Office REITs are currently presenting an attractive investment opportunity due to their potential for recovery and growth. After years of underperformance, the sector achieved a total return exceeding 28% in 2024, positioning it among the top performers in the REIT sector. Additionally, office REITs are trading at substantial discounts compared to their pre-pandemic levels.
The focus on high-quality assets should benefit this REIT’s premium portfolio, as companies prioritize superior amenities and enhanced workplace experiences to attract and retain talent. Furthermore, the limited supply of new office space creates favorable conditions for existing office property owners, with new construction set to decline significantly through 2025, potentially leading to rental rate increases and property value appreciation.
Recent interest rate cuts and expectations of further declines improve the outlook by lowering borrowing costs and boosting long-term cash flow potential.
What’s more, this trust’s high dividend yield makes it exceptionally attractive to income-seeking investors while it trades at just 8.0 times forecast cash flow.
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ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST (Toronto symbol AP.UN; www.alliedreit.com) owns 188 office buildings and nine properties under development. All are in seven urban markets: Montreal, Ottawa, Toronto, Kitchener, Calgary, Edmonton and Vancouver. The overall occupancy rate is 87.2%.
On April 1, 2024, Allied acquired 90% ownership interest in 400 West Georgia Street in Vancouver and increased its ownership in 19 Duncan Street in Toronto to 95% from 50%. These acquisitions will add to cash flow once Allied leases out the vacant square footage in Vancouver (18% of the total) and the 464 rental-residential units in Toronto.
Allied Properties REIT: Latest transaction is already helping to grow revenues
Since the start of 2024, Allied has sold $75 million worth of its less-important properties. For the entire year, it expected to sell a total of $231 million in assets. That’s more than its $200 million target. This year, in 2025, it expects to sell an additional $170 million.
Despite those sales, revenue in the quarter ended September 30, 2024, rose 5.9%, to $146.6 million from $138.5 million a year earlier. However, higher costs and interest expenses, cut cash flow by 7.3%, to $77.6 million, or $0.556 per unit, from $83.7 million, or $0.599.
Allied last raised your monthly distribution with the January 2023 payment by 2.9%. The current annual rate of $1.80 a unit yields a very high 10.6%.
The REIT’s units trade at just 8.0 times Allied’s projected 2025 cash flow of $2.13 a unit.
Recommendation in Canadian Wealth Advisor: Allied Properties REIT is a buy.
