Allied Properties Real Estate Investment Trust
Annual Report 2019

Plain-text annual report

Annual Report December 31, 2019 Urban environments for creativity and connectivity 02.05.20 COVER: YOUNES BOUNHAR, DOUBLESPACE PHOTOGRAPHY 2019 YOY SANOI GROWTH 5.5% YOY NORMALIZED FFO PER UNIT GROWTH 5.5% (EXCLUDING CONDO MARKETING COSTS) YOY NORMALIZED AFFO PER UNIT GROWTH 7.8% (EXCLUDING CONDO MARKETING COSTS) YOY RENT GROWTH ON RENEWALS AND REPLACEMENTS 18.7% YOY NAV/UNIT GROWTH 10.5% DEBT RATIO AT YEAR-END 26.1% UNENCUMBERED ASSETS AT YEAR-END $5.5B Annual Report December 31, 2019 Contents LETTER TO UNITHOLDERS . . . . . . . . . . . . . . . . 5 MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION AS AT DECEMBER 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION I—Overview . . . . . . . . . . . . . . . . . . . . . . . 9 Summary of Key Financial and Operating Performance Measures . . . . . . . . . . . . . . . . . . . . . . 13 Business Overview and Strategy . . . . . . . . . . . . . . 15 Property Management . . . . . . . . . . . . . . . . . . . . . . . 18 Property Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Acquisitions & Dispositions . . . . . . . . . . . . . . . . . . 20 Corporate Social Responsibility . . . . . . . . . . . . . . . 21 Business Environment and Outlook . . . . . . . . . . . . 22 SECTION II—Leasing . . . . . . . . . . . . . . . . . . . . . . 23 Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 User Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Lease Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION III—Asset Profile . . . . . . . . . . . . . . . . . . 30 Rental Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Development Properties . . . . . . . . . . . . . . . . . . . . . 41 Residential Inventory . . . . . . . . . . . . . . . . . . . . . . . . 43 Development Completions . . . . . . . . . . . . . . . . . . . 45 Loans Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION IV—Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION IX—Risks and Uncertainties . . . . . . . . . 83 Financing and Interest Rate Risk . . . . . . . . . . . . . . 84 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 55 Unitholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . 56 Distributions to Unitholders . . . . . . . . . . . . . . . . . . 59 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 SECTION V—Discussion of Operations . . . . . . . . 61 Net Income and Comprehensive Income . . . . . . . . 62 Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . 64 Same Asset NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 General and Administrative Expenses . . . . . . . . . . 70 Other Financial Performance Measures . . . . . . . . . 70 SECTION VI—Historical Performance . . . . . . . . . 78 SECTION VII—Accounting Estimates and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION VIII—Disclosure Controls and Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Lease Roll-Over Risk . . . . . . . . . . . . . . . . . . . . . . . . 85 Environmental and Climate Change Risk . . . . . . . . 86 Development Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Taxation Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Joint Arrangement Risk . . . . . . . . . . . . . . . . . . . . . . 87 Cybersecurity Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Real Estate Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 SECTION X—Property Table . . . . . . . . . . . . . . . . . 89 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 . . . . . . . . . . . . 97 Management’s Statement of Responsibility for Financial Reporting . . . . . . . . . . 98 Independent Auditor’s Report . . . . . . . . . . . . . . . . 99 Consolidated Balance Sheets . . . . . . . . . . . . . . . . 102 Consolidated Statements of Income and Comprehensive Income . . . . . . . . . . 103 Consolidated Statements of Unitholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . 104 Consolidated Statements of Cash Flows . . . . . . . 105 Notes to the Consolidated Financial Statements 107 4 ALLIED 2019 ANNUAL REPORTLetter to Unitholders Dear Fellow Unitholder: As you know, we pursue sustained profitability for the benefit of our unitholders by operating, acquiring and developing distinctive urban workspace and network-dense urban data centres (“UDCs”) in Canada’s major cities. In 2019, we pursued our strategy with excellent short-term and long-term results. Most notably, we allocated $870 million to accretive acquisitions and another $425 million to development and value-add activity. In the face of this extraordinary level of capital allocation, we maintained strong balance-sheet metrics by raising more capital ($920 million in equity and $600 million in unsecured debentures) at lower cost than any other year in our history. Measured by short-term results, our performance was at the high-end of our internal forecast with mid-single-digit percentage growth in each of same-asset NOI, FFO per unit and AFFO per unit. Measured by long-term results, our performance was also at the high-end of expectation. Following 10% NAV per unit growth in 2018, we delivered 11% growth in 2019. In 2018, development completions and value-add initiatives represented 44% of our NAV per unit growth, organic NOI growth 18% and cap-rate compression 37%. In 