Allied Properties Real Estate Investment Trust
Annual Report 2018

Plain-text annual report

Annual Report December 31, 2018 Urban environments for creativity and connectivity 1 02.13.19 ALLIED 2018 ANNUAL REPORTCOVER: YOUNES BOUNHAR, DOUBLESPACE PHOTOGRAPHY 2018 YOY SANOI GROWTH 9.6% YOY OCCUPANCY GAIN 2.8% YOY RENT GROWTH ON RENEWALS AND REPLACEMENTS 17.8% YOY NAV/UNIT GROWTH 10.3% DEBT RATIO AT YEAR-END 29.4% UNENCUMBERED ASSETS AT YEAR-END $4.3B 2 ALLIED 2018 ANNUAL REPORTAnnual Report December 31, 2018 Contents LETTER TO UNITHOLDERS . . . . . . . . . . . . . . . . 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION AS AT DECEMBER 31, 2018 . . . . . . . . . . . . . . . . . . . . . . 10 SECTION I—Overview . . . . . . . . . . . . . . . . . . . . . . 11 Summary of Key Financial and Operating Performance Measures . . . . . . . . . . . . . . . . . . . . . . 14 Business Overview and Strategy . . . . . . . . . . . . . . 16 Property Management . . . . . . . . . . . . . . . . . . . . . . . 17 Property Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Acquisitions & Dispositions . . . . . . . . . . . . . . . . . . 19 Corporate Social Responsibility . . . . . . . . . . . . . . . 20 Business Environment and Outlook . . . . . . . . . . . . 21 SECTION II—Leasing . . . . . . . . . . . . . . . . . . . . . . 22 Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 User Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Lease Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION III—Asset Profile . . . . . . . . . . . . . . . . . . 29 Rental Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION VIII—Disclosure Controls and Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Development Properties . . . . . . . . . . . . . . . . . . . . . 37 Residential Inventory . . . . . . . . . . . . . . . . . . . . . . . . 40 Development Completions . . . . . . . . . . . . . . . . . . . 40 Loans Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION IX—Risks and Uncertainties . . . . . . . . . 74 Financing and Interest Rate Risk . . . . . . . . . . . . . . 75 Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Lease Roll-Over Risk . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION IV—Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . 43 Environmental and Climate Change Risk . . . . . . . . 77 Development Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Taxation Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Joint Arrangement Risk . . . . . . . . . . . . . . . . . . . . . . 78 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 50 Cybersecurity Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Unitholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . 51 Real Estate Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Distributions to Unitholders . . . . . . . . . . . . . . . . . . 54 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION X—Property Table . . . . . . . . . . . . . . . . . 79 SECTION V—Discussion of Operations . . . . . . . . 56 Net Income and Comprehensive Income . . . . . . . . 56 Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . 57 Same Asset NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 . . . . . . . . . . . . 86 Management’s Statement of Responsibility for Financial Reporting . . . . . . . . . . . . . . . . . . . . . . 87 Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Independent Auditor’s Report . . . . . . . . . . . . . . . . 88 General and Administrative Expenses . . . . . . . . . . 63 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 91 Other Financial Performance Measures . . . . . . . . . 63 SECTION VI—Historical Performance . . . . . . . . . 70 SECTION VII—Accounting Estimates and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Consolidated Statements of Income and Comprehensive Income . . . . . . . . . . . . . . . . . . 92 Consolidated Statements of Unitholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . 93 Consolidated Statements of Cash Flows . . . . . . . . 94 Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 96 6 ALLIED 2018 ANNUAL REPORTLetter to Unitholders Dear Fellow Unitholder: Favourable fundamentals, intense focus on operations and years of deliberate capital allocation made for an active and successful 2018. We propelled strong organic growth in our rental portfolio and made excellent progress on our development portfolio, materially reducing construction, leasing and funding risk going forward. OPERATIONS AND LEASING Our same-asset NOI was up 10% in 2018, underpinning 13% growth in our AFFO per unit, with urban-data-centre space up 15%, driven largely by occupancy gain at 250 Front West in Toronto, and urban workspace up 8%, driven largely by occupancy gain in Montréal and rent growth in Toronto. Our NAV per unit was up 10% in 2018, primarily as a result of development completions, rent growth and cap-rate compression at 151 Front West in Toronto. Over the course of 2018, we increased the occupied area of our rental portfolio by 280 basis points to 96.3% and increased the leased area by 150 basis points to 96.7%. We also renewed or replaced leases for 91% of the space that matured in the year. This resulted in an overall increase of 18% in net rent per square foot from the affected space. Our urban-data-centre space was 85.1% leased at year-end, leaving room for continued occupancy gain in 2019. Our urban workspace was 97.4% leased, leaving little room for future occupancy gain. We do, however, expect our urban workspace to benefit from continued rent growth in 2019, particularly in Toronto. 7 ALLIED 2018 ANNUAL REPORTDEVELOPMENT We expect to allocate $830 million to our urban development program in the next four years, with approximately $300 million being allocated this year, $230 million in each of 2020 and 2021 and $70 million in 2022. We now expect to complete 10 urban development projects within that timeframe with aggregate GLA (at our share) of approximately 2.3 million square feet, 175,000 of which will be in Vancouver, 311,000 in Calgary, 300,000 in Montréal and the balance (approximately 1.53 million) in Toronto. Our overriding development priority for 2018 was to pre-lease a significant portion of the office component of The Well in Toronto, a 50/50 joint venture with RioCan. It’s now 71% leased with completion scheduled for 2022. Another important priority was to pre-lease a significant portion of 400 West Georgia in Vancouver, a Westbank development financed by Allied. It’s now 82% leased with completion scheduled for 2020. Yet another important priority was to pre-lease a portion of 425 Viger in Montréal, a top-tier Class I property that we’re expanding and retrofitting. It’s now 36% leased with completion scheduled for 2020. A final priority was to continue the lease-up of TELUS Sky in Calgary. With the finalization of lease commitments for 25,500 square feet of GLA adding to TELUS’ commitment, the office space is now 41% leased with completion scheduled for late 2019. We initiated condominium pre-sales at KING Toronto, a 50/50 joint venture with Westbank, in the fourth quarter. The first three phases sold well, and we plan to release the fourth and final phase shortly. We incurred $1.5 million (at our share) of non-recurring marketing costs in connection with the pre-sales activity. (Marketing costs associated with merchant development are expensed when incurred.) We expect to initiate construction by year-end. I expect our development environment to remain favourable in the near term. While we’re unlikely to initiate a large new development in the next four years, we do expect to initiate one or two smaller ones, such as Phase II of QRC West (90,000 square feet of GLA) and Adelaide & Spadina (245,000 square feet of GLA). OUTLOOK Allied is intent on remaining a preferred public vehicle through which to participate in the urban-intensification trend in Canada’s major cities. Despite the strength and durability of this trend, we’re equally intent on retaining an industry- leading balance sheet. At the end of 2018, our total indebtedness ratio was 29%, our net debt as a multiple of EBITDA was 7.2:1 and our pool of unencumbered properties was $4.3 billion. Our commitment to the balance sheet will remain unwavering. Looking forward, I expect our operating, acquisition and development environments to remain favourable in 2019. Our internal forecast contemplates (i) low- to mid-single-digit percentage growth in same-asset NOI, (ii) low- to mid- single-digit percentage growth in FFO per unit and (iii) low- to mid-single-digit percentage growth in AFFO per unit. I expect continued growth in NAV per unit in 2019, with significant contribution from development completions, ongoing rent growth and ongoing cap-rate strength in Canada’s major urban centres. I remain confident in our near-term and longer-term outlook. My confidence is predicated on the continued 8 ALLIED 2018 ANNUAL REPORTintensification of the urban core of Canada’s major cities and the continued desire on the part of knowledge-based organizations to locate in distinctive urban environments for creativity and connectivity. It is also underpinned by the depth and strength of the Allied team and the team’s ability to execute our strategy at all levels. * * * If you have any questions or comments, please don’t hesitate to call me at (416) 977-0643 or e-mail me at memory@alliedreit.com. Yours truly, Michael Emory PRESIDENT AND CHIEF EXECUTIVE OFFICER 9 ALLIED 2018 ANNUAL REPORTManagement’s Discussion and Analysis of Results of Operations and Financial Condition as at December 31, 2018 10 ALLIED 2018 ANNUAL REPORTSection I —Overview Allied is an unincorporated closed-end real estate investment trust created pursuant to the Declaration of Trust (“Declaration”) dated October 25, 2002, as amended and restated from time to time, most recently on May 12, 2016. Allied is governed by the laws of Ontario. Allied’s units (“Units”) are publicly traded on the Toronto Stock Exchange under the symbol “AP.UN’’. Additional information on Allied, including its annual information form, is available on SEDAR at www.sedar.com. This Management’s Discussion and Analysis (“MD&A”) of results of operations and financial condition relates to the year ended December 31, 2018. Unless the context indicates otherwise, all references to “Allied”, “we”, “us” and “our” in this MD&A refer to Allied Properties Real Estate Investment Trust. The Board of Trustees of Allied, upon the recommendation of its Audit Committee, approved the contents of this MD&A. This MD&A has been prepared with an effective date of February 13, 2019, and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2018. This MD&A is based on financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). Historical results and percentage relationships contained in this MD&A, including trends that might appear, should not be taken as indicative of future results, operations or performance. Unless otherwise indicated, all amounts in this MD&A are in thousands of Canadian dollars. 11 ALLIED 2018 ANNUAL REPORTNON-IFRS MEASURES Readers are cautioned that certain terms used in the MD&A such as Funds from Operations (“FFO”), Normalized Funds from Operations (“Normalized FFO”), Adjusted Funds from Operations (“AFFO”), Normalized Adjusted Funds from Operations (“Normalized AFFO”), Net Operating Income (“NOI”), “Same Asset NOI”, Net Asset Value (“NAV”), Gross Book Value (“GBV”), Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), “Payout Ratio”, “Interest Coverage”, “Net Debt to Adjusted EBITDA” and any related per unit amounts used by Management of Allied to measure, compare and explain the operating results and financial performance of Allied 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. These terms are defined in the MD&A and reconciled to the consolidated financial statements of Allied for the year ended December 31, 2018. Such terms do not have a standardized meaning prescribed by IFRS and may not be comparable to similarly titled measures presented by other publicly traded entities. See “Other Financial Performance Measures”, “Net Operating Income”, “Debt” and “Financial Covenants”. FORWARD LOOKING STATEMENTS Certain information included in this MD&A contains forward-looking statements within the meaning of applicable securities laws, including, among other things, statements concerning Allied’s objectives and strategies to achieve those objectives, statements with respect to Management’s beliefs, plans, estimates and intentions and statements concerning anticipated future events, circumstances, expectations, results, operations or performance that are not historical facts. Forward-looking statements can be identified generally by the use of forward-looking terminology, such as “indicators”, “outlook”, “objective”, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, “continue” or similar expressions suggesting future outcomes or events. In particular, certain statements in the Letter to Unitholders, Section I—Overview, under the headings “Business Overview and Strategy”, “Corporate Social Responsibility” and “Business Environment and Outlook”, Section III—Asset Profile, under the headings “Rental Properties”, and “Development Properties”, Section IV—Liquidity and Capital Resources and Section IX - Risks and Uncertainties, constitute forward looking information. This MD&A includes, but is not limited to, forward- looking statements regarding: closing dates of proposed acquisitions; completion of construction and lease-up in connection with Properties Under Development (“PUDs”); growth of our normalized FFO and normalized AFFO per unit; continued demand for space in our target markets; increase in net rental income per square feet of gross leasable area (“GLA”); ability to extend lease terms; the creation of future value; estimated GLA, NOI and growth from PUDs; estimated costs of PUDs; future economic occupancy; return on investments, including yield on cost of PUDs; estimated rental NOI and anticipated rental rates; lease up of our intensification projects; anticipated available square feet of leasable area; Management’s plans to put additional buildings forward for certification; our ability to achieve risk-adjusted returns on intensification; receipt of municipal approval for value-creation projects, including intensifications; and completion of future financings and availability of capital. Such forward-looking statements reflect Management’s current beliefs and are based on information currently available to Management. 12 ALLIED 2018 ANNUAL REPORTThe forward-looking statements in this MD&A are not guarantees of future results, operations or performance and are based on estimates and assumptions that are subject to risks and uncertainties, including those described in Section IX - Risks and Uncertainties, which could cause actual results, operations or performance to differ materially from the forward-looking statements in this MD&A. Those risks and uncertainties include risks associated with property ownership, property development, geographic focus, asset-class focus, competition for real property investments, financing and interest rates, government regulations, environmental matters, construction liability, taxation and cybersecurity. Material assumptions that were made in formulating the forward-looking statements in this MD&A include the following: that our current target markets remain stable, with no material increase in supply of directly- competitive office space; that acquisition capitalization rates remain reasonably constant; that the trend toward intensification within our target markets continues; and that the equity and debt markets continue to provide us with access to capital at a reasonable cost to fund our future growth and potentially refinance our mortgage debt as it matures. Although the forward-looking statements contained in this MD&A are based on what Management believes are reasonable assumptions, there can be no assurance that actual results, operations or performance will be consistent with these statements. All forward-looking statements in this MD&A are qualified in their entirety by this forward-looking disclaimer. Without limiting the generality of the foregoing, the discussion in the Letter to Unitholders, Section I— Overview and Section III—Asset Profile are qualified in their entirety by this forward-looking disclaimer. These statements are made as of February 13, 2019, and, except as required by applicable law, Allied undertakes no obligation to update publicly or revise any such statements to reflect new information or the occurrence of future events or circumstances. 13 ALLIED 2018 ANNUAL REPORTSUMMARY OF KEY FINANCIAL AND OPERATING PERFORMANCE MEASURES The following table summarizes the key financial and operating performance measures for the periods listed below: ($000’s except per-square foot, per-unit and financial ratios) Portfolio Number of properties (1)(2)(3)(4)(5) Total rental GLA (000's of square feet) Leased rental GLA (000's of square feet) Leased area Occupied area Average in-place net rent per occupied square foot (period-end) Renewal and replacement rate for leases maturing in the period Increase in net rent on maturing leases Investment properties Total assets Cost of PUD as % of GBV THREE MONTHS ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2016 151 147 11,192 11,268 10,826 10,728 96.7% 95 .2% 96.3% 93 .5% 155 11,843 10,906 92 .1% 88 .7% 22.64 22 .52 21 .31 90.6% 84 .7% 17.8% 17 .8% 85 .3% 8 .1% 6,257,647 5,627,439 5,129,541 6,706,271 5,823,632 5,213,854 8.9% 6 .5% 3 .4% Unencumbered investment properties 4,266,900 2,925,135 2,306,215 Total debt Net asset value 1,957,611 1,959,877 1,909,265 4,374,663 3,549,022 3,021,506 Annualized Adjusted EBITDA 273,984 260,884 267,550 252,753 232,399 Net debt 1,939,250 1,953,829 1,939,250 1,953,829 1,897,072 Net debt as a multiple of Annualized Adjusted EBITDA Adjusted EBITDA Interest expense (6) Adjusted EBITDA as a multiple of interest expense 7.1x 7 .5x 7.2x 7 .7x 8 .2x 68,496 65,221 267,550 252,753 232,399 14,125 17,188 59,783 69,265 61,425 4.8x 3 .8x 4.5x 3 .6x 3 .8x Rental revenue from investment properties 112,889 107,709 436,396 419,263 389,722 NOI 70,371 65,871 272,285 250,344 229,538 Same Asset NOI - rental portfolio 68,062 62,239 260,926 238,166 205,678 Same Asset NOI - total portfolio 68,727 63,204 265,412 243,374 216,067 Net income excluding gain (loss) on disposal and fair value adjustments Net income FFO 14 46,223 38,043 169,890 148,516 140,215 137,270 63,066 540,276 357,959 324,305 55,657 49,051 204,695 187,204 173,884 ALLIED 2018 ANNUAL REPORT ($000’s except per-square foot, per-unit and financial ratios) DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2016 THREE MONTHS ENDED YEAR ENDED YEAR ENDED Normalized FFO (6) Normalized AFFO (6) Distributions Per unit: 55,657 49,051 212,197 187,204 173,884 45,186 38,072 175,645 139,668 40,817 35,754 153,855 135,177 Net income excluding gain (loss) on disposal and fair value adjustments Net income FFO Normalized FFO (6) 0.44 1.32 0.535 0.535 0 .41 0 .68 0 .527 0 .527 1.73 5.51 2.089 2.166 1 .69 4 .07 2 .127 2 .127 Normalized FFO payout ratio (6) 73.3% 72 .9% 72.5% 72 .2% Normalized AFFO (6) 0.434 0 .409 1.793 1 .587 128,597 121,880 1 .73 4 .01 2 .150 2 .150 70 .1% 1 .590 Normalized AFFO payout ratio (6) 90.3% 93 .9% 87.6% 96 .8% 94 .8% Distributions Net asset value 0.39 0 .39 1.56 42.12 1 .53 38 .19 1 .50 35 .66 Actual Units outstanding 103,861,945 92,935,150 84,734,469 Weighted average diluted Units outstanding 104,062,567 93,027,626 97,965,711 88,006,010 80,939,463 Financial Ratios Total indebtedness ratio ALLIED’S TARGETS <35% Secured indebtedness ratio <45% Debt service coverage ratio >1.50x Unencumbered property asset ratio Interest-coverage ratio - including interest capitalized >1.40x >3.0x 29.4% 33 .8% 12.5% 17 .4% 2.2x 2 .0x 3.8x 3 .1x 3.2x 2 . 8x 36 .7% 21 .9% 2 .0x 3 .0x 2 .8x (1) During Q1 2018, KING Toronto, which is comprised of six properties (489 King W, 495 King W, 499 King W, 511-529 King W, 533 King W and 539 King W), was transferred to properties under development (“PUD”) as one property. (2) During Q1 2018, 1700 St Patrick was transferred out of PUD and is now included with 1655 and 1751 Richardson as part of Le Nordelec. (3) The GLA of 905 King W is reflected in the property table in two areas due to its urban workspace and urban data centre components, although it only represents one property in our property count. (4) During Q3 2018, College & Manning , 547-549 College, was transferred to PUD and College & Manning , 555 College, remained as a rental property, representing two properties. (5) During Q1 and Q4 2018, Allied and First Capital acquired 812-11th SW, Calgary and 802-11th SW, Calgary, which contribute to the Glenbow assembly, now consisting of 802-838 11th SW, Calgary. This assembly represents one property in our property count. (6) Allied normalized FFO and AFFO in Q2 2018 by excluding a one-time extraordinary item. 15 ALLIED 2018 ANNUAL REPORT BUSINESS OVERVIEW AND STRATEGY Allied is a leading owner, manager and developer of (i) distinctive urban workspace in Canada’s major cities and (ii) network-dense urban data centres in Toronto that form Canada’s hub for global connectivity. Allied’s business is providing knowledge-based organizations with distinctive urban environments for creativity and connectivity. URBAN WORKSPACE Allied was known initially for its leading role in the emergence of Class I workspace in Toronto, a format created through the adaptive re-use of light industrial structures in the Downtown East and Downtown West submarkets. This format typically features high ceilings, abundant natural light, exposed structural frames, interior brick and hardwood floors. When restored and retrofitted to high standards, Class I workspace can satisfy the needs of the most demanding office and retail users. When operated in a coordinated manner, this workspace becomes a vital part of the urban fabric and contributes meaningfully to a sense of community. Allied went public in 2003 for the express purpose of consolidating Class I workspace that was centrally located, distinctive and cost-effective. The consolidation that ensued was continuous, enabling Allied to evolve into a leading owner, manager and developer of urban workspace in Canada’s major cities. Allied’s experience guided it to the future of workspace. Office users today value light, air and an open-plan. Abundant natural light and fresh air contribute enormously to human wellness and productivity. An open-plan improves collaboration and creativity. When people can move around and freely connect with one another, communication is improved, along with mutual understanding, and sparks of ingenuity occur. Technology has contributed to the future of workspace. Light harvesting has made great strides, as has fresh air delivery. Raised-floor systems have made aesthetic and practical contributions in recent years. Aesthetically, they declutter the workspace and obviate the need for drop-ceilings. Practically, they improve air circulation by pressurizing the underfloor area and de-pressurizing the actual work environment. All this can be delivered to workspace users in an environmentally sustainable manner. Thanks to building technology, developers no longer have to destroy the old to create the new. They can restore and retrofit older structures worthy of preservation and integrate them with new ones, as Allied has done at QRC West and King Portland Centre in Toronto. New-format office space that successfully integrates old and new is a big part of the future of workspace. Allied’s experience with Class I workspace put it at the forefront of creating workspace for the knowledge-based economy. This led Allied to place ever-greater emphasis on the ongoing relationship between the user and provider of workspace. Put differently, it led Allied to understand the need for a partnership-like relationship between itself and workspace users. The days of the dominant landlord and subservient tenant are over. The most important element of Allied’s business environment is urban intensification. Canadians are living, working, learning and playing downtown in greater numbers than ever before. Not only does this anchor Allied’s investment and operating focus, it provides the context within which it captures and creates value for its unitholders. 16 ALLIED 2018 ANNUAL REPORTUrban intensification has had a three-fold impact on Allied. One, it has increased Allied’s sensitivity to design. Two, it has expanded Allied’s investment and operating focus from purely Class I properties to urban mixed-use properties. And three, it has induced Allied to enter into collaborative relationships with best-in-class real estate organizations having complementary expertise. NETWORK-DENSE URBAN DATA CENTRES In addition to providing urban workspace, Allied provides network-dense data centre space in Downtown Toronto. Allied established this capability in 2009 through the acquisition of 151 Front W, the largest internet exchange point in Canada and the fifth largest in North America. Allied has since expanded this capability by retrofitting a portion of 905 King W and a portion of 250 Front W. Just as Allied’s workspace does, this space provides knowledge-based businesses with distinctive urban environments for creativity and connectivity. Allied’s deep expertise in adaptively re-using urban structures has contributed meaningfully to its success in operating network-dense data centre space in Downtown Toronto. PROPERTY MANAGEMENT Allied’s wholly owned subsidiary, Allied Properties Management Limited Partnership, provides property management and related services on a fee-for-services basis. 17 ALLIED 2018 ANNUAL REPORTPROPERTY PORTFOLIO Allied completed its initial public offering on February 20, 2003, at which time it had assets of $120 million, a market capitalization of $62 million and a local, urban-office portfolio of 820,000 square feet of GLA. As of December 31, 2018, Allied had assets of $6.7 billion, a market capitalization of $4.6 billion and rental properties with 11.2 million square feet of GLA in seven cities across Canada. The illustration below depicts the geographic diversity of Allied’s rental portfolio. 18 ALLIED 2018 ANNUAL REPORT— 5,482 750 — 5,482 1,500 10,433 10,433 — — — 21,708 3,660 38,512 4,983 21,224 154,064 ACQUISITIONS AND DISPOSITIONS During the year ended December 31, 2018, Allied acquired the following properties from third parties: ACQUISITION DATE ACQUISITION COST (1) OFFICE GLA RETAIL GLA TOTAL GLA PROPERTY 464 King W, Toronto (2) 812-11th SW, Calgary (3) 137 George, Toronto 731-10th SW, Calgary (3) 305 Joseph, Kitchener (4) January 18, 2018 $7,529 January 25, 2018 January 30, 2018 February 12, 2018 June 21, 2018 1,750 1,110 5,970 888 — — 750 — — 1220 Homer, Vancouver October 15, 2018 18,072 21,708 802-11th SW, Calgary (3)(5) October 15, 2018 2,287 — 3,660 151 West Hastings, Vancouver November 30, 2018 40,061 38,512 668 King W, Toronto 342 Water, Vancouver November 30, 2018 12,547 2,010 December 3, 2018 20,074 18,338 644 Courcelle, Montréal December 19, 2018 33,108 149,709 — 2,973 2,886 4,355 Total $143,396 231,027 30,539 261,566 (1) Purchase price plus transaction costs. (2) 464 King W is a parking lot containing 12 spaces. (3) These properties form a 50/50 co-ownership with First Capital. (4) 305 Joseph is 50/50 co-owned with Perimeter. The property is a parking lot containing 75 spaces. (5) 802-11th SW has a parking lot component, containing 19 spaces. On February 1, 2019, Allied completed the purchase of 145 George, Toronto, for $1,300. During the year ended December 31, 2018, Allied completed the following dispositions of investment properties to third-parties: LOCATION DATE OF DISPOSITION PROPERTY TYPE SELLING PRICE KING Toronto November 30, 2018 Residential, Retail $67,030 Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied sold a 50% undivided interest to Westbank. KING Toronto is comprised of the following properties: 489 King W, 495 King W, 499 King W, 511-529 King W, 533 King W and 539 King W. The purchase price was comprised of $63,225 and working capital adjustments of $3,805. 19 ALLIED 2018 ANNUAL REPORT CORPORATE SOCIAL RESPONSIBILITY Allied is committed to sustainability as it relates to the physical environment within which it operates. Most of Allied’s buildings were created through the adaptive re-use of structures built over a century ago. They are recycled buildings and the recycling has considerably less impact on the environment than new construction (of equivalent GLA) through things like embodied carbon and the reuse of materials. Equally, Allied’s commitment to revitalizing neighborhoods strives to cultivate vibrant communities. As a community builder, Allied has a responsibility to ensure its practices and operations create and leave a positive impact. A commitment to, and implementation of this is expressed and executed through Allied’s Sustainable Wellbeing Program. The program is designed to incorporate Allied’s business, from design to construction to operations and overall management. The program also incorporates the most important aspect of Allied’s business � the people that serve, service and occupy Allied’s buildings. This commitment means that Allied’s Sustainable Wellbeing Program is not only core to the decision making process, but is being acted on every day. To the extent Allied undertakes new construction through development or intensification, it is committed to obtaining LEED certification. LEED certification is a program administered by the Canada Green Building Council for certifying the design, construction and operation of high-performance green buildings. The ongoing operation of buildings also affects the physical environment. Allied is committed to obtaining BOMA BEST certification for its existing buildings where possible. Certification is based on an independent assessment of key areas of environmental performance and management. Allied is also attentive to the impact of its business on the human environment. Allied’s investment and development activities can have a displacing impact on members of the artistic community. As building inventory in an area is improved, the cost of occupancy can become prohibitive. Allied believes that its buildings and users are best served if artists remain viable members of the surrounding communities. Accordingly, Allied has made a practice of allocating an appropriate portion of its rentable area to artistic uses on an affordable basis as part of its Make Room for the Arts Program. An innovative initiative in the program is the installation of Romeo’s Museum in the industrial staircases at 5445-5455 de Gaspé. In this case, 24 artists were tasked with painting a mural, transforming the unusual space into Canada’s first “Urban Art” museum, which is free and open to all 24/7. Allied sees these examples as an important part of its corporate social responsibility. 