Allied Properties REIT has reduced its monthly distribution to unitholders by 60 per cent as it works to improve leverage metrics and navigate a sluggish office recovery. The trust is also advancing a multi-year plan to sell non-core assets and generate cash from pre-sold condo closings.
BNN Bloomberg spoke with Brad Sturges, managing director and equity research analyst of real estate and REITs at Raymond James, who discussed how the payout cut, asset sales and strained office fundamentals are shaping expectations for the trust’s balance sheet and valuation.
Key Takeaways
- Allied Properties REIT reduced its monthly distribution to six cents per unit to free up cash and begin lowering its historically high leverage.
- Debt-to-EBITDA sits near 12.5 times, with management targeting a reduction into the low eights through retained cash, condo closings and asset sales.
- Annual payout savings of about $150 million play a modest role; more impactful improvements hinge on condo closings and more than $500 million in expected dispositions.
- A slow return-to-office trend remains the primary drag, with occupancy at 84 per cent and below earlier guidance.
- Analysts see gradual recovery ahead and maintain a cautious stance, noting multiple execution risks before sentiment on the REIT can materially improve.
Read the full transcript below:
MERELLA: Urban office-based developer Allied Properties has cut its monthly distribution by 60 per cent as the company looks to reduce debt. So let’s get more from Brad Sturges, equity research analyst of real estate and REITs at Raymond James. Thanks for joining us today.
BRAD: Great, thanks for having me.
MERELLA: Was this a must-do for Allied?
BRAD: Yeah, I’d characterize it as we were expecting a distribution cut. Clearly, they had telegraphed this as part of their commentary on their call last quarter. We thought the payout ratio was at a point where the distribution was unsustainable at the current level. So, you know, given where the stock had basically traded over the last several weeks, we thought a pretty material cut was already being priced into the stock today. Ultimately, we saw a sizable cut that we thought was, in general, pretty prudent and where we expected the size of the cut to be — to right-size the payout ratio and right-size the amount of cash they’re retaining to start to repay debt and improve the balance sheet.
MERELLA: How deeply in debt is Allied?
BRAD: Right now, the key metric we typically look at is debt-to-EBITDA. And debt-to-EBITDA is at a historically high level for Allied. They’re running at, call it, 12½ times on that metric. They do have a plan in place to now retain more cash through the distribution cut, but more importantly, they do have some asset sales planned over the next few quarters into mid-2026. They could also get cash back from some of the condo closings they’re expecting at King Toronto. So there is a plan in place to reduce debt levels and try to get that leverage metric down a few turns from, call it, 12½ times to the low eights. So there’s still work here to be done, but we view the distribution cut as probably the most important first step.
MERELLA: How much of a dent will this make in their debt?
BRAD: Ultimately, it’s more of a modest impact. You’re saving about $150 million of cash each year, so that will help on the margin. What’s really going to be more important is they get a couple hundred million dollars in cash from condo closings next year, assuming they can close units that have been pre-sold, and then the asset sales — we’re expecting over $500 million of asset sales. So those are probably the more important factors. Plus, if there’s a recovery in the office market and you start to see your EBITDA grow, that’s also a really important factor here. On the margin, I would rank the distribution cut as a lower factor. I think there are more important things we’re now looking for to get the balance sheet back in better shape.
MERELLA: Okay, so let me ask you, Brad — is it a bigger problem, the condo situation and those not selling, or is it a bigger problem, the return to office?
BRAD: I would say the key factor for the stock over the last, quite frankly, last few years has been the return to office. Their occupancy rate has been trending a little lower. They’re at 84 per cent occupied as of Sept. 30. They’re forecasting that to be flat for the rest of the year. They were highlighting or guiding towards 90 per cent at the start of the year. So it’s been a slower-than-expected recovery on the occupancy side. Ultimately, that’s going to drive EBITDA growth way more than the condo component. They have a little bit of exposure — it’s one project, and it’s 90 per cent pre-sold. So it’s something we think about in terms of risk profile in the short term. But ultimately, this is an office landlord, with most of their cash flow and operations generated from leasing office space. So we view that as the most important factor in terms of better stock-price performance and, ultimately, a better balance sheet going forward.
MERELLA: Okay, you mentioned they do have to look at making some changes moving forward. Have they already been selling assets so far? How successful has that been?
BRAD: Yeah, so far they have started that program. It’s been ongoing for most of the year. It’s going a little bit slow. The type of assets they’re trying to sell typically are lower-density office assets that could have a future development intensification opportunity. That market, just given what’s happening with the condo market, is a bit slow, so that is moving a little slower than expected. And generally speaking, office transactions — we’ve started to see a little bit of green shoots on that front, but it’s been slow for the last few years. So we’ll see how successful they are. Certainly, we are expecting asset sales to pick up, at least in the way we forecast it next year. But so far, it’s been a bit slow.
MERELLA: What’s your price target at this point? Did it change after today’s announcement?
BRAD: Yeah, so we upgraded from a sell to a hold. So a little bit more constructive, but, as we talked about, there are more things we need to see here to get more constructive on the stock. We did take down the target from $14.75 to $14. So right now we see a little bit of upside. It does trade at a discount to NAV. It trades at a lower multiple. But I think we’re pretty cautious on our stance in terms of the amount of time and the pace of recovery on the office side. I think it’s going to be a pretty gradual process, and there are a lot of factors that need to be executed before we get more constructive on Allied.
MERELLA: All right. Brad Sturges is with Raymond James. Brad, thanks for joining us today.
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This BNN Bloomberg summary and transcript of the Dec. 1, 2025 interview with Brad Sturges are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