2019, development completions and value-add initiatives represented 34% of our NAV per unit growth, development approvals 3%, organic NOI growth 44% and cap-rate compression 19%. We cannot count on cap-rate compression to drive NAV per unit growth in any particular year, as cap rates are entirely beyond our control. Indeed, cap-rate expansion will occur from time to time, putting downward pressure on NAV per unit. It’s important to appreciate, therefore, that nearly three-quarters of our NAV per unit growth in the past two years was driven by development completions and value-add initiatives, development approvals and organic NOI growth and just over one-quarter by cap-rate compression. This underscores the importance of ongoing NOI growth, organic and otherwise, which can drive NAV per unit growth independently of cap rates. 5 ALLIED 2019 ANNUAL REPORTWe made excellent progress on our development program in 2019, which bodes well for our short-term and long-term results going forward. By year-end, the office component of The Well in Toronto, which expanded by 90,000 square feet to 1.16 million square feet of GLA, was 84% pre-leased, 425 Viger in Montréal 95% pre-leased and TELUS Sky in Calgary 64% pre-leased. Construction is on schedule at The Well and 425 Viger, and construction at TELUS Sky is nearing completion. Construction is underway at 19 Duncan in Toronto, the office component of which is 100% pre- leased, and The Breithaupt Block, Phase III, in Kitchener, which is also 100% pre-leased. All pre-leasing commitments are from outstanding knowledge-based organizations. Looking forward, we expect our operating and development environment to be favourable in 2020. Our internal forecast for 2020 calls for mid-single-digit percentage growth in each of same-asset NOI, FFO per unit and AFFO per unit. While we do not forecast NAV per unit growth in a given year, we do expect to propel further growth in 2020. We also expect to allocate a large amount of capital in 2020 with the same strategic coherence and discipline we demonstrated in 2019. We’re currently committed to allocating $335 million to development and value-add activity, and we expect to allocate additional capital to accretive acquisitions. It follows that we continue to have deep confidence in our strategy of operating, acquiring and developing distinctive urban workspace and UDCs in Canada’s major cities. We firmly believe that our strategy is underpinned by the most important secular trends in Canadian and global real estate. We also firmly believe that we have the properties, the people and the platform necessary to execute our strategy for the ongoing benefit of our unitholders. 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 6 ALLIED 2019 ANNUAL REPORT7 ALLIED 2019 ANNUAL REPORTManagement’s Discussion and Analysis of Results of Operations and Financial Condition as at December 31, 2019 8 ALLIED 2019 ANNUAL REPORTSection I —Overview Allied is an unincorporated closed-end real estate investment trust created pursuant to the Declaration of Trust (“Declaration”) dated October 25, 2002, as amended and restated from time to time, most recently on May 12, 2016. Allied is governed by the laws of Ontario. Allied’s units (“Units”) are publicly traded on the Toronto Stock Exchange under the symbol “AP.UN’’. Additional information on Allied, including its annual information form, is available on SEDAR at www.sedar.com. This Management’s Discussion and Analysis (“MD&A”) of results of operations and financial condition relates to the year ended December 31, 2019. 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 5, 2020, and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019. 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. 9 ALLIED 2019 ANNUAL REPORTNON-IFRS MEASURES Readers are cautioned that certain terms used in the MD&A such as Funds from Operations (“FFO”), Normalized Funds from Operations (“Normalized FFO”), Adjusted Funds from Operations (“AFFO”), Normalized Adjusted Funds from Operations (“Normalized AFFO”), Net Rental Income (“NRI”) (a non-IFRS measure on a consolidated basis), 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, 2019. 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”. Allied applies the equity method of accounting to its joint venture, TELUS Sky, as prescribed under IFRS. Any references to the financial statements refer to amounts as reported under IFRS unless referenced as “proportionate share” or “proportionate basis,” which are non-IFRS measures and include the proportionate share of equity accounted investments. Management presents the proportionate share of its interests in joint arrangements that are accounted for using the equity method as it is viewed as more relevant in demonstrating Allied’s performance and is the basis of many of Allied’s key performance measures. Refer to Section III - Asset Profile, Section IV - Liquidity and Capital Resources, and Section V - Discussion of Operations, for a reconciliation of Allied’s consolidated financial statements as presented under IFRS to the proportionate share basis. 