Earnings call transcript: Allied Properties REIT Q4 2024 sees NOI growth

Allied Properties REIT (TSX:AP_u) reported a strong fourth quarter of 2024, with notable increases in net operating income and leasing activity. According to InvestingPro data, the company’s market capitalization stands at $51.78 million, with a robust 75.56% price return over the past six months. The company’s strategic focus on development completions and operational efficiency contributed to its performance. Despite forecasting a contraction in funds from operations for 2025, Allied Properties remains optimistic about future growth, particularly in urban workspace and residential developments.

Key Takeaways

• Q4 2024 net operating income rose by 6.5% year-over-year.
• Leasing activity increased by 14% in 2024, with new leasing up 41%.
• Development completions added $26 million to 2024 EBITDA.
• No distribution cut is planned, maintaining investor confidence.
• Targeting 90% occupancy by the end of 2025.

Company Performance

Allied Properties REIT demonstrated robust performance in Q4 2024, with a 6.5% increase in net operating income compared to the same quarter in 2023. The company benefited from a 5.4% rise in average in-place net rent per occupied square foot, signaling strong demand and effective property management. InvestingPro analysis shows the company maintains a healthy current ratio of 1.99, indicating strong liquidity position. The development completions significantly bolstered EBITDA, which currently stands at $29.67 million, with 2024 completions adding approximately $26 million.

Financial Highlights

• Net operating income: Increased by 6.5% year-over-year.
• Average in-place net rent: Rose from $24.10 to $25.41 per square foot.
• Same asset NOI: Grew by 2.2% for the year.
• Development completions: Contributed $26 million to EBITDA.

Outlook & Guidance

Looking ahead, Allied Properties REIT is targeting a 4% contraction in funds from operations and adjusted funds from operations in 2025. While the company shows revenue growth of 4.34% in the last twelve months, InvestingPro subscribers can access additional insights through comprehensive Pro Research Reports, which provide deep-dive analysis of the company’s financial health and growth prospects. The company plans to complete 340,000 square feet of urban workspace and 218 rental residential units in 2025, which are expected to add $13 million to the annual EBITDA run rate. Allied aims to achieve a 90% occupancy rate by the end of 2025, with significant contributions anticipated from Montreal and Toronto.

Executive Commentary

Cecilia, an executive at Allied Properties, stated, "We expect to continue outperforming the market," highlighting the company’s confidence in its strategic direction. She also emphasized the importance of maintaining distributions, saying, "Our distribution is a commitment that we’ve made with our investors and we take it very seriously." JP, another executive, noted a shift towards larger space requirements, reflecting changing market dynamics.

Risks and Challenges

• Potential for market saturation in key urban areas.
• Macroeconomic pressures, including interest rate fluctuations.
• Challenges in achieving targeted occupancy rates.
• Dependence on successful development completions.
• Competitive pressures from other real estate investment trusts.

Q&A

During the earnings call, analysts inquired about the company’s disposition strategy and leasing momentum. Allied Properties confirmed that asset dispositions would be driven by unsolicited interest, and expressed confidence in leasing momentum across markets. The company also reassured stakeholders that no distribution cuts are planned, which should help maintain investor confidence.

Full transcript - Ampco-Pittsburgh Corp (NYSE:AP) Q4 2024:

Bella, Conference Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Allied Properties REE Fourth Quarter twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

I would now like to turn the conference over to Cecilia. Please go ahead.

Cecilia, Executive (likely CEO), Allied Properties REIT: Thanks, Bella. Good morning and welcome to our conference call. I’ll summarize what we achieved in 2024 and what we’re focused on in 2025. Nan will do the same from a financial perspective. JP will outline the leasing momentum by urban market and strong results from our third party user engagement survey.

Then we’re pleased to answer questions. We may, in the course of this conference call, make forward looking statements about future events or future performance. By their nature, these statements are subject to risks and uncertainties that may cause actual events or results to differ materially, including those described under the heading Risks and Uncertainties in our 2024 Annual Report. Material assumptions underpinning any forward looking statements we make include those described under Forward Looking Statements in our 2024 annual report. First, leasing.

We outperformed the urban centers in which we operate where our occupied area was higher than each of the markets. The only exception was Vancouver where we acquired vacancy that we’ll address by year end. Our national portfolio’s leased area remains steady over the year and with challenges starting to ease, we’re focused on improving both occupied and leased areas to at least 90% by the end of twenty twenty five. Another positive metric in 2024 was our improved retention rate to 69, up from 61% in 2023. We expect retention to continue improving in 2025, getting closer to our historical rate of 75%.

