Allied Properties Real Estate Investment Trust TSE: AP.UN said first-quarter results reflected the first full quarter of executing its action plan, with management pointing to steady operating performance, improving leasing indicators, and progress on deleveraging initiatives.
Operating results tracked expectations
President and CEO Cecilia Williams said Q1 operating performance was “in line with our expectations,” with leasing momentum improving across the REIT’s core urban markets and a growing pipeline. Allied ended the quarter 87.1% leased and 85.0% occupied, which Williams described as “modestly ahead of expectations.”
Chief Financial Officer Nanthini Mahalingam reported funds from operations (FFO) of CAD 0.289 per unit. She said rental revenue was CAD 144 million and operating income was CAD 70 million, both “consistent with our budget,” and that same-asset NOI also met expectations.
Leasing activity and pipeline point to improving demand
SVP and COO J.P. Mackay said Allied “captured strong market share” during the quarter, completing 10% of total leasing activity while representing 5% of total rental stock. Total leasing activity in Q1 was 529,000 square feet, including 518,000 square feet in the rental portfolio and 11,000 square feet in the development portfolio.
Within the rental portfolio, Mackay said 324,000 square feet represented new leasing and 195,000 square feet were renewals. He added that the conversion rate for new leasing was 45%, while 133,000 square feet of new leasing represented expansions by existing users.
Management flagged near-term timing impacts from non-renewals. Williams said the REIT expects “some softness in Q2,” and Mackay said Allied anticipates a decline in occupancy in Q2 due to known non-renewals. Still, Mackay said the company expects to end the first half higher than its prior outlook of 82% occupancy, “primarily a function of leasing activity and some anticipated known non-renewals that are now renewing.”
Allied reiterated its year-end occupancy target of 84% to 86%. To achieve that range, Mackay said the REIT needs to lease between 1.05 million and 1.35 million square feet in 2026 through new leasing and renewals that impact occupancy this year, noting that was consistent with the volume leased in 2025. Year to date, he said the REIT has leased 414,000 square feet against that target.
Mackay also provided portfolio and pricing details:
- Heritage portfolio: 88.4% leased; Modern: 87.2% leased; Flex: 75.3% leased.
- New leasing spreads: up 1% in Modern and up 5% in Heritage (excluding Calgary).
- Average total leasing costs: CAD 7.62 per square foot per annum; CAD 10.78 for new leases and CAD 2.39 for renewals.
- Retention and replacement rate: 63% in Q1, above management’s forecast for the quarter.
On forward indicators, Williams said the total leasing pipeline increased 20% and the new leasing pipeline increased 36%. Mackay quantified the pipeline at 1.57 million square feet, consisting of 985,000 square feet of new opportunities and 583,000 square feet of renewals, with 574,000 square feet of new activity at the offer stage.
Mackay attributed improving leasing fundamentals to increased physical utilization as organizations revert to “an office-centric model,” limited availability of “triple A assets” in major CBDs, reduced sublease availability, and a decline in construction to what he called a 22-year low. Sublease availability, he said, declined to 2.4% of GLA.
He also said Allied introduced initiatives in March to make it easier for small to mid-sized organizations to lease space, including investing in vacancy to make suites occupancy-ready, offering construction oversight support, and, where appropriate, using a short-form lease template. Later in the Q&A, Mackay added changes aimed at brokers as well, including commission-related incentives for near-term transactions and the timing of those payments.
Deleveraging plan advances; asset sales move forward
Williams said deleveraging remains Allied’s priority and reported net debt to EBITDA of 12.3 times at quarter-end, improving from 12.9 times in the prior quarter. She reiterated the REIT’s goal of reaching “mid-11 times net debt to EBITDA by year-end.”
Mahalingam said leverage was “slightly better than expected,” attributing the result mainly to funding timelines for King Toronto and M4.
On the CAD 500 million disposition program, Williams said the REIT closed CAD 46 million of dispositions in Q1 and continues to advance a remaining CAD 450 million pipeline that is “actively marketed and progressing.” She added that after quarter-end, Allied “went firm on additional assets expected to generate CAD 201 million of proceeds in Q2,” which she said increased confidence in achieving the CAD 500 million target by year-end.
Mahalingam said disposition proceeds, combined with Allied’s equity raise, were used to repay the balance owing on its 1.7% Series H debentures due in February. She also said that after quarter-end, Allied entered into firm contracts to sell eight Toronto properties for CAD 123 million and one Montreal property for CAD 78 million, with closings expected in the second quarter.
During the Q&A, management provided additional detail on yields and process:
- Mahalingam said the “cash yield is 4.4%” on two properties discussed during the call.
- Mackay said the average cash yield in Allied’s forecast for the CAD 500 million disposition program is 3.1%.
- Williams said dispositions were being marketed, responding “none” when asked how much originated from unsolicited expressions of interest.
Asked about a Competition Bureau review for a Montreal-related transaction, Williams said that under the Competition Act, if a transaction meets a book value threshold of CAD 93 million or higher, it must go through that process, and “that property triggered that criteria.”
King Toronto remains a key source of volatility
Williams said Allied is in the final stage of its development cycle, with King Toronto as the last major project, and noted it continues to create near-term volatility. In Q1, she said Allied recorded additional expected credit loss and impairment on residential inventory “reflect[ing] higher costs to complete, construction delays, and increased uncertainty around condominium closings.”
Mahalingam said Q1 results included CAD 134 million of fair value adjustments, CAD 48 million impairment of residential inventory, and a CAD 44 million increase in expected credit loss provisions.
Williams said Allied has taken over on-site construction management and is working toward extending the construction loan. In the Q&A, she told analysts the company began taking over the project in the fall and has “completely taken over on-site construction management.” She said cost increases were driven by “curtain wall cost increases from transportation and storage,” “trade delays due to labor inefficiencies and required extended site presence,” and “schedule extensions leading to site overhead.”
On condo buyers, Williams said average deposits were “about 20%.” Asked about defaults, she said Allied is “carrying a 35% default rate right now,” and Mahalingam noted that the prior assumption was 10%, with the incremental increase recorded in Q1. Mahalingam said remaining units included “about 8 penthouse,” and that what remains “on average is CAD 1,500-CAD 1,800 per sq ft.”
Despite the challenges, Williams said “the underlying fundamentals of the project remain intact,” citing 92% pre-sales, commercial leasing anchored by Whole Foods, and a targeted completion in the second half of 2027.
Williams said Allied updated its three-year outlook for one item in 2026: capital expenditures are expected to be higher by CAD 40 million to CAD 50 million due to higher construction costs to complete King Toronto, while “all other key metrics” remain within previously communicated ranges.
About Allied Properties Real Estate Investment Trust TSE: AP.UN
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.
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