Allied’s Focus on Office space pays off for this REIT

Allied is a leading owner, manager and developer of urban workspace and data centers in Canada. It is a real estate investment trust which started with a focus on Class I workspace.

Allied owns 160 urban properties (132 rental properties, eight development properties and 11 ancillary parking facilities) spanning across 11 million square feet in Canada. Its portfolio comprises a balanced mix of new and historical buildings. The firm focuses on urban intensification and has a presence in Canada’s major cities such as Toronto, Montreal, Calgary, Vancouver, Ottawa, Edmonton and Kitchener.

Allied’s segments can be divided into urban data centers (18% of 2018 NOI), western (12%), eastern (25%) and central (45%). Office space accounts for a larger portion of its NOI at nearly 69%, followed by urban data centers (18%), retail (8%) and parking (5%). Allied also has a subsidiary, Allied Properties Management LP which provides property management and other fee based services.

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Revenue Growth & Market Exposure

Most of the Allied properties are located in urban centers, around Canada’s hubs of commerce and entertainment. The firm now focuses on urban mixed-use properties. Allied’s properties cater to the needs of Canadian professionals across diverse industries. Clients prefer Allied for its easy access, urban neighborhoods, lower occupancy cost and client focused services.

Allied enjoys a diverse base of rental revenue from industries such as business service and professional (33% of 2018 rental revenue), telecommunications and IT (27%), media/ entertainment (14%), retail (11%), parking (8%), government and financial (5%), etc. Its client list includes well-known names such as Bell Canada, Cogeco data Services, Morgan Stanley, Equinix, National Capital Commission, etc. The firm focuses on having high user retention rate. See the top 10 tenants and their business.

AP.UN - Top 10 Tenants
Source: AP.UN Investor Presentation

The REIT has grown its assets at an impressive rate of 29% CAGR, since its IPO. Its portfolio is worth $6.7 billion today, growing from just $120 million back in 2003. The firm maintains high levels of occupancy and leased area. Allied increased its rental portfolio’s occupied area to 96.3% and leased area to 96.7% during the last year. Its urban-data-centre space was 85.1% leased while its urban workspace was 97.4% leased at year-end. It also has a strong pipeline until 2023.

The REIT is targeting to invest $830 million in urban development program in the next four years. Allied is focusing on developing new-format space that successfully integrates old workspace such as QRC West and King Portland Centre in Toronto. Favorable trends of increasing rent, particularly in Toronto, should benefit the urban workspace and Allied Properties in the long run.


Out of the 34 listed REITs in Canada, only three are Canadian Dividend Aristocrats. Allied REIT is one of them. Granite REIT (GRT.UN) and Canadian Apartment Properties REIT (CAR.UN) are the other two. Allied last raised its payouts by 2.3%. The firm announced a monthly distribution of $0.133 per unit representing $1.60 per unit on an annualized basis. The firm’s dividend payout ratio is 26% and its current yield stands at 3.3%.

The REIT has raised its dividend at more than 2% CAGR over the last decade, while its funds from operations have grown at more than 12% CAGR over the same time.

Most of the firm’s earnings are derived from Montreal and Toronto, which account for nearly 79% of its gross leasable area (GLA). 2018 was marked by occupancy gains and rent growth particularly in Toronto and Montreal. About 96.7% of the GLA in Allied’s rental portfolio was leased with a weighted average term to maturity of 5.8 years.

Allied is expecting operating, acquisition and development environments to remain favorable in 2019. It is targeting a low- to mid-single-digit percentage growth in FFO per unit. The firm should keep benefitting if it continues to invest in the right markets.

Note that REITs pay a distribution and not a dividend. Be aware of the tax differences.


Canada’s commercial real estate market is highly competitive given increasing demand for commercial and office space. The Office REIT accounts for nearly 13% of the total Canadian REIT market. Allied REIT competes directly with Dream Office REIT, Dream Global REIT and Inovalis REIT in the commercial office REIT segment.

Bottom Line

Given Allied’s sensitivity to design, focus on urban mixed-use properties and collaborative relationships with leading real estate organizations, the firm is at the forefront to benefit from urban intensification in Canada. There is a huge demand for commercial properties as young professionals move into cities in search of a better future. Allied is in a good position to benefit from this rising trend, given its status of a leading commercial REIT in Canada.

I like the subsidiary business as it’s another toll booth for other property owners. It can put its processes and staff to work against both their assets and other properties and better control cost. One of the few REITs that I can see investing in. You are not getting a high yield like other REITs and maybe that’s why it can provide a good return on investment …

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.