Deals continue to take longer due to the availability of options in both the sublease market and in direct vacancy. As sublease space is absorbed and direct vacancy falls, I expect those timelines to shorten. It’s helpful that there’s no new supply beyond this year with the last delivery to the urban office market in Canada being the second tower of CIBC (TSX:CM) Square. Also helpful are twenty twenty four user engagement survey results. They were very strong with a net promoter score of 150% above the index average and a 30% increase year over year.

This is a testament to the strength of our operating platform which will also support leasing activity. We made progress on our development and upgrade activity as well. Transfers from the development to the rental portfolio in 2025 are expected to total 340,000 square feet of completed urban workspace and two eighteen rental residential units. In 2025 alone we’ll add $13,000,000 to our annual EBITDA run rate from development completions. We’re focused on completing all development and upgrade projects currently underway by the end of next year.

Last but certainly not least, the balance sheet. We flexed it in 2024 and will strengthen it in 2025. We completed dispositions of non core assets at or above IFRS value totaling $229,000,000 in 2024 above our target of $200,000,000 All proceeds were allocated to debt repayment. We also opportunistically acquired $677,000,000 of strategic assets in 2024, converting non cash interest income into a growing operating cash revenue stream while upgrading the quality of our portfolio. While the timing was not optimal as it resulted in a temporary increase to our debt to EBITDA metric and added short term vacancy, we’re focused on our path to get under 10 times by the end of twenty twenty five.

Part of that involves increasing our targeted dispositions in 2025 to at least $300,000,000 an amount we’re confident in our ability to achieve based on the success of our disposition program last year. Nan will now elaborate on our balance sheet. Thank you, Cecilia. Good morning, everyone. We’re pleased with our performance in the fourth quarter.

I’ll provide a brief overview of what we achieved in 2024 and will speak to 2025. This quarter, we achieved a 6.5 increase in net operating income compared to Q4 twenty twenty three. We also saw an increase of 5.4% to our average in place net rent per occupied square foot from $24.1 to $25.41 Additionally, same asset NOI of the total portfolio increased by 2.2% for the year. Our development completions added approximately $26,000,000 to our 2024 EBITDA, enhancing operating performance. The corresponding impact to FFO net of the capitalization of interest was $14,000,000 This is consistent with our expectation that approximately 50% of incremental EBITDA converts to FFO due to the capitalization.

Over the course of 2024, we fixed $818,000,000 of variable rate debt, improving our maturity ladder and addressing refinancing risk. We ended the year with our unsecured facility fully available and liquidity of $863,000,000 Our investment properties are 83% unencumbered. Moving to 2025, we have considerable optionality in addressing the $985,000,000 of debt maturity in 2025. This includes proceeds from our dispositions, our unsecured facility and the unsecured debenture market, which is becoming increasingly attractive. Net interest expense is expected to increase in 2025 as a result of the 2024 acquisitions and lower capitalized interest as we continue transferring properties to the rental portfolio.

Capitalized interest in 2025 is expected to come down to the low $60,000,000 range. By the end of twenty twenty five, we’re targeting net debt to EBITDA to be below 10 times despite a temporary increase anticipated in the first quarter of twenty twenty five. Same asset NOI of the rental portfolio will increase by approximately 2%. Montreal and Toronto will contribute meaningfully to this increase due to organic growth and cash NOI commencement from development completions. Same asset NOI for the total portfolio will increase by approximately 4.8%.

We expect our development completions to contribute to this growth by generating $13,000,000 of incremental EBITDA and $6,500,000 of FFO. Approximately half of this is contractual. While this demonstrates improving market fundamentals and the operating performance of our portfolio, we may see a contraction of approximately 4% on FFO and AFFO. This is largely driven by lower interest income and higher interest expense. While the timing of the 2024 acquisitions resulted in short term downward pressure on our debt metrics, they will contribute positively to our earnings as they stabilize.

Our operating goals are to achieve our leasing objectives, complete our development projects, meet our disposition target and advance our deleveraging plan. Our confidence is underpinned by the stabilization of our leased area for the third consecutive quarter and the strong leasing activity, which JP will now speak about. Over to you, JP.

JP, Executive, Allied Properties REIT: Thanks, Nan. We continue to observe improved utilization across our portfolio as more and more organizations recognize the many advantages of an office centric model, driving a resurgence in demand for our urban workspace. This is demonstrated by three notable trends emerging across our national portfolio. First, leasing activity is accelerated. Our conversion rate for new leasing activity in the second half of twenty twenty four was 55%, a significant increase from 38% in the first half of the year.

