Ms. Cecilia Williams reports

ALLIED ANNOUNCES FOURTH-QUARTER AND YEAR-END RESULTS

Allied Properties Real Estate Investment Trust has released its results for its fourth quarter and year ended Dec. 31, 2023. Allied maintained operating momentum throughout 2023 as a result of: (i) sustained leasing and user-experience activity; (ii) comprehensive team development; and (iii) implementation of a five-year capital allocation plan that places minimal reliance on the capital markets.

Results

In the fourth quarter, Allied's operating income from continuing operations was $82-million, up 6 per cent from the comparable quarter last year. Allied's net loss and comprehensive loss from continuing operations totalled $499-million, in large part due to a fair value loss on investment properties flowing from declines in development property valuations in Toronto and Montreal ($70-million) and rental property valuations in Toronto, Montreal, Calgary and Vancouver ($425-million).

FFO (funds from operations) (1) were $86-million (61.4 cents per unit), up from $84-million (59.8 cents per unit) in the prior quarter. AFFO (adjusted funds from operations) (1) were $79-million (56.2 cents per unit), up from $76-million (54.5 cents per unit) in the prior quarter. This resulted in FFO and AFFO payout ratios (1) in the fourth quarter of 73.3 per cent and 80 per cent, respectively.

While Allied's FFO per unit in the fourth quarter was down 0.6 per cent from the comparable quarter last year, its AFFO per unit was up 2.6 per cent. Same-asset NOI (net operating income) (1) from Allied's rental portfolio was down 0.2 per cent while same-asset NOI from its total portfolio was up 4.6 per cent.

Operations

Knowledge-based organizations continue to prefer distinctive workspace in mixed-use, amenity-rich urban neighbourhoods in Canada's major cities. As a result, demand for Allied's workspace across the country continues to be evident and quantifiable.

Allied conducted 272 lease tours in its rental portfolio in the fourth quarter. Allied's occupied and leased area at the end of the quarter was 86.4 per cent and 87.3 per cent, respectively.

Allied leased a total of 610,064 square feet of GLA (gross leasable area) in the fourth quarter, 559,683 square feet in its rental portfolio and 50,381 square feet in its development portfolio. Of the 559,683 square feet Allied leased in its rental portfolio, 131,291 square feet were vacant space, 233,814 square feet were space maturing in the quarter and 194,578 square feet were space maturing after the quarter.

Average in-place net rent per occupied square foot continued to rise in the fourth quarter, reaching $24.10 at quarter-end. Allied continued to achieve rent increases on renewal (up 3.6 per cent ending-to-starting base rent and up 7.7 per cent average-to-average base rent).

Allied continues to focus on user experience with a view to ensuring that its properties remain conducive to human wellness, creativity, connectivity and diversity for the tens of thousands of people in Canada's major cities who use Allied workspace daily. Allied completed its fourth consecutive annual user experience assessment with Grace Hill Kingsley Surveys in 2023. All rating areas improved over the prior year and Allied exceeded industry averages materially in most rating areas, including the all-important net promoter score, which Allied exceeded by 250 per cent. User experience is at the very core of all aspects of Allied's operations.

Development and redevelopment activity

In the second half of 2023, Allied transferred 567,747 square feet of GLA from its properties under development (PUD) to its rental portfolio at an average in-place net rent per square foot of $35.74, reducing the cost of PUD as a percentage of gross book value (GBV) (2) to 11.6 per cent by the end of 2023. This will add to Allied's annual EBITDA (earnings before interest, taxes, depreciation and amortization) run rate by approximately $20-million from the beginning of 2024. Allied will continue to transfer material amounts of GLA from its PUD to its rental portfolio throughout 2024 and 2025. This will: (i) reduce the cost of Allied's PUD as a percentage of GBV to approximately 4.7 per cent by the end of 2025; (ii) increase average in-place net rent per occupied square foot in Allied's rental portfolio; and (iii) add to Allied's annual EBITDA run rate by approximately $41-million from the beginning of 2026 onward.

While Allied's development activity is concentrated in Toronto, its redevelopment activity is concentrated in Montreal. The largest and most advanced redevelopments in Montreal are the RCA Building, a high-quality Class I structure, and 1001 Blvd. Robert-Bourassa (formerly 700 de la Gauchetiere), a large conventional office tower with Class I attributes, including large floorplates, favourable column spacing and extraordinary ceiling height.

Allied acquired the RCA Building in 2019. With a view to serving Montreal's expanding knowledge-based organizations, it began systematically upgrading building infrastructure to current standards and rationalizing the large floor areas, increasing temporary vacancy considerably in the process. By the end of 2023, Allied completed approximately 60 per cent of the redevelopment and leased 51,430 square feet of GLA to life science, educational and tech users.

Allied acquired 1001 Blvd. Robert-Bourassa in 2019. With a view to serving Montreal's expanding knowledge-based organizations, it began transforming the extensive public areas, guided by a vision to create a comprehensively distinctive workspace environment. It also began transforming full floors in a manner consistent with the distinctive urban workspace environments that it owns and operates across the country. (The vision is illustrated in a vision document posted on Allied's website in the insight section.) By the end of 2023, Allied: (i) completed 80 per cent of the transformation at grade, with the remaining 20 per cent scheduled for completion by early April of 2024; (ii) completed the transformation of nine full floors; and (iii) leased 144,217 square feet of GLA, primarily to knowledge-based organizations, with another 18,000 square feet of GLA under negotiation.

Outlook

Consistent with the practice of most Canadian public real estate entities, Allied does not provide formal guidance. It has in recent years provided an annual outlook with respect to three non-GAAP (generally accepted accounting principles) metrics, FFO per unit, AFFO per unit and same-asset NOI. Over the course of 2021 and 2022, these metrics were up. In 2023, these metrics were flat or down slightly. While Allied will strive for flat metrics in 2024, management recognizes that the metrics may contract by up to 5 per cent in the year. Management expects the metrics in the first half to contract, as it assumes no economic occupancy gains in that period. Management does expect economic occupancy gains in the second half of the year but cannot be certain as to the magnitude of those gains, given the current macroeconomic environment.

Financial measures

Attached tables summarize GAAP financial measures for the fourth quarter.

An attached table summarizes other financial measures as at Dec. 31, 2023, and Dec. 31, 2022.

Non-GAAP measures

Management uses financial measures based on international financial reporting standards (IFRS) and non-GAAP measures to assess Allied's performance. Non-GAAP measures do not have any standardized meaning prescribed under IFRS and therefore should not be construed as alternatives to net income or cash flow from operating activities calculated in accordance with IFRS. Refer to the non-GAAP measures section on page 16 of Allied's MD&A (management's discussion and analysis) as at Dec. 31, 2023, available on SEDAR+, for an explanation of the composition of the non-GAAP measures used in this news release and their usefulness for readers in assessing Allied's performance. Such explanation is incorporated by reference herein.

About Allied Properties Real Estate Investment Trust

Allied is a leading owner-operator of distinctive urban workspace in Canada's major cities. Allied's mission is to provide knowledge-based organizations with workspace that is sustainable and conducive to human wellness, creativity, connectivity and diversity. Allied's vision is to make a continuous contribution to cities and culture that elevates and inspires the humanity in all people.

(1) This is a non-GAAP measure and includes the results of the continuing operations and the discontinued operations (except for same-asset NOI, which only includes continuing operations).

(2) This is a non-GAAP measure and includes the results of the continuing operations and the discontinued operations.

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