Canada’s largest office real estate investment trust (REIT) slashed its monthly payout by 60 per cent on Monday, in a widely expected move. The reduction comes as Toronto-based Allied Properties says asset sales will continue in 2026, amid attempts to lower its debt.
Allied units (AP-UN.TO) rose nearly three per cent in early trading on Monday. They gained as much as 30 per cent this fall, as the developer signalled stronger times ahead for leasing its office-focused portfolio of buildings. However, the rally was short-lived, and units are now about a dollar above their 52-week low.
“With a view to reducing indebtedness and associated interest expense going forward, the trustees of Allied have decided to reduce the monthly distribution to unit-holders in December of 2025 and throughout 2026 by 60 per cent to $0.06 per unit per month ($0.72 per unit annualized),” Allied stated in a news release on Monday.
The previous monthly distribution was $0.15 per unit.
As of Sept. 30, Allied’s debt stood at $4.62 billion, according to regulatory filings. The company said on Monday that a series of bond offerings this year and in 2024 have improved its overall debt position.
“We view the 60 per cent distribution cut as a necessary step in the process of balance sheet repair,” RBC Capital Markets analyst Pammi Bir wrote in a note to clients. “We believe a cut was largely anticipated, albeit with uncertainty on the magnitude.”
Bir maintains a “sector perform” rating on Allied units, with a $16 price target.
“Bottom line, while painful for unit-holders, the reduction in distributions improves financial flexibility to reinvest in the business and ultimately support a recovery in valuation over time.”
Allied CEO Cecilia Williams confirmed to investors that a distribution cut was on the table for the company during its Oct. 30 earnings call. Allied also announced that it will fall short of its targeted 90 per cent occupancy goal, reaching 87.4 per cent on a leased basis, and 84 per cent occupied.
The company aims to raise $300 million in 2025 through the sale of “non-core properties,” with sales set to continue in 2026. Toronto accounts for over half of its portfolio, followed by Calgary and Montreal.
Much of Allied’s office space has been converted from industrial purposes, giving it a unique look marked by exposed brick and aged hardwood floors. A report released last summer by Colliers Canada suggests that this is no longer on trend, as workers’ expectations for office space shift.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on X @jefflagerquist.