desjardins]

Okay. Is there any point at which you would recognize it on the net amount?

[Cecilia Williams, President and CEO at Allied Properties REIT]

Yes, if it becomes credit impaired. The way it's being recognized now, Lorne, is the way we have to recognize it under IFRS.

[Lorne Kalmar, Director, Institutional Equity Research of Real Estate at Desjardins]

Okay, fair enough. Thank you. Just sticking with the King Toronto theme here, you guys pushed out the receipt of condo proceeds from the beginning of 2027, back in February, to the end of the year. I know you touched on a few complications at the project, things have changed a lot in the last couple of months. Like, what really changed since we spoke in February or since you released results in February?

[Cecilia Williams, President and CEO at Allied Properties REIT]

In terms of the costs went up. There were curtain wall cost increases from transportation and storage, trade delays due to labor inefficiencies and required extended site presence, and then schedule extensions leading to site overhead. All of those things resulted in a longer timeline and higher costs.

[Lorne Kalmar, Director, Institutional Equity Research of Real Estate at Desjardins]

Okay. One last quick one. Do you have the number of the average % of deposits on the condos?

[Cecilia Williams, President and CEO at Allied Properties REIT]

It's about 20%.

[Lorne Kalmar, Director, Institutional Equity Research of Real Estate at Desjardins]

20%. Okay. Thank you so much. I'll turn it back.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Thanks, Lorne.

[Operator]

Thank you. Our next question comes from the line of Jonathan Kelcher from TD Cowen. Please go ahead.

[Jonathan Kelcher, Equity Analyst of Real Estate/REITs at TD Cowen]

Thanks. Good morning. One more on the King Toronto. I believe you guys said that you completely took over the project. When was that? Just trying to get a sense of the added costs or post that or pre that or what's happening there.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Yeah. We started taking over in the fall, Jonathan, and now we've completely taken over on-site construction management.

[Jonathan Kelcher, Equity Analyst of Real Estate/REITs at TD Cowen]

Okay. With that, and having the fall and winter to sort of look at it, do you think you're hopefully very comfortable with the, this being the final increase in costs?

[Cecilia Williams, President and CEO at Allied Properties REIT]

We can't guarantee, Jonathan. We rely heavily on the cost consultants, in addition, to EllisDon, but we are very comfortable with where we've landed as of this point.

[Jonathan Kelcher, Equity Analyst of Real Estate/REITs at TD Cowen]

Okay. And same question on the timing.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Yes.

[Jonathan Kelcher, Equity Analyst of Real Estate/REITs at TD Cowen]

Okay. On the dispositions, on the CAD 200 million that you announced last night, two things there. One, maybe a little color on why the Competition Bureau is involved in the Montreal one. Secondly, just on the cap rate or annualized NOI that's associated with these properties.

[Cecilia Williams, President and CEO at Allied Properties REIT]

On the Competition Act, if it's a book value of CAD 93 million or higher, it has to go through that. That property triggered that criteria.

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

Jonathan, on the 2 properties announced last night, the cash yield is 4.4%.

[Jonathan Kelcher, Equity Analyst of Real Estate/REITs at TD Cowen]

Okay. That is helpful. I'll turn it back. Thanks.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Thanks.

[Operator]

Thank you. Our next question comes from the line of Mario Saric from Scotiabank. Please go ahead.

[Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank]

Good morning, and thank you for taking the question.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Good morning.

[Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank]

Sticking to the disposition team, theme. Can you remind us of what the overall expected disposition cap rate would be on the CAD 500 million you're targeting this year?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

In our forecast, Mario, the average cash yield is 3.1%.

[Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank]

Right. Then, like, what percentage of the CAD 500 million goal would have been originated by unsolicited expressions of interest?

[Cecilia Williams, President and CEO at Allied Properties REIT]

I'm sorry, what percentage of the original goal was from unsolicited interest?

[Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank]

Yeah.

[Cecilia Williams, President and CEO at Allied Properties REIT]

None. I mean, everything is being marketed.

[Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank]

Okay. I'm trying to get a sense of the office transaction market's opening up. There's been several deals announced in Toronto recently on the office side. I'm just trying to get a sense of, based on what you're seeing in the market today, like, do you feel you can sell more than CAD 500 million above for us if you were to more actively pursue opportunities today?

[Cecilia Williams, President and CEO at Allied Properties REIT]

We feel very confident in our ability to hit the CAD 500 million target that we've set.

[Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank]

Okay. Just maybe last question, more of a strategic question. Allied acquired some more traditional office assets in the past, kind of with the intention of transforming the interior into more of a Class A environment, for lack of a better way to describe it. From capital allocation standpoint going forward over the next 2, 3 years that your outlook encompasses, is the plan to continue to convert some of these more traditional office assets into internal Class A experiences? Or is it more likely that you could see some of these become disposition candidates down the road?

[Cecilia Williams, President and CEO at Allied Properties REIT]

Yeah, we'll finish whatever we've started and are currently working on. Otherwise we would consider anything as a disposition possibility.

[Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank]

Okay. Sure, maybe one more for me, just for J.P., you mentioned some change in leasing tactics, removing obstacles, for leasing in the quarter. Can you just maybe touch on an example or 2 in terms of what exactly that means and kind of what's driven this call?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

Mario, the average size of our of a vacant unit in our portfolio is 5,000 sq ft. Naturally, that would target small to mid-sized organizations who necessarily don't have the internal capabilities to take on large construction projects to prepare their space for occupancy. As such, we're investing in our vacant space to make it occupancy ready. We're also providing end-to-end construction oversight support, leveraging our vertically integrated platform to support those small to mid-sized organizations. We're also prepared, when appropriate, to also a short form lease template on which we can transact with those small to mid-sized organizations, provided the type of transaction fits certain criteria.

[Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank]

Great. Thank you for that.

[Operator]

Thank you. Our next question comes from the line of Pammi Bir from RBC Capital Markets. Please go ahead.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

Thanks. Good morning. Just maybe coming back to the leasing, you mentioned, we're gonna see a drop in Q2 occupancy. I believe, J.P., you mentioned as well that it may be higher than the 82% occupancy that you'd previously guided to. Can you just maybe comment or maybe clarify that piece there and what's driving that?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

Pammi, we do anticipate some erosion in occupancy in the second half of the year, as we had contemplated in our forecast.

[Cecilia Williams, President and CEO at Allied Properties REIT]

In the H1.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

In the H1 of the year, specifically the Q2, as we had contemplated in our forecast and communicated. Specifically, we modeled an 82% ending occupancy in Q2. We expect to end higher than that, and that's primarily a function of leasing activity and some anticipated known non-renewals that are now renewing.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

Okay. All right, got it. Then you mentioned some of the demand from professional services and TAMI tenants. I'm just curious, are you seeing any changes in terms of space needs from software tenants or AI-related implications on demand at this stage?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

We aren't. We actually saw an increase in leasing volume from the TAMI sector in Q2, or in Q1, I should say, compared to Q4. We are hearing and observing in our pipeline and in the broader market that there's more and more demand from the tech sector, across the markets we operate.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

Okay. Just, I do have a couple more just on King Toronto. What are you now assuming in terms of default rates? Has that been informed by perhaps buyers just more buyers perhaps trying to get out of deals?

[Cecilia Williams, President and CEO at Allied Properties REIT]

Yeah, Pammi, we're carrying a 35% default rate right now and we have been talking to the marketing team, and we've also been tracking the current purchases and having communications with them as well. That's how we arrived at that 35% default rate.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

Okay. What was it previously assumed at or estimated at?

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

10%.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

That incremental of CAD 25 is just from this quarter?

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

Yes.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

Okay. Then in terms of the pricing on the, I know there's only a small amount left in terms of the remaining units, but what are they currently being marketed at versus the initial price was CAD 2,000 a foot roughly or?

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

Yes. What's remaining is about 8 penthouse. The penthouse is on a per sq ft basis are higher. What's remaining of the 35 units on average is CAD 1,500-CAD 1,800 per sq ft. That's what we're carrying.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

Okay. Just lastly on the disposition side obviously some encouraging signs. But in terms of the Toronto House and Calgary House, where are you now in terms of the sale process on those assets?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

We are advanced in our marketing efforts of, with the Toronto asset. CBRE has listed that asset for us, and we have a number of groups in the data room underwriting the asset. We are preparing to bring the Calgary asset to market in June, and that'll be listed with CBRE and Scotiabank.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

Fair to say then that the Calgary Calgary House is unlikely just, again, given the maybe later stages of the timing of it being marketed, that that's not likely to maybe transact this year?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

We're still contemplating closing this year.

[Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets]

Okay. I will, I'll turn it back. Thank you.

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

Thanks.

[Operator]

Thank you. Our next question comes from the line of Patrick Healy from Green Street. Please go ahead.

[Patrick Healy, Analyst at Green Street]

Thank you, and good morning. Given the Q1 results, how confident are you in meeting your 2026 outlook on occupancy, NOI, and FFO?

