Allied Properties Real Estate Investment Trust Annual Report 2018

FY2018 Annual Report · Allied Properties Real Estate Investment Trust

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Annual Report
December 31, 2018

Urban environments for
creativity and connectivity

1
02.13.19

ALLIED 2018 ANNUAL REPORTCOVER: 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

ALLIED 2018 ANNUAL REPORTAnnual 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Development Properties . . . . . . . . . . . . . . . . . . . . . 37

Residential Inventory . . . . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . . . . .

Cybersecurity Risk . . . . . . . . . . . . . . . . . . . . . . . . . .

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

ALLIED 2018 ANNUAL REPORTLetter 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.

ALLIED 2018 ANNUAL REPORTDEVELOPMENT

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

ALLIED 2018 ANNUAL REPORTintensification 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

ALLIED 2018 ANNUAL REPORTManagement’s Discussion and
Analysis of Results of Operations
and Financial Condition as at
December 31, 2018

ALLIED 2018 ANNUAL REPORTSection 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.

ALLIED 2018 ANNUAL REPORTNON-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.

ALLIED 2018 ANNUAL REPORTThe 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.

ALLIED 2018 ANNUAL REPORTSUMMARY 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

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

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

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 .41

0 .68

0 .527

1.73

5.51

2.089

2.166

1 .69

4 .07

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

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.

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.

ALLIED 2018 ANNUAL REPORTUrban 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.

ALLIED 2018 ANNUAL REPORTPROPERTY 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.

ALLIED 2018 ANNUAL REPORT—

5,482

750

—

5,482

1,500

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.

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.

ALLIED 2018 ANNUAL REPORTBUSINESS 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.

ALLIED 2018 ANNUAL REPORTSection II
—Leasing

ALLIED 2018 ANNUAL REPORTAllied 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%

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.

ALLIED 2018 ANNUAL REPORTACTIVITY

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

20 .7%

$20 .87

$15 .72

ALLIED 2018 ANNUAL REPORTUSER 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 .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

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

ALLIED 2018 ANNUAL REPORTThe 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

ALLIED 2018 ANNUAL REPORTSection 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

—

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)

—

(67,030)

—

67,180

(67,180)

(185,770)

185,770

—

(103,690)

—

(103,690)

(17,631)

470

—

(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

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

ALLIED 2018 ANNUAL REPORTRENTAL 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%

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.

ALLIED 2018 ANNUAL REPORTNETWORK-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

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

ALLIED 2018 ANNUAL REPORTAs 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.

ALLIED 2018 ANNUAL REPORTAllied 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

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

5,824,728

221,183

6,045,911

2,283,269

525,534

377,676

3,186,479

21,059,798

ALLIED 2018 ANNUAL REPORTThe 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.

ALLIED 2018 ANNUAL REPORTAllied 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

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

—

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

—

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.

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

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

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.

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

TO RENTAL

APPRAISED

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

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.

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%

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.

ALLIED 2018 ANNUAL REPORTLOANS 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

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.

ALLIED 2018 ANNUAL REPORTDEBT

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

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

ALLIED 2018 ANNUAL REPORT

The chart below summarizes the maturities of principal in regards to Allied’s various obligations as at December 31, 2018:

ALLIED 2018 ANNUAL REPORTMORTGAGES 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.

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

3 .934%

November 14, 2022

May 14 and November 14

150,000

3 .636%

April 21, 2025

April 21 and October 21

200,000

Unsecured Debentures, principal

Net premium on Unsecured Debentures

Net financing costs

$575,000

216

369

(1,896)

(2,520)

$573,320

$572,849

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

March 16, 2021

Quarterly

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.

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

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.

ALLIED 2018 ANNUAL REPORTFINANCIAL 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

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)

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.

ALLIED 2018 ANNUAL REPORTThe 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.

ALLIED 2018 ANNUAL REPORTUNIT 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).

ALLIED 2018 ANNUAL REPORTDISTRIBUTIONS 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 .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 .04

$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.

ALLIED 2018 ANNUAL REPORTIn 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

ALLIED 2018 ANNUAL REPORTSection 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

ALLIED 2018 ANNUAL REPORTNet 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

ALLIED 2018 ANNUAL REPORTThe 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%

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.

ALLIED 2018 ANNUAL REPORTTHREE 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

$14,248

$3,029

28,118

8,261

50,627

11,612

62,239

965

1,886

(17)

4,898

925

5,823

(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%)

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.

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

$58,150

105,301

32,130

195,581

42,585

238,166

5,208

$9,923

6,988

(704)

16,207

6,553

22,760

(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)%

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.

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.

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.

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.

ALLIED 2018 ANNUAL REPORTThe 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%)

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

$1 .590

$2 .127

$1 .587

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.

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

4,962

(919)

(423)

(419)

2,731

257

(111)

5,264

(810)

(549)

(1,556)

6,992

1,828

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.

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.

