When a company slashes its dividend, investors naturally worry that there could be more bad news brewing. Allied Properties Real Estate Investment Trust AP-UN-T this week reinforced these concerns.
Is there still a case for holding on?
The units slumped 27.8 per cent on Wednesday after the REIT dropped a barn yard of bad news on investors with its quarterly financial results, just months after it slashed its dividend.
The units fell another 9.7 per cent on Thursday, closing at $9.16.
Full disclosure: I bought Allied units last year after uncertainty about its dividend drove the unit price down more than 70 per cent from its high in 2022.
I wagered that the potential reward was attractive if a low occupancy rate, high debt load and a wavering commitment to its dividend were already priced in.
The beaten-up unit price looked like an opportunity for long-term investors who had the patience to wait for office occupancy rates to pick up and the stomach to endure near-term volatility along the way.
Well, hello volatility!
The strategy of buying stocks with distressed dividends has an encouraging track record, if not exactly foolproof.
Pouncing on Suncor Energy Inc. or CAE Inc. in 2000, after they slashed their dividends, was a good move.
And to draw on a more recent – but still fluid – example, BCE’s share price has gained 19 per cent since it announced a reduction to its dividend last May (I own that dog, too).
Allied Properties raises $560-million in share sale to pay down debt
Allied Properties owns workspaces in Toronto, Montreal, Vancouver, Calgary and Kitchener, and it has emerged as a notable counterexample to this upbeat trend.
In December, the REIT cut its annualized distribution to 72 cents per unit, down from $1.80 previously.
Earlier this week, things looked okay: As of Tuesday, the unit price was up 11.5 per cent from a recent low in early December.
But the REIT delivered a few nasty surprises with its fourth quarter financial results this week.
Its funds from operations – a measure of operating performance and a key indication of a REIT’s ability to pay distributions – fell 22 per cent, to 41.9 cents per unit, in the fourth quarter compared with same period a year earlier.
That was well below analysts’ estimates.
Its occupied space declined to 85.3 per cent at the end of 2025, down from 85.9 per cent at the end of 2024 and well shy of its recovery target of 90 per cent.
Allied Properties raises $560-million in share sale to pay down debt
“While we made some progress in leasing activity and execution, the pace of lease finalization was slower than anticipated,” Cecilia Williams, chief executive officer at Allied Properties, said during a conference call this week.
But the part that really stung related to Allied Properties’ additional efforts to repay debt.
As part of its “action plan,” Allied Properties announced that it will raise capital through a unit offering – finalized at 56 million units priced at just $10 each, for a total intake of $560-million.
To put that into perspective, Allied Properties is increasing its outstanding units by nearly 40 per cent, which points to substantial dilution.
Funds from operations will fall sharply on a per-unit basis. And the payout ratio – or how much of these funds are distributed to unitholders – will likely rise.
That’s not comforting to anyone who’s wondering about the safety of the current dividend, since a high ratio leaves little room for error if the office market remains soft.
But with the units near 23-year lows, there’s an upside here if you’re a risk-loving bargain hunter or, like me, just plain stubborn.
For one thing, investor sentiment toward Allied Properties appears to have hit a new low. Not a single analyst has a “buy” recommendation on the REIT, as of Thursday, despite the low price.
That could mean that all – okay, most? – of the bad news is priced in, which is a decent set-up for an eventual recovery. I am painfully aware that I’ve said this before.
For another, the office market could be creeping back.
According to CBRE, the national vacancy rate declined to 18 per cent at the end of 2025, down from 18.7 per cent midyear, in what the commercial real estate services company called a “turning point.”
There’s still a long way to go for a full recovery, which is why Allied Properties is in a world of pain and risk-averse investors might want to look elsewhere. For others, though, holding on doesn’t seem like a bad idea.