10 ALLIED 2019 ANNUAL REPORT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: 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 operating 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. The forward-looking statements in this MD&A are not guarantees of future results, operations or performance and are based on estimates and assumptions that are subject to risks and uncertainties, including those described in Section IX - Risks and Uncertainties, which could cause actual results, operations or performance to differ materially from the forward-looking statements in this MD&A. Those risks and uncertainties include risks associated with property ownership, property development, geographic focus, asset-class focus, competition for real property investments, financing and interest rates, government regulations, environmental matters, construction liability, taxation and cybersecurity. Material assumptions that were made in formulating the forward-looking statements in this MD&A include the following: that our current target markets remain stable, with no material increase in supply of directly-competitive office space; that acquisition capitalization rates remain reasonably constant; that the trend toward intensification within our target markets continues; and that the equity and debt markets continue to provide us with access to capital at a reasonable cost to fund our future growth and potentially refinance our mortgage debt as it matures. Although the forward-looking statements contained in this MD&A are based on what Management believes are reasonable assumptions, there can be no assurance that actual results, operations or performance will be consistent with these statements. 11 ALLIED 2019 ANNUAL REPORT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 5, 2020, 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. 12 ALLIED 2019 ANNUAL REPORTSUMMARY OF KEY FINANCIAL AND OPERATING PERFORMANCE MEASURES The following table summarizes the key financial and operating performance measures for the periods listed below: ($000’s except per-square foot, per-unit and financial ratios) Portfolio Number of properties (1) 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 (4) Total assets (4) Cost of PUD as % of GBV THREE MONTHS ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2017 192 175 12,948 11,192 12,278 10,826 94.8% 96 .7% 94.4% 96 .3% 170 11,268 10,728 95 .2% 93 .5% 22.88 22 . 64 22 .52 84.9% 90 .6% 18.7% 17 .8% 84 .7% 17 .8% 7,576,225 6,257,647 5,627,439 8,324,179 6,706,271 5,823,632 9.4% 8 .9% 6 .5% Unencumbered investment properties 5,464,860 4,266,900 2,925,135 Total debt (4) Net asset value (4) 2,155,181 1,957,611 1,959,877 5,717,699 4,374,663 3,549,022 Annualized Adjusted EBITDA 333,216 273,984 310,291 267,550 252,753 Net debt 1,943,899 1,939,250 1,943,899 1,939,250 1,953,829 Net debt as a multiple of Annualized Adjusted EBITDA Adjusted EBITDA Interest expense (4) Adjusted EBITDA as a multiple of interest expense Rental revenue from investment properties (4) 5.8x 7 .1x 6.3x 7 .2x 7 .7x 83,304 68,496 310,291 267,550 252,753 15,838 14,422 60,826 60,969 69,625 5.3x 4 .7x 5.1x 4 .4x 3 .6x 134,718 112,889 497,256 436,396 419,263 NOI 81,950 70,371 309,992 272,285 250,344 Same Asset NOI - rental portfolio 71,165 68,653 281,259 266,669 238,166 Same Asset NOI - total portfolio 72,127 69,094 286,388 268,519 243,374 Net income excluding gain (loss) on disposal and fair value adjustments (3) Net income FFO 55,711 45,926 210,994 168,704 148,516 264,960 137,270 629,223 540,276 357,959 66,304 55,657 251,083 204,695 187,204 13 ALLIED 2019 ANNUAL REPORT SUMMARY OF KEY FINANCIAL AND OPERATING PERFORMANCE MEASURES - continued ($000’s except per-square foot, per-unit and financial ratios) DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2017 THREE MONTHS ENDED YEAR ENDED YEAR ENDED Normalized FFO (2) Normalized AFFO (2) Distributions Per unit: 68,181 55,657 255,102 212,197 187,204 56,741 45,186 215,632 175,645 139,668 47,267 40,817 180,284 153,855 135,177 Net income excluding gain (loss) on disposal and fair value adjustments Net income FFO Normalized FFO (2) 0.47 2.24 0.561 0.577 0 .44 1 .32 0 .535 0 .535 1.87 5.58 2.227 2.263 1 .72 5 .51 2 . 089 2 .166 1 .69 4 .07 2 .127 2 .127 Normalized FFO payout ratio (2) 69.3% 73 .3% 70.7% 72 .5% 72 .2% Normalized FFO (2) excluding condo marketing costs Normalized AFFO (2) 0.583 0.480 0 .550 0 .434 2.301 1.913 2 .182 1 . 793 2 .127 1 .587 Normalized AFFO payout ratio (2) 83.3% 90 .3% 83.6% 87 .6% 96 .8% Normalized AFFO (2) excluding condo marketing costs Distributions Net asset value 0.487 0.40 0 .450 0 .39 1.951 1.60 46.55 1 . 809 1 .56 42 .12 1 .587 1 .53 38 .19 Actual Units outstanding 122,838,799 103,861,945 92,935,150 Weighted average diluted Units outstanding 118,248,550 104,062,567 112,731,050 97,965,711 88,006,010 Financial Ratios Total indebtedness ratio Secured indebtedness ratio Debt service coverage ratio Unencumbered property asset ratio Interest-coverage ratio - including interest capitalized ALLIED’S TARGETS <35% <45% >1.50x >1.40x >3.0x 26.1% 29 .4% 9.1% 12 .5% 2.5x 3.9x 3.3x 2 .2x 3 .8x 3 .2x 33 .8% 17 .4% 2 .0x 3 .1x 2 .8x (1) Allied changed the property count methodology to reflect the number of buildings in the portfolio. For example, CDM is marketed as one complex, but consists of six buildings. The comparative periods were restated to reflect the new methodology. (2) In the third and fourth quarter of 2019, Allied incurred $2,563 and $3,455, respectively, of prepayment costs in connection with the favourable refinancing of unsecured debentures and first mortgages, which was partially offset by incremental condominium profits of $1,999 in the year. In June 2018, Allied incurred $7,502 of prepayment cost in connection with the favourable refinancing of the first mortgage on 151 Front W, Toronto. Allied normalized the presentation of FFO and AFFO by excluding these items. (3) Includes $26,152 of fair value adjustments related to an equity accounted investment (December 31, 2018 - $1,848). (4) This measure is presented on either a proportionate consolidation or IFRS basis; refer to Section III, Section IV or Section V for a reconciliation of these measures. 