Second, expansion activity is increasing across all markets and sectors, which is primarily driven by higher utilization rates. In 2024, the amount of square feet leased for expansion purposes represented a 77% increase compared to the prior year. And we are currently engaged in discussions with 29 existing users that are exploring expansion options representing approximately 150,000 to 200,000 square feet of net new leasing in aggregate. Third, we are observing a shift towards larger space requirements among prospective users, a trend I’ll speak to in greater detail as I provide an update on each market. As a result of these three trends, we enter 2025 with a high degree of optimism.

In Q4, our leased area held steady for the third consecutive quarter and the number of transactions completed was up 23% compared to the previous quarter. In 2024, total leasing activity represented a 14% increase in the amount of square feet leased compared to the prior year and new leasing activity was up 41%. We remain extremely encouraged by the number of existing users in our portfolio that continue to require more space. In Q4, ’50 ’6 thousand square feet of new leasing activity in the quarter represented expansions. We are also encouraged by our improving retention rate, which was 69% in both Q4 and 2024, closer to our historical level of 75%.

In Q4, the average rental rate was up 2% when comparing the ending to starting base rent and up 5.9% when comparing average to average. The observed moderation in rental rate growth upon renewal is in line with our expectations and reflects the anticipated impact of increased supply, a message we have been communicating for several years. Tour activity continues to be strong. Total (EPA:TTEF) tour activity in Q4 was in line with the prior quarter, which is encouraging considering seasonality and total tour activity for 2024 was up 6% compared to the prior year. Industries represented by touring organizations continue to be technology, media, professional services, education and medical uses.

At the end of last quarter, we reported we had 960,000 square feet of leasing activity under negotiation or at the prospect stage, including 423,000 square feet of new leasing activity. In Q4, we completed 528,000 square feet of leasing activity, including 188,000 square feet of new leasing resulting in a 44% conversion rate compared to 24% in the prior year. As of today, we have 933,000 square feet of leasing activity under negotiation or at the prospect stage, of which 61% represents new leasing requirements and 39% represents renewals. I’ll now provide a brief overview of each market. In Montreal, we’re seeing an increase in demand from prospective users, including technology users for larger space requirements that are greater than 50,000 square feet.

There are currently eight groups in the market with mandates between 50,002 square feet that are considering space in Allied’s portfolio. Last quarter, we’ve reported robust expansion activity, including a large renewal and expansion in Montreal. We are now able to disclose that the user was Ubisoft (EPA:UBIP), a large technology user at 5445 Degasse in Montreal’s Mile End neighborhood that extended its term and expanded 49,000 square feet. Ubisoft’s expansion is an example of an emerging trend in Montreal and across our national portfolio of existing users pursuing expansion opportunities. Most of our vacancy in Montreal is located at La Cite, a portfolio of assets located between Old Montreal and Griffintown, comprising eight buildings totaling more than 1,100,000 square feet.

La Cite offers allied modern and allied heritage workspace solutions, as well as an enhanced amenity experience for users and an improved necessity based retail and service component, consistent with amenity rich urban neighborhoods. We are extremely pleased with the progress of the transformation of the retail offering as we have completed or are finalizing leases for the entirety of the retail space at 111 Boulevard, Robert Barossa, totaling 21,000 square feet, including a lease with a national grocer that will anchor the retail component. We are also very pleased to report that we recently renewed Morgan Stanley (NYSE:MS), the anchor office user within La Cite. In Toronto and Kitchener, we continue to see an increase in demand from prospective users with larger space requirements that are greater than 10,000 square feet. There are presently 23 users with mandates in excess of 10,000 square feet that are evaluating space in our portfolio, split evenly between the technology and professional services sectors.

We continue to make great progress with the leasing of the retail component at King Toronto. We are finalizing lease terms with an ideal anchor user that will occupy most of the space in the lower level and look forward to sharing more in subsequent quarters. We believe the retail offering at King Toronto will propel the continued transformation

: of

JP, Executive, Allied Properties REIT: King West Village and drive office leasing activity. At nineteen Duncan, Westbank has leased 20% of the residential units. Leasing progress in Q4 was impacted by an insurable event during construction affecting select suites and the building’s vertical transportation. We are also working to complete three levels of amenities, which will be delivered in phases in the second half of twenty twenty five. As a result, we anticipate we will achieve stabilized lease up in the first half of twenty twenty six.