20 ALLIED 2018 ANNUAL REPORTBUSINESS ENVIRONMENT AND OUTLOOK As at December 31, 2018, Allied operated in seven urban markets in Canada – Toronto, Kitchener, Ottawa, Montréal, Calgary, Edmonton and Vancouver. Allied expects its operating, acquisition and development environments to remain favourable in 2019. Allied’s internal forecast contemplates (i) low- to mid-single-digit percentage growth in same-asset NOI, (ii) low- to mid-single-digit percentage growth in FFO per unit and (iii) low- to mid-single-digit percentage growth in AFFO per unit. Allied expects continued growth in NAV per unit in 2019, with significant contribution from development completions, ongoing rent growth and ongoing cap-rate strength in Canada’s major urban centres. Allied’s internal forecast is predicated on the continued intensification of the urban core of Canada’s major cities and the continued desire on the part of knowledge-based organizations to locate in distinctive urban environments for creativity and connectivity. It is also underpinned by the depth and strength of the Allied team and the team’s ability to execute our strategy at all levels. 21 ALLIED 2018 ANNUAL REPORTSection II —Leasing 22 ALLIED 2018 ANNUAL REPORTAllied strives to maintain high levels of occupancy and leased area. At December 31, 2018, Allied’s rental portfolio was 96.7% leased. STATUS Leasing status for the rental portfolio as at December 31, 2018, is summarized in the following table: Leased area (occupied & committed) December 31, 2017 Vacancy committed for future leases Occupancy - December 31, 2017 Previous committed vacant space now occupied New leases and expansions on vacant space New vacancies during the period Surrender / early termination agreements Suite additions, remeasurements and removals GLA AS A % OF TOTAL GLA (1) 10,727,779 95.2% (189,075) 10,538,704 93.5% 188,512 478,013 (199,548) (63,892) (127,993) Occupancy (pre acquisitions, dispositions and transfers) 10,813,796 96.7% Occupancy related to acquired properties Occupancy related to transfers from PUD Occupancy related to transfers to PUD Occupancy - December 31, 2018 Vacancy committed for future leases 247,016 20,879 (307,704) 10,773,987 96.3% 52,374 Leased area (occupied & committed) December 31, 2018 10,826,361 96.7% (1) Excludes properties under development. Of 11,191,878 square feet total GLA in Allied’s rental portfolio, 10,773,987 square feet were occupied by users on December 31, 2018. Another 52,374 square feet were subject to contractual lease commitments with users whose leases commence subsequent to December 31, 2018, bringing the leased area to 10,826,361 square feet, which represents 96.7% of Allied’s total rental portfolio GLA. The table below outlines the timing of the contractual lease commitments by commencement of occupancy: FIXTURING COMMENCEMENT (OCCUPANCY) Lease commitments - GLA % of lease commitments Q1 2019 Q2 2019 TOTAL 48,014 91 .7% 4,360 8 .3% 52,374 100% 23 ALLIED 2018 ANNUAL REPORT In most instances, occupancy commences with a rent-free fixturing period prior to rent commencement. During the fixturing period, straight-line rent revenue is recognized, and no recoverable costs are paid by the user. Thereafter, recoverable costs are paid by the user and recognized as rental revenue. In cases where interest and realty taxes were being capitalized prior to occupancy (in accordance with International Financial Reporting Standards), capitalization ends on occupancy, partially offsetting the impact of rent recognition. The table below outlines the timing of the contractual lease commitments by commencement of rent payment: RENT COMMENCEMENT (ECONOMIC OCCUPANCY) Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 TOTAL Lease commitments - GLA % of lease commitments 4,022 7 .7% 30,121 57 .5% 3,292 6 .3% 3,173 6 .1% 11,766 22 .4% 52,374 100% Allied monitors the level of sub-lease space being marketed in its rental portfolio. Below is a summary of sub-lease space being marketed by city as at December 31, 2018, and December 31, 2017: Toronto Kitchener Montréal Calgary Vancouver Total square feet % of Total GLA DECEMBER 31, 2018 DECEMBER 31, 2017 35,271 1,429 35,670 131,712 — 204,082 1.8% 63,593 — 76,349 97,026 3,679 240,647 2 .1% This level of marketed sublease space is consistent with past experience and does not represent an operating or leasing challenge. 24 ALLIED 2018 ANNUAL REPORTACTIVITY Allied places a high value on user retention, as the cost of retention is typically lower than the cost of securing new users. When retention is neither possible nor desirable, Allied strives for high-quality replacement users. Leasing activity in connection with the rental portfolio as at December 31, 2018, is summarized in the following table: LEASABLE SF LEASED SF BY DECEMBER 31 % LEASED BY DECEMBER 31 UNLEASED SF AT DECEMBER 31 Vacancy on January 1, 2018, including re-measurement Vacancy transferred to PUD as at December 31, 2018 Vacancy transferred from PUD as at December 31, 2018 Acquired vacancy as at December 31, 2018 Arranged and other vacancy as at December 31, 2018 Maturities during the period ended December 31, 2018 Total 604,735 384,383 63 .6% 220,352 (7,499) — — (7,499) 33,673 20,032 17,448 — 51 .8% — 16,225 20,032 86,104 31,902 37 .1% 54,202 662,404 600,199 1,399,449 1,033,932 90 .6% 73 .9% 62,205 365,517 On January 1, 2018, 604,735 square feet of GLA was vacant. By December 31, 2018, Allied leased 384,383 square feet of this GLA, leaving 212,853 square feet unleased (net of vacancy transferred to PUD). Leases for 662,404 square feet of GLA matured in the year ended December 31, 2018, at the end of which Allied renewed or replaced leases totaling 600,199 square feet of GLA, leaving 62,205 square feet unleased. For the year ended December 31, 2018, the table below summarizes the rental rates achieved for the leases expiring in 2018 that were either renewed or replaced. Overall, this has resulted in an increase of 17.8% in the net rent per square foot from maturing leases. This unusually high increase stems from the material rent growth in Allied’s primary target markets in Toronto. LEASE RENEWALS/ REPLACEMENTS % of Total leased SF Maturing leases in 2018 - Weighted average rent Renewals & Replacements - Weighted average rent FOR THE YEAR ENDED, DECEMBER 31, 2018 ABOVE IN- PLACE RENTS AT IN-PLACE RENTS BELOW IN- PLACE RENTS 64 .5% $20 .76 $28 .73 14 .8% $34 .63 $34 .63 20 .7% $20 .87 $15 .72 25 ALLIED 2018 ANNUAL REPORTUSER PROFILE The following sets out Allied’s user-mix on the basis of percentage of rental revenue for the year ended December 31, 2018: CATEGORY Business service and professional Telecommunications and information technology Media and entertainment Retail (head office and storefront) Parking & other Financial services Government Educational and institutional % OF RENTAL REVENUE DECEMBER 31, 2018 32 .8% 26 .8% 14 .0% 10 .9% 8 .2% 2 .8% 2 . 7% 1 .8% 100 .0% The following sets out the percentage of rental revenue from top 10 users by rental revenue for the year ended % OF RENTAL REVENUE DECEMBER 31, 2018 WEIGHTED AVERAGE REMAINING LEASE TERM (YEARS) CREDIT RATING DBRS/S&P/MOODY’S 3 .6% 2 .8% 2 .6% 2 .4% 1 .5% 1 .3% 1 .3% 1 .2% 1 .2% 1 .2% 19 .1% 2 .2 5 .8 6 .3 19 .0 16 .6 9 .3 4 .8 3 .4 9 .5 1 .6 *-/AAA/Aaa Not Rated -/BB+/Ba3 -/B/B3 Not Rated AH/BBB+/A3 *BBH/BB+/- *-/B+/B2 -/B+/Ba3 BBBH/BBB+/Baa1 December 31, 2018: USER Cloud Service Provider Ubisoft Equinix Cologix National Capital Commission, a Canadian Crown Corporation Morgan Stanley Cogeco Data Services Inc . Allstream Entertainment One Bell Canada *Credit rating for parent company 26 ALLIED 2018 ANNUAL REPORT LEASE MATURITY As at December 31, 2018, 96.7% of the GLA in Allied’s rental portfolio was leased. The weighted average term to maturity of Allied’s leases at that time was 5.8 years. The weighted average market net rental rate is based on Management’s current estimates and is supported in part by independent appraisals of certain relevant properties. There can be no assurance that Management’s current estimates are accurate or that they will not change with the passage of time. The following table contains information on the office, retail and urban data centre leases that mature up to 2023 and the corresponding estimated weighted average market rental rate as at December 31, 2018: TOTAL RENTAL PORTFOLIO SQUARE FEET % OF TOTAL GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 1,063,547 1,094,358 1,183,580 1,262,480 1,540,868 9 .5% 9 .8% 10 .6% 11 .3% 13 .8% 23 .99 28 .48 20 .20 21 .91 20 .81 26 .99 32 .52 24 .29 25 .49 22 .50 27 ALLIED 2018 ANNUAL REPORTThe following tables contain information on lease maturities by segment: EASTERN CANADA SQUARE FEET % OF SEGMENT GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 475,635 260,727 588,903 303,289 672,049 10 .7% 5 .8% 13 .2% 6 .8% 15 .1% 19 .01 14 .59 16 .74 16 .91 14 .11 16 .94 14 .89 18 .23 16 .99 15 .60 CENTRAL CANADA SQUARE FEET % OF SEGMENT GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 379,522 474,289 386,731 783,709 582,524 8 .1% 10 .2% 8 .3% 16 .8% 12 .5% 21 .25 18 .94 19 .91 21 .24 23 .15 29 .98 25 .12 28 .55 27 .28 29 .48 WESTERN CANADA SQUARE FEET % OF SEGMENT GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 146,339 234,323 182,330 146,987 266,364 9 .3% 15 .0% 11 .6% 9 .4% 17 .0% 22 .76 15 .21 22 .00 18 .35 24 .30 17 .01 11 .31 22 .28 13 .90 17 .00 URBAN DATA CENTRES SQUARE FEET % OF SEGMENT GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE 62,051 125,019 25,616 28,495 19,931 12 .3% 24 .7% 5 .1% 5 .6% 3 .9% 81 .88 118 .50 91 .23 111 .75 131 .65 109 .35 137 .08 113 .38 126 .58 124 .23 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 28 ALLIED 2018 ANNUAL REPORTSection III —Asset Profile As at December 31, 2018, Allied’s portfolio consisted of 151 investment properties (132 rental properties, eight development properties and 11 ancillary parking facilities), with a fair value of $6,257,647. Changes to the carrying amounts of investment properties are summarized as follows: THREE MONTHS ENDED DECEMBER 31, 2018 YEAR ENDED DECEMBER 31, 2018 RENTAL PROPERTIES PROPERTIES UNDER DEVELOPMENT TOTAL RENTAL PROPERTIES PROPERTIES UNDER DEVELOPMENT TOTAL Balance, beginning of year $5,393,420 $647,405 $6,040,825 $5,168,621 $458,818 $5,627,439 Additions: Acquisitions 126,149 Improvement allowances 14,220 Leasing commissions Capital expenditures 6,380 14,808 — 83 2,604 82,567 126,149 143,396 — 143,396 14,303 8,984 97,375 48,607 13,823 40,091 5,417 7,200 54,024 21,023 204,119 244,210 Dispositions Transfers from PUD Transfers to PUD Transfers to residential inventory Transfers to other assets Finance lease Amortization of straight-line rent and improvement allowances Fair value gain on investment properties — — — — (3,805) (3,805) — (67,030) (67,030) — — — — 67,180 (67,180) (185,770) 185,770 — — (103,690) (103,690) — (103,690) (103,690) (17,631) 470 — — (17,631) (17,631) 470 1,884 — — (17,631) 1,884 (6,438) 1,031 (5,407) (23,287) 1,460 (21,827) 60,838 39,236 100,074 335,302 40,547 375,849 Balance, end of year $5,592,216 $665,431 $6,257,647 $5,592,216 $665,431 $6,257,647 29 ALLIED 2018 ANNUAL REPORT For the year ended December 31, 2018, Allied capitalized a total of $23,397 of borrowing costs, $20,362 of which related to development activity, $1,009 to rental properties going through intensification approval and $2,026 to upgrade activity in the rental portfolio. The rental properties undergoing upgrade activity consist of 250 Front W and 905 King W. The appraised fair value of investment properties is most commonly determined using the following methodologies: Discounted cash flow method (“DCF method”) - Under this approach, discount rates are applied to the projected annual operating cash flows, generally over a ten year period, including a terminal value of the properties based on a capitalization rate applied to the estimated net operating income (“NOI”), a non-GAAP measure, in the terminal year. This method is primarily used to value the rental properties portfolio. Comparable sales method - This approach compares a subject property’s characteristics with those of comparable properties which have recently sold. The process uses one of several techniques to adjust the price of the comparable transactions according to the presence, absence, or degree of characteristics which influence value. These characteristics include the cost of construction incurred at a property under development. This method is primarily used to value the development portfolio and ancillary parking facilities. Allied’s entire portfolio is revalued by the external appraiser each quarter. Management verifies all major inputs to the valuations, analyzes the change in fair values at the end of each reporting period and reviews the results with the independent appraiser every quarter. There were no material changes to the valuation techniques during the year. For properties with a leasehold interest with a term less than 40 years, the resulting valuation methodology is based upon a full-term discounted cash flow model. In valuing the investment properties as at December 31, 2018, the independent appraiser compares the value derived using the DCF method to the value that would have been calculated by applying a capitalization rate to NOI. This is done to assess the reasonability of the value obtained under the DCF method. The corresponding portfolio weighted average overall capitalization rate used was 5.13%, detailed in the table below: OVERALL CAPITALIZATION RATE DECEMBER 31, 2018 DECEMBER 31, 2017 RANGE % WEIGHTED AVERAGE % FAIR VALUE $ RANGE % WEIGHTED AVERAGE % FAIR VALUE $ Eastern Canada 5.00% - 7.25% 5.55% $1,298,019 5 .25% - 7 .75% 6 .03% $1,127,690 Central Canada 4.00% - 6.00% 4.67% 2,747,929 4 .00% - 6 .00% 4 .84% 2,615,526 Western Canada 4.00% - 7.00% 5.23% 655,998 4 .00% - 7 .00% 5 .25% 622,835 Urban Data Centres 5.50% - 6.25% 5.83% 890,270 6 .00% - 6 .50% 6 .33% 802,570 Rental Properties 4.00% - 7.25% 5.13% $5,592,216 4 .00% - 7 .75% 5 .42% $5,168,621 Properties Under Development 4.25% - 7.00% 5.01% 665,431 5 .00% - 6 .75% 5 .63% 458,818 Total Investment Properties 4.00% - 7.25% 5.13% $6,257,647 4 .00% - 7 .75% 5 .43% $5,627,439 30 ALLIED 2018 ANNUAL REPORTRENTAL PROPERTIES Allied’s rental portfolio was built by consolidating the ownership of urban office properties and network-dense urban data centres. Scale within each city of focus proved to be important as Allied grew. It enabled Allied to provide users with greater expansion flexibility, more parking and better human and digital connectivity than its direct competitors. Scale across the country also proved to be important. It enabled Allied to serve national and global users better, to expand its growth opportunities and to achieve meaningful geographic diversification. URBAN WORKSPACE Allied has evolved into a leading owner, manager and developer of urban workspace in Canada’s major cities. It currently owns 129 rental properties in seven Canadian cities. Listed below are Allied’s top 10 office rental properties measured by Normalized Last Quarter Annualized (“LQA”) NOI. Normalized LQA NOI is a non-IFRS measure, which represents the normalized results for the most recently completed quarter (excluding straight-line rent) multiplied by four. These properties represent 31.8% of total annualized NOI for the year ended December 31, 2018. PROPERTY NAME NORMALIZED LQA NOI APPRAISED FAIR VALUE CAP RATE PRINCIPAL USERS Cité Multimédia, Montréal $22,456 $378,880 5 .21% Desjardins, Morgan Stanley, SAP Canada QRC West, Toronto Le Nordelec, Montréal 5455 de Gaspé, Montréal 555 Richmond W, Toronto The Chambers, Ottawa (1) Vintage I & II, Calgary The Tannery, Kitchener 5445 de Gaspé, Montréal Boardwalk Revillon, Edmonton 12,387 11,965 7,682 7,453 6,451 5,722 5,191 5,148 5,113 257,330 4 .25% eOne, Sapient Canada 215,940 5 .76% Babel Games, Gsoft, Yellow Pages Media 119,940 143,900 140,580 75,300 91,170 85,890 71,900 5 .75% 4 .75% — 5 .75% 5 .75% 6 .00% Attraction Media, Framestore, Ubisoft Good Life, Sentinelle, Synaptive National Capital Commission Royal & Sun Alliance Communitech Corp ., Desire 2 Learn Sun Life, Ubisoft 6 .25% Edmonton Public School Board, Legal Aid Total $89,568 $1,580,830 5 .28% (1) The Chambers is a leasehold interest property and the resulting valuation methodology is based upon a full-term discounted cash flow model as there are less than 40 years remaining on the land lease. 31 ALLIED 2018 ANNUAL REPORTNETWORK-DENSE URBAN DATA CENTRES Allied operates three network-dense urban data centres in downtown Toronto: 151 Front W (“151”), 250 Front W (“250”) and 905 King W (“905”). Listed below are Allied’s urban data centres measured by Normalized LQA NOI. These properties represent 17.7% of total annualized NOI for the year ended December 31, 2018. PROPERTY NAME NORMALIZED LQA NOI APPRAISED FAIR VALUE CAP RATE PRINCIPAL USERS 151 Front W, Toronto $32,038 $500,200 5 .50% Bell, Telus, Rogers, Zayo, TorIX, Equinix, Cologix 250 Front W, Toronto 905 King W, Toronto 14,146 3,510 300,310 6 .25% Cloud Service Provider, AWS 89,760 6 .25% Cloud Service Provider, Beanfield, Cologix Total $49,694 $890,270 5 .83% Allied acquired 151 in 2009 and has operated it very successfully since acquisition. 250 and 905 are connected to 151 via a multi-layered, diverse infrastructure of high-density fibre that Allied owns. 151 is the largest internet exchange point (IXP) in Canada and the fifth largest in North America. It houses Toronto Internet Exchange (TorIX), a not-for-profit organization that enables internet networks to connect and exchange traffic. With over 230 peers connecting, TorIX has experienced a steady and dramatic increase in traffic since 2009, with traffic in 2018 exceeding 530 gigabits per second. The traffic growth is illustrated below: Source: TorIX Website 32 ALLIED 2018 ANNUAL REPORT 151 is a carrier-neutral facility. With a critical mass of carrier networks, TorIX and numerous other networks, 151 is Canada’s hub for global connectivity and is the gateway to Canada for all major North American cities and numerous major international cities. This is illustrated below: Source: PeeringDB.com 33 ALLIED 2018 ANNUAL REPORTAs a critical component of Canada’s communications infrastructure, 151 is a network-dense urban data centre, distinct from conventional suburban data centres. The latter are analogous to interchanges on small highways. While valuable, they are relatively easy to replicate. 151 is analogous to a massive interchange on an intersecting series of super- highways. It is exceptionally valuable and very difficult to replicate. 151 has not historically generated ancillary rental revenue in the form of interconnection fees, even though there are 26,480 cross-connects in the two existing meet-me rooms. With 151 becoming the landing point for Crosslake Fibre’s new fibre connection between Toronto and Buffalo, Allied will create a new meet-me room at 151, enabling it to generate ancillary rental revenue in the form of interconnection fees charged on a recurring monthly basis for cross-connects to the Crosslake’s fibre. Allied leases 173,000 square feet of GLA at 250 pursuant to a long-term lease that expires on February 28, 2061. As a result of substantial capital improvements completed by Allied, including high-density fibre connections to 151, 250 has become an important interconnected cloud-hosting facility in Canada, providing retail, wholesale and managed services. Allied has two basic sources of rental revenue from 250. The largest source, direct rental revenue, derives from subleasing space to ultimate users. A smaller but material source, ancillary rental revenue, derives from interconnection fees charged on a recurring monthly basis for cross-connects that enable different types of users to interconnect with low-latency and redundancy, reducing network costs and improving network security and performance. Allied expects that cross-connects at 250 will give rise to recurring ancillary rental revenue. Cross-connects utilize the existing infrastructure at 250 without occupying any of the unleased GLA or requiring additional capital expenditure by Allied. Allied also owns 905. As a result of substantial capital improvements completed by Allied, including high-density fibre connections to 151, 57,339 square feet of GLA at the property has become an important urban data centre. RENTAL PROPERTIES UNDERGOING INTENSIFICATION APPROVAL One way Allied creates value is by intensifying the use of underutilized land. The land beneath the buildings in Toronto is significantly underutilized in relation to the existing zoning potential. This is also true of some of Allied’s buildings in Kitchener, Montréal, Calgary, Edmonton, and Vancouver. These opportunities are becoming more compelling as the urban areas of Canada’s major cities intensify. Since Allied has captured the unutilized land value at a low cost, it can achieve attractive risk-adjusted returns on intensification. 34 ALLIED 2018 ANNUAL REPORTAllied began tracking the intensification potential inherent in the Toronto portfolio in the fourth quarter of 2007 (see our MD&A dated March 7, 2008, for the quarter and year ended December 31, 2007). At the time, the 46 properties in Toronto comprised 2.4 million square feet of GLA and were situated on 780,000 square feet (17.8 acres) of underutilized land immediately east and west of the Downtown Core. The 81 properties in Toronto (including properties in the development portfolio) now comprise 4.1 million square feet of GLA and are situated on 37 acres of underutilized land immediately east and west of the Downtown Core. With achievable rezoning, the underlying land in our Toronto portfolio could permit up to 10.4 million square feet of GLA, 6.3 million square feet more than currently is in place. Allied entered the Montréal market in April of 2005. The 18 properties in Montréal now comprise 4.3 million square feet of GLA. As they are much larger buildings on average than those comprising the Toronto portfolio, the 32 acres of land on which they sit (immediately south, east and north east of the Downtown Core) is more fully utilized than the land in the Toronto portfolio. Nevertheless, the underlying land in the Montréal portfolio could permit up to 5.8 million square feet of GLA, 1.5 million square feet more than currently is in place. There is similar potential inherent in the rest of Allied’s portfolio, which is quantified in the chart below. Across Canada on a portfolio-wide basis, there is 9.9 million square feet of potential incremental density, of which 1.9 million square feet is currently in PUD, and the remaining 8.0 million square feet is potential incremental density. Of the 8.0 million square feet of potential incremental density, 2.5 million square feet is currently reflected in the appraised fair values and the remaining 5.5 million square feet is not reflected in the appraised fair values. Potential Incremental Density (in sq.ft.) - Geographic Breakdown CITY Toronto Kitchener Total Central Toronto Urban Data Centres Total Urban Data Centres Montréal Ottawa Total Eastern Calgary Edmonton Vancouver Total Western Total CURRENT GLA 4,100,025 559,015 CURRENT PUD (ESTIMATED ON COMPLETION) POTENTIAL INCREMENTAL TOTAL POTENTIAL DENSITY GLA 1,252,320 5,030,000 10,382,345 — 380,000 939,015 4,659,040 1,252,320 5,410,000 11,321,360 506,048 506,048 4,239,728 221,183 4,460,911 932,669 265,534 367,676 1,565,879 11,191,878 — — — — 315,000 1,270,000 — 315,000 310,600 — — 310,600 1,877,920 — 1,270,000 1,040,000 260,000 10,000 1,310,000 7,990,000 506,048 506,048 5,824,728 221,183 6,045,911 2,283,269 525,534 377,676 3,186,479 21,059,798 35 ALLIED 2018 ANNUAL REPORTThe timing of development for the 8.0 million square feet of potential incremental density is impossible to predict with precision, however the chart below provides a reasonable estimate of when the potential could begin to be realized. One factor is our self-imposed limitation on development activity. The focus in the short-term and the long-term remains on the Toronto portfolio. 36 ALLIED 2018 ANNUAL REPORTAllied has initiated the intensification approval process for five rental properties in Toronto, one rental property in Kitchener, and one rental property in Montréal, six of which are owned in their entirety and one of which is co-owned with a partner. These properties are identified in the following table: PROPERTY NAME NORMALIZED APPRAISED APPROVAL CURRENT GLA ON ESTIMATED LQA NOI FAIR VALUE STATUS USE GLA COMPLETION COMPLETION REZONING ESTIMATED King & Peter (1) $1,979 $82,650 Completed Office, limited retail 86,889 790,000 Unscheduled QRC West, Phase II (2) 1,201 32,540 Completed Office, retail 32,189 90,000 Unscheduled Union Centre King & Brant (3) Adelaide & Spadina (4) Le Nordelec Breithaupt Phase III (5) 781 432 313 7 — 102,460 Completed Office, limited retail 39,975 1,129,000 Unscheduled 20,850 Completed Office, retail 17,006 130,000 2022 11,520 In Progress Office, retail 10,963 245,000 Unscheduled 29,300 In Progress 5,800 Completed Office Office — — 230,000 Unscheduled 145,000 Unscheduled Total $4,713 $285,120 187,022 2,759,000 (1) King & Peter is comprised of the following properties: 82 Peter and 388 King W. (2) QRC West, Phase II is comprised of 375-381 Queen W. (3) Allied has received permission to intensify 544 King W and 7-9 Morrison. The approval permits approximately 120,000 square feet of office space and 10,000 square feet of retail space. Allied is exploring the opportunity to increase the permitted leasable area. (4) Adelaide & Spadina is comprised of 383-387 Adelaide W. 96 Spadina and 379 Adelaide W were previously included, but will now remain in the rental portfolio during future development activity. (5) This property is co-owned, reflected in the table above at Allied’s ownership. Estimated GLA is based on applicable standards of area measurement and the expected or actual outcome of rezoning. These properties are currently generating NOI and will continue to do so until Allied initiates construction. With respect to the ultimate intensification of these properties, a significant amount of pre-leasing will be required on the larger projects before construction commences. The design-approval costs have been, and will continue to be, funded by Allied for its share. DEVELOPMENT PROPERTIES Development is another way to create value and a particularly effective one for Allied, given the strategic positioning of its portfolio in the urban areas of Canada’s major cities. Urban intensification is the single most important trend in relation to Allied’s business. Not only does it anchor Allied’s investment and operating focus, it provides the context within which Allied creates value for its Unitholders. The pace of urban intensification is accelerating. Residential structures are moving inexorably upward, office structures are moving well beyond traditional boundaries and retailers are accepting new and different spatial configurations, all in an effort to exploit opportunity while accommodating the physical constraints of the inner-city. It has even reached a point where the migration to the suburbs that started in the 1950s is reversing itself. What was identified a few years back as an incipient trend has become a reasonably widespread reverse migration, with office users returning to the inner city to capture the ever more concentrated talent pools. 37 ALLIED 2018 ANNUAL REPORT It is expected that development activity will become a more important component of Allied’s growth as projects are completed. The expectation is largely contingent upon completing the development projects in the manner contemplated. The most important factor affecting completion will be successful lease-up of space in the development portfolio. The material assumption is that the office leasing market in the relevant markets remains stable. Pursuant to Allied’s Declaration of Trust, the cost of Properties Under Development cannot exceed 15% of GBV. At the end of December 31, 2018, the cost of Allied’s Properties Under Development was 8.9% of GBV (December 31, 2017 - 6.5%). This self-imposed limitation is intended to align the magnitude of Allied’s development activity with the overall size of the business. Properties Under Development consist of properties purchased with the intention of being developed before being operated and properties transferred from the rental portfolio once activities changing the condition or state of the property, such as the de-leasing process, commence. As at December 31, 2018, Allied has the following eight Properties Under Development: PROPERTY NAME USE ESTIMATED GLA ON COMPLETION (SF) % OF OFFICE DEVELOPMENT LEASED King Portland Centre, Toronto (1)(2) Office, retail TELUS Sky, Calgary (1)(3) Office, retail, residential 425 Viger, Montréal (4) The Lougheed (604-1st SW), Calgary (5) Office, retail Office, retail College & Manning, 547-549 College, Toronto (1) Retail, residential Adelaide & Duncan, Toronto (1)(6) Office, retail, residential The Well, Toronto (1)(7) KING Toronto, Toronto (1)(8) Total Office, retail Office, retail 136,320 218,000 315,000 92,600 27,000 228,000 746,000 115,000 1,877,920 100% 33% 36% — — 100% 71% — (1) These properties are co-owned, reflected in the table above at Allied’s ownership. (2) The GLA components (in square feet) at our 50% share are as follows: 128,600 of office and 7,720 of retail. This excludes the GLA from the portion of King Portland Centre that is currently in the Rental Portfolio. (3) The GLA components (in square feet) at our 33.33% share are as follows: 143,000 of office, 70,000 of residential and 5,000 of retail. (4) The GLA components (in square feet) are as follows: 305,000 of office and 10,000 of retail. (5) While initially working toward repositioning this property for a different use, Allied is now working toward restoring and retrofitting the property to the highest possible standards for workspace in the creative economy. (6) The GLA components (in square feet) at our 50% share are as follows: 144,000 of residential, 73,000 of office and 11,000 of retail. (7) Each of Allied and RioCan own an undivided 50% interest with an estimated total GLA of 3,100,000 square feet. The GLA components (in square feet) at our 50% share will be as follows: approximately 534,000 of office, 212,000 of retail, and the remaining is related to residential air rights. The air rights were sold by the co-ownership as previously announced, with closing expected to occur by 2021. (8) Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied sold a 50% undivided interest to Westbank. KING Toronto is comprised of the following properties: 489 King W, 495 King W, 499 King W, 511-529 King W, 533 King W and 539 King W. The GLA components (in square feet) at our 50% share will be as follows: 30,000 of office and 85,000 of retail. 