14 ALLIED 2019 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. DISTINCTIVE 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 distinctive urban workspace in Canada’s major cities. URBAN DATA CENTRE (UDC) SPACE In addition to providing urban workspace, Allied provides network-dense UDC 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. WORKSPACE INNOVATION Allied’s experience informed its approach to workspace innovation. 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 workspace innovation. 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. 15 ALLIED 2019 ANNUAL REPORTWorkspace amenities have made an equivalent contribution to workspace innovation. While achievable to an extent within a single building, amenity-richness is best achieved within a surrounding urban neighbourhood. This in turn places a premium on clustering buildings within an amenity-rich urban neighbourhood. Allied’s experience with Class I workspace also increased its sensitivity to design. When people migrated to the suburbs in the 1950s, the sensitivity to design in the inner-cities seemed to diminish, if not disappear altogether. Heritage properties were destroyed to make way for non-descript, inward-looking buildings, and synthetic materials seemed to cover everything everywhere. Fortunately, design now matters, and design now pays. The workspace Allied created at QRC West in Toronto is an excellent example. Allied’s architects came up with a creative and beautiful way to build a new office tower above two fully-restored heritage buildings. Although the design entailed additional cost, the ultimate economic and social return on the investment was exceptional. The design paid off in every conceivable way. Finally, 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. FOCUS AND DEFINITION From the outset, Allied adhered to a clear investment and operating focus. It focused initially on the Class I format and continues to do so on a large scale in major urban centres in Canada. More recently, Allied expanded its focus to include hybrid structures like QRC West and King Portland Centre in Toronto and 425 Viger in Montréal, where heritage buildings were integrated with new structures in a way that resonated meaningfully with the knowledge-based organizations Allied serves. Allied will continue to do so on a large scale in major urban centres in Canada. As Allied’s business grew and evolved, it was defined not by the specific workspace format Allied owns, operates and develops, but rather by the workspace users Allied serves. If a particular format enables Allied to serve knowledge- based organizations better and more profitably, Allied will invest in it. The Well in Toronto is a good example. The workspace component will be a high-rise tower for the most part with no heritage element at all. However, because of its architecture, performance attributes and location within a vibrant and amenity-rich neighbourhood, it has attracted outstanding knowledge-based organizations. 16 ALLIED 2019 ANNUAL REPORTAllied’s acquisition of 700 de la Gauchetière Street West in Montréal (“700 DLG”) in July of 2019 is another good example. Through a user-led transformation, a small portion of the workspace at 700 DLG was improved in a manner consistent with the distinctive urban workspace environments that Allied develops, owns and operates. In fact, this workspace is strikingly similar to workspace occupied by Ubisoft, Framestore, Spaces and Sun Life Financial at Allied’s de Gaspé properties in Montréal. Allied intends (i) to work with existing and future users to continue this transformation over time and (ii) to transform the extensive public and common areas, all with a view to creating a comprehensively distinctive urban workspace environment at 700 DLG for knowledge-based organizations. In effect, Allied intends to complete on a vertical plane the kind of building transformation it has completed so often on a more horizontal plane. In doing so, Allied expects to augment its ability to serve knowledge-based organizations, as well as adding meaningful value to 700 DLG over a three- to five-year timeframe. When Allied’s business is defined by the workspace users it serves, the actual format becomes less important and the specific building attributes and neighbourhood amenities take on paramount importance. Accordingly, if a conventional office tower can be transformed to provide the specific attributes and amenities favoured by knowledge- based organizations, it falls squarely within Allied’s investment and operating focus. This expands