In Calgary, phase two of the Downtown Development Incentive Program was introduced to support office conversions and the eligible catchment area was expanded to include the BeltLine. While we have no intention of pursuing residential conversions, we’ve started to observe an increase in near term demand from users and buildings slated for conversion, as evidenced by recent groups that have toured our portfolio. We are also seeing an increase in the size of mandates in the market as there are currently 12 prospective users with mandates ranging between 60,000 square feet evaluating options in our portfolio. In Vancouver, there has been an influx of new entrants to the market and increased demand for urban workspace among organizations currently located in suburban environments. In addition, we are starting to see an increase in demand from prospective users with larger space requirements that are greater than 10,000 square feet.

There are presently eight users with mandates in excess of 10,000 square feet evaluating space in our portfolio. Vancouver remains the strongest leasing market in Canada. Four Hundred West Georgia is currently 82% leased. There are four floors totaling 64,000 square feet that remain available. There are presently four prospective organizations representing the technology and professional services sectors with requirements ranging from one to four floors currently touring the property.

As previously communicated, we anticipate the remaining vacancy will be leased with users in possession in the second half of twenty twenty five. At the very core of our operating platform is an unrelenting commitment to user experience. For the past five years, Allied has retained Grayscale Kingsley surveys to assess user satisfaction within our portfolio. The results for 2024 were very encouraging. All performance indicators improved or maintained parity with the previous year.

In addition, 85% of users were satisfied with Allied’s commitment to sustainability and 93% were satisfied with Allied’s commitment to EDI. Most importantly, Allied’s net promoter score, a leading indicator for tenant retention and leasing activity, increased 30% and exceeded the industry average by 150%. These exceptional results are a direct reflection of the unwavering commitment and hard work of the entire Ally team to provide our users with great workplace experiences. We expect these strong results will support our leasing efforts in 2025 to achieve at least 90% occupied and leased area by year end. I will now turn the call back to Cecilia.

Bella, Conference Operator: Thanks, JP.

Cecilia, Executive (likely CEO), Allied Properties REIT: We continue to monitor international trade and the effect of potential tariffs. On review of our development supply chain, we don’t have meaningful exposure as we’re at the end of our projects. On the demand for workspace, it’s too early to tell whether there will be an impact. Before we turn to questions, I want to reiterate my confidence that our portfolio will continue to hold up well in this economic environment. Yes, we’re aware of the headwinds, but we see more upside and are optimistic because of the strength of our operating platform.

We recently updated our website to reflect our expanded offering. In addition to the allied heritage, modern and flex spaces, it now includes the rental residential units in Toronto and Calgary as well as extensive amenities. It’s this one of a kind urban properties we own combined with the services provided by our team that gives us confidence in 2025 and beyond. We’d now be pleased to answer any questions.

Bella, Conference Operator: Your first question comes from the line of Loren Kumar with Weddzinski. Please go ahead. Your line is now open.

Loren Kumar, Analyst, Weddzinski: Thanks. Good morning, everybody. Just firstly on the occupancy outlook, I was just wondering when you’re looking at that 90%, is that on a same asset base that you kind of on the 14,300,000 square feet or is there some other adjustments that are going to be made as a part of that?

Cecilia, Executive (likely CEO), Allied Properties REIT: No, no adjustments. It would be just 90% at least 90% on the total portfolio.

Loren Kumar, Analyst, Weddzinski: Okay, perfect. Thank you for that. And then on the 150 West Georgia disposition, obviously a priority for you guys this year. I was wondering if you had any visibility in terms of the timing as to when that might come to fruition when you guys could repatriate the capital from that?

Cecilia, Executive (likely CEO), Allied Properties REIT: We’re expecting repayment by the end of the year.

Loren Kumar, Analyst, Weddzinski: Okay, fair enough. And then lastly on nineteen Duncan, I was just wondering if there was any CMHC financing?

Cecilia, Executive (likely CEO), Allied Properties REIT: No. We’re going to be addressing all of our options given the change in the underlying mortgage bond rate. We may have more attractive options.

Loren Kumar, Analyst, Weddzinski: Okay. But is it fair to say that this will not be a first quarter event?

Cecilia, Executive (likely CEO), Allied Properties REIT: Not sure. Not committing to that. But we have the availability to access CMHC over the course of 2025 and will do so based on what makes the most sense for our business.

Loren Kumar, Analyst, Weddzinski: Okay. That seems reasonable. And then sorry, just one last one for me. Just JP had mentioned Ubisoft. We had seen some headlines there in talks about a potential buyout.

I was just wondering if that’s something that’s on your guys’ radar and if there was any potential implications to their office space usage as a result of that?

JP, Executive, Allied Properties REIT: No. Their renewal and expansion reflects business growth and a continued flight to quality and experience as part of their broader workplace strategy.