38 ALLIED 2018 ANNUAL REPORT The following table sets out the fair value of Allied’s Properties Under Development as at December 31, 2018, as well as Management’s estimates with respect to the financial outcome on completion: PROPERTY NAME TRANSFER ESTIMATED ESTIMATED TO RENTAL APPRAISED ESTIMATED ESTIMATED YIELD COST TO PORTFOLIO VALUE ANNUAL NOI TOTAL COST ON COST COMPLETE King Portland Centre, Toronto (1)(2) Q1 2019 $98,850 $4,600 - 4,750 $59,775 7 .7% - 7 .9% $4,845 TELUS Sky, Calgary (1) Q4 2019 95,191 7,650 - 8,310 138,000 5 .5% - 6 .0% 39,080 425 Viger, Montréal Q1 2020 53,920 6,000 - 7,000 98,699 6 .1% - 7 .1% 44,400 The Lougheed (604-1st SW), Calgary Q4 2020 17,920 TBD TBD TBD TBD College & Manning, 547-549 College, Toronto (1) Q1 2021 5,610 975 - 1,125 29,986 3 .3% - 3 .8% 23,200 Adelaide & Duncan, Toronto (1) Q2 2021 65,470 9,000 - 10,750 170,300 5 .3% - 6 .3% 118,200 The Well, Toronto (1) Q1 2022 301,810 37,000 - 43,250 619,000 6 .0% - 7 .0% 393,600 KING Toronto, Toronto (1)(3) Q1 2023 26,660 5,000 - 6,000 64,854 8 .0% - 11 .0% 45,400 Total $665,431 (1) These properties are co-owned, reflected in the table above at Allied’s ownership percentage of assets and liabilities. (2) The appraised value relates to the commercial component. The estimated total cost is net of the estimated gross proceeds from the sale of the residential inventory of $42,000 - $43,000. (3) Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied sold a 50% undivided interest to Westbank. KING Toronto is comprised of the following properties: 489 King W, 495 King W, 499 King W, 511-529 King W, 533 King W and 539 King W. The appraised value relates to the commercial component. The estimated total cost is net of the estimated gross proceeds from the sale of the residential inventory of $270,000 - $280,000. The initial cost of Properties Under Development includes the acquisition cost of the property, direct development costs, realty taxes and borrowing costs directly attributable to the development. Borrowing costs and realty taxes associated with direct expenditures on Properties Under Development are capitalized. The amount of capitalized borrowing costs is determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments. Transfer to the rental portfolio occurs when the property is capable of operating in the manner intended by Management. Generally this occurs upon completion of construction and receipt of all necessary occupancy and other material permits. Estimated annual NOI is based on 100% economic occupancy. The most important factor affecting estimated annual NOI will be successful lease-up of vacant space in the development properties at current levels of net rent per square foot. The material assumption is that the office leasing market in the relevant markets remains stable. Estimated total cost includes acquisition cost, estimated total construction, financing costs and realty taxes. The material assumption made in formulating the estimated total cost is that construction and financing costs remain stable for the remainder of the development period. Estimated yield on cost is the estimated annual NOI as a percentage of the estimated total cost. Estimated cost to complete is the difference between the estimated total cost and the costs incurred to date. 39 ALLIED 2018 ANNUAL REPORT RESIDENTIAL INVENTORY Residential inventory consists of assets that are developed by Allied for sale in the ordinary course of business. Allied may transfer an investment property to residential inventory based on a change in use, as evidenced by the commencement of development activities with the intention to sell. Alternatively, a transfer from residential inventory to investment property would be evidenced by the commencement of leasing activity. On September 19, 2017, Allied with its partner RioCan, announced that they had finalized plans that would allow the co-owners to improve the return on the development of King Portland Centre. The co-owners had originally intended to develop the residential portion of the project as rental apartments and then decided to sell the residential portion as condominium units, comprised of 132 units. The residential condominium units have been fully sold, subject to customary closing conditions. Management expects the condominium sales to close in Q4 2019. On November 30, 2018, Allied entered into a joint arrangement with Westbank to develop KING Toronto. KING Toronto is a mixed-used property comprised of office, retail, and residential uses. As part of the arrangement, Allied sold a 50% undivided interest to Westbank. The residential component will be developed and sold as condominiums. The sale of the residential units commenced in October 2018 and totals 210,000 square feet of GLA. Management expects the condominium sales to close in 2023. Residential inventory is as follows: King Portland Centre KING Toronto Current Non-current DEVELOPMENT COMPLETIONS QRC WEST, TORONTO DECEMBER 31, 2018 DECEMBER 31, 2017 $36,612 103,690 $140,302 $36,612 103,690 $140,302 $28,239 — $28,239 $— 28,239 $28,239 This was a pioneering, large-scale intensification project that involved the integration of two restored heritage buildings with a new, mid-rise office structure. The project commenced in 2010 and was completed in 2015. It is comprised of 346,643 square feet of GLA and is fully leased. DEVELOPMENT ECONOMICS Land Costs Hard & Soft Costs INVESTMENT $11,000 104,000 Capitalized Interest & Operating Costs 15,000 UNLEVERED VALUE STABILIZED YIELD ON VALUE CREATION AS % NOI COST FAIR VALUE CREATION OF COST Total Development Costs $130,000 $12,380 9.5% $257,330 $127,330 97.9% 40 ALLIED 2018 ANNUAL REPORT The fair value is provided by our external appraiser, which is calculated based on the discounted cash flow method. THE BREITHAUPT BLOCK, KITCHENER Allied acquired an undivided 50% interest in the property in 2010 and immediately put it into development, completing the first phase in 2014 and the second phase in mid-2016. The property is an equal two-way joint arrangement between Allied and Perimeter Development Corporation. It is comprised of 226,810 square feet of GLA (Allied’s share 113,405 square feet) and is fully leased. DEVELOPMENT ECONOMICS Land Costs Hard & Soft Costs INVESTMENT $4,000 $18,470 Capitalized Interest & Operating Costs 2,550 UNLEVERED VALUE STABILIZED YIELD ON VALUE CREATION AS % NOI COST FAIR VALUE CREATION OF COST Total Development Costs $25,020 $1,950 7.8% $45,030 $20,010 80.0% The fair value is provided by our external appraiser, which is calculated based on the discounted cash flow method. 180 JOHN, TORONTO Allied acquired the property in 2015. The property was redeveloped and leased in its entirety to Spaces. The project was completed in 2017. It is comprised of 45,631 square feet of GLA and is fully leased. DEVELOPMENT ECONOMICS Land Costs Hard & Soft Costs Capitalized Interest & Operating Costs INVESTMENT $8,700 17,500 1,300 UNLEVERED VALUE STABILIZED YIELD ON VALUE CREATION AS % NOI COST FAIR VALUE CREATION OF COST Total Development Costs $27,500 $1,600 5.8% $29,870 $2,370 8.6% The fair value is provided by our external appraiser, which is calculated based on the discounted cash flow method. 189 JOSEPH, KITCHENER 189 Joseph was purchased as part of The Tannery in 2012. The building stood vacant, and was slated to be demolished before Allied proposed the redevelopment and secured Deloitte as the user. The project commenced in late-2015 and was completed in mid-2017. It is comprised of 26,373 square feet of GLA and is fully leased. DEVELOPMENT ECONOMICS Land Costs Hard & Soft Costs INVESTMENT $230 10,890 Capitalized Interest & Operating Costs 240 UNLEVERED VALUE STABILIZED YIELD ON VALUE CREATION AS % NOI COST FAIR VALUE CREATION OF COST Total Development Costs $11,360 $720 6.3% $13,160 $1,800 15.8% The fair value is provided by our external appraiser, which is calculated based on the discounted cash flow method. 41 ALLIED 2018 ANNUAL REPORTLOANS RECEIVABLE As of December 31, 2018, total loans receivable outstanding is $200,289 (December 31, 2017 - $88,316). In February 2015, Allied entered into a joint arrangement with Westbank and completed the acquisition of an undivided 50% interest in Adelaide & Duncan. Allied advanced a total of $21,173 to Westbank. As at December 31, 2018, the loan receivable outstanding is $21,173 (December 31, 2017 - $21,173) and is secured by a first charge on the property and assignment of rents and leases. Interest on the loan is payable monthly at a rate of 6.17% per annum. The loan is repayable when the joint arrangement obtains external permanent financing. On August 1, 2017, Allied entered into an arrangement with Westbank to provide a credit facility of up to $100,000, plus interest, for the land acquisition and the initial pre-development costs of 400 West Georgia in Vancouver. The credit facility bears interest at rates between 5.00% to 6.75% per annum in year one and 6.75% per annum in each year thereafter until maturity. The credit facility matures on August 31, 2022, and has a one year extension option to August 31, 2023. On placement of permanent financing, Allied intends to acquire a 50% undivided interest in 400 West Georgia based on total development costs. The loan outstanding as at December 31, 2018, is $112,086 (December 31, 2017 - $67,143). On November 30, 2018, Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied advanced a total of $67,030 to Westbank for its purchase of a 50% undivided interest in the property. As at December 31, 2018, the loan receivable outstanding is $67,030 and bears interest at a rate of 7.00% per annum. The loan is repayable at the earlier of November 23, 2023, or the closing of the condominium units. DECEMBER 31, 2018 DECEMBER 31, 2017 $21,173 112,086 67,030 $200,289 $21,173 67,143 — $88,316 Adelaide & Duncan 400 West Georgia KING Toronto 42 ALLIED 2018 ANNUAL REPORT Section IV —Liquidity and Capital Resources Allied’s liquidity and capital resources are used to fund capital investments including development activity, leasing costs, interest expense and distributions to Unitholders. The primary source of liquidity is net operating income generated from rental properties, which is dependent on rental and occupancy rates, the structure of lease agreements, leasing costs, and the rate and amount of capital investment and development activity, among other variables. Allied has financed its operations through the use of equity, mortgage debt secured by rental properties, construction loans, an unsecured operating line, senior unsecured debentures and unsecured term loans. Conservative financial management has been consistently applied through the use of long term, fixed rate, debt financing. Allied’s objective is to maximize financial flexibility while continuing to strengthen the balance sheet. Management intends to achieve this by continuing to access the equity market, unsecured debenture market, unsecured loans and growing the pool of unencumbered assets, which totals $4.3 billion as at December 31, 2018. 43 ALLIED 2018 ANNUAL REPORTDEBT Total debt and net debt are non-IFRS financial measures and do not have any standard meaning prescribed by IFRS. As computed by Allied, total debt and net debt may differ from similar computations reported by other Canadian real estate investment trusts and, accordingly, may not be comparable to similar computations reported by such organizations. Management considers total debt and net debt to be useful measures for evaluating debt levels and interest coverage.  The following illustrates the calculation of total debt (net of transaction costs) and net debt as at December 31, 2018, and December 31, 2017: DECEMBER 31, 2018 DECEMBER 31, 2017 Mortgages payable Construction loans payable Unsecured Facility Unsecured Debentures Unsecured Term Loans Total debt Less cash and cash equivalents Net debt $769,473 70,909 95,000 573,320 448,909 $1,957,611 18,361 $1,939,250 $965,832 46,758 25,000 572,849 349,438 $1,959,877 6,048 $1,953,829 The table below summarizes the scheduled principal maturity for Allied’s Mortgages payable, Unsecured Debentures and Unsecured Term Loans: W/A INTEREST MORTGAGES MATURING UNSECURED INTEREST UNSECURED INTEREST RATE OF SENIOR W/A W/A CONSOLIDATED W/A INTEREST RATE OF MATURING PAYABLE MORTGAGES DEBENTURES RATE TERM LOANS RATE TOTAL DEBT $36,082 4 .64% $— — 26,411 5 .50% 225,000 3 .75% $— — — — $36,082 4 .64% 251,411 3 .75% 129,054 4 .21% — — 200,000 2 . 86% 329,054 3 .36% 121,827 4 .18% 150,000 3 .93% 231,104 4 .74% 179,983 4 .29% — — — — 10,384 3 .63% 200,000 3 .64% 21,834 3 .59% 487 — 14,750 4 .04% — — — — — — — — — — — — — — 271,827 4 .04% 231,104 4 .74% 179,983 4 .29% 210,384 3 .64% 250,000 3 .99% 271,834 3 .95% — — — — 487 — 14,750 4 .04% $771,916 4 .38% $575,000 3 .76% $450,000 3 .49% $1,796,916 3 .96% 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 44 ALLIED 2018 ANNUAL REPORT The chart below summarizes the maturities of principal in regards to Allied’s various obligations as at December 31, 2018: 45 ALLIED 2018 ANNUAL REPORTMORTGAGES PAYABLE As of December 31, 2018, mortgages payable, net of financing costs, totaled $769,473 and have a weighted average stated interest rate of 4.38% (December 31, 2017 - 4.73%). The weighted average term of the mortgage debt is 4.6 years (December 31, 2017 - 4.7 years). The mortgages are secured by a first registered charge over specific investment properties and first general assignments of leases, insurance and registered chattel mortgages. The following table contains information on the remaining contractual mortgage maturities: 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 PRINCIPAL REPAYMENTS BALANCE DUE AT MATURITY DECEMBER 31, 2018 DECEMBER 31, 2017 $25,115 $10,967 $36,082 26,411 25,519 21,725 17,749 5,123 1,596 1,391 487 293 — 103,535 100,102 213,355 174,860 8,788 20,443 — 14,457 26,411 129,054 121,827 231,104 179,983 10,384 21,834 487 14,750 Mortgages, principal $125,409 $646,507 $771,916 $966,894 Net premium on assumed mortgages Net financing costs 924 (3,367) 2,599 (3,661) $769,473 $965,832 For the year ended December 31, 2018, in addition to regularly scheduled principal payments, Allied repaid eight mortgages totaling $183,396 with a weighted average interest rate of 6.13%. CONSTRUCTION LOANS PAYABLE As of December 31, 2018, and December 31, 2017, Allied’s obligation under the construction loan is: JOINT ARRANGEMENT OWNERSHIP GUARANTEE LIMIT DATE OF MATURITY DECEMBER 31, 2018 DECEMBER 31, 2017 TELUS Sky 33 .33% $114,000 August 31, 2019 $70,909 $46,758 The construction loan payable for the TELUS Sky joint arrangement bears interest at bank prime plus 70 basis points or banker’s acceptance rate plus 195 basis points. 46 ALLIED 2018 ANNUAL REPORT On January 31, 2019, Allied and Westbank obtained a $270,000 construction lending facility from a syndicate of Canadian banks for the Adelaide & Duncan joint arrangement, in which Allied’s 50% share is $135,000. The loan matures on July 31, 2023, and bears interest at bank prime plus 35 basis points or banker’s acceptance rate plus 135 basis points. Allied provided a joint and several guarantee to support the facility to assist with the financing of construction costs associated with the development of Adelaide & Duncan. UNSECURED REVOLVING OPERATING FACILITY On November 30, 2018, Allied amended the Unsecured Facility to increase the limit to $400,000 and extended the maturity to January 29, 2022. Prior to the amendment, Allied had access to $250,000 maturing on January 29, 2021. The Unsecured Facility will bear interest at bank prime plus 45 basis points or bankers’ acceptance plus 145 basis points with a standby fee of 29 basis points, subject to certain conditions being met (December 31, 2017 - maturity of January 29, 2019, interest rate at bank prime plus 70 basis points or bankers’ acceptance plus 170 basis points with a standby fee of 34 basis points). In the event that these conditions are not met, the Unsecured Facility will bear interest at bank prime plus 70 basis points or bankers’ acceptance plus 170 basis points with a standby fee of 34 basis points. The Unsecured Facility contains a $100,000 accordion feature, allowing Allied to increase the amount available under the facility to $500,000. The Unsecured Facility had a balance of $95,000 outstanding at December 31, 2018 (December 31, 2017 - $25,000). DECEMBER 31, 2018 DECEMBER 31, 2017 Unsecured Facility limit Amounts drawn under the Unsecured Facility Letters of credit outstanding under the Unsecured Facility Remaining unused balance under the Unsecured Facility $400,000 (95,000) (14,404) $290,596 $250,000 (25,000) (5,551) $219,449 SENIOR UNSECURED DEBENTURES As of December 31, 2018, and December 31, 2017, Allied’s obligation of the balance outstanding under the senior unsecured debentures is summarized in the table below: SERIES Series A Series B Series C INTEREST RATE DATE OF MATURITY INTEREST PAYMENT DATE DECEMBER 31, 2018 DECEMBER 31, 2017 3 .748% May 13, 2020 May 13 and November 13 $225,000 $225,000 3 .934% November 14, 2022 May 14 and November 14 150,000 150,000 3 .636% April 21, 2025 April 21 and October 21 200,000 200,000 Unsecured Debentures, principal Net premium on Unsecured Debentures Net financing costs $575,000 $575,000 216 369 (1,896) (2,520) $573,320 $572,849 47 ALLIED 2018 ANNUAL REPORT The Series A, Series B, and Series C debentures are collectively referred to as the “Unsecured Debentures”. On April 21, 2017, Allied issued $200,000 of 3.636% Series C Unsecured Debentures (the “Series C Debentures”) due April 21, 2025, with semi-annual interest payments due on April 21 and October 21 of each year commencing October 21, 2017. Debt financing costs of $1,175 were incurred and recorded against the principal owing. Proceeds from the Series C Debentures were used to fund acquisitions, repay amounts drawn on the Unsecured Facility and for general working capital purposes. The respective financing costs and premium recognized are amortized using the effective interest method and recorded to Interest Expense. UNSECURED TERM LOANS As of December 31, 2018, and December 31, 2017, Allied’s obligation of the balance outstanding under the unsecured term loans is summarized in the table below: INTEREST RATE DATE OF MATURITY FREQUENCY OF INTEREST PAYMENT DECEMBER 31, 2018 DECEMBER 31, 2017 Unsecured Term Loan 3 .992% January 14, 2026 Monthly $250,000 $150,000 Unsecured Term Facility Tranche 1 Tranche 2 2 .830% 2 .890% Unsecured Term Loans, principal Net financing costs March 16, 2021 Quarterly 100,000 100,000 March 16, 2021 Quarterly 100,000 100,000 $450,000 $350,000 (1,091) (562) $448,909 $349,438 The Unsecured Term Loan and Unsecured Term Facility are collectively referred to as the “Unsecured Term Loans”. On December 14, 2018, Allied entered into a new Unsecured Term Loan with a financial institution for $250,000 at a rate of 3.992%, due on January 14, 2024, with two one-year extensions to January 14, 2026. The proceeds from the loan were used to repay the $150,000 maturing term loan due on December 14, 2018, at a rate of 2.645% and the balance was used to reduce amounts drawn on the Unsecured Facility. Debt financing costs of $810 were incurred and recorded against the principal owing. The respective financing costs are amortized using the effective interest method and recorded to Interest Expense. 48 ALLIED 2018 ANNUAL REPORT CREDIT RATINGS Allied’s credit ratings for the Unsecured Debentures are summarized below: DEBT RATING AGENCY LONG-TERM CREDIT RATING TREND/OUTLOOK Unsecured Debentures DBRS BBB (low) Unsecured Debentures Moody’s Investor Services Baa3 Stable Stable Dominion Bond Rating Services (“DBRS”) provides credit ratings of debt securities for commercial issuers that indicate the risk associated with a borrower’s capabilities to fulfill its obligations. The minimum investment grade rating is “BBB (low),” with the highest rating being “AAA.” Allied’s unsecured debentures are rated “BBB (low),” with a stable trend by DBRS at December 31, 2018. On June 25, 2018, Moody’s Investors Services (“Moody’s”) assigned Allied an issuer and an unsecured debt rating of “Baa3,” with a stable rating outlook. The minimum investment grade rating is “Baa3,” with the highest rating being “Aaa.” With these two ratings, Allied’s ability to access the debt capital markets on favourable financial terms will be enhanced. Allied expects the ratings to be particularly helpful as Allied continues to fortify the balance sheet with a view to bringing added financial flexibility and discipline to the urban development program. The above-mentioned ratings assigned to the Unsecured Debentures are not recommendations to buy, sell or hold any securities of Allied. Allied has paid customary rating fees to DBRS and Moody’s in connection with the above- mentioned ratings. There can be no assurance that any rating will remain in effect for any given period of time or that a rating will not be lowered, withdrawn or revised by the rating agency if in its judgment circumstances so warrant. 49 ALLIED 2018 ANNUAL REPORTFINANCIAL COVENANTS The Unsecured Facility, Unsecured Term Loans and Unsecured Debentures contain numerous financial covenants. Failure to comply with the covenants could result in a default, which, if not waived or cured, could result in adverse financial consequences. The related covenants are as follows: UNSECURED FACILITY AND UNSECURED TERM LOANS The following outlines the requirements of covenants as defined in the agreements governing the Unsecured Facility and Unsecured Term Loans. RATIO Indebtedness ratio Secured indebtedness ratio Debt service coverage ratio Equity maintenance THRESHOLD DECEMBER 31, 2018 DECEMBER 31, 2017 Below 60% Below 45% Consolidated adjusted EBITDA to be more than 1 .5 times debt service payments 29.4% 12.5% 2.2x 33 .8% 17 .4% 2 .0x At least $1,250,000 plus 75% of future equity issuances 4,374,663 3,549,022 Unencumbered property assets value ratio Unencumbered property assets to be more than 1 .4 times total unsecured debt Distribution payout ratio Maintain distributions below 100% of FFO 3.8x 72.4% 3 .1x 71 .2% SENIOR UNSECURED DEBENTURES The following outlines the requirements of covenants specified in the trust indenture with respect to the Unsecured Debentures. RATIO Pro forma interest coverage ratio THRESHOLD DECEMBER 31, 2018 DECEMBER 31, 2017 Maintain a 12-month rolling consolidated forma EBITDA of at least 1 .65 times pro forma interest expense 2.9x 2 .8x Pro forma asset coverage test Maintain net consolidated debt below 65% of net aggregate assets on a pro forma basis 29.3% 33 .7% Equity maintenance covenant Maintain Unitholders’ equity above $300,000 4,374,663 3,549,022 Pro forma unencumbered net aggregate adjusted asset ratio Maintain pro forma unencumbered net aggregate adjusted assets above 1 .4 times consolidated unsecured indebtedness 4.2x 3 .3x 50 ALLIED 2018 ANNUAL REPORT As of December 31, 2018, Allied was in compliance with the terms and covenants of the agreements governing the Unsecured Facility, the Unsecured Term Loans and the Unsecured Debentures. A number of other financial ratios are also monitored by Allied, including net debt to EBITDA and EBITDA as a multiple of interest expense. These ratios are presented in Section I—Overview. UNITHOLDERS’ EQUITY The following represents the number of Units issued and outstanding, and the related carrying value of Unitholders’ equity, for the year ended December 31, 2018, and for the year ended December 31, 2017. DECEMBER 31, 2018 DECEMBER 31, 2017 UNITS AMOUNT UNITS AMOUNT Trust Units, beginning of year 92,935,150 $2,399,768 84,734,469 $2,098,267 Restricted Unit plan (net of forfeitures) Long-term incentive plan — — Unit option plan - options exercised 84,595 (2,584) — 3,043 — — 507,044 Unit offering 10,842,200 435,168 7,695,000 (2,173) 72 15,948 287,701 Purchase of Units under normal course issuer bid for cancellation — — (1,363) (47) Trust Units, end of year 103,861,945 $2,835,395 92,935,150 $2,399,768 As at February 13, 2019, 103,861,945 Trust Units and 1,169,497 options to purchase units were issued and outstanding. On September 26, 2018, Allied raised gross proceeds of $155,264 through the issuance of 3,548,900 Units at a price of $43.75 per unit. Costs relating to the issuance totaled $6,760 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. On June 22, 2018, Allied raised gross proceeds of $299,025 through the issuance of 7,293,300 Units at a price of $41.00 per unit. Costs relating to the issuance totaled $12,361 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. Allied does not hold any of its own Units, nor does Allied reserve any Units for issue under options and contracts. 51 ALLIED 2018 ANNUAL REPORTThe table below represents weighted average Units outstanding for: THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 103,859,370 92,850,893 97,785,091 87,864,560 203,197 176,733 180,620 — — — 140,353 1,097 104,062,567 93,027,626 97,965,711 88,006,010 Basic Unit Option Plan LTIP Fully diluted NORMAL COURSE ISSUER BID On February 20, 2018, Allied received approval from the Toronto Stock Exchange (“TSX”) for the renewal of its normal course issuer bid (“NCIB”), which entitles Allied to purchase up to 9,114,825 of its outstanding Units, representing approximately 10% of its public float as at February 14, 2018. The NCIB commenced February 22, 2018, and will expire on February 21, 2019, or such earlier date as Allied completes its purchases pursuant to the NCIB. All purchases under the NCIB will be made on the open market through the facilities of the TSX or alternate trading systems in Canada at market prices prevailing at the time of purchase. Any Units that are repurchased will either be cancelled or delivered to participants under Allied’s Restricted Unit Plan or to employees pursuant to Allied’s employee programs. During the year ended December 31, 2018, Allied purchased 62,044 Units for $2,598 at a weighted average price of $41.87 per unit under its NCIB program, of which 61,733 units were purchased for delivery to participants under Allied’s Restricted Unit Plan and 311 Units were purchased for certain employee rewards outside of Allied’s Restricted Unit Plan. During the year ended December 31, 2017, Allied purchased 65,580 Units for $2,283 at a weighted average price of $34.81 per unit under its NCIB program, of which 64,217 units were purchased for delivery to participants under Allied’s Restricted Unit Plan and 1,363 were purchased for cancellation. 52 ALLIED 2018 ANNUAL REPORTUNIT OPTION AND RESTRICTED UNIT PLANS Allied adopted a Unit Option Plan providing for the issuance, from time to time, at the discretion of the trustees, of options to purchase Units for cash. Participation in the Unit Option Plan is restricted to certain employees of Allied. The Unit Option Plan complies with the requirements of the Toronto Stock Exchange. The exercise price of any option granted will not be less than the closing market price of the Units on the day preceding the date of grant. The term of the options may not exceed ten years. Options granted prior to February 22, 2017 vest evenly over three years; options granted subsequently vest evenly over four years from the date of grant. All options are settled in Units. At December 31, 2018, Allied had issued options to purchase 1,169,497 Units outstanding, of which 596,331 had vested. At December 31, 2017, Allied had options to purchase 1,057,084 Units outstanding, of which 345,491 had vested. For the year ended December 31, 2018, Allied recorded a share-based payment expense related to options of $1,346 in general and administrative expense in the consolidated statements of income and comprehensive income (for the year ended December 31, 2017 - $1,466). In March 2010 Allied adopted a restricted unit plan (the “Restricted Unit Plan”), whereby restricted Units (“Restricted Units”) are granted to certain key employees and trustees, at the discretion of the Board of Trustees. The Restricted Units are purchased in the open market. Employees who are granted Restricted Units have the right to vote and to receive distributions from the date of the grant. The Restricted Units vest as to one-third on each of the three anniversaries following the date of the grant. Whether vested or not, without the specific authority of the Governance and Compensation Committee, the Restricted Units may not be sold, mortgaged or otherwise disposed of for a period of six years following the date of the grant. The Restricted Unit Plan contains provisions providing for the forfeiture within specified time periods of unvested Restricted Units in the event the employee’s employment is terminated. At December 31, 2018, Allied had 267,420 Restricted Units outstanding (December 31, 2017 – 241,557). For the year ended December 31, 2018, Allied recorded a share-based payment expense related to restricted units of $2,247 in general and administrative expense in the consolidated statements of income and comprehensive income (for the year ended December 31, 2017 - $1,767). 53 ALLIED 2018 ANNUAL REPORTDISTRIBUTIONS TO UNITHOLDERS Allied is focused on increasing distributions to its Unitholders on a regular and prudent basis. During the first 12 months of operations, Allied made regular monthly distributions of $1.10 per unit on an annualized basis. The distribution increases since then are set out in the table below: MARCH, 2004 MARCH, 2005 MARCH, 2006 MARCH, 2007 MARCH, 2008 DECEMBER, 2012 Annualized increase per unit $0 .04 $0 .04 $0 .04 $0 .04 $0 .06 % increase Annualized distribution per unit 3 .6% $1 .14 3 .5% $1 .18 3 .4% $1 .22 3 .3% $1 .26 4 .8% $1 .32 $0 .04 3 .0% $1 .36 DECEMBER, 2013 DECEMBER, 2014 DECEMBER, 2015 DECEMBER, 2016 DECEMBER, 2017 DECEMBER, 2018 Annualized increase per unit $0 .05 $0 .05 $0 .04 $0 .03 $0 .03 % increase Annualized distribution per unit 3 .7% $1 .41 3 .5% $1 .46 2 .7% $1 .50 2 . 0% $1 .53 2 . 0% $1 .56 $0 .04 2 .6% $1 .60 SOURCES OF DISTRIBUTIONS For the three months and year ended December 31, 2018, Allied declared $40,817 and $153,855 in distributions, respectively (three months and year ended December 31, 2017 - $35,754 and $135,177, respectively). THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 Distributions declared Net income $40,817 $137,270 Cash flows provided by operating activities $70,810 Normalized AFFO $45,186 $35,754 $63,066 $50,037 $38,072 $153,855 $540,276 $239,381 $175,645 $135,177 $357,959 $198,926 $139,668 Excess of net income over distributions declared Excess of cash flows provided by operating activities over distributions declared Excess of cash provided by Normalized AFFO over distributions declared $96,453 $27,312 $386,421 $222,782 $29,993 $14,283 $85,526 $63,749 $4,369 $2,318 $21,790 $4,491 In the table above, AFFO has been presented in accordance with the “White Paper on Funds From Operations & Adjusted Funds From Operations for IFRS” published by REALpac in February of 2017. 