Allied Properties: 11.7% Yield Does Not Make It A Buy

The allure of a double-digit dividend yield is hard to resist. Allied Properties Real Estate Investment Trust (APYRF), currently offering an 11.7% yield, has drawn investor attention. But beneath the surface lies a complex reality: a widening net loss, cash flow pressures, and execution risks that make this high-yield play a gamble, not an opportunity.

A Yield Born of Desperation
Allied’s dividend yield has surged to 11.7% as its share price has plummeted 32% year-to-date (as of May 2025). This is not a reward for investors but a reflection of skepticism about Allied’s ability to sustain its payout. The Q1 2025 results underscore the fragility of its financial health: net loss widened to CAD 107.66 million, a staggering 473% increase from the prior-year period. While revenue rose 4.9%, cash flow per unit fell 7.3% year-over-year to CAD 0.556, underscoring the strain of rising costs and interest expenses tied to recent acquisitions.

Leasing Lags in Key Assets
Allied’s strategy hinges on its ability to lease newly acquired properties, particularly its “triple-A urban” assets. But progress has been uneven:

• 400 West Georgia (Vancouver): 63,772 sq ft of office space remains vacant. While negotiations are ongoing, Allied expects to lease it by year-end—a timeline that assumes no further delays.
• 19 Duncan (Toronto): Only 149 of 464 residential units are leased, with occupancy permits still pending for 8 units.
• Calgary House: A bright spot, with 310 of 326 residential units leased.

The slow pace of leasing these assets risks delaying cash flow improvements. Even if Allied meets its end-2025 goals, the lag means dividend support will remain fragile until 2026 at the earliest.

Debt and Dispositions: A Tightrope Walk
Allied’s net debt/EBITDA ratio stands at 11.6x, far above its target of sub-10x by year-end. To reduce leverage, it plans to sell CAD 300 million in non-core properties—up from its earlier CAD 200 million goal. While CAD 231 million in sales were completed in 2024, there is no guarantee that additional sales will materialize at favorable prices, especially in a cooling real estate market.

Meanwhile, rising interest costs from 2024 acquisitions are projected to shrink FFO and AFFO per unit by 4% in 2025. This squeeze leaves little room for error in a sector where occupancy rates are already under pressure.

The Outlook: A High-Wire Act
Allied’s path to stabilization requires three things:
1. Full leasing of its underperforming assets by 2026.
2. Non-core sales at prices sufficient to reduce debt.
3. No further occupancy declines in its core portfolio, which saw stagnant Vancouver office demand due to global trade disruptions.

Even if these conditions are met, the 11.7% yield implies investors are pricing in a significant risk premium. At 8.0 times projected 2025 cash flow (CAD 2.13/unit), the stock assumes Allied’s cash flow will rebound sharply—a leap of faith given its recent performance.

Conclusion: The Risks Outweigh the Reward
Allied Properties’ 11.7% yield is a siren song for income investors, but the data tells a cautionary tale. A widening net loss, deteriorating cash flow, and execution-dependent asset sales create too many points of failure. Even if Allied achieves its goals, the timeline suggests years of patience would be required to see returns. With alternatives like the S&P 500 REIT Index offering yields around 4.5% with far less risk, Allied’s gamble offers little margin for error.

For now, Allied remains a speculative play—better suited for traders with a high-risk appetite than income seekers.