Loren Kumar, Analyst, Weddzinski: Okay, fabulous. Thank you so much. I will turn it back.

Bella, Conference Operator: Thanks. Your next question comes from the line of Jonathan Coulcher with TD Cowen. Please go ahead.

: Thanks. Good morning.

Jonathan Coulcher, Analyst, TD Cowen: First question, just on the 4% decline in FFO, I guess, we’d call it a target. A little surprising that it’s that specific. What gives you confidence that that’s like you’re going to hit right at around $2.00 9? And I guess, what would need to happen for you to either be a little bit above that or a little bit below that?

Cecilia, Executive (likely CEO), Allied Properties REIT: Well, it would depend on the timing of our leasing assumptions and it would also depend on different debt rates than what we’ve assumed for 2025 and the timing of debt repayment as well. So those would be the puts and the takes.

Jonathan Coulcher, Analyst, TD Cowen: Okay. That’s fair enough. And then on the 2% NOI growth, I guess that assumes you’re reaching 90% occupancy and based on JP’s comments, it sounds like you guys have a lot of confidence in that. What’s sort of your expectation in terms of the cadence of the gains? It’s sort of equally weighted or more front half or back half weighted this year?

Cecilia, Executive (likely CEO), Allied Properties REIT: No, they’re back end weighted, Jonathan.

Jonathan Coulcher, Analyst, TD Cowen: Okay. So a slow start and then a ramp up into 2026?

Cecilia, Executive (likely CEO), Allied Properties REIT: Correct. A ramp up to the end of 2025.

Jonathan Coulcher, Analyst, TD Cowen: Okay. I will turn it back. Thanks.

Bella, Conference Operator: Thanks. Your next question comes from the line of Brad Sturges with Raymond (NSE:RYMD) James. Please go ahead.

Brad Sturges, Analyst, Raymond James: Hey, good morning. Just to circle back on 150, just to be clear, I guess, the timing or the success on a transaction there, that’s still tied to Westbank’s ability to sell air rights particularly for the data center air rights or how are you thinking about what will drive that ability to get repaid on that loan?

Cecilia, Executive (likely CEO), Allied Properties REIT: No, that’s right. It’s based on the data center air rights.

Brad Sturges, Analyst, Raymond James: Okay. And with the disposition outlook, I think $300,000,000 this year, How would you compare, I guess, the potential types or pool of buyers for the second tranche for this year compared to last year? Would it be kind of a similar sort of size and mix of potential buyers in terms of the interest you’re seeing in the assets you’re looking potentially to sell?

: Yes. Okay.

Brad Sturges, Analyst, Raymond James: And what’s driving the increase? I think the guidance before was for less amount. So what’s driving the increase to get to $300,000,000 this year?

Cecilia, Executive (likely CEO), Allied Properties REIT: To strengthen the balance sheet and have proceeds to pay down debt.

Brad Sturges, Analyst, Raymond James: Is it more just on more unsolicited interest or you just have gone through more of a comprehensive process to determine this is the right amount to be selling this year?

Cecilia, Executive (likely CEO), Allied Properties REIT: No, it’s still based on unsolicited interest.

Brad Sturges, Analyst, Raymond James: Okay. Thank you.

: Yes.

Bella, Conference Operator: Comes from the line of Marlo Seric with Deutsche Bank (ETR:DBKGn). Please go ahead.

Marlo Seric, Analyst, Deutsche Bank: Okay. Thank you for taking the questions. Coming back to the occupancy gains, the target occupancy gains of 400 basis points at least, within that expectation, what is your expectation for the broader Allied market move? I guess what I’m trying to get is how much of the 400 basis points or so do you think is allied specific versus a broader strengthening in the broader competitive landscape that you face?

Cecilia, Executive (likely CEO), Allied Properties REIT: Well, we expect to continue outperforming the market and the bulk of the occupancy gains will come from Montreal and Toronto. So we’re feeling pretty confident about our ability to do that.

Marlo Seric, Analyst, Deutsche Bank: Okay. And then just to clarify comments you made earlier, like if we look at your on Page 50 of the MD and A, if you’re disclosing 165,000 square feet, there were the rent commencement that’s taking place in 2025, at least about 400,000 square feet to go based on the 400 basis points of occupancy gains. And your comment was that you expected in Q4 twenty twenty five the vast majority of it, so that the 2% same store NOI expectation for the year, is it fair to say that to reflect very little of the 400 basis point expected increase?

Cecilia, Executive (likely CEO), Allied Properties REIT: Sorry, I can confirm that our leasing assumptions are back end weighted. I don’t know if I understood the last part of your

: question.