54 ALLIED 2018 ANNUAL REPORTIn determining the amount of distributions to be made to Unitholders, Allied’s Board of Trustees consider many factors, including provisions in its Declaration of Trust, macro-economic and industry specific environments, the overall financial condition of Allied, future capital requirements, debt covenants, and taxable income. In accordance with Allied’s distribution policy, Management and the Board of Trustees regularly review Allied’s rate of distributions to ensure an appropriate level of cash and non-cash distributions. Management anticipates that distributions declared will, in the foreseeable future, continue to vary from net income as net income includes fair value adjustments and other non-cash items. While cash flows from operating activities are generally sufficient to cover distribution requirements, timing of expenses and seasonal fluctuations in non-cash working capital may result in a shortfall. These seasonal or short-term fluctuations will be funded, if necessary, by the Unsecured Facility. As such, the cash distributions are not an economic return of capital, but a distribution of sustainable cash flow from operations. Based on current facts and assumptions, Management does not anticipate cash distributions will be reduced or suspended in the foreseeable future. The current rate of distribution amounts to $1.60 per unit per annum (December 31, 2017 - $1.56 per unit per annum). COMMITMENTS At December 31, 2018, Allied had future commitments as set out below: Capital expenditures DECEMBER 31, 2018 $402,525 55 ALLIED 2018 ANNUAL REPORTSection V —Discussion of Operations The following sets out summary information and financial results for the three months and year ended December 31, 2018, and the comparable period in 2017. NET INCOME AND COMPREHENSIVE INCOME THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 Rental revenue from investment properties $112,889 $107,709 $436,396 $419,263 Property operating costs Net rental income Interest expense General and administrative expenses Condominium marketing expenses Amortization of other assets and leasing costs Interest income (47,925) 64,964 (14,125) (5,220) (1,609) (360) 2,573 Fair value gain on investment properties 100,074 Fair value (loss) gain on derivative instruments (10,034) Gain (loss) on disposal of investment properties 1,007 (46,419) (185,938) (179,548) 61,290 (17,188) (4,785) — (2,677) 1,403 26,260 1,324 (2,561) 250,458 (67,285) (17,059) (1,609) (1,556) 6,941 375,849 (6,470) 1,007 239,715 (69,265) (14,436) — (10,513) 3,015 198,115 13,889 (2,561) Net income and comprehensive income $137,270 $63,066 $540,276 $357,959 56 ALLIED 2018 ANNUAL REPORTNet income and comprehensive income for the three months and year ended December 31, 2018, increased by $74,204 and $182,317, respectively, over the comparable periods in 2017. Excluding the effect of the yield maintenance cost, fair value changes on investment properties, derivative instruments, and the gain on disposal of investment properties, net income for the three months and year ended December 31, 2018, increased by $8,180 and $28,876, respectively, from the same periods in the prior year. This was primarily due to an increase in net rental and interest income, lower interest expense due to lower mortgages payable, and a decrease in amortized other assets and leasing costs, partially offset by higher general and administrative expenses. NET OPERATING INCOME (“NOI”) NOI is a non-IFRS financial measure and should not be considered as an alternative to net income or net income and comprehensive income, cash flow from operating activities or any other measure prescribed under IFRS. NOI does not have any standardized meaning prescribed by IFRS. As computed by Allied, NOI may differ from similar computations reported by other Canadian real estate investment trusts and, accordingly, may not be comparable to similar computations reported by such organizations. Management considers NOI to be a useful measure of performance for rental properties. Certain comparative figures have been reclassified to conform with the presentation adopted in the current year. Allied operates in seven urban markets — Montréal, Ottawa, Toronto, Kitchener, Calgary, Edmonton and Vancouver. For the purpose of analyzing NOI, Allied grouped Montréal with Québec City and Ottawa as Eastern Canada, Toronto with Kitchener as Central Canada, Winnipeg with Calgary, Edmonton and Vancouver as Western Canada, and Urban Data Centres. On December 20 and 27, 2017, Allied disposed of its Winnipeg and Québec City properties. Over the past year, Allied’s real estate portfolio has grown through acquisitions and development activities which have positively contributed to the operating results for the year ended December 31, 2018, as compared to the same period in the prior year. THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 Revenue from investment properties $112,889 $107,709 $436,396 $419,263 Property operating costs Net rental income Amortization of improvement allowances Amortization of straight-line rents NOI (47,925) 64,964 7,788 (2,381) $70,371 (46,419) (185,938) (179,548) 61,290 7,312 (2,731) 250,458 28,819 (6,992) 239,715 24,459 (13,830) $65,871 $272,285 $250,344 57 ALLIED 2018 ANNUAL REPORTThe following tables set out the NOI by segment and space type from the rental and development properties for the year ended December 31, 2018, and the comparable period. THREE MONTHS ENDED CHANGE DECEMBER 31, 2018 DECEMBER 31, 2017 $ % SEGMENT Urban Workspace Eastern Canada Central Canada Western Canada Urban Workspace - Total 57,835 82.2% 54,258 82 .4% Urban Data Centres 12,536 17.8% 11,613 17 .6% NOI $70,371 100.0% $65,871 100 .0% $4,500 $17,486 24.8% $15,857 24 .1% $1,629 31,573 44.9% 29,491 44 .8% 2,082 8,776 12.5% 8,910 13 .5% (134) 3,577 923 10 .3% 7 .1% (1 .5)% 6 .6% 7 .9% 6 .8% THREE MONTHS ENDED CHANGE TYPE OF SPACE DECEMBER 31, 2018 DECEMBER 31, 2017 $ Urban Workspace - Office $49,303 70.1% $46,866 71 .1% $2,437 Urban Data Centres 12,536 17.8% 11,613 17 .6% Urban Workspace - Retail Urban Workspace - Parking 5,238 3,294 7.4% 4.7% 4,522 2,870 6 .9% 4 .4% 923 716 424 NOI $70,371 100.0% $65,871 100 .0% $4,500 % 5 .2% 7 .9% 15 .8% 14 .8% 6 .8% The increase in NOI for the three months ended December 31, 2018, was primarily the result of occupancy growth in Montréal and rent and occupancy growth in Toronto. SEGMENT Urban Workspace Eastern Canada Central Canada Western Canada YEAR ENDED CHANGE DECEMBER 31, 2018 DECEMBER 31, 2017 $ % $68,555 25.2% $62,842 25 .1% $5,713 9 .1% 122,410 45.0% 110,928 44 .3% 11,482 10 .4% 32,182 11.8% 33,989 13 .6% (1,807) (5 .3)% Urban Workspace - Total 223,147 82.0% 207,759 83 .0% 15,388 7 .4% Urban Data Centres 49,138 18.0% 42,585 17 .0% 6,553 15 .4% NOI $272,285 100.0% $250,344 100 .0% $21,941 8 .8% 58 ALLIED 2018 ANNUAL REPORT YEAR ENDED CHANGE TYPE OF SPACE DECEMBER 31, 2018 DECEMBER 31, 2017 $ Urban Workspace - Office $188,629 69.4% $177,248 70 .8% $11,381 Urban Data Centres 49,138 18.0% 42,585 17 .0% Urban Workspace - Retail Urban Workspace - Parking 21,629 12,889 7.9% 4.7% 18,319 12,192 7 .3% 4 .9% 6,553 3,310 697 NOI $272,285 100.0% $250,344 100 .0% $21,941 % 6 .4% 15 .4% 18 .1% 5 .7% 8 .8% The increase in NOI for the year ended December 31, 2018, was primarily the result of increased occupancy in Montréal, rent and occupancy growth in Toronto, increased occupancy in the urban data centre properties (250 Front W and 905 King W), as well as contributions from recent acquisitions. SAME ASSET NOI Same asset NOI is a non-IFRS measure and refers to the NOI for those properties that Allied owned and operated for the entire period in question and for the same period in the prior year. Allied strives to maintain or increase same asset NOI over time. The same asset NOI in the table below refers to those investment properties that were owned by Allied from October 1, 2017, to December 31, 2018. The same asset NOI of the development portfolio for the three months ended December 31, 2018, consists of 425 Viger, Adelaide & Duncan, College & Palmerston (including 547 College), King Portland Centre (including 642 King), KING Toronto, The Lougheed (604-1st SW), Le Nordelec, TELUS Sky, and The Well. 59 ALLIED 2018 ANNUAL REPORTTHREE MONTHS ENDED CHANGE DECEMBER 31, 2018 DECEMBER 31, 2017 $ % Urban Workspace Eastern Canada Central Canada Western Canada Urban Workspace Urban Data Centres Rental Portfolio - Same Asset NOI Urban Workspace Development Portfolio - Same Asset NOI $17,277 30,004 8,244 55,525 12,537 68,062 665 665 $14,248 $3,029 28,118 8,261 50,627 11,612 62,239 965 965 1,886 (17) 4,898 925 5,823 (300) (300) Total Portfolio - Same Asset NOI $68,727 $63,204 $5,523 21 .3% 6 .7% (0 .2)% 9 .7% 8 .0% 9 .4% (31 .1%) (31 .1%) 8 .7% Acquisitions Dispositions Non-recurring items and other NOI Amortization of improvement allowances Amortization of straight-line rents 781 251 612 $70,371 (7,788) 2,381 123 1,143 1,401 658 (892) (789) $65,871 $4,500 6 .8% (7,312) 2,731 (476) (350) $3,674 6 .0% Net rental income $64,964 $61,290 Same asset NOI of the total portfolio increased by 8.7% for the three months ended December 31, 2018. Same asset NOI of the rental portfolio increased by 9.4% primarily as a result of occupancy growth in Montréal, and rent and occupancy growth in Toronto. Same asset NOI of the development portfolio decreased by 31.1%, primarily as a result of the 50% disposition of KING Toronto. The same asset NOI in the table below refers to those investment properties that were owned by Allied from January 1, 2017, to December 31, 2018. The same asset NOI of the development portfolio for the year ended December 31, 2018, consists of 180 John, 189 Joseph, 425 Viger, 47 Front, Adelaide & Duncan, College & Palmerston (including 547 College), King Portland Centre (including 642 King), KING Toronto, The Lougheed (604-1st SW), Le Nordelec, TELUS Sky, and The Well. 60 ALLIED 2018 ANNUAL REPORT YEAR ENDED CHANGE DECEMBER 31, 2018 DECEMBER 31, 2017 $ % Urban Workspace Eastern Canada Central Canada Western Canada Urban Workspace Urban Data Centres Rental Portfolio - Same Asset NOI Urban Workspace Development Portfolio - Same Asset NOI $68,073 112,289 31,426 211,788 49,138 260,926 4,486 4,486 $58,150 105,301 32,130 195,581 42,585 238,166 5,208 5,208 $9,923 6,988 (704) 16,207 6,553 22,760 (722) (722) Total Portfolio - Same Asset NOI $265,412 $243,374 $22,038 Acquisitions Dispositions Non-recurring items and other 3,840 1,181 1,852 1,351 3,398 2,221 NOI $272,285 $250,344 Amortization of improvement allowances (28,819) (24,459) Amortization of straight-line rents 6,992 13,830 Net rental income $250,458 $239,715 2,489 (2,217) (369) $21,941 (4,360) (6,838) $10,743 17 .1% 6 .6% (2 .2)% 8 .3% 15 .4% 9 .6% (13 .9)% (13 .9)% 9 .1% 8 .8% 4 .5% Same asset NOI of the total portfolio increased by 9.1% for the year ended December 31, 2018. Same asset NOI of the rental portfolio increased by 9.6% as a result of occupancy growth in Montréal and rent growth in Toronto, Ottawa and Kitchener. Same asset NOI of the development portfolio decreased by 13.9% primarily as a result of the 50% disposition of KING Toronto. 61 ALLIED 2018 ANNUAL REPORT INTEREST EXPENSE For the three months and year ended December 31, 2018, excluding capitalized interest and the yield maintenance cost, interest expense decreased over the comparable period in 2017 due to a lower balance of mortgages payable. For the three months and year ended December 31, 2018, capitalized interest increased over the comparable period in 2017 with the continuation of development and upgrade activities across the portfolio. THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 Interest on debt: Mortgages payable Construction loans payable Unsecured Facility Unsecured Debentures Unsecured Term Loans Interest on finance lease obligations Amortization, premium (discount) on debt Amortization, net financing costs Less: Interest capitalized to qualifying investment properties and residential inventory Interest expense excluding yield maintenance cost Adjustment for yield maintenance cost due to early repayment $8,206 $11,712 $38,452 $49,050 697 581 5,466 2,652 2,065 (98) 423 395 264 5,416 2,405 1,980 (257) 451 2,187 2,779 21,714 9,838 8,292 (1,828) 1,746 1,050 1,622 19,477 9,679 7,288 (471) 1,926 $19,992 $22,366 $83,180 $89,621 (5,867) (5,178) (23,397) (20,356) $14,125 $17,188 $59,783 $69,265 — — 7,502 — Interest expense $14,125 $17,188 $67,285 $69,265 In accordance with IAS 23 - Borrowing Costs, interest may be capitalized on properties in connection with activity required to get the assets ready for their intended use (refer to note 2 (g) in Allied’s consolidated financial statements for the year ended December 31, 2018, for further details). This would include upgrade work as well as work completed in relation to a future development, such as obtaining zoning approval, completing site approval plans, engineering and architectural drawings. On completion of upgrade and development activity, the ability to capitalize interest expense ends, partially offsetting the positive impact of occupancy commencement. 62 ALLIED 2018 ANNUAL REPORT GENERAL AND ADMINISTRATIVE EXPENSES For the three months and year ended December 31, 2018, general and administrative expenses increased by $435 and $2,623, respectively, from the comparable periods in 2017. The increase is mainly due to higher salaries and related expenses. THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 Salaries and benefits $4,870 $4,178 $15,277 $13,705 Professional and directors fees Office and general expenses Capitalized to qualifying investment properties Total general and administrative expenses 814 566 $6,250 (1,030) $5,220 629 973 $5,780 (995) $4,785 2,801 2,823 $20,901 (3,842) $17,059 2,443 2,927 $19,075 (4,639) $14,436 OTHER FINANCIAL PERFORMANCE MEASURES FUNDS FROM OPERATIONS AND NORMALIZED FUNDS FROM OPERATIONS (“FFO” AND “NORMALIZED FFO”) FFO is a non-IFRS financial measure used by most Canadian real estate investment trusts and should not be considered as an alternative to net income or comprehensive income, cash flow from operating activities or any other measure prescribed under IFRS. While FFO does not have any standardized meaning prescribed by IFRS, the Real Property Association of Canada (“REALpac”) established a standardized definition of FFO. Management believes that this definition is followed by most Canadian real estate investment trusts and that it is a useful measure of cash available for distributions. Normalized FFO starts with the standardized definition of FFO and removes the effects of a one-time extraordinary item totaling $7,502 of yield maintenance cost incurred on the early repayment of the first mortgage on 151 Front W, Toronto. For the three months ended December 31, 2018, FFO totaled $0.535 per unit. This is an increase of $0.008 per unit, or 1.5%, over the comparable period in the prior year. The increase was primarily due to an increase in NOI, interest income, and a reduction in interest expense. For the year ended December 31, 2018, excluding a one-time extraordinary item of yield maintenance cost, Normalized FFO totaled $2.166 per unit. This is an increase of $0.039 per unit, or 1.8%, over the comparable period in the prior year. The increase was primarily due to an increase in NOI, interest income, and a reduction in interest expense. Allied initiated condominium pre-sales at KING Toronto, a 50/50 joint venture with Westbank, in the fourth quarter. The first three phases sold well, and the JV plans to release the fourth and final phase shortly. Allied incurred $1.5 million (at its share) of non-recurring marketing costs in connection with the pre-sales activity. (Marketing costs associated with merchant development are expensed when incurred.) The JV expects to initiate construction by year-end 2019. 63 ALLIED 2018 ANNUAL REPORT To ensure sufficient cash is retained to meet capital improvement and leasing objectives, Allied strives to maintain an appropriate Normalized FFO pay-out ratio, which is the ratio of actual distributions to Normalized FFO in a given period. For the three months and year ended December 31, 2018, the Normalized FFO pay-out ratio was 73.3% and 72.5%, respectively. ADJUSTED FUNDS FROM OPERATIONS AND NORMALIZED ADJUSTED FUNDS FROM OPERATIONS (“AFFO” AND “NORMALIZED AFFO”) AFFO is a non-IFRS financial measure used by most Canadian real estate investment trusts and should not be considered as an alternative to net income or comprehensive income, cash flow from operating activities or any other measure prescribed under IFRS. AFFO does not have any standardized meaning prescribed by IFRS. The Real Property Association of Canada (“REALpac”) established a standardized definition of AFFO in its February 2017 white paper. Management considers AFFO to be a useful measure of recurring economic earnings. The principal advantage of AFFO is that it starts from the standardized definition of FFO and takes account of regular maintenance capital expenditures and regular leasing expenditures while ignoring the impact of non-cash revenue. With the adoption of the February 2017 white paper, Allied added recoverable maintenance capital expenditures and incremental leasing costs related to regular leasing in order to comply with the white paper. As regular maintenance capital expenditures and regular leasing expenditures are not incurred evenly throughout a fiscal year, there can be volatility in AFFO on a quarterly basis. FFO is normalized for the year ended December 31, 2018, for a one-time extraordinary item totaling $7,502 of yield maintenance cost incurred on the early repayment of the first mortgage on 151 Front W, Toronto, resulting in Normalized AFFO. For the three months ended December 31, 2018, AFFO totaled $0.434 per unit. This represents an increase of $0.025 per unit, or 6.1%, over the comparable period in the prior year. Including the changes in FFO discussed above, AFFO per unit increased due to lower straight-line rent amortization as occupied space became economically productive. It also increased due to lower recoverable maintenance capital expenditures, partially offset by higher regular leasing expenditures and regular maintenance capital expenditures. For the year ended December 31, 2018, Normalized AFFO totaled $1.793 per unit. This represents an increase of $0.206 per unit, or 13.0%, over the comparable period in the prior year. Including the changes in Normalized FFO discussed above, Normalized AFFO per unit increased primarily due to lower straight-line rent amortization as occupied space became economically productive. It also increased due to lower regular maintenance and recoverable maintenance capital expenditures, partially offset by higher regular leasing expenditures. To ensure sufficient cash is retained to meet capital improvement and leasing objectives, Allied strives to maintain an appropriate Normalized AFFO pay-out ratio, which is the ratio of actual distributions to Normalized AFFO in a given period. For the three months and year ended December 31, 2018, the Normalized AFFO pay-out ratio was 90.3% and 87.6%, respectively. 64 ALLIED 2018 ANNUAL REPORTThe following table reconciles Allied’s net income to FFO and AFFO for the three months ended December 31, 2018, and December 31, 2017. RECONCILIATION OF FFO AND AFFO Net income and comprehensive income Adjustment to fair value of investment properties Adjustment to fair value of derivative instruments Loss on disposal of investment properties Incremental leasing costs Amortization of leasing costs and improvement allowances FFO Amortization of straight-line rents Regular leasing expenditures Regular maintenance capital expenditures Incremental leasing (related to regular leasing expenditures) Recoverable maintenance capital expenditures AFFO Weighted average number of Units Basic Diluted Per Unit - basic FFO AFFO Per Unit - diluted FFO AFFO Payout Ratio FFO AFFO THREE MONTHS ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 CHANGE $137,270 (100,074) 10,034 (1,007) 1,646 7,788 $55,657 (2,381) (4,372) (796) (1,152) (1,770) $45,186 $63,066 (26,260) (1,324) 2,561 1,437 9,571 $49,051 (2,731) (3,945) (310) (1,006) (2,987) $38,072 $74,204 (73,814) 11,358 (3,568) 209 (1,783) $6,606 350 (427) (486) (146) 1,217 $7,114 103,859,370 92,850,893 11,008,477 104,062,567 93,027,626 11,034,941 $0.536 $0.435 $0.535 $0.434 73.3% 90.3% $0 .528 $0 .410 $0 .527 $0 .409 72 .9% 93 .9% $0 .008 $0 .025 $0 .008 $0 .025 0 .4% (3 .6%) 65 ALLIED 2018 ANNUAL REPORT The following table reconciles Allied’s net income to FFO, Normalized FFO and Normalized AFFO for the year ended December 31, 2018, and December 31, 2017. YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 CHANGE Net income and comprehensive income Adjustment to fair value of investment properties Adjustment to fair value of derivative instruments Loss on disposal of investment properties Incremental leasing costs Amortization of leasing costs and improvement allowances FFO Add impact of other adjustments: One-time extraordinary item (1) Normalized FFO Amortization of straight-line rents Regular leasing expenditures Regular maintenance capital expenditures Incremental leasing (related to regular leasing expenditures) Recoverable maintenance capital expenditures Normalized AFFO Weighted average number of Units Basic Diluted Per Unit - basic FFO Normalized FFO Normalized AFFO Per Unit - diluted FFO Normalized FFO Normalized AFFO Payout Ratio FFO Normalized FFO Normalized AFFO $540,276 (375,849) 6,470 (1,007) 5,986 28,819 $204,695 7,502 $212,197 (6,992) (19,900) (1,524) (4,190) (3,946) $175,645 $357,959 (198,115) (13,889) 2,561 5,535 33,153 $187,204 — $187,204 (13,830) (17,956) (3,173) (3,875) (8,702) $182,317 (177,734) 20,359 (3,568) 451 (4,334) $17,491 7,502 $24,993 6,838 (1,944) 1,649 (315) 4,756 $139,668 $35,977 97,785,091 97,965,711 87,864,560 88,006,010 9,920,531 9,959,701 $2.093 $2.170 $1.796 $2.089 $2.166 $1.793 75.2% 72.5% 87.6% $2 .131 $2 .131 $1 .590 $2 .127 $2 .127 $1 .587 72 .2% 72 .2% 96 .8% $(0 .038) $0 .039 $0 .206 $(0 .038) $0 .039 $0 .206 3 .0% 0 .3% (9 .2%) (1) Allied normalized FFO and AFFO in Q2 2018 by excluding a one-time extraordinary item. 66 ALLIED 2018 ANNUAL REPORT The following table reconciles FFO, Normalized FFO and Normalized AFFO to cash flows from operating activities for the periods ended as indicated: THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 Cash flows from operating activities $70,810 $50,037 $239,381 $198,926 Add (deduct) impact of the following: Amortization of equipment and other assets Amortization of straight-line rents Amortization, (premium) discount on debt Amortization of finance lease obligations Non-cash interest expense Unit-compensation expense Change in other non-cash financing items (360) 2,381 98 69 4,962 (919) (423) (419) 2,731 257 (111) 5,264 (810) (549) (1,556) 6,992 1,828 68 892 (3,593) (1,918) (1,819) 13,830 471 190 (2,472) (3,233) (2,094) Change in other non-cash operating items (24,494) (12,581) (51,758) (25,925) Additions to residential inventory Incremental leasing costs 1,887 1,646 3,795 1,437 8,373 5,986 3,795 5,535 FFO $55,657 $49,051 $204,695 $187,204 One-time extraordinary item (1) — — 7,502 — Normalized FFO $55,657 $49,051 $212,197 $187,204 Amortization of straight-line rents Regular leasing expenditures Regular maintenance capital expenditures Incremental leasing (related to regular leasing expenditures) Recoverable maintenance capital expenditures (2,381) (4,372) (796) (1,152) (1,770) (2,731) (3,945) (310) (1,006) (2,987) (6,992) (19,900) (1,524) (4,190) (3,946) (13,830) (17,956) (3,173) (3,875) (8,702) Normalized AFFO $45,186 $38,072 $175,645 $139,668 (1) Allied normalized FFO and AFFO in Q2 2018 by excluding a one-time extraordinary item. 67 ALLIED 2018 ANNUAL REPORT CAPITAL EXPENDITURES Our portfolio requires ongoing maintenance capital expenditures and leasing expenditures. Leasing expenditures include the cost of in-suite or base-building improvements made in connection with the leasing of vacant space or the renewal or replacement of users occupying space covered by maturing leases, as well as improvement allowances and commissions paid in connection with the leasing of vacant space and the renewal or replacement of users occupying space covered by maturing leases. For the three months ended December 31, 2018, Allied incurred (i) $4,372 in regular leasing expenditures or $10.57 per leased square foot, (ii) $796 in regular maintenance capital expenditures and (iii) $1,770 of recoverable maintenance capital expenditures. For the year ended December 31, 2018, Allied incurred (i) $19,900 in regular leasing expenditures or $10.79 per leased square foot, (ii) $1,524 in regular maintenance capital expenditures and (iii) $3,946 of recoverable maintenance capital expenditures. For the three months and year ended December 31, 2018, Allied invested $94,809 and $238,740, respectively, of revenue enhancing capital into the rental and development portfolio to enhance its income-producing capability and in ongoing development activity. THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 Regular leasing expenditures Regular maintenance capital expenditures $4,372 $796 Recoverable maintenance capital expenditures $1,770 $3,945 $310 $2,987 $19,900 $1,524 $3,946 $17,956 $3,173 $8,702 Revenue-enhancing capital and development costs $94,809 $50,824 $238,740 $177,983 EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (“EBITDA”) EBITDA is a non-IFRS measure that is comprised of earnings before interest expense, income taxes, depreciation expense and amortization expense. Adjusted EBITDA, as defined by Allied, is a non-IFRS measure that is comprised of net earnings before interest expense, income taxes, depreciation expense and amortization expense, as well as gains and losses on disposal of investment properties and the fair value changes associated with investment properties and financial instruments. EBITDA is a metric that can be used to help determine Allied’s ability to service its debt, finance capital expenditures and provide distributions to its Unitholders. Additionally, Adjusted EBITDA removes the non-cash impact of the fair value changes and gains and losses on investment property dispositions. 68 ALLIED 2018 ANNUAL REPORTThe ratio of Net Debt to Adjusted EBITDA is included and calculated each period to provide information on the level of Allied’s debt versus Allied’s ability to service that debt. Adjusted EBITDA is used as part of this calculation as the fair value changes and gains and losses on investment property dispositions do not impact cash flow, which is a critical part of the measure. The following table reconciles Allied’s net income and comprehensive income to Adjusted EBITDA for the year ended December 31, 2018, and December 31, 2017. 69,265 1,819 8,694 24,459 (198,115) (13,889) THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 DECEMBER 31, 2018 DECEMBER 31, 2017 $137,270 $63,066 $540,276 $357,959 Net income and comprehensive income for the period Interest expense Amortization of equipment and other assets Amortization of leasing commissions Amortization of improvement allowances 14,125 360 — 7,788 17,188 419 2,259 7,312 67,285 1,556 — 28,819 Fair value (gain) on investment properties (100,074) (26,260) (375,849) Fair value loss (gain) on derivative instruments 10,034 (1,324) 6,470 (Gain) loss on disposal of investment properties Adjusted EBITDA (1,007) $68,496 2,561 (1,007) 2,561 $65,221 $267,550 $252,753 69 ALLIED 2018 ANNUAL REPORTSection VI —Historical Performance The following sets out summary information and financial results for the eight most recently completed fiscal quarters. 70 ALLIED 2018 ANNUAL REPORTQ4 2018 Q3 2018 Q2 2018 (1) Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Rental revenue from investment properties $112,889 $109,630 $106,983 $106,894 $107,709 $106,309 $103,134 $102,111 Property operating costs (47,925) (46,145) (45,540) (46,328) (46,419) (45,277) (43,493) (44,359) Net rental income $64,964 $63,485 $61,443 $60,566 $61,290 $61,032 $59,641 $57,752 Net income and comprehensive income Weighted average units (diluted) $137,270 $204,654 $113,652 $84,700 $63,066 $101,945 $113,081 $79,867 104,062,567 100,680,315 93,868,833 93,099,918 93,027,626 88,936,173 85,073,714 84,868,429 Distributions $40,817 $39,575 $37,210 $36,253 $35,754 $34,489 $32,506 $32,428 FFO $55,657 $55,253 $43,750 $50,035 $49,051 $47,799 $45,624 $44,730 FFO per unit (diluted) $0 .535 $0 .549 $0 .466 $0 .537 $0 .527 $0 .537 $0 .536 $0 .527 FFO pay-out ratio 73 .3% 71 .6% 85 .1% 72 .5% 72 .9% 72 .2% 71 .2% 72 .5% Normalized FFO (1) $55,657 $55,253 $51,252 $50,035 $49,051 $47,799 $45,624 $44,730 Normalized FFO per unit (diluted) Normalized FFO pay-out ratio $0 .535 $0 .549 $0 .546 $0 .537 $0 .527 $0 .537 $0 .536 $0 .527 73 .3% 71 .6% 72 .6% 72 .5% 72 .9% 72 .2% 71 .2% 72 .5% Normalized AFFO (1) $45,186 $47,034 $42,610 $40,815 $38,072 $33,897 $33,587 $34,112 Normalized AFFO per unit (diluted) Normalized AFFO pay-out ratio Net debt as a multiple of annualized adjusted EBITDA $0 .434 $0 .467 $0 .454 $0 .438 $0 .409 $0 .381 $0 .395 $0 .402 90 .3% 84 .1% 87 .3% 88 .8% 93 .9% 101 .7% 96 .8% 95 .1% 7 .1x 6 .3x 6 .8x 7 .7x 7 .5x 7 .3x 8 .2x 8 .1x Total indebtedness ratio 29 .4% 27 .6% 29 .9% 34 .0% 33 .8% 34 .3% 37 .3% 36 .6% Total rental GLA 11,192 10,953 10,940 10,929 11,268 11,818 11,805 11,747 Leased rental GLA 10,826 10,541 10,435 10,380 10,728 11,027 11,000 10,879 Leased area % 96 .7% 96 .2% 95 .4% 95 .0% 95 .2% 93 .3% 93 .2% 92 .6% (1) Allied normalized FFO and AFFO in Q2 2018 by excluding a one-time extraordinary item. Factors that cause variation from quarter to quarter include, but are not limited to, occupancy, cost of capital, same asset NOI, acquisition activity, leasing expenditures and maintenance capital expenditures. Allied’s commitment to the balance sheet is evidenced by the fact that net debt as a multiple of annualized adjusted EBITDA declined from 8.1x to 7.1x over the last eight quarters with the result that growth in normalized FFO per unit has been modest. 71 ALLIED 2018 ANNUAL REPORT Section VII — Accounting Estimates and Assumptions CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of the consolidated financial statements requires management to make judgments and estimates in applying Allied’s accounting policies that affect the reported amounts and disclosures made in the consolidated financial statements and accompanying notes. Critical accounting estimates and assumptions are discussed in Allied’s audited consolidated financial statements for the year ended December 31, 2018, and the notes contained therein. SIGNIFICANT ACCOUNTING POLICIES Accounting policies and any respective changes are discussed in Allied’s audited consolidated financial statements for the year ended December 31, 2018, and the notes contained therein. Furthermore, the future accounting policy changes as proposed by the International Accounting Standards Board (the “IASB”) are discussed in Allied’s consolidated financial statements for the year ended December 31, 2018, and notes contained therein. 