Allied’s opportunity- set materially. VISION AND MISSION Allied’s vision statement is as follows: To make a continuous contribution to cities and culture that elevates and inspires the humanity in all of us. In isolation, this could be seen as somewhat extravagant and nebulous, but it is fully grounded and informed by Allied’s mission statement, which is as follows: To provide knowledge-based organizations with distinctive urban workspace in a manner that is sustainable and conducive to human wellness, creativity, connectivity and diversity. Like all such statements, Allied’s vision and mission statements need elaboration. From inception, Allied’s approach to workspace was both humanistic and technical. Allied sees workspace from the vantage point of people who use it rather than people who invest in it. Allied sees workspace as optimal light and air, a flexible and open floorplan and a collaborative rather than feudal relationship between owner and user. Allied sees workspace as a product of aesthetic and technical design. Finally, Allied sees workspace as part of a large, amenity- rich, urban ecosystem rather than as an instance of the monumental isolation that characterizes so many conventional office towers. Real estate is no longer a passive investment or a static tolling business. It is a profoundly human business that needs to keep pace with demographic and technological change, as well as the ongoing change in human attitudes and values. It needs to be run with future generations in mind. This means we have to run commercial real estate to save the global environment, not destroy it. It means we have to foster human wellness, not undermine it. It means we have to promote diversity, not impose uniformity. It means we have to facilitate creativity, not encourage conformity. Finally, it means we have to build and operate as city builders. 17 ALLIED 2019 ANNUAL REPORTCity builders see commercial real estate as an integral part of a much larger ecosystem of infrastructure, buildings and people. The ecosystem, of course, is the city. We can only build cities well if they endure, if they stand the test of time. This means cities have to be sustainable and conducive to human wellness, creativity, connectivity and diversity. Put differently, it means they have to elevate and inspire the humanity in all of us. City building requires commitment, innovation and imagination, something Allied strives for on an ongoing basis. In an era of remarkable and continuous urban intensification, city building is essential to sustained profitability in real estate. Sporadic profitability is achievable without reference to the principles of city building. Merchant development of commoditized structures in a boom market illustrates this perfectly. Sustained profitability, on the other hand, requires adherence to the principles of city building. It follows that Allied’s vision and mission statements are the aspirational context within which Allied pursues sustained profitability for the benefit of its unitholders. PROPERTY MANAGEMENT Allied’s wholly owned subsidiary, Allied Properties Management Limited Partnership, provides property management and related services on a fee-for-services basis. 18 ALLIED 2019 ANNUAL REPORTPROPERTY PORTFOLIO Allied completed its initial public offering on February 20, 2003, at which time it had assets of $120 million, a market capitalization of $62 million and a local, urban-office portfolio of 820,000 square feet of GLA. As of December 31, 2019, Allied had assets of $8.3 billion, a market capitalization of $6.4 billion and rental properties with 12.9 million square feet of GLA in seven cities across Canada. The illustration below depicts the geographic diversity of Allied’s rental portfolio. 19 ALLIED 2019 ANNUAL REPORTACQUISITIONS AND DISPOSITIONS During the year ended December 31, 2019, Allied completed the following property acquisitions from third parties: PROPERTY ACQUISITION DATE ACQUISITION COST (1) OFFICE GLA RETAIL GLA TOTAL GLA 738-11th SW, Calgary (2) April 9, 2019 6,145 10,844 2233 Columbia, Vancouver April 11, 2019 25,074 21,591 2-4 Stewart, Kitchener (3) May 9, 2019 1,791 — 4,895 6,852 — 15,739 28,443 — 1050 Homer, Vancouver May 27, 2019 41,420 28,483 14,215 42,698 53-55 Wellington, Kitchener (3) June 3, 2019 371 — — — 1001 Rue Lenoir, Montréal July 2, 2019 82,091 304,555 39,013 343,568 700 de la Gauchetière, Montréal July 17, 2019 335,714 955,790 45,179 1,000,969 365 Railway, Vancouver September 26, 2019 18,988 134-11th SE, Calgary (4) November 28, 2019 14,800 Ancillary residential properties, Toronto (5) — 23,074 31,528 73,352 — — — — 31,528 73,352 — Total $549,468 1,426,143 110,154 1,536,297 (1) Purchase price plus transaction costs. (2) This property is 50/50 co-owned with First Capital. (3) These properties are 50/50 co-owned with Perimeter and are grouped with Breithaupt - Phase III in our PUD. (4) 134-11th SE has a parking lot component containing 21 spaces. (5) Allied acquired eight ancillary residential properties in 2019. On January 14, 2020, Allied completed the purchase of 3530-3540 Saint-Laurent, Montréal, for a purchase price of $13,000. On January 15, 2020, Allied completed the purchase of 4396-4410 Saint Laurent, Montréal, for a purchase price of $18,000. On January 16, 2020, Allied completed the purchase of 54 The Esplanade, Toronto, for a purchase price of $25,000. On January 28, 2020, Allied completed the purchase of 747 Square-Victoria, Montréal, for a purchase price of $276,000. During the year ended December 31, 2019, Allied did not dispose of any investment properties. 