Marlo Seric, Analyst, Deutsche Bank: I’m just trying to get a sense of like how much of the 400 basis points of expected occupancy gain is in the 2% same store NOI number. Like if for example, all of the gains were recorded at the start of the year with a 2% be closer to 4% to 5% kind of thing?

Cecilia, Executive (likely CEO), Allied Properties REIT: Mario, I can talk to that. So part of that 2% growth is coming from the cash NOI commencement of development completions that are currently in the rental portfolio but that don’t make to same asset NOI in 2024. And then the other part is coming from organic growth in Montreal and Toronto of which part of it is already leased and the other half is based on leasing assumptions.

Marlo Seric, Analyst, Deutsche Bank: Okay. Just on the $300,000,000 of potential dispositions, is the target disposition cap rate similar to what you achieved in 2024?

Cecilia, Executive (likely CEO), Allied Properties REIT: It will continue to be lower yielding non core assets, yes.

Marlo Seric, Analyst, Deutsche Bank: Okay. Just two more really quick ones on my end. The total cost of PUD that you listed on page seven, you have the MD and A, it’s $1,900,000,000 How much of that cost remains in PUD today? And what is the target by year end?

Cecilia, Executive (likely CEO), Allied Properties REIT: Tomorrow, there’s a hundred and 38,000,000 remaining cost to complete. That’s on that page if that’s what you’re referencing. That’s 2025. In 2025. Yeah.

Remaining heads of Q4 cost complete.

Marlo Seric, Analyst, Deutsche Bank: Okay. But just in terms of like the the question is more on the total cost that is in PUD take because presumably someone what is on page 70 has been transferred to IPP already. Like what is the existing total cost from the PUDs today? Not fair value but the actual total cost that’s on the books.

Cecilia, Executive (likely CEO), Allied Properties REIT: Mario, let me call you on that. I’m not quite understanding the question.

Marlo Seric, Analyst, Deutsche Bank: Sure. Okay. My last one just for JP on the good to hear the Morgan Stanley renewal at La Cite. Was there any change in the footprint there? And what are the implications of the renewal on your ability to release the remainder of the space, which you mentioned is a big part of your vacancy in Montreal?

JP, Executive, Allied Properties REIT: The Morgan Stanley’s presence, Mario at La Cite represents their technology center. It’s a part of their business that has grown materially, started with 170 employees in 02/2008 and now host more than 3,000. So they remain committed to Montreal. And we value that relationship and that gives us confidence in the balance of our leasing progress there in large part. Because of the success we’ve had with the improved retail offering that we are now pursuing.

So, we remain confident in our ability to address the vacancy over the course of the year.

Marlo Seric, Analyst, Deutsche Bank: Okay. Was it fair to say the footprint was roughly intact on the renewal? Sorry? Was it fair to say that the Morgan Stanley footprint was intact

JP, Executive, Allied Properties REIT: on the renewal? There was no change in footprint at all.

Marlo Seric, Analyst, Deutsche Bank: Perfect. Okay. That’s it for me. Thank you.

Bella, Conference Operator: Your next question comes from the line of Pammi Bir with RBC Capital Markets. Please go ahead.

Pammi Bir, Analyst, RBC Capital Markets: Thanks. Good morning. I just wanted to clarify maybe one of the answers to the earlier questions, but how much of, if any, of the occupancy improvement that you expect this year would come from maybe shifting any assets into developments or sections or portions of assets into developments? And also, is there any impact in that 90% target from asset sales?

Cecilia, Executive (likely CEO), Allied Properties REIT: The only shift between the rental and the development portfolio in 2025 will be from development to rental. We’re not expecting to shift anything from rental to development. And, sorry, what was your second question?

Pammi Bir, Analyst, RBC Capital Markets: Yes. And is there any portion of the 90% occupancy target by year end being driven by sales of some of the dispositions this year?

Cecilia, Executive (likely CEO), Allied Properties REIT: No, that wouldn’t have a material impact.

Pammi Bir, Analyst, RBC Capital Markets: Okay. And then just again to clarify that 90% target is committed or in place?

Cecilia, Executive (likely CEO), Allied Properties REIT: Both occupied and leased area to be at least 90% by the end of twenty twenty five.

Pammi Bir, Analyst, RBC Capital Markets: Got it. And then on the FFO outlook, just curious, where does that sit maybe in terms of the range of outcomes that you sort of thought about when you put together your budget for 2025? Is this conservative or kind of in the middle of sort of the expectation for the year?