72 ALLIED 2018 ANNUAL REPORTSection VIII —Disclosure Controls and Internal Controls Management maintains appropriate information systems, procedures and controls to provide reasonable assurance that information that is publicly disclosed is complete, reliable and timely. The Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”) evaluated, or caused to be evaluated under their direct supervision, the design and operating effectiveness of disclosure controls and procedures (as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) at December 31, 2018, and based on that evaluation, have concluded that such disclosure controls and procedures were appropriately designed and were operating effectively. Management is responsible for establishing adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The CEO and CFO evaluated, or caused to be evaluated under their direct supervision, the effectiveness of our internal control over financial reporting (as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) at December 31, 2018, using the COSO Internal Control - Independent Framework (2013), published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, the CEO and the CFO determined that our internal controls over financial reporting were appropriately designed and were operating effectively. No changes were made in our design of internal controls over financial reporting during the year ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. It should be noted that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance of control issues, including whether instances of fraud, if any, have been detected. These inherent limitations include, among other items: (i) that Management’s assumptions and judgments could ultimately prove to be incorrect under varying conditions and circumstances; (ii) the impact of any undetected errors; and (iii) that controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people, or by Management override. 73 ALLIED 2018 ANNUAL REPORTSection IX — Risks and Uncertainties There are certain risk factors inherent in the investment and ownership of real estate. Real estate investments are capital intensive, and success from real estate investments depends upon maintaining occupancy levels and rental income flows to generate acceptable returns. These success factors are dependent on general economic conditions and local real estate markets, demand for leased premises and competition from other available properties. Allied’s portfolio is focused on a particular asset class in seven metropolitan real estate markets in Canada. This focus enables Management to capitalize on certain economies of scale and competitive advantages that would not otherwise be available. 74 ALLIED 2018 ANNUAL REPORTFINANCING AND INTEREST RATE RISK Allied is subject to risk associated with debt financing. The availability of debt to re-finance existing and maturing loans and the cost of servicing such debt will influence Allied’s success. In order to minimize risk associated with debt financing, Allied strives to re-finance maturing loans with long-term fixed-rate debt and to stagger the maturities over time. Allied’s current debt-maturity schedule is set out below: Interest rates on total debt are between 2.83% and 5.58% with a weighted average interest rate of 3.96%. The weighted average term of our debt is 4.21 years. The aforementioned excludes the revolving Unsecured Facility and construction loans, refer to note 10(b) and (c) of the audited consolidated financial statements for further details. Allied is additionally subject to risk associated with equity financing. The ability to access the equity capital markets at appropriate points in time and at an acceptable cost will influence Allied’s success. In order to minimize the risk associated with equity financing, Allied engages in extensive investor relations activity with retail and institutional investors globally and strives to fix the cost of equity in conjunction with a clear use of proceeds. 75 ALLIED 2018 ANNUAL REPORTCREDIT RISK Allied is subject to credit risk arising from the possibility that users may not be able to fulfill their lease obligations. Allied strives to mitigate this risk by maintaining a diversified user-mix and limiting exposure to any single user. Allied’s exposure to top 10 users is 19.1% of gross revenue and the credit quality of our top 10 users continues to improve. As Allied has invested in mortgages to facilitate acquisitions, further credit risks arise in the event that borrowers default on the repayment of their mortgages to Allied. Allied’s mortgage investments will typically be subordinate to prior ranking mortgage or charges. Not all of Allied’s financing activities will translate into acquisitions. As at December 31, 2018, Allied had $200,289 in loans receivable and advances to developer, loaned to affiliates of a single private company. In the event of a large commercial real estate market correction, the fair market value of an underlying property may be unable to support the mortgage investment. Allied mitigates this risk by obtaining corporate guarantees and/or registered mortgage charges. LEASE ROLL-OVER RISK Allied is subject to lease roll-over risk. Lease roll-over risk arises from the possibility that Allied may experience difficulty renewing or replacing users occupying space covered by leases that mature. Allied strives to stagger its lease maturity schedule so that it is not faced with a disproportionately large level of lease maturities in a given year. Allied’s current lease maturity schedule is set out below: 76 ALLIED 2018 ANNUAL REPORTIn evaluating lease roll-over risk, it is informative to determine Allied’s sensitivity to a decline in occupancy. For every full-year decline of 100 basis points in occupancy at its average rental rate per square foot, Allied’s annual Normalized AFFO would decline by approximately $4,364 (approximately $0.045 per unit). The decline in Normalized AFFO per unit would be more pronounced if the decline in occupancy involved space leased above the average rental rate per square foot and less pronounced if the decline in occupancy involved space leased below the average rental rate per square foot. ENVIRONMENTAL AND CLIMATE CHANGE RISK As an owner of real estate, Allied is subject to various federal, provincial and municipal laws relating to environmental matters. Such laws provide that Allied could be liable for the costs of removal of certain hazardous substances and remediation of certain hazardous locations. The failure to remove or remediate such substances or locations, if any, could adversely affect Allied’s ability to sell such real estate or to borrow using such real estate as collateral and could potentially also result in claims against Allied. Allied is not aware of any material non-compliance with environmental laws at any of the properties. Allied is also not aware of any pending or threatened investigations or actions by environmental regulatory authorities in connection with any of the properties or any pending or threatened claims relating to environmental conditions at the properties. Allied will make the necessary capital and operating expenditures to ensure compliance with environmental laws and regulations. Although there can be no assurances, Allied does not believe that costs relating to environmental matters will have a material adverse effect on Allied’s business, financial condition or results of operation. However, environmental laws and regulations may change and Allied may become subject to more stringent environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have an adverse effect on Allied’s business, financial condition or results of operation. It is Allied’s operating policy to obtain a Phase I environmental assessment conducted by an independent and experienced environmental consultant prior to acquiring a property. Phase I environmental assessments have been performed in respect of all properties. Natural disasters and severe weather such as floods, blizzards and rising temperatures may result in damage to the properties. The extent of Allied’s casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. Allied is also exposed to risks associated with inclement winter weather, including increased need for maintenance and repair of its buildings. In addition, climate change, to the extent it causes changes in weather patterns, could have effects on Allied’s business by increasing the cost of property insurance, and/or energy at the properties. As a result, the consequences of natural disasters, severe weather and climate change could increase Allied’s costs and reduce Allied’s cash flow. DEVELOPMENT RISK As an owner of Properties Under Development, Allied is subject to development risks, such as construction delays, cost over-runs and the failure of users to take occupancy and pay rent in accordance with lease arrangements. In connection with all Properties Under Development, Allied incurs development costs prior to (and in anticipation of) achieving a stabilized level of rental revenue. In the case of the development of ancillary or surplus land, these risks are managed in most cases by not commencing construction until a satisfactory level of pre-leasing is achieved. Overall, these risks are managed through Allied’s Declaration, which states that the cost of development cannot exceed 15% of GBV. 77 ALLIED 2018 ANNUAL REPORTTAXATION RISK On June 22, 2007, specified investment flow through trusts or partnerships (“SIFT”) rules were introduced and changed the manner in which certain trusts are taxed. Certain distributions from a SIFT would not be deductible in computing the SIFT’s taxable income and therefore the distributions would be subject to trust entity level tax, at the general tax rate applicable to Canadian corporations. Trusts that meet the REIT exemption are not subject to SIFT rules. The determination as to whether Allied qualifies for the REIT exemption in a particular taxation year can only be made with certainty at the end of that taxation year. Asset tests need to be met at all times in the taxation year and revenue tests need to be met for the taxation year. While there is uncertainty surrounding the interpretation of the relevant provisions of the REIT exemption and application of SIFT rules, Allied expects that it will qualify for the REIT exemption. JOINT ARRANGEMENT RISK Allied has entered into various joint arrangements and partnerships with different entities. If these joint arrangements or partnerships do not perform as expected or default on financial obligations, Allied has an associated risk. Allied reduces this risk by seeking to negotiate contractual rights upon default, by entering into agreements with financially stable partners and by working with partners who have a successful record of completing development projects. CYBERSECURITY RISK The efficient operation of Allied’s business is dependent on computer hardware and software systems. Information systems are vulnerable to cybersecurity incidents. A cybersecurity incident is considered to be any material adverse event that threatens the confidentiality, integrity or availability of Allied’s information resources. A cybersecurity incident is an intentional attack or an unintentional event including, but not limited to, malicious software, attempts to gain unauthorized access to data or information systems, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. Allied’s primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to its reputation, damage to its business relationships with users, the disclosure of confidential information including personally identifiable information, potential liability to third parties, loss of revenue, additional regulatory scrutiny and fines, as well as litigation and other costs and expenses. Allied takes data privacy and protection seriously and has implemented processes, procedures and controls to help mitigate these risks. Access to personal data is controlled through physical security and IT security mechanisms. For information stored with or processed by third parties, Allied undertakes due diligence prior to working with them and uses contractual means to ensure compliance to standards set by Allied. Additionally, Allied monitors and assesses risks surrounding collection, usage, storage, protection, and retention/destruction practices of personal data. These measures, as well as its increased awareness of a risk of a cyber incident, do not guarantee that its financial results will not be negatively impacted by such an incident. REAL ESTATE RISK Allied is subject to the conventional risks associated with the ownership of real estate. Allied strives to mitigate these risks by remaining fully informed on best practices, trends and legislative and demographic changes in the commercial real estate markets within which we operate. Allied additionally strives to mitigate these risks by focusing intently on execution. 78 ALLIED 2018 ANNUAL REPORTSection X — Property Table Urban Workspace DECEMBER 31, 2018 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant Total Leased Leased % 28 Atlantic 32 Atlantic 47 Jefferson 64 Jefferson 905 King W College & Manning, 555 College (1) The Castle King West 141 Bathurst 183 Bathurst 241 Spadina 8,324 50,434 6,884 78,820 — — — — 46,832 6,593 24,634 1,996 146,223 35,614 362,151 44,203 10,271 — 24,845 5,600 24,612 6,675 379 Adelaide W 36,133 4,300 383 Adelaide W 387 Adelaide W 4,882 — — 6,081 420 Wellington W 33,813 3,137 425 Adelaide W 70,892 4,301 425-439 King W 82,897 7,855 441-443 King W 7,877 3,065 445-455 King W 27,435 22,335 460 King W 461 King W 468 King W 11,100 4,787 43,771 37,320 65,027 — — — — — — — — — — — — — — — — — — — — — — — 8,324 50,434 6,884 78,820 53,425 26,630 181,837 — — — — — 8,324 100 .0% 50,434 100 .0% 6,884 100 .0% 78,820 100 .0% 53,425 100 .0% — 26,630 100 .0% 16,195 165,642 91 .1% 406,354 3.6% 16,195 390,159 96.0% 10,271 30,445 31,287 40,433 4,882 6,081 36,950 75,193 90,752 10,942 49,770 15,887 81,091 65,027 — — — — — — — 10,271 100 .0% 30,445 100 .0% 31,287 100 .0% 40,433 100 .0% 4,882 100 .0% 6,081 100 .0% 36,950 100 .0% 1,026 74,167 98 .6% — — — — — — 90,752 100 .0% 10,942 100 .0% 49,770 100 .0% 15,887 100 .0% 81,091 100 .0% 65,027 100 .0% 79 ALLIED 2018 ANNUAL REPORT Urban Workspace DECEMBER 31, 2018 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant Total Leased Leased % 469 King W 478 King W (2) 485 King W 63,912 11,676 — 3,277 8,304 4,035 500-522 King W 78,271 43,079 552-560 King W 8,019 16,696 544 King W 17,006 — 555 Richmond W 255,412 41,580 579 Richmond W 662 King W 668 King W 28,515 33,580 — — 2,010 2,973 80-82 Spadina 60,076 16,009 96 Spadina 80,309 9,936 King Portland Centre, 602 King W (1) 16,098 11,268 King West Central 1,095,067 265,985 180 John 116 Simcoe 179 John 185 Spadina 200 Adelaide W 208-210 Adelaide W 39,375 6,256 14,349 68,606 55,814 26,685 11,592 — — — — — 217-225 Richmond W 31,820 21,670 257 Adelaide W 45,557 — 312 Adelaide W 62,825 7,942 331-333 Adelaide W 19,733 3,724 358-360 Adelaide W 52,405 — 375-381 Queen W 21,541 10,648 388 King W 82 Peter 99 Spadina 24,302 15,012 39,288 8,287 51,173 — Union Centre 10,736 29,239 QRC West Phase I 334,856 11,287 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 75,588 3,277 12,339 121,350 24,715 17,006 296,992 28,515 33,580 4,983 76,085 90,245 — — — — — — 75,588 100 .0% 3,277 100 .0% 12,339 100 .0% 121,350 100 .0% 24,715 100 .0% 17,006 100 .0% 1,158 295,834 99 .6% — — — — 28,515 100 .0% 33,580 100 .0% 4,983 100 .0% 76,085 100 .0% 575 89,670 99 .4% 27,366 5,673 21,693 79 .3% 1,361,052 12.2% 8,432 1,352,620 99.4% 45,631 14,349 68,606 55,814 26,685 11,592 53,490 45,557 70,767 23,457 52,405 32,189 39,314 47,575 51,173 39,975 — — — — — — — — 45,631 100 .0% 14,349 100 .0% 68,606 100 .0% 55,814 100 .0% 26,685 100 .0% 11,592 100 .0% 53,490 100 .0% 45,557 100 .0% 2,350 68,417 96 .7% — — 23,457 100 .0% 52,405 100 .0% 3,000 29,189 90 .7% 1,341 37,973 96 .6% — — 47,575 100 .0% 51,173 100 .0% 3,736 36,239 90 .7% 346,143 — 346,143 100 .0% Entertainment District 910,657 114,065 — 1,024,722 9.2% 10,427 1,014,295 99.0% 80 ALLIED 2018 ANNUAL REPORT Urban Workspace DECEMBER 31, 2018 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant Total Leased Leased % 193 Yonge Downtown 56 Esplanade 70 Esplanade 106 Front E 35-39 Front E 34,349 16,318 34,349 16,318 56,400 19,575 19,192 5,767 24,035 10,373 31,101 13,804 36-40 Wellington E 13,513 9,893 41-45 Front E 47 Front E 20,957 14,079 7,065 4,337 45-55 Colborne 28,625 13,986 49 Front E 9,370 10,441 50 Wellington E 21,951 11,049 60 Adelaide E 106,048 4,608 184 Front E 81,203 6,489 St. Lawrence Market 419,460 124,401 137 George 750 750 204-214 King E 126,341 2,699 230 Richmond E 252-264 Adelaide E 489 Queen E 70 Richmond Dominion Square QRC East QRC South 72,861 47,674 32,208 35,181 111,857 — — — — — 179,435 34,715 44,024 — Queen Richmond 650,331 38,164 — — — — — — — — — — — — — — — — — — — — — — — — — 50,667 50,667 0.5% — — 50,667 100 .0% 50,667 100.0% 75,975 24,959 34,408 44,905 23,406 35,036 11,402 42,611 19,811 33,000 110,656 87,692 2,511 73,464 96 .7% — — — — — — 24,959 100 .0% 34,408 100 .0% 44,905 100 .0% 23,406 100 .0% 35,036 100 .0% 11,402 100 .0% 3,718 38,893 91 .3% — — 19,811 100 .0% 33,000 100 .0% 4,347 106,309 96 .1% — 87,692 100 .0% 543,861 4.9% 10,576 533,285 98.1% 1,500 129,040 72,861 47,674 32,208 35,181 111,857 214,150 44,024 1,500 — —% — — — — — 129,040 100 .0% 72,861 100 .0% 47,674 100 .0% 32,208 100 .0% 35,181 100 .0% 14,933 96,924 86 .6% — 214,150 100 .0% 1,185 42,839 97 .3% 688,495 6.2% 17,618 670,877 97.4% Toronto 3,472,015 603,136 — 4,075,151 36.4% 63,248 4,011,903 98.4% 189 Joseph 72 Victoria Breithaupt Phase I (3) Breithaupt Phase II (3) The Tannery Kitchener 26,462 90,428 66,559 46,846 — — — — 254,941 73,779 485,236 73,779 — — — — — — 26,462 90,428 66,559 46,846 328,720 — 26,462 100 .0% 865 89,563 99 .0% — — 66,559 100 .0% 46,846 100 .0% 5,835 322,885 98 .2% 559,015 5.0% 6,700 552,315 98.8% Central Canada 3,957,251 676,915 — 4,634,166 41.4% 69,948 4,564,218 98.5% 81 ALLIED 2018 ANNUAL REPORT Urban Workspace DECEMBER 31, 2018 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant Total Leased Leased % The Chambers 210,238 10,945 Ottawa 210,238 10,945 3510 Saint-Laurent 82,633 16,223 3575 Saint-Laurent 168,128 18,410 400 Atlantic 86,273 292 4446 Saint-Laurent 72,710 7,281 451-481 Saint-Catherine 22,297 8,510 480 Saint-Laurent 47,543 7,217 5445 Gaspé 5455 Gaspé 480,008 486,029 955 904 5505 Saint-Laurent 248,822 2,524 6300 Parc 181,225 1,310 644 Courcelle 149,709 4,355 645 Wellington 131,266 3,773 740 Saint-Maurice 68,044 — 8 Place du Commerce 40,702 16,694 85 Saint-Paul 80,264 — Cité Multimédia 935,884 8,176 809,664 10,139 Le Nordelec Montréal — — — — — — — — — — — — — — — — — — — 221,183 2,499 218,684 98 .9% 221,183 2.0% 2,499 218,684 98.9% 98,856 186,538 86,565 79,991 30,807 54,760 480,963 486,933 251,346 182,535 154,064 135,039 68,044 57,396 80,264 944,060 819,803 7,166 91,690 92 .8% 13,188 173,350 92 .9% 4,433 82,132 94 .9% 7,623 72,368 90 .5% 2,350 28,457 92 .4% 7,727 47,033 85 .9% 11,301 469,662 97 .7% 3,235 483,698 99 .3% — 251,346 100 .0% 5,092 177,443 97 .2% 10,078 143,986 93 .5% — — — 135,039 100 .0% 68,044 100 .0% 57,396 100 .0% 2,869 77,395 96 .4% 12,380 931,680 98 .7% 23,748 796,055 97 .1% 4,091,201 106,763 — 4,197,964 37.5% 111,190 4,086,774 97.4% Eastern Canada 4,301,439 117,708 — 4,419,147 39.5% 113,689 4,305,458 97.4% 100-6th SW 119-6th SW 1207-1215 13th SE 1240-20th SE 129-8th SW 209-8th SW 237-8th SE 34,242 62,650 32,015 44,885 — — — — 2,339 4,591 27,118 5,022 65,727 8,581 322-326 11th SW 197,068 15,660 402-11th SE 438-11th SE 39,537 52,489 — — 601-611 10th SW 46,319 2,455 — — — — — — — — — — — 34,242 62,650 32,015 44,885 6,930 32,140 74,308 212,728 39,537 52,489 48,774 — — — — — — 34,242 100 .0% 62,650 100 .0% 32,015 100 .0% 44,885 100 .0% 6,930 100 .0% 32,140 100 .0% 1,160 73,148 98 .4% 7,877 204,851 96 .3% — — 39,537 100 .0% 52,489 100 .0% 5,365 43,409 89 .0% 82 ALLIED 2018 ANNUAL REPORT Urban Workspace DECEMBER 31, 2018 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant Total Leased Leased % 603-605 11th SW 21,853 29,207 613-11th SW 617-11th SW 625-11th SW — 3,163 2,986 6,306 32,481 1,410 731-10th SW (4) — 10,433 805-1st SW 808-1st SW 9,135 18,874 17,566 29,902 809-10th SW 35,704 — 802-838 11th SW (4) 9,990 23,287 Demcor Building 39,674 — Calgary 773,778 158,891 Boardwalk & Revillon Building 220,092 45,442 Edmonton 220,092 45,442 128 West Pender 78,323 1,693 151 West Hastings 38,512 — 342 Water 840 Cambie 18,338 2,886 91,437 — 948-950 Homer 34,473 10,399 1040 Hamilton 36,108 8,765 1220 Homer 1286 Homer 21,708 — 15,919 9,115 — — — — — — — — — — — — — — — — — — — — — 51,060 3,163 9,292 33,891 10,433 28,009 47,468 35,704 33,277 39,674 16,395 34,665 67 .9% — 3,163 100 .0% 2,403 6,889 74 .1% 9,208 24,683 72 .8% — 10,433 100 .0% 2,057 25,952 92 .7% 9,949 37,519 79 .0% 5,278 30,426 85 .2% 8,989 24,288 73 .0% 5,728 33,946 85 .6% 932,669 8.3% 74,409 858,260 92.0% 265,534 3,700 261,834 98 .6% 265,534 2.4% 3,700 261,834 98.6% 80,016 38,512 21,224 91,437 44,872 44,873 21,708 25,034 9,149 70,867 88 .6% — 38,512 100 .0% 2,972 18,252 86 .0% — — — — — 91,437 100 .0% 44,872 100 .0% 44,873 100 .0% 21,708 100 .0% 25,034 100 .0% Vancouver 334,818 32,858 — 367,676 3.3% 12,121 355,555 96.7% Western Canada 1,328,688 237,191 — 1,565,879 14.0% 90,230 1,475,649 94.2% Total Office and Retail 9,587,378 1,031,814 — 10,619,192 94.9% 273,867 10,345,325 97.4% 905 King W 151 Front W 250 Front W Urban Data Centres Total Rental Portfolio, Excluding PUD Transfers — — — — — — — — 57,339 57,339 4,038 53,301 93 .0% 275,709 275,709 4,387 271,322 98 .4% 173,000 173,000 67,000 106,000 61 .3% 506,048 506,048 4.5% 75,425 430,623 85.1% 9,587,378 1,031,814 506,048 11,125,240 99.4% 349,292 10,775,948 96.9% 83 ALLIED 2018 ANNUAL REPORT Urban Workspace DECEMBER 31, 2018 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant Total Leased Leased % 642 King W (1) 491 College (1) 7,030 5,276 8,851 3,717 1700 St . Patrick — 41,764 — — — 12,306 12,568 41,764 — — 12,306 100 .0% 12,568 100 .0% 16,225 25,539 61 .2% Total Rental Portfolio, Including PUD Transfers 9,603,259 1,082,571 506,048 11,191,878 100% 365,517 10,826,361 96.7% Note that the table above does not include 159-161 Bathurst and 589-591 Richmond W as they are considered ancillary residential properties, totaling approximately 9,600 square feet. They are however included in the property count. (1) RioCan/Allied Joint Arrangement (2) Lifetime/Allied Joint Arrangement (3) Perimeter/Allied Joint Arrangement (4) First Capital/Allied Joint Arrangement 84 ALLIED 2018 ANNUAL REPORT PROPERTIES UNDER DEVELOPMENT ESTIMATED GLA ON COMPLETION (SF) King Portland Centre, Toronto (1) TELUS Sky, Calgary (2) 425 Viger, Montréal The Lougheed (604-1st SW), Calgary College & Manning, 547-549 College, Toronto (1) Adelaide & Duncan, Toronto (3) The Well, Toronto (4) KING Toronto, Toronto (3)(5) Total Development Portfolio 136,320 218,000 315,000 92,600 27,000 228,000 746,000 115,000 1,877,920 (1) RioCan/Allied Joint Arrangement (2) Telus/Westbank/Allied Joint Arrangement (3) Westbank/Allied Joint Arrangement (4) Each of Allied and RioCan own an undivided 50% interest with an estimated total GLA of 3,100,000 square feet. The GLA components (in square feet) at our 50% share will be as follows: approximately 534,000 of office, 212,000 of retail, and the remaining is related to residential air rights. The air rights were sold by the co-ownership as previously announced, with closing expected to occur by 2021. (5) Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied sold a 50% undivided interest to Westbank. KING Toronto is comprised of the following properties: 489 King W, 495 King W, 499 King W, 511-529 King W, 533 King W and 539 King W. The GLA components (in square feet) at our 50% share will be as follows: 30,000 of office and 85,000 of retail. ANCILLARY PARKING FACILITIES NUMBER OF SPACES 7-9 Morrison, Toronto 15 Brant, Toronto 78 Spadina, Toronto 105 George, Toronto 301 Markham, Toronto 305 Joseph, Kitchener (1) 388 Richmond, Toronto 464 King, Toronto 478 King, Toronto (2) 560 King, Toronto 650 King, Toronto Total Parking (1) Perimeter/Allied Joint Arrangement (2) Lifetime/Allied Joint Arrangement 25 203 39 15 47 75 121 12 65 171 71 844 85 ALLIED 2018 ANNUAL REPORT Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017 86 ALLIED 2018 ANNUAL REPORTManagement’s Statement of Responsibility for Financial Reporting The accompanying consolidated financial statements, management’s discussion and analysis of results of operations and financial condition and the annual report are the responsibility of the Management of Allied Properties Real Estate Investment Trust (“Allied”). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and where appropriate, include amounts which are based on judgments, estimates and assumptions of Management. Management has developed and maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition, and liabilities are recognized. The Board of Trustees (the “Board”) is responsible for ensuring that Management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its Audit Committee (the “Committee”), which is comprised entirely of independent trustees. The Committee reviews the consolidated financial statements with both Management and the independent auditors. The Committee reports its findings to the Board, which approves the consolidated financial statements before they are submitted to the Unitholders of Allied. Deloitte LLP (the “Auditors”), the independent auditors of Allied, have audited the consolidated financial statements of Allied in accordance with Canadian generally accepted auditing standards to enable them to express to the Unitholders their opinion on the consolidated financial statements. The Auditors have direct and full access to, and meet periodically with the Committee, both with and without Management present. Michael R. Emory PRESIDENT AND CHIEF EXECUTIVE OFFICER Cecilia C. Williams, CPA, CA EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 87 ALLIED 2018 ANNUAL REPORT Independent Auditor’s Report TO THE UNITHOLDERS OF ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST OPINION We have audited the consolidated financial statements of Allied Properties Real Estate Investment Trust and its subsidiaries (the “Trust”), which comprise the consolidated balance sheets as at December 31, 2018 and 2017, and the consolidated statements of income and comprehensive income, unitholders’ equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Trust as at December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”). BASIS FOR OPINION We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. OTHER INFORMATION Management is responsible for the other information. The other information comprises: • Management’s Discussion and Analysis of Results of Operations and Financial Condition • The information, other than the financial statements and our auditor’s report thereon, in the Annual Report. 88 ALLIED 2018 ANNUAL REPORTOur opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis of Results of Operations and Financial Condition and the Annual Report prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Trust’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Trust or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Trust’s financial reporting process. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 89 ALLIED 2018 ANNUAL REPORTAs part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Trust’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Trust to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Trust to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Antonio Ciciretto. /s/ Deloitte LLP CHARTERED PROFESSIONAL ACCOUNTANTS LICENSED PUBLIC ACCOUNTANTS TORONTO, ONTARIO FEBRUARY 13, 2019 90 ALLIED 2018 ANNUAL REPORTALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2018 AND DECEMBER 31, 2017 (in thousands of Canadian dollars) NOTES DECEMBER 31, 2018 DECEMBER 31, 2017 Assets Non-current assets Investment properties Residential inventory Loans and notes receivable Other assets Current assets Cash and cash equivalents Loans and notes receivable Accounts receivable, prepaid expenses and deposits Residential Inventory Total assets Liabilities Non-current liabilities Debt Finance lease obligations Current liabilities Debt Accounts payable and other liabilities Total liabilities Unitholders’ equity Total liabilities and Unitholders’ equity 5 6 7 8 19 7 9 6 10 11 10 12 Commitments and Contingencies (note 25) The accompanying notes are an integral part of these consolidated financial statements. $6,257,647 $5,627,439 103,690 202,367 28,518 28,239 90,613 12,593 6,592,222 5,758,884 18,361 11,077 47,999 36,612 114,049 $6,706,271 $1,850,621 156,663 2,007,284 106,990 217,334 324,324 2,331,608 4,374,663 $6,706,271 6,048 11,628 47,072 — 64,748 $5,823,632 $1,705,526 154,871 1,860,397 254,351 159,862 414,213 2,274,610 3,549,022 $5,823,632 Gordon Cunningham TRUSTEE Michael R. Emory TRUSTEE 91 ALLIED 2018 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2018 AND 2017 (in thousands of Canadian dollars, except unit and per unit amounts) NOTES DECEMBER 31, 2018 DECEMBER 31, 2017 YEAR ENDED Rental revenue from investment properties 17 Property operating costs Net rental income Interest expense General and administrative expenses Condominium marketing expenses 10 (f) 18 Amortization of other assets and leasing costs 5 & 8 Interest income Fair value gain on investment properties 5 Fair value (loss) gain on derivative instruments 13, 24 (d) Gain (loss) on disposal of investment properties $436,396 (185,938) 250,458 (67,285) (17,059) (1,609) (1,556) 6,941 375,849 (6,470) 1,007 $419,263 (179,548) 239,715 (69,265) (14,436) — (10,513) 3,015 198,115 13,889 (2,561) Net income and comprehensive income $540,276 $357,959 Income per unit Basic Diluted Weighted average number of Units 16 Basic Diluted The accompanying notes are an integral part of these consolidated financial statements. $5.53 $5.51 97,785,091 97,965,711 $4 .07 $4 .07 87,864,560 88,006,010 92 ALLIED 2018 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF UNITHOLDERS’ EQUITY FOR THE YEAR ENDED DECEMBER 31, 2018 AND 2017 (in thousands of Canadian dollars) NOTES TRUST UNITS RETAINED EARNINGS CONTRIBUTED SURPLUS TOTAL Balance at January 1, 2017 14 $2,098,267 $911,832 $11,407 $3,021,506 Net income and comprehensive income — 357,959 Unit offering (net of issuance costs) 14 287,701 — Distributions — (135,177) Unit option plan – options exercised Contributed surplus – Unit option plan Restricted Unit plan (net of forfeitures) 15 (a) 15 (a) 15 (b) Long-term incentive plan 15,948 — (2,173) 72 Purchase of Units under normal course issuer bid for cancellation 14 (47) — — — — — — — — — 1,466 1,767 — — 357,959 287,701 (135,177) 15,948 1,466 (406) 72 (47) Balance at December 31, 2017 $2,399,768 $1,134,614 $14,640 $3,549,022 (in thousands of Canadian dollars) NOTES TRUST UNITS RETAINED EARNINGS CONTRIBUTED SURPLUS TOTAL Balance at January 1, 2018 14 $2,399,768 $1,134,614 $14,640 $3,549,022 Net income and comprehensive income — 540,276 Unit offering (net of issuance costs) 14 435,168 — Distributions — (153,855) Unit option plan – options exercised Contributed surplus – Unit option plan Restricted Unit plan (net of forfeitures) 15 (a) 15 (a) 15 (b) 3,043 — (2,584) — — — — — — — 1,346 2,247 540,276 435,168 (153,855) 3,043 1,346 (337) Balance at December 31, 2018 $2,835,395 $1,521,035 $18,233 $4,374,663 The accompanying notes are an integral part of these consolidated financial statements. 