The REIT cuts payout by sixty percent while accelerating property sales to strengthen its balance sheet
Allied Properties Real Estate Investment Trust (TSX:AP.UN) is taking drastic measures to improve its financial health by significantly cutting its monthly distribution, continuing an aggressive plan to sell off non-core assets, and navigating a leasing environment that remains slower than anticipated. Management announced that the monthly distribution will drop by 60 percent, falling from 15 cents to just 6 cents per unit starting in December 2025. This decision was made to reduce indebtedness and associated interest expenses following a period where the trust took on debt to complete development projects.
In its third-quarter results for the period ended September 30, 2025, CEO Cecilia Williams noted that while urban office fundamentals are improving in major Canadian cities, the pace of leasing has not met the company’s expectations. Consequently, Allied admitted it will not achieve its targeted occupancy rate of 90% by the end of the year. At the end of the quarter, the occupied area stood at 84%, while the leased area was 87.4%. Although the trust conducted 241 lease tours during the period, the slow conversion of these tours into finalized leases combined with high interest costs has put downward pressure on financial results. However, the trust did secure a significant renewal with Google for nearly 195,000 square feet at The Breithaupt Block in Kitchener.
To further shore up its balance sheet, Allied is accelerating its portfolio optimization strategy. The trust has already generated $46 million from property sales in Edmonton, Vancouver, and Montreal, with an additional $140 million in transactions expected to close by the end of 2025. Management recently expanded this initiative by listing Toronto House and Calgary House for sale, a move that has the potential to more than double the aggregate proceeds from the program. These major sales are targeted to close by the second quarter of 2026.
Prior to the reduction, the stock was yielding a mammoth 13.6%, which looked wildly unsustainable. Investors were clearly worried about the dividend, as despite the high yield, the stock has declined by more than 22% this year. With the reduction, its yield will still be fairly high at around 5.5%.