Sometimes, the stock market’s pessimism can create a glaring disconnect between price and fair value. That’s exactly what appears to have happened with Allied Properties Real Estate Investment Trust (TSX:AP.UN), a top-tier office REIT that isn’t just offering a compelling 9.7% distribution yield — it’s trading at a staggering 52% discount to its net asset value (NAV). Income investors may find that combination becoming difficult to overlook in September 2025
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Allied Properties REIT: A bargain investment as office economics improve
Allied Properties is one of Canada’s largest owners of urban office real estate, with a premier portfolio of 190 properties valued at $8.8 billion. Its focus is on Class A urban workspace, the kind of high-quality, well-located buildings that are increasingly in demand as companies prioritize enticing employees back to the office.
While the broader office properties market has faced well-documented headwinds since 2021, a recovery is quietly taking shape. Recent data shows Canadian office vacancy rates stabilized in the first half of 2025 and may peak by year-end, with central Class A markets leading the charge, driven by tenants actively occupying space faster than new vacancies appear.
This improving office market is where Allied Properties REIT’s strategy shines. The REIT has long served knowledge-based organizations, and its modern, amenity-rich properties in major city centres are precisely what tenants are seeking today.
Management reports steady office space demand, targeting occupancy to reach 90% by year-end, up from 84.9% in June. This should help fuel growth in Allied’s net operating income (NOI), which is a key measure of a property’s profitability. Encouragingly, same-property NOI saw a marginal improvement in the first half of 2025, primarily driven by rent escalations in its leases, which have a weighted-average term of 5.6 years.
The most compelling part of the story: a recent vote of confidence from an industry heavyweight.
Brookfield’s vote of confidence in office REITs
On its recent second-quarter 2025 earnings call, Brookfield Asset Management’s (TSX:BAM) president, Connor Teskey, highlighted an incredibly robust recovery in real estate. Most notably, he stated that across Brookfield’s office portfolio, “in recent months, we’ve signed our highest leases ever” in key markets like New York and London, a trend he believes “would probably pertain to almost every other major market around the world.” This powerful sentiment from a global real estate leader suggests the tide is turning for quality office assets, a rising tide that should lift a well-positioned Canadian player like Allied Properties REIT.
Manageable risks to the juicy distribution
Of course, no high-yield passive-income story is without its risks. The REIT’s adjusted funds from operations (AFFO) payout ratio, which is a key metric for assessing the sustainability of a distribution, climbed to 98.8% during the second quarter (which is still fine). This increase is largely due to higher interest costs from acquisitions made in 2024, shrinking the REIT’s AFFO per unit by an expected 4% this year. Investors will keep watching the AFFO payout rate closely over the next six months.
However, management is taking proactive steps to strengthen the balance sheet. The plan to sell over $300 million in non-core properties at or above their book value, and use the proceeds to pay down debt, should provide significant relief and improve AFFO stability moving forward. The REIT’s current debt ratio sits at a manageable 44%.
A high-yield bet at a 52% discount
Trading at around $18.60 per unit against a net asset value of $38.97 (at June 30, 2025), the market is pricing in a worst-case scenario that seems to be already improving. For investors who believe in the long-term vitality of Canadian cities and the enduring need for quality office space, this 52% discount represents a potential double win: a secure stream of high-yield passive income today and significant capital appreciation as the gap between price and value narrows.
Reinvesting a 9.7% distribution, as per the Rule of 72, could double an investor’s capital in about 7.5 years, even if the unit price never budges. But if the Canadian office recovery continues (as Brookfield suggests), and Allied Properties REIT’s occupancy and NOI climb, the unit price may not stay at a 50% discount for long.
Canadian investors building passive-income-generating portfolios of top dividend stocks may find Allied Properties REIT a high-conviction, undervalued opportunity that looks far too cheap to ignore.