20 ALLIED 2019 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. With carbon reduction a primary focus of our operations, Allied is systematically deploying a multi-year energy budget. The budget allocates dedicated funds for capital projects that are focused on mitigating carbon emissions in Allied’s portfolio. 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. 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, which celebrates the power of place to facilitate connectivity and creativity. The program allows Allied to leverage its expertise and its properties in order to support art, creativity and culture via strategic community partnerships. It is a compelling dimension of Allied’s story, which can engage tenants, employees, investors and the broader community. 21 ALLIED 2019 ANNUAL REPORTBUSINESS ENVIRONMENT AND OUTLOOK As at December 31, 2019, Allied operated in seven urban markets in Canada – Toronto, Kitchener, Ottawa, Montréal, Calgary, Edmonton and Vancouver. Allied expects its operating and development environments to remain favourable in 2020. Allied’s internal forecast for 2020 contemplates mid-single-digit percentage growth in each of same-asset NOI, FFO per unit and AFFO per unit. While Allied does not forecast NAV per unit growth in a given year, Allied does expect to propel further growth in 2020. Allied does expect to allocate a large amount of capital in 2020 with the same strategic coherence and discipline demonstrated in 2019. Allied is currently committed to allocating $335 million to development and value-add activity in 2020, and expects to allocate additional capital to accretive acquisitions. Allied has deep confidence in its strategy of operating, acquiring and developing distinctive urban workspace and UDCs in Canada’s major cities. Allied firmly believes that its strategy is underpinned by the most important secular trends in Canadian and global real estate. Allied also firmly believes that it has the properties, the people and the platform necessary to execute its strategy for the ongoing benefit of its unitholders. 22 ALLIED 2019 ANNUAL REPORTSection II —Leasing Allied strives to maintain high levels of occupancy and leased area. At December 31, 2019, Allied’s rental portfolio was 94.8% leased. 23 ALLIED 2019 ANNUAL REPORTSTATUS Leasing status for the rental portfolio as at December 31, 2019, is summarized below: Leased area (occupied & committed) December 31, 2018 Vacancy committed for future leases Occupancy - December 31, 2018 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) 10,826,361 96.7% (52,374) 10,773,987 96.3% 51,481 153,741 (245,740) (79,523) 91,435 Occupancy (pre acquisitions, dispositions and transfers) 10,745,381 95.3% Occupancy related to acquired properties Occupancy related to transfers from PUD 1,335,412 136,318 Occupancy - December 31, 2019 12,217,111 94.4% Vacancy committed for future leases 60,635 Leased area (occupied & committed) December 31, 2019 12,277,746 94.8% (1) Excludes properties under development. Of 12,948,175 square feet total GLA in Allied’s rental portfolio, 12,217,111 square feet were occupied by users on December 31, 2019. Another 60,635 square feet were subject to contractual lease commitments with users whose leases commence subsequent to December 31, 2019, bringing the leased area to 12,277,746 square feet, which represents 94.8% of Allied’s total rental portfolio GLA. 24 ALLIED 2019 ANNUAL REPORT 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 2020 Q3 2020 Q1 2023 TOTAL 52,154 86 .0% 2,931 4 .8% 5,550 9 .2% 60,635 100% 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 2020 Q2 2020 Q3 2020 Q2 2023 TOTAL Lease commitments - GLA 10,424 7,576 37,085 % of lease commitments 17 .2% 12 .5% 61 .1% 5,550 9 .2% 60,635 100% 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, 2019, and December 31, 2018: Toronto Kitchener Montréal Calgary Edmonton Vancouver Total square feet % of Total GLA DECEMBER 31, 2019 DECEMBER 31, 2018 66,845 1,429 49,370 55,889 2,416 9,819 185,768 1.4% 35,271 1,429 35,670 131,712 — — 204,082 1 . 8% This level of marketed sublease space is consistent with past experience and does not represent an operating or leasing challenge. 25 ALLIED 2019 ANNUAL REPORT ACTIVITY Allied places a high value on user retention, as the cost of retention is typically lower than the cost of securing new users. When retention is neither possible nor desirable, Allied strives for high-quality replacement users. Leasing activity in connection with the rental portfolio as at December 31, 2019, is summarized in the following table: LEASABLE SF LEASED SF BY DECEMBER 31 % LEASED BY DECEMBER 31 UNLEASED SF AT DECEMBER 31 Unleased area on January 1, 2019, including re-measurement Maturities during the period ended December 31, 2019 371,307 214,091 57 .7% 157,216 974,095 827,410 84 .9% 146,685 On January 1, 2019, 371,307 square feet of GLA was vacant. By the year ended December 31, 2019, Allied leased 214,091 square feet of this GLA, leaving 