Cecilia, Executive (likely CEO), Allied Properties REIT: Well, it’s where it lands based on reaching occupied and leased area of 90% by year end. I’m not going to add labels to how we considered it whether it was aggressive or conservative. It’s what we’re striving towards and that’s what we expect to be able to achieve by the end of twenty twenty five.

Pammi Bir, Analyst, RBC Capital Markets: Okay. Last one for me, just again with the expectation for AFO to contract this year in that 4% level. Can you talk about the rationale for holding the distribution at current levels given where the payout ratio already is? And cut could certainly help with respect to achieving some of your debt reduction targets?

Cecilia, Executive (likely CEO), Allied Properties REIT: Our distribution is a commitment that we’ve made with our investors and we take it very seriously and we have a path to be able to strengthen the balance sheet without having to cut the distribution which is why we’re not cutting it.

Marlo Seric, Analyst, Deutsche Bank: Okay. I’ll turn it back. Thank you.

Bella, Conference Operator: Thank you. Your next question comes from the line of Matt Kornack with National Bank Financial. Please go ahead.

: Good morning, guys. Just wanted to quickly on the occupancy front, do you have a view as to where in place occupancy will finish the year? And then can you kind of also speak to the time delay between signing leases today and getting kind of economic occupancy where you’re actually getting cash rent in?

Cecilia, Executive (likely CEO), Allied Properties REIT: Yeah. We’re sorry. I thought we were pretty clear in the press release. Maybe I’m not understanding the question, but we’re targeting to have occupied leased occupied and leased area of at least 90% by year end. I don’t know what you mean by in place, like to me occupied.

: So so, yeah, I mean, you disclosed the 87.2% and the 85.9%. So, like the 87.2, I understand, is going to 90 plus, but it’s kind of the 85.9%, which is, I guess, tenants in place today, not the commitments for the future.

Cecilia, Executive (likely CEO), Allied Properties REIT: Right. So that’s our occupied area.

: Yes. So where would the 85.9% figure trend to? Will it go up by 300 basis points as well?

Jonathan Coulcher, Analyst, TD Cowen: Well,

Cecilia, Executive (likely CEO), Allied Properties REIT: both of those metrics being to at least 90% by 12/31/2025.

: Okay. Okay. So you’re there’s no so you’re there’s gonna be no spread between the two at the end of the day.

Cecilia, Executive (likely CEO), Allied Properties REIT: Well, no. I’m just saying that we’re targeting for them to both be at least 90%. I would expect there to be, you know, I would expect there to be some committed space that isn’t occupied but at least, but we’re not giving that kind of detailed disclosure.

: Okay. So that’s fair. I understand what you’re saying now on those two metrics. But I guess in terms of economic kind of excluding the impact of the straight line rent and whatever free rent or fixturing periods, like how long should we expect before you kind of see the true cash impact of that move?

Cecilia, Executive (likely CEO), Allied Properties REIT: That’s something that we can give updates over the course of the year, but not in a position to comment on today.

: Okay. And then also on 150, I mean, you put out a precise 4% number. Are you assuming midyear for that? It’s only because we were talking to an investor earlier today. And if I move, the timing of just the repayment of that loan has, I think, anywhere from a 10¢ impact if it’s Q1 versus Q4.

But did you just assume mid year in your 4% figure for that repayment?

Cecilia, Executive (likely CEO), Allied Properties REIT: No. We assume the end of the year.

: Okay. And then I guess the only other thing is on maybe for Nan on the capitalized interest front. Are you assuming current interest rates or maybe when you wrote the MD and A interest rates, or are you assuming some decrease in the short end of the curve over the forecast period when you come to that capitalized interest figure? Because arguably your interest expense will go up and down with where the short end of the curve goes based on your construction facilities?

Cecilia, Executive (likely CEO), Allied Properties REIT: Yes, Matt, we fixed a lot of our variable rate debt. So, it’s not really interest rate driven, it’s more around transfers on the developments under the development project projects to rental portfolio. That’s where the it’s the capitalization impact not so much on the weighted average cost of debt for 2025.

: If I take your original comment, it sounds like for every dollar of NOI kind of $0.5 is capitalized interest. So should we expect for that to so you’d have $20,000,000 of NOI contribution and $10,000,000 of capitalized interest coming off? And then I guess beyond that point, because you still have $60,000,000 of capitalized interest, How should we think of the trajectory maybe in 2026? I know we’re not that’s few years out, but it’s within our forecast period. It just seems like there’s still a lot to come from that portfolio.

Cecilia, Executive (likely CEO), Allied Properties REIT: Yes, there is the ins and outs because it’s not just the development portfolio. We’ve also got the upgrade portfolio where there’s capitalization. So there is movement within that. Matt, why don’t I call you? But it’s $13,000,000 of EBITDA in 2025 and $6,500,000 of FFO.