93 ALLIED 2018 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2018 AND 2017 (in thousands of Canadian dollars) NOTES DECEMBER 31, 2018 DECEMBER 31, 2017 YEAR ENDED Operating activities Net income for the year Fair value (gain) on investment properties Fair value (gain) loss on derivative instruments (Gain) loss on disposal of investment properties Interest expense Interest paid (excluding capitalized interest) Amortization of equipment and other assets Amortization of leasing commissions Amortization of improvement allowances Amortization of straight-line rents 5 24 (d) 10 (f) 19, 5 8 5 5 5 Amortization of premium (discount) on debt 10 (f) Amortization of finance lease obligations Unit compensation expense Additions to residential inventory Change in other non-cash financing items Change in other non-cash operating items Cash provided by operating activities Financing activities 15 19 $540,276 (375,849) 6,470 (1,007) 67,285 (68,177) 1,556 — 28,819 (6,992) (1,828) (68) 3,593 (8,373) 1,918 51,758 239,381 $357,959 (198,115) (13,889) 2,561 69,265 (66,793) 1,819 8,694 24,459 (13,830) (471) (190) 3,233 (3,795) 2,094 25,925 198,926 Repayment of mortgages payable (213,653) (155,685) Proceeds from senior unsecured debentures (net of financing costs) Proceeds from unsecured term loan (net of financing costs) Principal payments of finance lease obligations Distributions paid to Unitholders Proceeds of Unit offering (net of issuance costs) Proceeds from exercise of Unit options Proceeds from Units issued under the LTIP Purchase of Units under normal course issuer bid for cancellation 10 (d) 10 (e) 14 14, 15 14 14 Restricted Unit Plan (net of forfeitures) 14, 15 Proceeds from notes receivables Drawings from Unsecured Revolving Operating Facility 10 (c) 94 — 198,825 99,190 (24) (152,123) 435,168 3,043 — — (2,584) 575 470,000 — (22) (133,900) 287,701 15,948 72 (47) (2,173) 1,073 167,000 ALLIED 2018 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2018 AND 2017 - continued (in thousands of Canadian dollars) NOTES DECEMBER 31, 2018 DECEMBER 31, 2017 Repayments of Unsecured Revolving Operating Facility 10 (c) (400,000) (189,000) YEAR ENDED Proceeds from construction loan 10 (b) Financing costs Loan receivable issued to third-party 4, 7 (a) Cash provided by financing activities Investing activities Acquisition of investment properties Additions to investment properties (including capitalized interest) Net proceeds on disposition of investment properties Additions to equipment and other assets Leasing commissions Improvement allowances Cash used in investing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 4 5 4 8 5 5 Supplemental cash flow information (note 19) The accompanying notes are an integral part of these consolidated financial statements. 24,151 (719) (44,943) 218,081 25,702 — (67,143) 148,351 (123,279) (111,700) (244,210) — (2,613) (21,023) (54,024) (445,149) 12,313 6,048 $18,361 (189,858) 30,710 (595) (7,793) (74,186) (353,422) (6,145) 12,193 $6,048 95 ALLIED 2018 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 AND 2017 (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER UNIT AND UNIT AMOUNTS) 1. NATURE OF OPERATIONS Allied Properties Real Estate Investment Trust (“Allied”) is a Canadian unincorporated closed-end real estate investment trust created pursuant to the Declaration of Trust dated October 25, 2002, most recently amended May 12, 2016. Allied is governed by the laws of the Province of Ontario and began operations on February 19, 2003. The Units of Allied are traded on the Toronto Stock Exchange and are traded under the symbol “AP.UN”. Allied is domiciled in Ontario, Canada. The address of Allied’s registered office and its principal place of business is 134 Peter Street, Suite 1700, Toronto, Ontario, M5V 2H2. 2. SIGNIFICANT ACCOUNTING POLICIES (A) Statement of compliance The consolidated financial statements of Allied for the year ended December 31, 2018, and 2017, are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The policies set out below were consistently applied to all the years presented unless otherwise noted. The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting judgments, estimates and assumptions that affect the amounts reported. Allied’s basis for applying judgments, estimates and assumptions to its accounting policies are described in note 2 and 3 below. The consolidated financial statements for the year ended December 31, 2018, and 2017, were approved and authorized for issue by the Board of Trustees on February 13, 2019. (B) Basis of presentation The consolidated financial statements have been prepared on a historical cost basis except for the following items that were measured at fair value: - - investment properties as described in note 2 (d) and note 5; and interest rate swaps as described in note 2 (i). The consolidated financial statements are presented in Canadian dollars, which is Allied’s functional currency, and all amounts are rounded to the nearest thousand, unless otherwise indicated. 96 ALLIED 2018 ANNUAL REPORTThe preparation of these consolidated financial statements requires Allied to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates, which, by their nature, are uncertain. The impact of such estimates is pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods. Significant estimates and assumptions include the fair values assigned to investment properties, interest rate derivative contracts, and allowances for doubtful accounts. (C) Basis of consolidation The consolidated financial statements comprise the financial statements of Allied and its subsidiaries. Subsidiaries are all entities over which Allied has control, where control is defined as the power to direct the relevant activities of an entity so as to obtain benefit from its activities. Control exists when a parent company is exposed to, or has rights to, variable returns from the subsidiaries and has the ability to affect those returns through its power. Subsidiaries are consolidated from the date control is transferred to Allied, and are de-consolidated from the date control ceases. Intercompany transactions between subsidiaries are eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Allied. All subsidiaries have a reporting date of December 31. (D) Investment properties At the time of acquisition of a property, Allied applies judgment when determining if the acquisition is an asset acquisition or a business combination. Allied classifies its acquisitions as asset acquisitions when it acquires properties or a portfolio of properties and it has not assumed any employees or acquired an operating platform. Investment properties include rental properties and properties under development that are owned by Allied, or leased by Allied as a lessee under a finance lease, to earn rental revenue and/or for capital appreciation. Investment properties are accounted for using the fair value model. Rental income and operating expenses from investment properties are reported within ‘revenues’ and ‘expenses’ respectively. Where Allied has concluded an acquisition of an asset, Allied uses the asset purchase model whereby the initial cost of an investment property is comprised of its purchase price and any directly attributable expenditures. Directly attributable expenditures include transaction costs such as due diligence costs, appraisal fees, environmental fees, legal fees, land transfer taxes, and brokerage fees. 97 ALLIED 2018 ANNUAL REPORTInvestment properties are externally appraised quarterly and are reported in the consolidated balance sheets at their fair values. Fair value is based on valuations prepared by a nationally recognized and qualified independent professional appraiser with sufficient experience with respect to both the geographic location and the nature of the investment property and supported by market evidence. Any gain or loss resulting from a change in the fair value of an investment property is immediately recognized in the Consolidated Statements of Income and Comprehensive Income. The fair value of each investment property is based upon, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions at the balance sheet date, less future estimated cash outflows in respect of such properties. The independent professional appraiser engaged by Allied predominantly uses the discounted cash flow method to determine fair value, whereby the income and expenses are projected over the anticipated term of the investment and combined with a terminal value, all of which is discounted using an appropriate discount rate. Properties under development are measured using both a comparable sales method and a discounted cash flow method, net of costs to complete, as of the balance sheet date. For further details on methods used, refer to note 5. Valuations of investment properties are most sensitive to changes in discount rates and capitalization rates. Allied has applied judgment based on the extent that costs are incurred to enhance the service potential of the property in determining whether certain costs are additions to the carrying amount of investment properties or will be expensed. Allied has applied judgment when reporting its properties under development. The cost of properties under development includes the acquisition cost of the property, direct development costs, realty taxes and borrowing costs attributable to the development. See 2 (g) below for further information regarding Allied’s accounting for borrowing costs. (E) Joint Arrangements Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities relating to the arrangement, whereas a joint venture is a joint arrangement whereby the parties that have joint control only have rights to the net assets of the arrangement. A joint operation usually results from direct interests in the assets and liabilities of an investee rather than through the establishment of a separate legal entity. None of the parties involved have unilateral control of a joint operation. Allied accounts for its joint arrangements as joint operations wherein it records its share of the assets, liabilities, revenue and expenses of the joint operations. 98 ALLIED 2018 ANNUAL REPORT(F) Revenue Recognition Allied has retained substantially all of the risks and benefits of ownership of its investment properties and as such accounts for its leases with tenants as operating leases. Revenue from investment properties include rents from tenants under leases, property tax and operating cost recoveries, percentage participation rents, lease cancellation fees, parking income and other income. Rents from tenants may include free rent periods and rental increases over the term of the lease and are recognized in revenue on a straight-line basis over the term of the lease. The difference between revenue recognized and the cash received is included in investment properties as straight-line rents receivable. Lease incentives provided to tenants are deferred and amortized on a straight-line basis against revenue over the term of the lease. Recoveries from tenants are recognized as revenue in the period in which the applicable costs are incurred. Percentage participation rents are recognized after the minimum sales level has been achieved with each lease, where applicable. Lease cancellation fees are recognized as revenue once an agreement is completed with the tenant to terminate the lease and the collectability is reasonably assured. Other income is recognized upon provision of goods or services when collectability is reasonably assured. Contracts with customers for residential condominium units generally include one distinct performance obligation. Revenue is measured at the transaction price agreed under the contract, and is recognized at the point in time in which control over the property has been transferred. Customer deposits received are held in trust and restricted for use. (G) Borrowing Costs Borrowing costs directly attributable to acquiring or constructing a qualifying investment property are capitalized. Capitalization commences when the activities necessary to prepare an asset for development or redevelopment begin, and ceases once the asset is substantially complete, or is suspended if the development of the asset is suspended. The amount of borrowing costs capitalized is determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments. Where borrowings are associated with specific developments, the amount capitalized is the gross costs incurred on those borrowings. The capitalization of borrowing costs is suspended if there are prolonged periods when development activity is interrupted. 99 ALLIED 2018 ANNUAL REPORT(H) Other Assets Computer and office equipment and owner occupied property are included in other assets and are stated at cost less accumulated amortization and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Allied records amortization expense on a straight-line basis over the assets’ estimated useful life which is generally three to seven years. The assets’ residual values and useful lives are reviewed annually or if expectations differ from previous estimates, and adjusted if appropriate. When events and circumstances indicate an asset may be impaired, the carrying amount is written down immediately to its recoverable amount (defined as the higher of an asset’s fair value less costs to sell and its value in use). (I) Financial Instruments Cash and cash equivalents include cash on hand, balances with banks and short-term deposits with original maturities of three months or less. Mortgages payable consists of the legal liabilities owing pursuant to loans secured by mortgages and premiums and discounts recognized on loans assumed on acquisition of properties, netted against the transaction costs, and the effective interest method of amortization is applied to the premiums, discounts and transaction costs. The following table describes Allied’s classification and measurement of its financial assets and liabilities: ASSET/LIABILITY CLASSIFICATION MEASUREMENT Loans and notes receivable Cash and cash equivalents Accounts receivable Debt Loans and receivables Amortized cost Loans and receivables Amortized cost Loans and receivables Amortized cost Other financial liabilities Amortized cost Finance lease obligations Other financial liabilities Amortized cost Accounts payable and other liabilities Other financial liabilities Amortized cost Interest rate swaps Fair value through profit or loss Fair value Allied designated its accounts receivable, loans and notes receivable, and cash and cash equivalents as loans and receivables; its debt, finance lease obligations, and accounts payable and other liabilities as other financial liabilities. All derivatives, including embedded derivatives, are classified as at fair value through profit or loss and are recorded on the consolidated balance sheet at fair value. At the end of each reporting period, Allied will reassess categorization between levels in the hierarchy to determine whether transfers have occurred. The reassessment is based on the lowest level input that is significant to the fair value measurement in its entirety. 100 ALLIED 2018 ANNUAL REPORTFINANCIAL ASSETS Financial assets are classified as loans and receivables or fair value through profit or loss. Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets or liabilities, with the exception of those classified as at fair value through profit or loss, are accounted for as part of the respective asset or liability’s carrying value at inception and amortized over the expected life of the financial instrument using the effective interest method. Transaction costs directly attributable to the acquisition or issuance of financial assets or liabilities classified as at fair value through profit or loss are recognized immediately in net income. Allied assesses, on a continual basis, whether there is objective evidence that a financial asset that is not carried at fair value through profit or loss is impaired based on changes in the credit risk of the financial asset since initial recognition. An impairment loss, which is the excess of the carrying amount over the fair value, is recognized if the present value of estimated future cash flows discounted at the original effective interest rate inherent in the loan is less than its carrying value and is measured as the difference between the two amounts. Impairments are recognized in the Consolidated Statements of Income and Comprehensive Income. FINANCIAL LIABILITIES Financial liabilities are classified and measured as disclosed in the table above. Financial liabilities are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest method, except for financial liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognized in profit or loss. Allied measures its debt, finance lease obligations, and accounts payable and other liabilities, at amortized cost using the effective interest method. All interest-related charges are reported in the Consolidated Statements of Income and Comprehensive Income and are included within ‘Interest expense’, except for those interest-related charges capitalized to qualifying properties under development or rental properties. From time to time, Allied uses derivative financial instruments to manage risks from fluctuations in interest rates. All derivative instruments, including embedded derivatives that must be separately accounted for, are valued at their respective fair values unless they are effective cash flow hedging instruments. On the date a derivative contract is entered into, Allied assesses whether or not to designate the derivative as either a hedge of the fair value of a recognized asset or liability (a “fair-value hedge”) or a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability or a forecasted transaction (a “cash-flow hedge”). Except as noted below, Allied does not hold any fair-value or cash flow hedges. Allied has entered into interest rate derivative contracts to limit its exposure to fluctuations in the interest rates on variable rate mortgages and unsecured term loans. Gains or losses arising from the change in fair values of the interest rate derivative contracts are recognized in the Consolidated Statements of Income and Comprehensive Income. 101 ALLIED 2018 ANNUAL REPORT(J) Unitholders’ Equity Trust Units represents the initial value of Units that have been issued. Any transaction costs associated with the issuing of Units are deducted from Unit proceeds. Unitholders’ equity includes all current and prior period retained income. Distributions payable to Unitholders are included in ‘Distributions payable to Unitholders’ when the distributions have been approved and declared prior to the reporting date, but have yet to be paid. (K) Short-Term Employee Benefits Allied does not provide pension plan benefits. Short-term employee benefits are expensed as a period expense. (L) Unit-Based Payments Equity-settled unit-based payments to employees and trustees are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled unit-based payments is expensed on a straight-line basis over the period during which the employee becomes unconditionally entitled to equity instruments, based on Allied’s estimate of equity instruments that will eventually vest. At the end of each reporting period, Allied revises its estimate of the number of equity instruments that are expected to vest. Allied utilizes the Black-Scholes Model for the valuation of unit options with no performance criteria, see note 15 for assumptions used. Units granted under the Unit Option Plan and Restricted Unit Plan are subject to vesting conditions and disposition restrictions, in order to provide a long term compensation incentive. The Unit Options and Restricted Units are subject to forfeiture until the participant has held his or her position with Allied for a specified period of time. Full vesting of Unit Options and Restricted Units may not occur until the participant has remained employed by Allied for three years from the date of grant. Upon forfeiture of Unit Options and Restricted Units by an employee or trustee of Allied, the expense related to any unvested, forfeited Unit Options and Restricted Units recognized up to and including the date of the forfeiture is reversed. (M) Provisions Provisions are recognized when there is a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognized for future operating losses. Allied does not have any provisions as of the date of this report. 102 ALLIED 2018 ANNUAL REPORT(N) Per Unit Calculations Basic net income per unit is calculated by dividing net income by the weighted average number of Units outstanding for the period (refer to note 15 for further details). Diluted net income per unit is calculated using the denominator of the basic calculation described above adjusted to include the potentially dilutive effect of outstanding unit purchase options and the Long Term Incentive Plan. The denominator is increased by the total number of additional Units that would have been issued by Allied assuming exercise of all unit purchase options with exercise prices below the average market price for the year (refer to note 15 for further details). (O) Residential Inventories Residential inventory are assets that are developed by Allied for sale in the ordinary course of business and is recorded at the lower of cost and estimated net realizable value. Impairment is reviewed at each reporting date, with any losses recognized in net income when the carrying value of the inventory exceeds its net realizable value. The net realizable value is defined as the entity-specific future selling price, including any development plans, in the ordinary course of business less estimated costs of completion and selling costs. The cost of residential inventory includes any costs that are directly attributable to bring the projects to a state of active development, which includes borrowing costs. Borrowing costs are accounted under IAS 23 similarly to Allied’s policies for capitalization to qualifying assets. (P) Accounting standards implemented in 2018 IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS (“IFRS 15”) Allied has adopted IFRS 15, as issued in May 2014, on January 1, 2018, which replaces IAS 18, Revenue, and IAS 11, Construction contracts. Allied has elected to apply the standard on a modified retrospective basis as of January 1, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The objective of IFRS 15 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers; except for contracts that are within the scope of the standards on leases, insurance contracts, and financial instruments. IFRS 15 also contains enhanced disclosure requirements. As Allied’s most material revenue stream of rental revenue is outside the scope of the new standard, the adoption of the new standard did not have a material impact on the consolidated statements of income and comprehensive income. Service components within its lease arrangements fall within the scope of IFRS 15, specifically the recovery of costs related to the provision of services provided to users. In respect of such recovery of services revenue, Allied has concluded that the pattern of revenue recognition is unchanged. Allied has included disclosure of the separate components of each revenue stream, including those within gross leases (see note 17). There was no adjustment to opening retained earnings on the adoption of this standard. No material impact on the consolidated statements of cash flow has resulted from adoption. 103 ALLIED 2018 ANNUAL REPORTIFRS 9 - FINANCIAL INSTRUMENTS (“IFRS 9”) Allied has adopted IFRS 9, issued in July 2014, and the related consequential amendments to IFRS 7 - Financial Instruments: Disclosures, with a date of initial application of January 1, 2018. IFRS 9 introduced new requirements, which is summarized as follows: - Classification and measurement of financial assets and financial liabilities; - Impairment for financial assets; - General hedge accounting, which represent a significant change from IAS 39 - Financial Instruments: Recognition and Measurement (“IAS 39”); and - Modification of financial liabilities that do not result in extinguishment. Classification and measurement IFRS 9 required a new approach for the classification and measurement of financial assets based on Allied’s business models for managing these financial assets and their contractual cash flow characteristics, this is summarized as follows: - Assets held for the purpose of collecting contractual cash flows that represent solely payments of principal and interest are measured at amortized cost;  - Assets held within a business model where assets are both held for the purpose of collecting contractual cash flows or sold prior to maturity and the contractual cash flows represent solely payments of principal and interest will be measured at fair value through other comprehensive income (“FVTOCI”); and  - Assets held within another business model or assets that do not have contractual cash flow characteristics that are solely payments of principal and interest are measured at fair value through profit or loss (“FVTPL”). Allied completed its review of all financial instruments held and has performed cash flow and business model assessments on Allied’s financial assets, and the impact is summarized as follows: - Allied’s cash and cash equivalents, accounts receivable, and loans and notes receivable previously classified as loans and receivable and measured at amortized cost continue to be classified and measured at amortized cost; and - Allied’s derivative asset and liability instruments continue to be measured at FVTPL. 104 ALLIED 2018 ANNUAL REPORT Impairment for financial assets IFRS 9 introduced a new expected credit loss (“ECL”) impairment model for all financial assets measured at amortized cost or debt instruments measured at FVTOCI. The new ECL model results in an allowance for expected credit losses being recorded regardless of whether or not there has been an actual loss event. Under IFRS 9, credit losses are recognized earlier than under IAS 39. The adoption of IFRS 9 did not result in any change to Allied’s allowance for impairment. Hedge accounting IFRS 9 introduced a new hedge accounting model that expands the scope of hedge items and risks eligible for hedge accounting and aligned hedge accounting more closely with risk management. This new standard does not fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however, it provided more hedging strategies that are used for risk management to qualify for hedge accounting and introduced more judgment to assess the effectiveness of a hedging relationship. Allied does not apply hedge accounting. Financial Liabilities IFRS 9 introduced that when a financial liability measured at amortized cost is modified or exchanged, and such modification or exchange does not result in derecognition, the adjustment to the amortized cost of the financial liability is recognized in profit or loss at the date of modification. The adoption of IFRS 9 did not result in any changes to Allied’s treatment of modified financial liabilities as all modifications have resulted in derecognition. As a result of adopting IFRS 9, Allied updated its accounting policies for the recognition, classification and impairment of financial instruments, which are as follows: Recognition and initial measurement - Financial assets and financial liabilities are recognized in the consolidated balance sheets when Allied becomes a party to the contractual provisions of a financial instrument or non-financial derivative contract. All financial instruments are measured at fair value on initial recognition. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities, other than financial assets and financial liabilities classified as FVTPL, are added to or deducted from the fair value on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified as FVTPL are recognized immediately in net income. Classification and subsequent measurement - Allied classifies financial assets, at the time of initial recognition, according to Allied’s business model for managing the financial assets and the contractual terms of the cash flows. 105 ALLIED 2018 ANNUAL REPORTFinancial assets are subsequently measured at amortized cost if both of the following conditions are met and they are not designated as at FVTPL: a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash flows; and b) the contractual terms of the financial asset give rise to cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding. These assets are subsequently measured at amortized cost using the effective interest rate method, less any impairment, with gains and losses recognized in net income in the period that the asset is derecognized or impaired. Financial liabilities are subsequently measured at amortized cost using the effective interest rate method with gains and losses recognized in net income in the period that the liability is derecognized. Impairment of financial instruments - Allied recognizes a loss allowance on a forward looking basis at an amount equal to the lifetime ECL on its financial assets measured at amortized cost. Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. Allied has applied the standard on a retrospective basis without restating comparatives as allowed under the available transitional provisions. IAS 40 - INVESTMENT PROPERTY On December 8, 2016, the IASB issued an amendment, effective January 1, 2018, to IAS 40 that requires an asset to be transferred to or from investment property only when there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. Allied adopted these amendments and clarifications in its financial statements on a retroactive basis for the annual period beginning on January 1, 2018, and it did not result in any impact. (Q) Future accounting standards IFRS 16 - LEASES (“IFRS 16”) On January 13, 2016, the IASB issued IFRS 16 Leases. The new standard is effective for annual periods beginning January 1, 2019. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, Leases (“IAS 17”), while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease. Transitional provisions have been provided. 106 ALLIED 2018 ANNUAL REPORTAllied will adopt IFRS 16 in its consolidated financial statements for the annual period beginning January 1, 2019, on a modified retrospective basis using the available transitional provisions. Allied is in the final stages of evaluating the impact of this standard. As a landlord, lessor accounting is substantially unchanged between IAS 17 and IFRS 16 and therefore, leases with users are to be accounted for as operating leases in a consistent manner with the current accounting treatment. Allied has reviewed all lease contracts in which it is a lessee, and has noted that the material leases are in relation to Allied’s land leases; the remainder of the leases are not considered to be significant. The land leases are presently accounted for as finance leases, therefore the adoption of IFRS 16 is not expected to have a material impact on Allied’s results. (R) Comparative figures The segment comparative figures for the year ended December 31, 2017, have been restated to present the office component of 905 King within the office segment from the urban data centre segment to be consistent with the presentation in the current year (see note 21). As a result of the adoption of IFRS 15, effective January 1, 2018, Allied discloses revenue from contracts recognized with customers related to operating cost recoveries and tax and insurance recoveries separate from other sources of revenue, accordingly the December 31, 2017 comparative figures have been restated to conform with the disclosure requirements adopted in the current year (see note 17). 