ALLIED 2018 ANNUAL REPORTThe 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

ALLIED 2018 ANNUAL REPORTSection VI
—Historical Performance

The following sets out summary information and financial results for the eight most recently completed fiscal quarters.

ALLIED 2018 ANNUAL REPORTQ4
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.

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.

ALLIED 2018 ANNUAL REPORTSection 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.

ALLIED 2018 ANNUAL REPORTSection 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.

ALLIED 2018 ANNUAL REPORTFINANCING 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.

ALLIED 2018 ANNUAL REPORTCREDIT 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:

ALLIED 2018 ANNUAL REPORTIn 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.

ALLIED 2018 ANNUAL REPORTTAXATION 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.

ALLIED 2018 ANNUAL REPORTSection 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%

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%

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

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

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%

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%

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

4,038

53,301

93 .0%

275,709

4,387

271,322

98 .4%

173,000

67,000

106,000

61 .3%

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%

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

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

203

121

171

844

ALLIED 2018 ANNUAL REPORT

Consolidated Financial Statements
for the Years Ended
December 31, 2018 and 2017

ALLIED 2018 ANNUAL REPORTManagement’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

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.

ALLIED 2018 ANNUAL REPORTOur 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.

ALLIED 2018 ANNUAL REPORTAs 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

ALLIED 2018 ANNUAL REPORTALLIED 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

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

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

Property operating costs

Net rental income

Interest expense

General and administrative expenses

Condominium marketing expenses

10 (f)

Amortization of other assets and leasing costs

5 & 8

Interest income

Fair value gain on investment properties

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

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

87,864,560

88,006,010

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

$2,098,267

$911,832

$11,407

$3,021,506

Net income and comprehensive income

—

357,959

Unit offering (net of issuance costs)

287,701

—

Distributions

—

(135,177)

Unit option plan – options exercised

Contributed surplus – Unit option plan

Restricted Unit plan (net of forfeitures)

15 (a)

15 (b)

Long-term incentive plan

15,948

—

(2,173)

Purchase of Units under normal course issuer
bid for cancellation

(47)

—

1,466

1,767

—

357,959

287,701

(135,177)

15,948

1,466

(406)

(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

$2,399,768

$1,134,614

$14,640

$3,549,022

Net income and comprehensive income

—

540,276

Unit offering (net of issuance costs)

435,168

—

Distributions

—

(153,855)

Unit option plan – options exercised

Contributed surplus – Unit option plan

Restricted Unit plan (net of forfeitures)

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.

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

24 (d)

10 (f)

19, 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

$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, 15

Restricted Unit Plan (net of forfeitures)

14, 15

Proceeds from notes receivables

Drawings from Unsecured Revolving Operating Facility

10 (c)

—

198,825

99,190

(24)

(152,123)

435,168

3,043

—

(2,584)

575

470,000

—

(22)

(133,900)

287,701

15,948

(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

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

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.

ALLIED 2018 ANNUAL REPORTThe 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.

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.

ALLIED 2018 ANNUAL REPORTInvestment 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.

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.

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 REPORTFINANCIAL 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 REPORTIFRS 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 REPORTFinancial 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 REPORTAllied 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 REPORTKey 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 REPORT4. 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

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%

100%

50%

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%

10%

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

(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

INVESTMENT PROPERTIES

Changes to the carrying amounts of investment properties are summarized as follows:

DECEMBER 31, 2018

DECEMBER 31, 2017

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)

(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)

Transfers to other assets

Finance lease

(17,631)

1,884

—

(17,631)

1,884

2,880

—

(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.

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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%

6 .93%

5 .86%

5 .43%

Discount rate

Terminal capitalization rate

Overall capitalization rate

Discount horizon (years)

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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

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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.

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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

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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.

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

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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.

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ALLIED 2018 ANNUAL REPORT

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

3 .934%

November 14, 2022

May 14 and November 14

150,000

3 .636%

April 21, 2025

April 21 and October 21

200,000

Unsecured Debentures, principal

Net premium on Unsecured Debentures

Net financing costs

$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.

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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

March 16, 2021

Quarterly

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)).

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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%).

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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

$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

102,241

Cash and cash equivalents (note 19)

Amortized cost

18,361

6,048

Accounts receivable (note 9)

Amortized cost

20,846

27,509

Unsecured term loan interest swap asset
(note 8)

FVTPL

4,746

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

46,758

Unsecured Facility

Amortized cost

95,000

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

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

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 REPORT14. 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)

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 REPORTNORMAL 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

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

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

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

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

DECEMBER 31, 2018

DECEMBER 31, 2017

198,807

24.48%

3.87%

2.32%

$1,354

279,654

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

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 REPORT16. 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 REPORT18. 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

Calgary, AB

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%

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 REPORTSEGMENTED 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

$95,000

$106,990

$950

$1,070

$(950)

$(1,070)

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 REPORTCredit 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

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

209,980

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 REPORT2019 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 REPORTALLIED 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