So approximately a $6,000,000 impact to the capitalization in 2025 from development completions.

: Okay. And then I guess the same property, one more thing on the same property NOI number that is inclusive of development, correct? That’s not your kind of, just your rental portfolio, same property NOI, is that correct?

Cecilia, Executive (likely CEO), Allied Properties REIT: Okay. No. So 4.8% is the total portfolio which includes transfers that have not moved into rental like for like year over year but within the 2.2 there is transfers that happened in 2024 that will make it to that rental portfolio comparison for certain asset NOI purposes.

Marlo Seric, Analyst, Deutsche Bank: Right. This is just the change

: in the portfolio. Okay. That’s very helpful. Thanks guys.

Bella, Conference Operator: Your next question comes from the line of Robert Nobuslak with Soluemat Investments. Please go ahead.

Pammi Bir, Analyst, RBC Capital Markets: Thank you. Good morning. I think my question might have already been answered, but I noticed in the press release there was no mention of the could you provide any commentary on the safety of the distribution? Thank you.

Cecilia, Executive (likely CEO), Allied Properties REIT: Absolutely. We held the distribution in December for the balance of 2025 and we are you can expect to continue receiving the distribution at the current levels. We are not needing to cut the distribution nor do we want to cut it. So you can consider it safe.

Marlo Seric, Analyst, Deutsche Bank: Thank you.

Bella, Conference Operator: Thank you. Your next question comes from the line of Samaya Syed with CIBC World Markets Inc. Please go ahead. Thanks. Good morning.

Samaya Syed, Analyst, CIBC World Markets: Firstly, I had a follow-up question on the CapEx spend for 2025. So last year you guys spent around $270,000,000 plus another $80,000,000 on leasing costs for development specifically. And given that the cost of HUD left to complete is around $140,000,000 dollars Is that the right number to use as your development spend for 2025?

Cecilia, Executive (likely CEO), Allied Properties REIT: Yes, Tamaya, that’s correct.

Samaya Syed, Analyst, CIBC World Markets: Okay, great. And can you just talk through some of the fair value changes, not a lot of movement on the cap rate side. So I guess moderating some rent assumptions like how do we square that with your expectations of better organic growth and higher occupancy for the year?

Cecilia, Executive (likely CEO), Allied Properties REIT: Yes. The IFRS value changes were really just a reflection of leasing activity. So as our leased and occupied area improves, you could expect that to reverse.

Samaya Syed, Analyst, CIBC World Markets: Okay. And then just lastly, wondering about the plan for the debentures coming to you in April. Looks like you do have several options on the table and just wondering which one seems most feasible as of now?

Cecilia, Executive (likely CEO), Allied Properties REIT: We’re going to assess all of our options to Maya. We have Nan outlined the many ways that we can address that but we’ll do what makes the most sense at any given time.

Samaya Syed, Analyst, CIBC World Markets: Okay. And then just lastly on your occupancy goal, I wanted to confirm that the 90% is that of the known move out that were I think previously mentioned on the last quarter call?

Cecilia, Executive (likely CEO), Allied Properties REIT: Correct. Confirmed.

: Okay. Thank

Samaya Syed, Analyst, CIBC World Markets: you. I’ll turn it back.

Cecilia, Executive (likely CEO), Allied Properties REIT: Thanks.

Bella, Conference Operator: Your next question comes from the line of Charles Lazier with Mackenzie Investments. Please go ahead.

Cecilia, Executive (likely CEO), Allied Properties REIT0: Hi, and thanks for taking the question. I appreciate it. Just wanted to ask a question more high level on the leasing front. Obviously, renewals are improving, which is great. But can you give some more color on generally where those tenants are going?

Are they moving to other assets or are they giving backspace entirely? And then if you can just comment as well on kind of your market share of leasing broadly, that would be great. Thanks.

JP, Executive, Allied Properties REIT: We aren’t seeing any discernible trends among our non renewals. Some of our larger non renewals upcoming this year are a function of M and A activity, but beyond that no discernible trends. And we expect to continue to outperform the markets each of the markets in which we operate over 2025.

Cecilia, Executive (likely CEO), Allied Properties REIT0: Okay. Thanks.

Bella, Conference Operator: That concludes our Q and A session. I will now turn the conference back over to Cecilia for closing remarks.

Cecilia, Executive (likely CEO), Allied Properties REIT: Thanks, Bella, and thank you everyone for joining our conference call. We’ll keep you updated on our progress going forward.

Bella, Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You now disconnect.

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