157,216 square feet unleased (net of vacancy transferred to PUD, if any). Leases for 974,095 square feet of GLA matured in the period ending December 31, 2019, at the end of which Allied renewed or replaced leases totaling 827,410 square feet of GLA, leaving 146,685 square feet unleased. For the year ended December 31, 2019, the table below summarizes the rental rates achieved for the leases expiring in 2019 that were either renewed or replaced. Overall, this has resulted in an increase of 18.7% in the net rent per square foot from maturing leases. This 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 2019 - Weighted average rent Renewals & Replacements - Weighted average rent FOR THE YEAR ENDED, DECEMBER 31, 2019 ABOVE IN- PLACE RENTS AT IN-PLACE RENTS BELOW IN- PLACE RENTS 75 .4% $21 .38 $28 .20 7 .4% $38 .01 $38 .01 17 .2% $26 .31 $18 .15 26 ALLIED 2019 ANNUAL REPORTUSER PROFILE The following sets out Allied’s user-mix on the basis of percentage of rental revenue for the year ended December 31, 2019: CATEGORY Telecommunications and information technology Business services and professional Media and entertainment Retail (head office and storefront) Financial services Parking & other Government Educational and institutional % OF RENTAL REVENUE DECEMBER 31, 2019 31 .7% 29 .1% 13 .4% 12 .4% 4 .5% 4 .0% 3 .1% 1 .8% 100 .0% The following sets out the percentage of rental revenue from top 10 users by rental revenue for the year ended December 31, 2019: USER Cloud Service Provider Ubisoft Cologix Equinix National Capital Commission, a Canadian Crown Corporation Shopify Inc . Morgan Stanley Bell Canada IBM Canada Entertainment One *Credit rating for parent company % OF RENTAL REVENUE DECEMBER 31, 2019 WEIGHTED AVERAGE REMAINING LEASE TERM (YEARS) CREDIT RATING DBRS/S&P/MOODY’S 5 .1% 2 .8% 2 .7% 2 .4% 1 .8% 1 .7% 1 .5% 1 .5% 1 .5% 1 .2% 22 .2% 1 .3 12 .4 18 .0 5 .3 21 .1 6 .3 9 .1 15 .9 2 .0 8 .5 10 .5 *-/AAA/Aaa Not Rated -/B-/B3 -/BBB-/Ba1 Not Rated Not Rated AH/BBB+/A3 BBBH/BBB+/Baa1 *-/A/A2 -/B+/Ba3 27 ALLIED 2019 ANNUAL REPORT LEASE MATURITY As at December 31, 2019, 94.8% of the GLA in Allied’s rental portfolio was leased. The weighted average term to maturity of Allied’s leases at that time was 5.9 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 urban workspace, retail and urban data centre leases that mature up to 2024 and the corresponding estimated weighted average market rental rate as at December 31, 2019. Where the renewal rate on maturity is contractually predetermined, it is reflected below as the market rental rate. TOTAL RENTAL PORTFOLIO SQUARE FEET % OF TOTAL GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 1,174,525 1,338,266 1,655,396 1,271,202 832,518 9 .6% 10 .9% 13 .5% 10 .4% 6 .8% 22 .15 19 .10 20 .90 24 .44 27 .83 25 .90 24 .23 27 .76 28 .42 30 .54 28 ALLIED 2019 ANNUAL REPORTThe following tables contain information on lease maturities by segment: MONTRÉAL & OTTAWA SQUARE FEET % OF SEGMENT GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 407,192 717,004 558,199 335,607 185,805 7 .5% 13 .1% 10 .2% 6 .2% 3 .4% 12 .65 15 .78 17 .94 15 .61 16 .80 14 .54 17 .52 19 .60 17 .29 16 .09 TORONTO & KITCHENER SQUARE FEET % OF SEGMENT GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 439,784 376,674 861,863 627,291 346,032 9 .3% 8 .0% 18 .2% 13 .2% 7 .3% 19 .47 19 .68 21 .68 25 .07 27 .74 28 .54 33 .32 33 .33 35 .57 34 .96 CALGARY, EDMONTON & VANCOUVER SQUARE FEET % OF SEGMENT GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 256,666 220,465 205,785 286,004 244,708 15 .5% 13 .3% 12 .4% 17 .3% 14 .8% 15 .21 22 .65 18 .84 24 .97 21 .29 13 .34 20 .77 19 .04 17 .35 19 .14 URBAN DATA CENTRES SQUARE FEET % OF SEGMENT GLA WEIGHTED AVERAGE IN-PLACE RENTAL RATE ESTIMATED WEIGHTED AVERAGE MARKET RENTAL RATE December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 70,883 24,123 29,550 22,301 55,973 16 .7% 5 .7% 6 .9% 5 .2% 13 .2% 118 .46 92 .48 73 .54 133 .00 96 .62 120 .22 109 .97 76 .29 137 .06 101 .01 29 ALLIED 2019 ANNUAL REPORTSection III —Asset Profile The following table reconciles the consolidated balance sheet, on a proportionate basis, as at December 31, 2019, and December 31, 2018. DECEMBER 31, 2019 DECEMBER 31, 2018 IFRS BASIS INVESTMENT IN JOINT VENTURE PROPOR- TIONATE BASIS IFRS BASIS INVESTMENT IN JOINT VENTURE PROPOR- TIONATE BASIS Assets Non-current assets Investment properties $7,469,265 $106,960 $7,576,225 $6,162,457 $95,190 $6,257,647 Residential inventory 114,910 — 114,910 103,690 — 103,690 Investment in joint venture and loan receivable Loans and notes receivable Other assets Current assets 95,596 (95,596) — 18,456 (18,456) — 247,413 39,788 — — 247,413 202,367 39,788 28,518 — — 202,367 28,518 7,966,972 11,364 7,978,336 6,515,488 76,734 6,592,222 Cash and cash equivalents 208,914 2,368 211,282 Loans and notes receivable 3,863 — 3,863 Accounts receivable, prepaid expenses and deposits Residential inventory 129,944 — 754 — 130,698 — 342,721 3,122 345,843 18,059 11,077 45,838 36,612 111,586 302 — 2,161 — 18,361 11,077 47,999 36,612 2,463 114,049 Total assets $8,309,693 $14,486 $8,324,179 $6,627,074 $79,197 $6,706,271 30 ALLIED 2019 ANNUAL REPORT DECEMBER 31, 2019 DECEMBER 31, 2018 IFRS BASIS INVESTMENT IN JOINT VENTURE PROPOR- TIONATE BASIS IFRS BASIS INVESTMENT IN JOINT