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

Well, like we said, we came in as expected for Q1, we continue to expect to hit our targets for the year.

[Patrick Healy, Analyst at Green Street]

Okay. Thank you. I'll turn it back.

[Operator]

Thank you. Our next question comes from the line of Matt Kornack from National Bank Financial. Please go ahead.

[Matt Kornack, Real Estate Equity Research Analyst at National Bank Financial]

Hey, guys. Just trying to understand a bit of a divergence in terms of where NOI has headed relative to kind of the KPIs on occupancy and rents. I mean, it seems like this quarter you actually gained some occupancy. You had some positive transfers out of PUD and into IPP. NOI kind of missed us by a fairly sizable margin, and it looks like it's maybe recoveries or margins. I'm trying to understand why and then, and then how that progresses, if it is maybe some one-time timing delays between recoveries or it sounds like you've decapitalized some operating costs as well. I'm trying to figure out how that margin picture evolves.

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

Yeah, Matt. In terms of occupancy, you're right. Year-over-year is 85.9. Tenants this quarter, they're in the rental portfolio are in fixturing. From fixturing, yes, it's in your FFO because straight line rent is in your FFO. From an NOI standpoint, there's all the additional rent which they don't pay during fixturing. That's why you have the occupancy, but you don't have the revenue. That's one component of it. The second component is the capitalization of operating costs. In the rental portfolio, there were upgrade activities that were completed at the end of Q4. Those assets from a timing perspective, some of them may be leased but not productive yet.

[Matt Kornack, Real Estate Equity Research Analyst at National Bank Financial]

Okay. It does sound like we'll recapture some of that in subsequent quarters, and it's a function of timing. Then presumably some of that relates to Toronto House, which is a gross lease as opposed to net leases elsewhere. I know it's slated for sale. I don't think you provided the occupancy this quarter. Is it fair to say that that may even be a drag on NOI in this quarter just given seasonality and where you are in leasing?

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

Correct. The operating cost is not recoverable, and the property is more stabilized today in terms of expenses than it was in the comparative year. Absolutely correct that. We also had an assessment of the realty taxes there, so that too went up.

[Matt Kornack, Real Estate Equity Research Analyst at National Bank Financial]

Okay. Appreciate that. Just back to the asset sale side of things. J.P., I think you said CAD 44 on the Montreal asset, or was that the combination of the Toronto and the Montreal asset?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

It was the combination, Matt. When you add the amount closed in Q1, the total yield is 4.2%.

[Matt Kornack, Real Estate Equity Research Analyst at National Bank Financial]

Okay. Then 150 West Georgia, is there any update in terms of the timing or how that ultimately is expected to work in terms of the partial cash payments and how your participation in the residual project will be?

[Nanthini Mahalingam, SVP & CFO at Allied Properties REIT]

There is no update to provide at this time, Matt. As soon as we have one, we will.

[Matt Kornack, Real Estate Equity Research Analyst at National Bank Financial]

Okay. Fair. Last one for me, just on the tenant side. You have a lease term with Ubisoft, but obviously it's been a business that has been under a little bit of pressure. Have you guys been in contact with them or are you fairly comfortable that they're in a reasonable position to continue to occupy and pay on their space in Montreal?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

We have been in contact, Matt, and we are confident. Vantage Studios operates in Montreal, which is Ubisoft's most well-capitalized creative house, having received a EUR 1.2 billion investment from Tencent for a 25% stake in that creative house. They also introduced a five-day week return office policy associated with their restructuring earlier this year. At this time, we're confident in their continued tenancy.

[Matt Kornack, Real Estate Equity Research Analyst at National Bank Financial]

Perfect. Appreciate that. That's good incremental color. Thanks, guys.

[Operator]

Thank you. Our next question comes from the line of Tal Woolley from CIBC Capital Markets. Please go ahead.

[Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets]

Hi, good morning, everyone.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Hi, Tal.

[Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets]

Is Westbank still involved in the marketing of these assets? I know you guys have taken over control of the construction, but I'm just wondering what sort of influence they have on the rest of the process.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

Tal, they are leading the sales process with our very close involvement.

[Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets]

Okay. Their financial difficulties have stretched out over a period here. What is the contingency plan if they run out of liquidity?

[Cecilia Williams, President and CEO at Allied Properties REIT]

Well, that's essentially what we already have modeled relating to King Toronto.

[Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets]

Okay.

[Cecilia Williams, President and CEO at Allied Properties REIT]

That's already captured in our balance sheet and in our outlook.

[Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets]

Okay. If they hit the wall, your framework really shouldn't change that much then?

[Cecilia Williams, President and CEO at Allied Properties REIT]

Correct.

[Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets]

Okay. You talked a little bit about default rates before. I'm just wondering how confident you feel the contracts are with respect to rescission and default.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Based on what we know today, Tal, we feel confident. Everything that we've recorded is based on the best information that we have to date.

[Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets]

Okay. Then I guess just on the leasing side, can you talk a little bit about any new initiatives or strategies you might be using that were not employed previously to try and drive demand here? I apologize if I missed some of this earlier. I was waiting forever to get on, get on earlier.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

No problem, Tal. There are two constituencies that we are targeting with the recently introduced initiatives that were communicated to the broader market in the middle of March. The first constituency is the brokerage community, where we're really trying to engage or increase engagement with the brokerage community, in large part, in how we structure commissions, by adding commission bonuses on near-term transactions, and the timing of those payments. The second constituency is the tenant community, specifically small to mid-sized organizations, in light of the fact that the average vacancy in our portfolio is 5,000 sq ft. We're really trying to reduce friction in the leasing process to make it easier for organizations of that scale to lease space in our portfolio and ultimately differentiate our product relative to our peers.

[J.P. Mackay, SVP and COO at Allied Properties REIT]

We're doing that by offering short-form lease templates where appropriate, where the risk is appropriately measured. Second, we are prepared to offer free rent in lieu of allowances. That's mostly on renewals, but nevertheless, an incremental tactic. We're building out space to improve the readiness and shorten the lead time associated with occupancy. Where a tenant wishes to lease space that's not built out, we are prepared to leverage our vertically-integrated platform and offer end-to-end construction oversight support as the tenant prepares their space for occupancy. I'll add, Tal, that so far, both communities have responded exceptionally well to these initiatives, and they acknowledge that this reflects the increased adaptive nature in which Allied's prepared to grow its occupancy.

[Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets]

Okay, that's great. Thanks, J.P.

[Operator]

Thank you. Our next question comes from the line of Brad Sturges from Raymond James. Please go ahead.

[Brad Sturges, Managing Director, Equity Research Analyst of Real Estate & REITs at Raymond James]

Hey, good morning. Just going back to the disposition program yet again. Just on Toronto House and Calgary House, Toronto House is under lease up. I think you're carrying some vacancy at Calgary House. Like, how do you think that dynamic of lease up is going to impact sales pricing and timelines? I guess the question is: Would you have a, an expectation of a smaller pool of buyers relative to being at a more stabilized level, maybe a little bit later on?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

We haven't seen any impact to the prospective buyer pool because of the state of occupancy in the Toronto asset, nor do we expect the same for the Calgary asset.

[Brad Sturges, Managing Director, Equity Research Analyst of Real Estate & REITs at Raymond James]

Okay. At this point, the CAD 500 million target that you have not made any changes in assumptions around proceeds that you think you can generate from those two asset sales?

[J.P. Mackay, SVP and COO at Allied Properties REIT]

No.

[Brad Sturges, Managing Director, Equity Research Analyst of Real Estate & REITs at Raymond James]

Okay. I'll turn it back. Thank you.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Thank you.

[Operator]

Thank you. We have reached the end of the Q&A session. I will now turn the call back over to our President and CEO, Cecilia Williams, for closing remarks.

[Cecilia Williams, President and CEO at Allied Properties REIT]

Thanks Dustin, and thank you everyone for your interest. We look forward to keeping you updated on our progress.

[Operator]

The meeting is now concluded. Thank you all for joining, and you may now leave.

Participants

Analysts

• Brad Sturges, Managing Director, Equity Research Analyst of Real Estate & REITs at Raymond James
• Cecilia Williams, President and CEO at Allied Properties REIT
• J.P. Mackay, SVP and COO at Allied Properties REIT
• Jonathan Kelcher, Equity Analyst of Real Estate/REITs at TD Cowen
• Lorne Kalmar, Director, Institutional Equity Research of Real Estate at Desjardins
• Mario Saric, Managing Director of Real Estate and REITs, Global Equity Research at Scotiabank
• Matt Kornack, Real Estate Equity Research Analyst at National Bank Financial
• Nanthini Mahalingam, SVP & CFO at Allied Properties REIT
• Pammi Bir, Managing Director of Real Estate & REITs at RBC Capital Markets
• Patrick Healy, Analyst at Green Street
• Tal Woolley, Executive Director of Institutional Equity Research at CIBC Capital Markets