Down 56%, Should Investors Buy This High-Yield Dividend Stock in May?

Discover the struggles and opportunities of Allied Properties REIT and whether it is a wise decision to buy this dividend stock at the dip.

Key Points
  • Challenges Facing Allied Properties REIT: The steep 56% decline in Allied Properties REIT's unit price is driven by falling occupancy rates and financial strain due to construction delays, high debt-to-EBITDA, and significant impairments, leading to a strategic shift to stabilize finances, including a 60% dividend cut and management reshuffle.
  • Consider Stronger Alternatives Like Choice Properties REIT: Given Allied's current instability and management changes amid financial challenges, investors might prefer Choice Properties REIT for its robust fundamentals, steady cash flow anchored by major tenant Loblaw, and ongoing asset acquisitions, offering a more secure dividend option.

Does a 7.1% yield attract you? Allied Properties REIT (TSX: AP.UN) is offering it as the unit price has dipped 56% since October 2025. Is such a significant dip a value proposition? Let’s find out.

some REITs give investors exposure to commercial real estate

Source: Getty Images

Why did this high-yield stock fall 56%?

Allied Properties REIT is a commercial REIT with 191 rental properties. Like all commercial properties, the REIT is facing a falling occupancy rate of 85% in the first quarter of 2026. Moreover, it is facing construction delays in the committed development of KING Toronto, for which it has already sold 92% of the 440 condominium units.

Development delays and rising construction costs have resulted in an expected credit loss of $44 million, impairment of $48 million in residential inventory, and a reduction in the fair market value of properties. All this shook the fundamentals of the REIT. Although its debt is 45.9% of its assets, which is typical for REITs, its net debt to Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) ratio reached 12.3 times, and its interest coverage ratio fell to 1.9 times in the first quarter of 2026. These two ratios hint that the REIT’s debt is pressuring its current income.

In light of these developments, Allied Properties has paused any new developments. It has shifted its strategic priorities to strengthen fundamentals.

The first step is to strategically recycle capital and strengthen its balance sheet. For this, it has identified non-core properties worth $500 million, which it will sell and deleverage its balance sheet. The REIT also slashed its dividends by 60%. The next step is to complete current developments, and the final step is to lease up the organic portfolio.

Should investors buy this high-yield dividend stock in May?

The REIT is prioritizing recovery. In this process, it has changed the trustee. On May 2, 2026, the board refused to renew executive chair Michael Emory’s employment and nominated Mario Barrafato for election as a trustee. Allied’s chief financial officer, Nanthini Mahalingam, is also leaving. Although it may be a normal transition, management changes amid financial challenges are not seen in a good light. Leaders are most needed when companies face challenges. Following the management change, investors may be skeptical about this REIT and consider it something they should avoid. Most major corporate failures, from Dye & Durham to Algonquin Power & Utilities, happened after management changed in difficult times.

A dividend stock in May?

It is better to avoid Allied Properties REIT. Instead, you could consider investing in Choice Properties REIT (TSX: CHP.UN). The retail REIT’s strength is its major tenant, Loblaw, which makes up 57% of its tenancy. Its fundamentals are strong, with only 40.9% of its assets being in debt and adjusted debt at 7 times its EBITDA. In fact, Choice is acquiring approximately $5 billion of First Capital REIT’s high-quality retail assets in a unit and cash deal.

On one hand, Allied Properties is selling its properties, and on the other hand, Choice is acquiring new assets. The latter is a better dividend stock because of its strong balance sheet and regular cash flow.

The Motley Fool has positions in and recommends Dye & Durham. The Motley Fool recommends First Capital Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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