3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of the consolidated financial statements requires management to make judgments and estimates in applying Allied’s accounting policies that affect the reported amounts and disclosures made in the consolidated financial statements and accompanying notes. Within the context of these consolidated financial statements, a judgment is a decision made by management in respect of the application of an accounting policy, a recognized or unrecognized financial statement amount and/or note disclosure, following an analysis of relevant information that may include estimates and assumptions. Estimates and assumptions are used mainly in determining the measurement of balances recognized or disclosed in the consolidated financial statements and are based on a set of underlying data that may include management’s historical experience, knowledge of current events and conditions and other factors that are believed to be reasonable under the circumstances. Management continually evaluates the estimates and judgments it uses. The following are the accounting policies subject to judgments and key sources of estimation uncertainty that Allied believes could have the most significant impact on the amounts recognized in the consolidated financial statements. Allied’s significant accounting policies are disclosed in note 2. INVESTMENT PROPERTIES Judgments Made in Relation to Accounting Policies Applied - Judgment is applied in determining whether certain costs are additions to the carrying value of investment properties, identifying the point at which substantial completion of a development property occurs, and identifying the directly attributable borrowing costs to be included in the carrying value of the development property. Allied also applies judgment in determining whether the properties it acquires are considered to be asset acquisitions or business combinations. Allied has determined through the appropriate analysis that all the properties it has acquired to date to be asset acquisitions. 107 ALLIED 2018 ANNUAL REPORTKey Sources of Estimation - The fair value of investment properties is dependent on available comparable transactions, future cash flows over the holding period and discount rates and capitalization rates applicable to those assets. For further details, see note 5. The review of anticipated cash flows involves assumptions relating to occupancy, rental rates and residual value. In addition to reviewing anticipated cash flows, management assesses changes in the business climate and other factors which may affect the ultimate value of the property. These assumptions may not ultimately be achieved. JOINT ARRANGEMENTS Judgments Made in Relation to Accounting Policies Applied - Judgment is applied in determining whether Allied has joint control and whether the arrangements are joint operations or joint ventures. In assessing whether the joint arrangements are joint operations or joint ventures, management applies judgment to determine Allied’s rights and obligations in the arrangement based on factors such as the structure, legal form and contractual terms of the arrangement. LEASES Judgments Made in Relation to Accounting Policies Applied - Allied has applied judgment to determine whether the freehold lease and certain land leases, where Allied is the lessee, are operating leases or finance leases. In order to determine the classification, Allied considers judgments and estimates related to lease terms, incremental borrowing rates, and contingent rent and fixed payments. Pursuant to the long term contractual obligations in each, they are finance leases and accordingly they are classified as investment properties. All tenant leases where Allied is the lessor have been determined to be operating leases. INCOME TAXES Judgments Made in Relation to Accounting Policies Applied - Allied qualifies as a mutual fund trust (“MFT”) and a REIT as defined in the Income Tax Act (Canada). Allied is not liable to pay entity level Canadian income taxes provided that its taxable income is fully distributed to Unitholders each year and if it meets the prescribed rules under the Income Tax Act (Canada) to be a REIT and MFT. This results in no current or deferred income tax being recognized in the financial statements. Allied applies judgment in determining whether it will continue to qualify as a REIT and in assessing its interpretation and application to its assets and revenue. While there are uncertainties in interpretation and application of these rules, Allied believes it meets the REIT and MFT rules. Allied expects to continue to qualify as a REIT under the Income Tax Act (Canada), however, should it no longer qualify, it would be subject to entity level tax and would be required to recognize current and deferred income taxes. 108 ALLIED 2018 ANNUAL REPORT4. ACQUISITIONS AND DISPOSITIONS ACQUISITIONS During the year ended December 31, 2018, Allied completed the following property acquisitions from third-parties: LOCATION 464 King W, Toronto 812-11th SW, Calgary 137 George, Toronto 731-10th SW, Calgary 305 Joseph, Kitchener 1220 Homer, Vancouver 802-11th SW, Calgary 668 King W, Toronto 342 Water, Vancouver DATE OF ACQUISITION PROPERTY TYPE INVESTMENT PROPERTY INTEREST ACQUIRED January 18, 2018 Parking $7,529 January 25, 2018 Retail January 30, 2018 Office, Retail February 12, 2018 Retail June 21, 2018 Parking October 15, 2018 October 15, 2018 Office Retail Office Retail November 30, 2018 December 3, 2018 Office, Retail 1,750 1,110 5,970 888 18,072 2,287 40,061 12,547 20,074 33,108 $143,396 100% 50% 100% 50% 50% 100% 50% 100% 100% 100% 100% 151 West Hastings, Vancouver November 30, 2018 644 Courcelle, Montréal December 19, 2018 Office, Retail The total purchase price for the above noted properties of $143,396 comprised net cash consideration paid of $123,279, and the assumption of other liabilities of $1,442, and mortgages payable of $18,675. During the year ended December 31, 2017, Allied completed the following property acquisitions from third-parties: LOCATION DATE OF ACQUISITION PROPERTY TYPE INVESTMENT PROPERTY INTEREST ACQUIRED 456 Wellington W, Toronto (1) January 5, 2017 Development $5,393 387-391 Adelaide W, Toronto January 17, 2017 Office 8,646 56 The Esplanade, Toronto June 20, 2017 Office, Retail 62,466 The Well, Toronto (2) October 5, 2017 Development 23,348 70 The Esplanade, Toronto October 10, 2017 Office, Retail 28 Atlantic, Toronto November 16, 2017 Office 17,739 5,271 $122,863 40% 100% 100% 10% 100% 100% (1) This property forms part of the commercial component of The Well. On October 5, 2017, Allied acquired an additional 10% interest in the commercial component of The Well. This contributed to an overall ownership interest of 50% in 456 Wellington W, which is a 50/50 co-ownership between Allied and RioCan Real Estate Investment Trust (“RioCan”). (2) Allied acquired an additional undivided 10% interest in the commercial component of The Well, resulting in each of Allied and RioCan now owning an undivided 50% interest in the commercial component. Allied continues to own an undivided 40% interest in the residential component of The Well. 109 ALLIED 2018 ANNUAL REPORT The total purchase price for the above noted properties of $122,863 comprised net cash consideration paid of $111,700, and the assumption of other liabilities of $834, and mortgages payable of $10,329. DISPOSITIONS During the year ended December 31, 2018, Allied completed the following dispositions of investment properties to third-parties: LOCATION KING Toronto (1) Total selling price Net selling costs Working capital adjustments Loan issuance Net cash consideration received DATE OF DISPOSITION PROPERTY TYPE SELLING PRICE November 30, 2018 Residential, Retail $63,225 $63,225 (20) 3,825 (67,030) $— (1) Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied sold a 50% undivided interest to Westbank. KING Toronto is comprised of the following properties: 489 King W, 495 King W, 499 King W, 511-529 King W, 533 King W and 539 King W. During the year ended December 31, 2017, Allied completed the following dispositions of investment properties to third-parties: LOCATION DATE OF DISPOSITION PROPERTY TYPE SELLING PRICE The Metals Building, 10190-104 NW, Edmonton October 30, 2017 Office, Retail December 20, 2017 Office, Retail December 27, 2017 Office, Retail Winnipeg Portfolio (1) Québec City Portfolio (2) Total selling price Net selling costs Working capital adjustments Mortgage transfer Net cash consideration received $4,130 25,900 24,000 $54,030 (2,561) (1,013) (19,746) $30,710 (1) The Winnipeg portfolio consisted of the following properties: 115 Bannatyne, 123 Bannatyne, 250 McDermot, 54-70 Arthur and 1500 Notre Dame. (2) The Québec City portfolio consisted of the following properties: 390 Charest, 410 Charest, 420 Charest, 605 Saint-Joseph, 622 Saint-Joseph and 633 Saint-Joseph. 110 ALLIED 2018 ANNUAL REPORT 5. INVESTMENT PROPERTIES Changes to the carrying amounts of investment properties are summarized as follows: DECEMBER 31, 2018 DECEMBER 31, 2017 PROPERTIES UNDER PROPERTIES UNDER RENTAL DEVELOPMENT RENTAL DEVELOPMENT PROPERTIES (“PUD”) TOTAL PROPERTIES (“PUD”) TOTAL Balance, beginning of year $5,168,621 $458,818 $5,627,439 $4,948,043 $181,498 $5,129,541 Additions: Acquisitions 143,396 — 143,396 Improvement allowances 48,607 Leasing commissions 13,823 5,417 7,200 54,024 21,023 94,122 74,186 7,793 28,741 122,863 — — 74,186 7,793 Capital expenditures 40,091 204,119 244,210 70,083 119,775 189,858 Dispositions — (67,030) (67,030) (54,030) — (54,030) Transfers from PUD 67,180 (67,180) Transfers to PUD (185,770) 185,770 — — 46,360 (46,360) (177,508) 177,508 — — Transfers to residential inventory — (103,690) (103,690) Transfers to other assets Finance lease (17,631) 1,884 — — (17,631) 1,884 2,880 — — (24,444) (24,444) — — — 2,880 Amortization of straight-line rent, improvement allowances and leasing commissions (1) Fair value gain on investment properties (23,287) 1,460 (21,827) (19,323) — (19,323) 335,302 40,547 375,849 176,015 22,100 198,115 Balance, end of year $5,592,216 $665,431 $6,257,647 $5,168,621 $458,818 $5,627,439 (1) Commencing January 1, 2018, initial direct leasing commissions are included in the fair value gain (loss) on investment properties. For the year ended December 31, 2018, Allied capitalized a total of $22,133 of borrowing costs to qualifying investment properties (December 31, 2017 - $20,097). Included in the rental properties amounts noted above are investment properties with a fair value of $502,040 (December 31, 2017 - $472,010) representing the fair value of Allied’s interest in five investment properties with corresponding finance leases. The finance leases’ maturities range from 25.8 years to 83.5 years. 111 ALLIED 2018 ANNUAL REPORT VALUATION METHODOLOGY The appraised fair value of investment properties is most commonly determined using the following methodologies: (A) Discounted cash flow method - Under this approach, discount rates are applied to the projected annual operating cash flows, generally over a ten year period, including a terminal value of the properties based on a capitalization rate applied to the estimated net operating income (“NOI”), a non-GAAP measure, in the terminal year. This method is primarily used to value the rental properties portfolio. (B) Comparable sales method - This approach compares a subject property’s characteristics with those of comparable properties which have recently sold. The process uses one of several techniques to adjust the price of the comparable transactions according to the presence, absence, or degree of characteristics which influence value. These characteristics include the cost of construction incurred at a property under development. This method is primarily used to value the development portfolio and ancillary parking facilities. In accordance with its policy, Allied measures and records its investment properties using valuations under the supervision of Management with the support of an independent external appraiser. Allied’s entire portfolio is revalued by the external appraiser each quarter. Management verifies all major inputs to the valuations, analyzes the change in fair values at the end of each reporting period and reviews the results with the independent appraiser every quarter. There were no material changes to the valuation techniques during the year. For properties with a leasehold interest with a term less than 40 years, the resulting valuation methodology is based upon a full-term discounted cash flow model. SIGNIFICANT INPUTS There are significant unobservable inputs used, such as capitalization rates, in determining the fair value of each investment property. Accordingly, all investment properties are measured in accordance with the fair value measurement hierarchy levels and the inputs for investment properties comprise Level 3 unobservable inputs, reflecting Management’s best estimate of what market participants would use in pricing the asset at the measurement date. Fair values are most sensitive to changes in capitalization rates and stabilized or forecasted NOI. Generally, an increase in NOI will result in an increase in the fair value of investment properties and an increase in capitalization rates will result in a decrease in the fair value of investment properties. Below are the rates used in the modeling process for valuations. WEIGHTED AVERAGE DECEMBER 31, 2018 DECEMBER 31, 2017 6.64% 5.55% 5.13% 10 6 .93% 5 .86% 5 .43% 10 Discount rate Terminal capitalization rate Overall capitalization rate Discount horizon (years) 112 ALLIED 2018 ANNUAL REPORT The analysis below shows the maximum impact on fair values of possible changes in capitalization rates, assuming no changes in NOI: CHANGE IN CAPITALIZATION RATE OF Increase (decrease) in fair value -0 .50% -0 .25% +0 .25% +0 .50% Investment Properties $675,772 $320,576 $(290,783) $(555,741) 6. RESIDENTIAL INVENTORY Residential inventory consists of assets that are developed by Allied for sale in the ordinary course of business. Allied may transfer an investment property to residential inventory based on a change in use, as evidenced by the commencement of development activities with the intention to sell. Alternatively, a transfer from residential inventory to investment property would be evidenced by the commencement of leasing activity. On September 19, 2017, Allied with its partner RioCan, announced that they had finalized plans that would allow the co-owners to improve the return on the development of King Portland Centre. The co-owners had originally intended to develop the residential portion of the project as rental apartments and then decided to sell the residential portion as condominium units, comprised of 132 units. The residential condominium units have been fully sold, subject to customary closing conditions. Management expects the condominium sales to close in Q4 2019. On November 30, 2018, Allied entered into a joint arrangement with Westbank to develop KING Toronto. KING Toronto is a mixed-used property comprised of office, retail, and residential uses. As part of the arrangement, Allied sold a 50% undivided interest to Westbank. The residential component will be developed and sold as condominiums. The sale of the residential units commenced in October 2018 and totals 210,000 square feet of GLA. Management expects the condominium sales to close in 2023. For the year ended December 31, 2018, Allied capitalized a total of $1,264 of borrowing costs to qualifying residential inventory (December 31, 2017 - $259). Residential inventory is as follows: DECEMBER 31, 2018 DECEMBER 31, 2017 King Portland Centre KING Toronto Current Non-current $36,612 103,690 $140,302 $36,612 103,690 $140,302 $28,239 — $28,239 $— 28,239 $28,239 113 ALLIED 2018 ANNUAL REPORT 7. LOANS AND NOTES RECEIVABLE Loans and notes receivable are as follows: Loans receivable (a) Notes and other receivables (b) Current Non-current DECEMBER 31, 2018 DECEMBER 31, 2017 $200,289 13,155 $213,444 $11,077 202,367 $213,444 $88,316 13,925 $102,241 $11,628 90,613 $102,241 (A) In February 2015, Allied entered into a joint arrangement with Westbank and completed the acquisition of an undivided 50% interest in Adelaide & Duncan. Allied advanced a total of $21,173 to Westbank (refer to note 20 for further details). As at December 31, 2018, the loan receivable outstanding is $21,173 (December 31, 2017 - $21,173) and is secured by a first charge on the property and assignment of rents and leases. Interest on the loan is payable monthly at a rate of 6.17% per annum. The loan is repayable when the joint arrangement obtains external permanent financing. On August 1, 2017, Allied entered into an arrangement with Westbank to provide a credit facility of up to $100,000, plus interest, for the land acquisition and the initial pre-development costs of 400 West Georgia in Vancouver. The credit facility bears interest at rates between 5.00% to 6.75% per annum in year one and 6.75% per annum in each year thereafter until maturity. The credit facility matures on August 31, 2022, and has a one year extension option to August 31, 2023. On placement of permanent financing, Allied intends to acquire a 50% undivided interest in 400 West Georgia based on total development costs. The loan outstanding as at December 31, 2018, is $112,086 (December 31, 2017 - $67,143). On November 30, 2018, Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied advanced a total of $67,030 to Westbank for its purchase of a 50% undivided interest in the property. As at December 31, 2018, the loan receivable outstanding is $67,030 and bears interest at a rate of 7.00% per annum. The loan is repayable at the earlier of November 23, 2023, or the closing of the condominium units. (B) As at December 31, 2018, the balance of notes and other receivables includes $10,967 (December 31, 2017 - $11,542) of mortgage receivables due from the purchaser of Allied’s Québec City portfolio as the mortgage transfer was not executed by the lender. The remaining balance is made up of individually insignificant notes receivable. 114 ALLIED 2018 ANNUAL REPORT 8. OTHER ASSETS Other assets consist of the following: Equipment and other assets (1) Property, plant and equipment (2) Interest rate swap derivative assets DECEMBER 31, 2018 DECEMBER 31, 2017 $6,141 17,631 4,746 $28,518 $5,084 — 7,509 $12,593 (1) During the year ended December 31, 2018, Allied recorded amortization of equipment and other assets of $1,556 (December 31, 2017 - $1,819). (2) This amount is related to owner-occupied property. 9. ACCOUNTS RECEIVABLE, PREPAID EXPENSES AND DEPOSITS User trade receivables - net of allowance (a) Other user receivables (b) Miscellaneous receivables (c) Prepaid expenses and deposits (d) (A) User trade receivables DECEMBER 31, 2018 DECEMBER 31, 2017 $7,308 3,581 9,957 27,153 $47,999 $4,697 6,982 15,830 19,563 $47,072 User trade receivables include minimum rent, annual common area maintenance (“CAM”), property tax recovery billings and other recoverable charges. An allowance is maintained for expected credit losses resulting from the inability of users to meet obligations under lease agreements. Allied actively reviews receivables on a continuous basis and determines the potentially uncollectible accounts on a per-user basis giving consideration to their credit risk and records impairment based on expected credit losses as required. The movement in the allowance for doubtful accounts is reconciled as follows: YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 Allowance for doubtful accounts, beginning of year Additional provision recorded during the year Reversal of previous provisions Receivables written off during the year Allowance for doubtful accounts, end of year $2,342 2,926 (1,469) (1,466) $2,333 $1,686 2,622 (601) (1,365) $2,342 115 ALLIED 2018 ANNUAL REPORT (B) Other user receivables Other user receivables pertain to unbilled operating costs such as common area maintenance and property tax recoveries and chargebacks. (C) Miscellaneous receivables Miscellaneous receivables consist primarily of property taxes recoverable from municipalities and insurance claims. As at December 31, 2018, there are no credit risk indicators that the debtors will not meet their payment obligations. (D) Prepaid expenses and deposits Prepaid expenses primarily relate to property operating expenses (mainly realty taxes and insurance) and deposits relating to acquisitions and $9,000 of deposits held in trust received from the sale of residential condominium units. 10. DEBT Debt consists of the following items, net of financing costs: Mortgages payable (a) Construction loans payable (b) Unsecured revolving operating facility (c) Senior unsecured debentures (d) Unsecured term loans (e) Current Non-current DECEMBER 31, 2018 DECEMBER 31, 2017 $769,473 70,909 95,000 573,320 448,909 $965,832 46,758 25,000 572,849 349,438 $1,957,611 $1,959,877 $106,990 1,850,621 $1,957,611 $254,351 1,705,526 $1,959,877 116 ALLIED 2018 ANNUAL REPORT (A) Mortgages payable Mortgages payable have a weighted average stated interest rate of 4.38% as at December 31, 2018 (December 31, 2017 - 4.73%). The mortgages are secured by a first registered charge over specific investment properties and first general assignments of leases, insurance and registered chattel mortgages. 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 PRINCIPAL REPAYMENTS BALANCE DUE AT MATURITY DECEMBER 31, 2018 DECEMBER 31, 2017 $25,115 $10,967 $36,082 26,411 25,519 21,725 17,749 5,123 1,596 1,391 487 293 — 103,535 100,102 213,355 174,860 8,788 20,443 — 14,457 26,411 129,054 121,827 231,104 179,983 10,384 21,834 487 14,750 Mortgages, principal $125,409 $646,507 $771,916 $966,894 Net premium on assumed mortgages Net financing costs (B) Construction loans payable 924 (3,367) 2,599 (3,661) $769,473 $965,832 As of December 31, 2018, and December 31, 2017, Allied’s obligation under the construction loan is: JOINT ARRANGEMENT OWNERSHIP GUARANTEE LIMIT DATE OF MATURITY DECEMBER 31, 2018 DECEMBER 31, 2017 TELUS Sky 33 .33% $114,000 August 31, 2019 $70,909 $46,758 The construction loan payable for the TELUS Sky joint arrangement bears interest at bank prime plus 70 basis points or banker’s acceptance rate plus 195 basis points. On January 31, 2019, Allied and Westbank obtained a $270,000 construction lending facility from a syndicate of Canadian banks for the Adelaide & Duncan joint arrangement, in which Allied’s 50% share is $135,000. The loan matures on July 31, 2023, and bears interest at bank prime plus 35 basis points or banker’s acceptance rate plus 135 basis points. Allied provided a joint and several guarantee to support the facility to assist with the financing of construction costs associated with the development of Adelaide & Duncan. 117 ALLIED 2018 ANNUAL REPORT (C) Unsecured revolving operating facility On November 30, 2018, Allied amended the Unsecured Facility to increase the limit to $400,000 and extended the maturity to January 29, 2022. Prior to the amendment, Allied had access to $250,000 maturing on January 29, 2021. The Unsecured Facility will bear interest at bank prime plus 45 basis points or bankers’ acceptance plus 145 basis points with a standby fee of 29 basis points, subject to certain conditions being met (December 31, 2017 - maturity of January 29, 2019, interest rate at bank prime plus 70 basis points or bankers’ acceptance plus 170 basis points with a standby fee of 34 basis points). In the event that these conditions are not met, the Unsecured Facility will bear interest at bank prime plus 70 basis points or bankers’ acceptance plus 170 basis points with a standby fee of 34 basis points. The Unsecured Facility contains a $100,000 accordion feature, allowing Allied to increase the amount available under the facility to $500,000. The Unsecured Facility had a balance of $95,000 outstanding at December 31, 2018 (December 31, 2017 - $25,000). Unsecured Facility limit Amounts drawn under the Unsecured Facility Letters of credit outstanding under the Unsecured Facility Remaining unused balance under the Unsecured Facility $400,000 (95,000) (14,404) $290,596 $250,000 (25,000) (5,551) $219,449 DECEMBER 31, 2018 DECEMBER 31, 2017 (D) Senior unsecured debentures As of December 31, 2018, and December 31, 2017, Allied’s obligation of the balance outstanding under the senior unsecured debentures is summarized in the table below: SERIES Series A Series B Series C INTEREST RATE DATE OF MATURITY INTEREST PAYMENT DATE DECEMBER 31, 2018 DECEMBER 31, 2017 3 .748% May 13, 2020 May 13 and November 13 $225,000 $225,000 3 .934% November 14, 2022 May 14 and November 14 150,000 150,000 3 .636% April 21, 2025 April 21 and October 21 200,000 200,000 Unsecured Debentures, principal Net premium on Unsecured Debentures Net financing costs $575,000 $575,000 216 369 (1,896) (2,520) $573,320 $572,849 Hereafter, the Series A, B and C Debentures are collectively referred to as the “Unsecured Debentures”. On April 21, 2017, Allied issued $200,000 of 3.636% Series C Unsecured Debentures (the “Series C Debentures”) due April 21, 2025, with semi-annual interest payments due on April 21 and October 21 of each year commencing October 21, 2017. Debt financing costs of $1,175 were incurred and recorded against the principal owing. 118 ALLIED 2018 ANNUAL REPORT Proceeds from the Series C Debentures were used to fund acquisitions, repay amounts drawn on the Unsecured Facility and for general working capital purposes. The respective financing costs and premium recognized are amortized using the effective interest method and recorded to Interest Expense (note 10 (f)). (E) Unsecured term loans As of December 31, 2018, and December 31, 2017, Allied’s obligation of the balance outstanding under the unsecured term loans is summarized in the table below: INTEREST RATE DATE OF MATURITY FREQUENCY OF INTEREST PAYMENT DECEMBER 31, 2018 DECEMBER 31, 2017 Unsecured Term Loan 3 .992% January 14, 2026 Monthly $250,000 $150,000 Unsecured Term Facility Tranche 1 Tranche 2 2 .830% 2 .890% Unsecured Term Loans, principal Net financing costs March 16, 2021 Quarterly 100,000 100,000 March 16, 2021 Quarterly 100,000 100,000 $450,000 $350,000 (1,091) (562) $448,909 $349,438 Hereafter, the Unsecured Term Loan and Unsecured Term Facility are collectively referred to as the “Unsecured Term Loans”. On December 14, 2018, Allied entered into a new Unsecured Term Loan with a financial institution for $250,000 at a rate of 3.992%, due on January 14, 2024, with two one-year extensions to January 14, 2026. The proceeds from the loan were used to repay the $150,000 maturing term loan due on December 14, 2018, at a rate of 2.645% and the balance was used to reduce amounts drawn on the Unsecured Facility. Debt financing costs of $810 were incurred and recorded against the principal owing. The respective financing costs are amortized using the effective interest method and recorded to Interest Expense (note 10 (f)). 119 ALLIED 2018 ANNUAL REPORT (F) Interest expense Interest expense consists of the following: Interest on debt: Mortgages payable Construction loans payable Unsecured Facility Unsecured Debentures Unsecured Term Loans Interest on finance lease obligations Amortization, premium (discount) on debt Amortization, net financing costs Less: Interest capitalized to qualifying investment properties and residential inventory Interest expense excluding yield maintenance cost Adjustment for yield maintenance cost due to early repayment Interest expense YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 $38,452 $49,050 2,187 2,779 21,714 9,838 8,292 (1,828) 1,746 1,050 1,622 19,477 9,679 7,288 (471) 1,926 $83,180 $89,621 (23,397) $59,783 7,502 $67,285 (20,356) $69,265 — $69,265 Borrowing costs have been capitalized to qualifying investment properties, where applicable, at a weighted average rate of 3.94% per annum (December 31, 2017 – 4.07%). 120 ALLIED 2018 ANNUAL REPORT (G) Schedule of principal repayments The table below summarizes the scheduled principal maturity for Allied’s Mortgages payable, Construction loans payable, Unsecured Facility, Unsecured Debentures and Unsecured Term Loans. 2019 2020 2021 2022 2023 THEREAFTER TOTAL Mortgages payable, principal repayments $25,115 $26,411 $25,519 $21,725 $17,749 $8,890 $125,409 Mortgages payable, balance due at maturity 10,967 Construction loans payable 70,909 Unsecured Facility Unsecured Debentures Unsecured Term Loans — — — — — — 225,000 — — — — 95,000 150,000 — 200,000 — — — — — — — 70,909 95,000 200,000 575,000 250,000 450,000 103,535 100,102 213,355 218,548 646,507 Total $106,991 $251,411 $329,054 $366,827 $231,104 $677,438 $1,962,825 A description of Allied’s risk management objectives and policies for financial instruments is provided in note 24. 11. FINANCE LEASE OBLIGATIONS Allied’s future minimum finance lease payments as a lessee are as follows: 2019 (1) 2020 - 2023 (1) THEREAFTER DECEMBER 31, 2018 DECEMBER 31, 2017 Future minimum lease payments $9,667 $39,540 $463,658 $512,865 $535,247 Interest accrued on lease obligations (570) 1,481 — 911 3,641 Less: amounts representing interest payments (9,097) (41,021) (306,995) (357,113) (384,017) Present value of lease payments $— $— $156,663 $156,663 $154,871 (1) The future minimum lease payments prior to 2023 are less than the effective interest on the finance lease obligations. Some of Allied’s finance lease agreements contain contingent rent clauses. Contingent rental payments are recognized in the consolidated statements of income and comprehensive income as required when contingent criteria are met. The finance lease agreements contain renewal options, purchase options, escalation clauses, additional debt and further leasing clauses. For the year ended December 31, 2018, minimum lease payments of $8,335 were paid by Allied (December 31, 2017 - $7,552). 121 ALLIED 2018 ANNUAL REPORT 12. ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities consists of the following: Trade payables and other liabilities Prepaid user rents and user deposits Accrued interest payable Distributions payable to Unitholders Interest rate swap derivative liability DECEMBER 31, 2018 DECEMBER 31, 2017 $130,363 59,958 5,418 13,814 7,781 $89,627 47,705 6,374 12,082 4,074 $217,334 $159,862 13. FAIR VALUE MEASUREMENTS The classification, measurement basis, and related fair value for disclosures of the financial assets and liabilities are summarized in the following table: DECEMBER 31, 2018 DECEMBER 31, 2017 CLASSIFICATION/ MEASUREMENT CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE Financial Assets: Loans and notes receivable (note 7) Amortized cost 213,444 213,444 102,241 102,241 Cash and cash equivalents (note 19) Amortized cost 18,361 18,361 6,048 6,048 Accounts receivable (note 9) Amortized cost 20,846 20,846 27,509 27,509 Unsecured term loan interest swap asset (note 8) FVTPL 4,746 4,746 7,509 7,509 Financial Liabilities: Debt (note 10) Mortgages Amortized cost 769,473 798,485 965,832 993,774 Construction loans payable Amortized cost 70,909 70,909 46,758 46,758 Unsecured Facility Amortized cost 95,000 95,000 25,000 25,000 Unsecured Debentures Amortized cost 573,320 570,616 572,849 578,267 Unsecured Term Loans Amortized cost 448,909 454,350 349,438 344,149 Mortgage interest swap liability (note 12) FVTPL 7,781 7,781 4,074 4,074 Finance lease obligations (note 11 and note 5) Amortized cost 156,663 174,303 154,871 172,857 Accounts payable and other liabilities (note 12) Amortized cost 209,553 209,553 155,788 155,788 122 ALLIED 2018 ANNUAL REPORT Allied uses various methods in estimating the fair value of assets and liabilities that are measured on a recurring or non-recurring basis in the consolidated balance sheet after initial recognition. The fair value hierarchy reflects the significance of inputs used in determining the fair values. - - Level 1 – quoted prices in active markets for identical assets and liabilities; Level 2 – inputs other than quoted prices in active markets or valuation techniques where significant inputs are based on observable market data; and - Level 3 – valuation technique for which significant inputs are not based on observable market data. The following table presents the hierarchy of assets and liabilities: DECEMBER 31, 2018 DECEMBER 31, 2017 LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 1 LEVEL 2 LEVEL 3 Financial Assets: Loans and notes receivable (note 7) — 213,444 Cash and cash equivalents (note 19) 18,361 — — 102,241 6,048 — Accounts receivable (note 9) Unsecured term loan interest swap asset (note 8) Financial Liabilities: Debt (note 10) Mortgages Construction loans payable Unsecured Facility Unsecured Debentures Unsecured Term Loans Mortgage interest swap liability (note 12) Finance lease obligations (note 11 and note 5) Accounts payable and other liabilities (note 12) — — — — — — — — — — 20,846 4,746 798,485 70,909 95,000 570,616 454,350 7,781 — 174,303 209,553 — — — — — — — — — — — 27,509 7,509 993,774 46,758 25,000 578,267 344,149 4,074 — — — — — — — — — — — — — — — — — — — — — 172,857 155,788 — 123 ALLIED 2018 ANNUAL REPORT The carrying value of Allied’s financial assets and liabilities approximates the fair value except for loans and notes receivable (note 7), debt (note 10) and finance lease obligations (note 11). There were no transfers between levels of the fair value hierarchy during the periods. Other than as described in investment properties (note 5), the following summarizes the significant methods and assumptions used in estimating the fair value of Allied’s financial assets and liabilities measured at fair value: INTEREST RATE SWAP DERIVATIVE CONTRACTS The fair value of Allied’s interest rate derivative contracts, which represents a net liability as at December 31, 2018, is $3,035 (December 31, 2017 - $3,435). The fair value of the derivative contracts is determined using forward interest rates observable in the market (Level 2). Interest rate swap derivative asset (note 8) Interest rate swap derivative liability (note 12) Net (liability) asset DEBT DECEMBER 31, 2018 DECEMBER 31, 2017 $4,746 (7,781) $(3,035) $7,509 (4,074) $3,435 The fair value of debt is determined by discounting the cash flows of these financial instruments using period end market rates for instruments of similar terms and credit risks that are observable in the market (Level 2). FINANCE LEASE OBLIGATIONS The fair value of finance lease obligations is determined by discounting the cash flows for the obligations using applicable Level 3 inputs based on Allied’s assumptions of interest rates and the residual lease term. 124 ALLIED 2018 ANNUAL REPORT14. UNITHOLDERS’ EQUITY The following represents the number of Units issued and outstanding, and the related carrying value of Unitholders’ equity, for the year ended December 31, 2018, and for the year ended December 31, 2017. DECEMBER 31, 2018 DECEMBER 31, 2017 UNITS AMOUNT UNITS AMOUNT Trust Units, beginning of year 92,935,150 $2,399,768 84,734,469 $2,098,267 Restricted Unit plan (net of forfeitures) (note 15(b)) Long-term incentive plan — — (2,584) — — — Unit option plan - options exercised (note 15(a)) 84,595 3,043 507,044 Unit offering 10,842,200 435,168 7,695,000 (2,173) 72 15,948 287,701 Purchase of Units under normal course issuer bid for cancellation — — (1,363) (47) Trust Units, end of year 103,861,945 $2,835,395 92,935,150 $2,399,768 On September 26, 2018, Allied raised gross proceeds of $155,264 through the issuance of 3,548,900 Units at a price of $43.75 per unit. Costs relating to the issuance totaled $6,760 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. On June 22, 2018, Allied raised gross proceeds of $299,025 through the issuance of 7,293,300 Units at a price of $41.00 per unit. Costs relating to the issuance totaled $12,361 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. On August 17, 2017, Allied raised gross proceeds of $300,105 through the issuance of 7,695,000 Units at a price of $39.00 per unit. Costs relating to the issuance totaled $12,404 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. Allied does not hold any of its own Units, nor does Allied reserve any Units for issue under options and contracts. DISTRIBUTIONS On January 15, 2019, Allied declared a distribution for the month of January, 2019 of $0.133 per unit, representing $1.60 per unit on an annualized basis to unitholders of record on January 31, 2019. 125 ALLIED 2018 ANNUAL REPORTNORMAL COURSE ISSUER BID On February 20, 2018, Allied received approval from the Toronto Stock Exchange (“TSX”) for the renewal of its normal course issuer bid (“NCIB”), which entitles Allied to purchase up to 9,114,825 of its outstanding Units, representing approximately 10% of its public float as at February 14, 2018. The NCIB commenced February 22, 2018, and will expire on February 21, 2019, or such earlier date as Allied completes its purchases pursuant to the NCIB. All purchases under the NCIB will be made on the open market through the facilities of the TSX or alternate trading systems in Canada at market prices prevailing at the time of purchase. Any Units that are repurchased will either be cancelled or delivered to participants under Allied’s Restricted Unit Plan or to employees pursuant to Allied’s employee programs. During the year ended December 31, 2018, Allied purchased 62,044 Units for $2,598 at a weighted average price of $41.87 per unit under its NCIB program, of which 61,733 units were purchased for delivery to participants under Allied’s Restricted Unit Plan and 311 Units were purchased for certain employee rewards outside of Allied’s Restricted Unit Plan. During the year ended December 31, 2017, Allied purchased 65,580 Units for $2,283 at a weighted average price of $34.81 per unit under its NCIB program, of which 64,217 units were purchased for delivery to participants under Allied’s Restricted Unit Plan and 1,363 were purchased for cancellation. 15. UNIT OPTION AND RESTRICTED UNIT PLANS (A) Unit Option Plan Allied adopted a Unit Option Plan providing for the issuance, from time to time, at the discretion of the trustees, of options to purchase Units for cash. Participation in the Unit Option Plan is restricted to certain employees of Allied. The Unit Option Plan complies with the requirements of the Toronto Stock Exchange. The exercise price of any option granted will not be less than the closing market price of the Units on the day preceding the date of grant. Options granted prior to February 22, 2017, vest evenly over three years and options granted subsequently vest evenly over four years from the date of grant. All options are settled in Units. SUMMARY OF UNIT OPTION GRANTS: Date granted Expiry date Units granted Exercise price Exercised - life to date Forfeited - life to date Net outstanding Vested March 5, 2013 March 5, 2018 209,235 $34 .25 (182,787) (26,448) — — March 4, 2014 March 4, 2019 266,174 $33 .29 (182,673) (65,914) 17,587 17,587 May 6, 2014 May 6, 2019 8,474 $34 .59 (8,474) March 3, 2015 March 3, 2020 302,706 $40 .60 (34,188) — — — — 268,518 268,518 March 1, 2016 March 1, 2026 540,480 $31 .56 (116,417) (19,132) 404,931 240,312 February 22, 2017 February 22, 2027 279,654 $35 .34 February 14, 2018 February 14, 2028 198,807 $40 .30 — — — — 279,654 69,914 198,807 — 1,805,530 (524,539) (111,494) 1,169,497 596,331 126 ALLIED 2018 ANNUAL REPORT YEAR ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 The range of exercise prices Weighted average remaining contractual life (years) The range of exercise prices Weighted average remaining contractual life (years) For the Units outstanding at the end of the year $31.56-40.60 6.26 $31 .56-40 .60 6 .41 YEAR ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 Number of Units Weighted average exercise price Number of Units Weighted average exercise price Balance at the beginning of the year 1,057,084 $35.24 1,296,191 $33 .70 Granted during the year Forfeited during the year Exercised during the year Balance at the end of the year Units exercisable at the end of the year 198,807 (1,799) (84,595) 1,169,497 40.30 31.56 35.97 $36.05 279,654 (11,717) (507,044) 1,057,084 35 .34 31 .56 31 .46 $35 .24 596,331 $36.12 345,491 $37 .11 Allied accounts for its Unit Option Plan using the fair value method, under which compensation expense is measured at the date options are granted and recognized over the vesting period. Allied utilizes the Black-Scholes Model for the valuation of Unit options with no performance criteria. Assumptions utilized in the Black-Scholes Model for option valuation are as follows: Unit options granted Unit option holding period (years) Volatility rate Distribution yield Risk free interest rate Value of options granted YEAR ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 198,807 10 24.48% 3.87% 2.32% $1,354 279,654 10 25 .08% 4 .33% 1 .69% $1,423 127 ALLIED 2018 ANNUAL REPORT The underlying expected volatility was determined by reference to historical data of Allied’s Units over 10 years. For the year ended December 31, 2018, Allied recorded a share-based payment expense of $1,346 in general and administrative expense in the consolidated statements of income and comprehensive income (for the year ended December 31, 2017 - $1,466). (B) Restricted Unit Plan Certain employees and the Trustees of Allied may be granted Restricted Units pursuant to the terms of the Restricted Unit Plan, which are subject to vesting conditions and disposition restrictions, in order to provide a long- term compensation incentive. The Restricted Units will not vest and remain subject to forfeiture until the participant has held his or her position with Allied for a specific period of time. One third of the Restricted Units vest on each of the first, second and third anniversaries from the date of grant. Units required under the Restricted Unit Plan are acquired in the secondary market through a custodian and then distributed to the individual participant accounts. The following is a summary of the activity of Allied’s Restricted Unit Plan: Restricted Units, beginning of year Granted Expiration of restriction period Forfeited Restricted Units, end of year YEAR ENDED YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 241,557 61,733 (35,870) — 267,420 223,717 64,217 (44,769) (1,608) 241,557 For the year ended December 31, 2018, Allied recorded a share-based payment expense of $2,247 in general and administrative expense in the consolidated statements of income and comprehensive income (for the year ended December 31, 2017 - $1,767). 128 ALLIED 2018 ANNUAL REPORT16. WEIGHTED AVERAGE NUMBER OF UNITS The weighted average number of Units for the purpose of calculating basic and diluted income per unit is as follows: Basic Unit Option Plan LTIP Fully diluted YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 97,785,091 180,620 — 87,864,560 140,353 1,097 97,965,711 88,006,010 17. RENTAL REVENUE FROM INVESTMENT PROPERTIES Rental revenue includes the following: Rental revenue from rental properties (1) Tax and insurance recoveries Miscellaneous revenue (2) Operating cost recoveries Total rental revenue YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 $200,760 69,144 9,687 156,805 $436,396 $201,373 63,551 9,688 144,651 $419,263 (1) Includes straight-line rent, amortization of tenant improvements and parking revenue earned at properties. (2) Includes lease terminations, third party managed parking , variable percentage rent and other miscellaneous items. Future minimum rental income is as follows: Future minimum rental income $242,781 $606,192 $987,022 $1,835,995 2019 2020 - 2022 THEREAFTER TOTAL 129 ALLIED 2018 ANNUAL REPORT18. GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits Professional and directors fees Office and general expenses Capitalized to qualifying investment properties Total general and administrative expenses 19. SUPPLEMENTAL CASH FLOW INFORMATION Cash and cash equivalents include the following components: YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 $15,277 2,801 2,823 $20,901 (3,842) $17,059 $13,705 2,443 2,927 $19,075 (4,639) $14,436 Cash Short-term deposits Total cash and cash equivalents DECEMBER 31, 2018 DECEMBER 31, 2017 $17,361 1,000 $18,361 $4,717 1,331 $6,048 The following summarizes supplemental cash flow information in operating activities: YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 Supplemental Interest paid on debt (including capitalized interest (note 10)) Interest received $91,574 $6,529 $87,149 $3,015 The following summarizes supplemental cash flow information in non-cash investing items: YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 $67,030 $(67,030) $— — Supplemental Disposition of investment properties (note 5) Loan issuance (note 7) 130 ALLIED 2018 ANNUAL REPORT The following summarizes the change in non-cash operating items: YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 Net change in accounts receivable, prepaid expenses and deposits Add back: Amounts from disposed properties $(927) — $(8,198) 1,013 Net change in loans and notes receivable 195 152 Net change in accounts payable and other liabilities Less: Non-cash interest Less: Distributions payable to Unitholders Less: Mortgage interest swap liability Less: Accrued amounts from disposed properties Less: Accrued amounts from acquired properties Change in non-cash operating items 57,472 892 (1,732) (3,707) 1,007 (1,442) $51,758 28,983 (2,472) (1,278) 8,559 — (834) $25,925 131 ALLIED 2018 ANNUAL REPORT 20. JOINT ARRANGEMENTS Allied has investments in properties under joint arrangements which are accounted for as joint operations. The following tables summarize Allied’s ownership interests in joint operations and its share of the rights to the assets, obligations with respect to liabilities, and its share of revenues and expenses for the joint operations in which it participates. PROPERTIES LOCATION CURRENT STATUS 305 Joseph 478 King W 642 King W 731-10th SW 802-838 11th SW, Glenbow Assembly Kitchener, ON Toronto, ON Toronto, ON Calgary, AB Rental Property Rental Property Rental Property Rental Property Calgary, AB Rental Property Adelaide & Duncan Toronto, ON Property Under Development Breithaupt Block Kitchener, ON Rental Property College & Manning Toronto, ON Rental Property and Property Under Development College & Palmerston Toronto, ON Rental Property KING Toronto Toronto, ON Property Under Development King Portland Centre Toronto, ON Rental Property and Property Under Development OWNERSHIP DECEMBER 31, 2018 DECEMBER 31, 2017 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% —% 50% 50% —% —% 50% 50% 50% 50% —% 50% TELUS Sky The Well (1) Calgary, AB Property Under Development 33.33% Toronto, ON Property Under Development 50% 33 .33% 50% (1) Allied owns an undivided 40% interest in the residential component and an undivided 50% interest in the commercial component of The Well. The residential component is comprised of residential air rights, which were sold by the co-ownership in 2016, with closing expected to occur by 2021 when certain specified conditions are complete. The commercial component is comprised of the planned office and retail components of the property under development. DECEMBER 31, 2018 DECEMBER 31, 2017 $898,833 $235,054 $533,734 $167,371 Total assets Total liabilities 132 ALLIED 2018 ANNUAL REPORT YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 Revenue Expenses Income before fair value adjustment on investment properties Fair value gain on investment properties Net income and comprehensive income $10,362 (5,998) 4,364 66,754 $71,118 $7,321 (4,339) 2,982 25,511 $28,493 21. SEGMENTED INFORMATION IFRS 8, Operating Segments, requires operating segments to be determined based on internal reports that are regularly reviewed by the chief operating decision maker (“CODM”) for the purpose of allocating resources to the segment and assessing its performance. Allied has determined that its CODM is the President and Chief Executive Officer. Allied’s operating segments are managed by use of properties and geographical locations. Urban Data Centres are comprised of properties operating similar to data centres and colocation facilities. The urban office properties are managed by geographical area consisting of three geographical locations comprising Eastern Canada (Montréal, Québec City and Ottawa), Central Canada (Toronto and Kitchener) and Western Canada (Winnipeg, Calgary, Edmonton and Vancouver). On December 20 and 27, 2017, Allied disposed of its Winnipeg and Québec City properties. These disposals are consistent with Allied’s previously disclosed business strategy of exiting these two markets. The CODM measures and evaluates performance of Allied’s operating segments based on net rental income. Management reviews assets and liabilities on a total corporate basis and therefore assets and liabilities are not included in the segmented information below. Allied does not allocate interest expense to segments as debt is viewed by Management to be used for the purpose of acquisitions, development and improvement of all the properties. Similarly, general and administrative expenses, interest income, fair value of investment properties and fair value of derivative instruments are not allocated to operating segments. The following summary tables present a reconciliation of net rental income to net income for the year ended December 31, 2018, and 2017. 133 ALLIED 2018 ANNUAL REPORTSEGMENTED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year ended December 31, 2018 EASTERN CANADA CENTRAL CANADA WESTERN CANADA URBAN DATA CENTRES TOTAL Rental revenue from investment properties $115,696 $192,674 $49,138 $78,888 $436,396 Property operating costs (57,707) (74,851) (22,177) (31,203) (185,938) Net rental income Interest expense General and administrative expenses Condominium marketing expenses Amortization of other assets Interest income Fair value gain on investment properties Fair value loss on derivative instruments Gain on disposal of investment properties Net income and comprehensive income 57,989 117,823 26,961 47,685 250,458 (67,285) (17,059) (1,609) (1,556) 6,941 375,849 (6,470) 1,007 $540,276 SEGMENTED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year ended December 31, 2017 EASTERN CANADA CENTRAL CANADA WESTERN CANADA URBAN DATA CENTRES TOTAL Rental revenue from investment properties $113,961 $176,388 $54,532 $74,382 $419,263 Property operating costs (55,993) (70,169) (24,347) (29,039) (179,548) 57,968 106,219 30,185 45,343 239,715 (69,265) (14,436) — (10,513) 3,015 198,115 13,889 (2,561) $357,959 Net rental income Interest expense General and administrative expenses Condominium marketing expenses Amortization of leasing costs and other assets Interest income Fair value gain on investment properties Fair value gain on derivative instruments Loss on disposal of investment properties Net income and comprehensive income 134 ALLIED 2018 ANNUAL REPORT 22. INCOME TAXES Allied qualifies as a REIT and MFT for income tax purposes. Pursuant to its Declaration of Trust, it also distributes or designates substantially all of its taxable income to Unitholders and deducts such distributions or designations for income tax purposes. Accordingly, there is no entity level tax and no provision for current and deferred income taxes in the financial statements. Income tax obligations relating to distributions of Allied are the obligations of the Unitholders. 23. RELATED PARTY TRANSACTIONS Allied’s related parties include its subsidiaries, nominee corporations, Allied Properties Management Trust, Allied Properties Management Limited Partnership, Allied Properties Management GP Limited and key management, Board of Trustees, and their close family members. Allied engages in third-party property management business, including the provision of services for properties in which certain trustees of Allied have an ownership interest. For the year ended December 31, 2018, real estate service revenue earned from these properties was $290 (for the year ended December 31, 2017 - $297). The transactions are in the normal course of operations and were measured at the amount set out in agreement between the respective property owners. Related party transactions were made on terms equivalent to those that prevail in arm’s length transactions. Transactions with key management personnel are summarized in the table below: Salary, bonus and other short-term employee benefits Unit-based compensation YEAR ENDED DECEMBER 31, 2018 DECEMBER 31, 2017 $4,386 2,895 $7,281 $4,034 2,664 $6,698 135 ALLIED 2018 ANNUAL REPORT 24. RISK MANAGEMENT (A) Capital management Allied defines capital as the aggregate of Unitholders’ equity, mortgages payable, construction loans payable, Unsecured Facility, Unsecured Debentures, Unsecured Term Loans and finance lease obligations. Allied manages its capital to comply with investment and debt restrictions pursuant to the Declaration of Trust, to comply with debt covenants, to ensure sufficient operating funds are available to fund business strategies, to fund leasing and capital expenditures, to fund acquisitions and development activities of properties, and to provide stable and growing cash distributions to Unitholders. Various debt, equity and earnings distributions ratios are used to monitor capital adequacy requirements. For debt management, debt to gross book value and fair value, debt average term to maturity, and variable debt as a percentage of total debt are the primary ratios used in capital management. The Declaration of Trust requires Allied to maintain debt to gross book value, as defined by the Declaration of Trust, of less than 60% (65% including convertible debentures, if any) and the variable rate debt and debt having maturities of less than one year to not exceed 15% of gross book value. As at December 31, 2018, the debt to gross book value ratio was 29.4% (December 31, 2017 - 33.7%) and debts having variable interest rates or maturities of less than one year aggregated to 3.0% of gross book value (December 31, 2017 - 4.8%). On November 27, 2018, Allied filed a short form base shelf prospectus allowing for the issuance, from time to time, of Units and debt securities, or any combination thereof having an aggregate offering price of up to $1,500,000. This document is valid for a 25-month period. Allied has certain key financial covenants in its Unsecured Debentures, Unsecured Facility and Unsecured Term Loans. The key financial covenants include debt service ratios and leverage ratios, as defined in the respective agreements. These ratios are evaluated by Allied on an ongoing basis to ensure compliance with the agreements. Allied was in compliance with each of the key financial covenants under these agreements as at December 31, 2018. 136 ALLIED 2018 ANNUAL REPORT(B) Market risk Market risk is the risk that the fair value or future cash flow of financial instruments will fluctuate because of changes in market prices. Allied is exposed to interest rate risk on its borrowings. Substantively all of Allied’s mortgages payable as at December 31, 2018, are at fixed interest rates and are not exposed to changes in interest rates during the term of the debt. However, there is interest rate risk associated with Allied’s fixed interest rate term debt due to the expected requirement to refinance such debts upon maturity. As fixed rate debt matures and as Allied utilizes additional floating rate debt under the Unsecured Facility, Allied will be further exposed to changes in interest rates. As at December 31, 2018, the Unsecured Facility, which is at a floating interest rate and is exposed to changes in interest rates, has a balance of $95,000 (December 31, 2017 - $25,000). In addition, there is a risk that interest rates will fluctuate from the date Allied commits to a debt to the date the interest rate is set with the lender. As part of its risk management program, Allied endeavours to maintain an appropriate mix of fixed rate and floating rate debt, to stagger the maturities of its debt and to minimize the time between committing to a debt and the date the interest rate is set with the lender. The following table illustrates the annualized sensitivity of income and equity to a reasonably possible change in interest rates of +/- 1.0%. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant. AS AT DECEMBER 31, 2018 Unsecured Facility Mortgages and construction loan payable maturing within one year -1 .0% +1 .0% CARRYING MOUNT INCOME IMPACT INCOME IMPACT $95,000 $106,990 $950 $1,070 $(950) $(1,070) (C) Credit risk As Allied has provided loans and advances to facilitate property development, further credit risks arise in the event that borrowers default on the repayment of their amounts owing to Allied. Allied’s loans and advances will be subordinate to prior ranking mortgages or charges. Not all of Allied’s financing activities will translate into acquisitions. As at December 31, 2018, Allied had $200,289 outstanding in loans receivable (December 31, 2017 - $88,316). In the event of a large commercial real estate market correction, the fair market value of an underlying property may be unable to support the loan value. Allied mitigates this risk by obtaining corporate guarantees and/or registered mortgage charges. 137 ALLIED 2018 ANNUAL REPORTCredit risk from user receivables arises from the possibility that users may experience financial difficulty and be unable to fulfill their lease commitments, resulting in Allied incurring a financial loss. Allied manages credit risk to mitigate exposure to financial loss by staggering lease maturities, diversifying revenue sources over a large user base, ensuring no individual user contributes a significant portion of Allied’s revenues and conducting credit reviews of new users. Management reviews user receivables on a regular basis and reduces carrying amounts through the use of an allowance for doubtful accounts and the amount of any loss is recognized in the consolidated statements of income and comprehensive income within property operating costs. As at December 31, 2018, and December 31, 2017, the allowance for doubtful accounts totals $2,333 and $2,342, respectively. Allied considers that all the financial assets that are not impaired or past due for each of the reporting dates under review are of good quality. The carrying amount of accounts receivable best represents Allied’s maximum exposure to credit risk. None of Allied’s financial assets are secured by collateral or other credit enhancements. An aging of trade receivables, including trade receivables past due but not impaired can be shown as follows: Less than 30 days 30 to 60 days More than 60 days Total (D) Liquidity risk DECEMBER 31, 2018 DECEMBER 31, 2017 $1,692 1,719 3,897 $7,308 $1,556 659 2,482 $4,697 Liquidity risk arises from the possibility of not having sufficient capital available to fund ongoing operations or the ability to refinance or meet obligations as they come due. Mitigation of liquidity risk is also managed through credit risk as discussed above. A significant portion of Allied’s assets have been pledged as security under the related mortgages and other security agreements. Interest rates on the mortgages payable are between 3.59% and 5.58% for December 31, 2018 (2.00% and 6.88% - December 31, 2017). As at December 31, 2018, Allied has entered into interest rate derivative contracts to limit its exposure to fluctuations in interest rates on $208,712 of its variable rate mortgages payable and $450,000 of its variable rate Unsecured Term Loans (December 31, 2017 - $215,827 and $350,000, respectively). Gains or losses arising from the change in fair values of the interest rate derivative contracts are recognized in the consolidated statements of income and comprehensive income. For the year ended December 31, 2018, Allied recognized as part of the change in fair value adjustment on derivative instruments a net loss of $6,470 (for the year ended December 31, 2017 – a net gain of $13,889). Liquidity and capital availability risks are mitigated by maintaining appropriate levels of liquidity, diversifying Allied’s sources of funding, maintaining a well-staggered debt maturity profile and actively monitoring market conditions. 138 ALLIED 2018 ANNUAL REPORT(E) Maturity Analysis The undiscounted future principal and interest payments on Allied’s debt instruments are as follows: 2019 2020 2021 2022 2023 THERE- AFTER TOTAL Mortgages payable $68,544 $57,773 $157,617 $145,206 $249,180 $236,198 $914,518 Construction loans payable 72,916 — — — Unsecured Facility 3,469 3,469 3,469 95,289 — — — — $72,916 105,696 Unsecured Debentures 21,606 246,606 13,173 163,173 7,272 214,544 $666,374 Unsecured Term Loans 15,700 15,700 209,980 9,980 9,980 269,960 $531,300 Total $182,235 $323,548 $384,239 $413,648 $266,432 $720,702 $2,290,804 25. COMMITMENTS AND CONTINGENCIES Allied has entered into commitments for acquisitions, building renovations with respect to leasing activities and development costs. The commitments as at December 31, 2018, and December 31, 2017, were $402,525 and $77,609, respectively. Allied is subject to legal and other claims in the normal course of business. Management and legal counsel evaluate all claims. In the opinion of Management these claims are generally covered by Allied’s insurance policies and any liability from such remaining claims are not probable to occur and would not have a material effect on the consolidated financial statements. Allied, through a financial intermediary, has issued letters of credit in the amount of $14,545 representing deposits on financing requirements (December 31, 2017 - $5,691). 26. SUBSEQUENT EVENTS On February 1, 2019, Allied completed the purchase of 145 George, Toronto, for $1,300. 139 ALLIED 2018 ANNUAL REPORT2019 Outlook LOW-MID-SINGLE-DIGIT % GROWTH IN SANOI LOW-MID-SINGLE-DIGIT % GROWTH IN FFO/UNIT LOW-MID-SINGLE-DIGIT % GROWTH IN AFFO/UNIT CONTINUED GROWTH IN NAV/UNIT CONTINUED STRONG DEBT-METRICS CONTINUED GROWTH IN UNENCUMBERED ASSETS 140 ALLIED 2018 ANNUAL REPORTALLIED PROPERTIES REIT 134 PETER STREET, SUITE 1700 TORONTO, ONTARIO M5V 2H2 T 416.977.9002 F 416.306.8704 alliedreit.com 141 ALLIED 2018 ANNUAL REPORT

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