VENTURE PROPOR- TIONATE BASIS $2,125,938 $— $2,125,938 $1,850,621 $— $1,850,621 33,923 155,221 2,315,082 — — — 33,923 — 155,221 156,663 2,315,082 2,007,284 — — — — 156,663 2,007,284 Liabilities Non-current liabilities Debt Other liabilities Lease liabilities Current liabilities Debt 29,243 — 29,243 36,081 70,909 106,990 Accounts payable and other liabilities 247,669 276,912 14,486 262,155 209,046 8,288 217,334 14,486 291,398 245,127 79,197 324,324 Total liabilities 2,591,994 14,486 2,606,480 2,252,411 79,197 2,331,608 Unitholders’ equity 5,717,699 — 5,717,699 4,374,663 — 4,374,663 Total liabilities and Unitholders’ equity $8,309,693 $14,486 $8,324,179 $6,627,074 $79,197 $6,706,271 As at December 31, 2019, Allied’s portfolio consisted of 192 investment properties (174 rental properties, eight development properties and 10 ancillary parking facilities), with a fair value of $7,576,225. 31 ALLIED 2019 ANNUAL REPORT Changes to the carrying amounts of investment properties are summarized as follows: THREE MONTHS ENDED DECEMBER 31, 2019 YEAR ENDED DECEMBER 31, 2019 RENTAL PROPERTIES PROPERTIES UNDER DEVEL- OPMENT TOTAL RENTAL PROPERTIES PROPERTIES UNDER DEVEL- OPMENT TOTAL Balance, beginning of year $6,510,187 $755,510 $7,265,697 $5,592,216 $665,431 $6,257,647 Additions: Acquisitions Improvement allowances (1) Leasing commissions (1) 14,800 5,102 3,710 — — 2,700 14,800 547,306 5,102 6,410 37,755 13,310 2,162 4,961 5,116 549,468 42,716 18,426 Capital expenditures (1) 19,666 69,586 89,252 55,428 250,227 305,655 Transfers from PUD Transfers to PUD Transfers to other assets Finance leases Amortization of straight-line rent and improvement allowances (1) Fair value gain (loss) on investment properties (1) — — (152) 473 — — — — — — (152) 473 98,850 (98,850) (6,530) 6,530 (152) 1,887 — — — — (152) 1,887 (6,909) 401 (6,508) (24,882) 1,122 (23,760) 207,338 (6,187) 201,151 439,027 (14,689) 424,338 Balance, end of year $6,754,215 $822,010 $7,576,225 $6,754,215 $822,010 $7,576,225 (1) Includes Allied’s proportionate share of the equity accounted investment for the following amounts for the three months and year ended December 31, 2019, respectively: improvement allowances of nil and $4,939; leasing commissions of $451 and $893; capital expenditures of $5,851 and $30,948; amortization of straight-line rent and improvement allowances of $407 and $1,142; and fair value loss on investment of $14,979 and $26,152. 32 ALLIED 2019 ANNUAL REPORTFor the year ended December 31, 2019, Allied capitalized $28,624 of borrowing costs, $21,442 of which related to development activity (including $2,431 relating to the equity accounted investment) and $1,968 to upgrade activity in the rental portfolio (250 Front W and 151 Front W). Allied capitalized $5,214 of borrowing costs to qualifying residential inventory. 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 period. 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. 33 ALLIED 2019 ANNUAL REPORTIn valuing the investment properties as at December 31, 2019, 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 4.98%, detailed in the table below: OVERALL CAPITALIZATION RATE DECEMBER 31, 2019 DECEMBER 31, 2018 RANGE % WEIGHTED AVERAGE % FAIR VALUE $ RANGE % WEIGHTED AVERAGE % FAIR VALUE $ Montréal & Ottawa 5.00% - 7.00% 5.28% $1,855,598 5 .00% - 7 .25% 5 .55% $1,298,019 Toronto & Kitchener 4.00% - 5.75% 4.62% 3,208,262 4 .00% - 6 .00% 4 .67% 2,747,929 Calgary, Edmonton & Vancouver 3.75% - 7.00% 4.96% 752,405 4 .00% - 7 .00% 5 .23% 655,998 Urban Data Centres 5.25% - 6.25% 5.60% 937,950 5 .50% - 6 .25% 5 .83% 890,270 Rental Properties 3.75% - 7.00% 4.96% $6,754,215 4 .00% - 7 .25% 5 .13% $5,592,216 Properties Under Development 5.00% - 7.00% 5.25% 822,010 4 .25% - 7 .00% 5 .01% 665,431 Total Investment Properties 3.75% - 7.00% 4.98% $7,576,225 4 .00% - 7 .25% 5 .13% $6,257,647 RENTAL PROPERTIES Allied’s rental portfolio was built by consolidating the ownership of urban office properties and network-dense urban data centres. Scale within each city of focus proved to be important as Allied grew. It enabled Allied to provide users with greater expansion flexibility, more parking and better human and digital connectivity than its direct competitors. Scale across the country also proved to be important. It enabled Allied to serve national and global users better, to expand its growth opportunities and to achieve meaningful geographic diversification. URBAN WORKSPACE Allied has evolved into a leading owner, manager and developer of urban workspace in Canada’s major cities. It currently owns 171 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 31.4% of the last quarter annualized NOI for the year ended December 31, 2019. 34 ALLIED 2019 ANNUAL REPORTPROPERTY NAME NORMALIZED LQA NOI APPRAISED FAIR VALUE CAP RATE PRINCIPAL USERS Cité Multimédia, Montréal $19,473 $403,650 5 .00% Desjardins, Morgan Stanley, SAP Canada 700 de la Gauchetière, Montréal (1) 16,957 322,500 —% Le Nordelec, Montréal 14,798 275,720 5 .25% QRC West, Toronto 12,097 283,700 5455 de Gaspé, Montréal 555 Richmond W, Toronto Vintage I & II, Calgary The Chambers, Ottawa (2) King Portland Centre, Toronto 5445 de Gaspé, Montréal 8,251 7,783 6,126 6,056 6,046 5,429 136,310 168,630 132,650 145,250 98,670 Total $103,016 $2,038,340 AON Canada Inc, Hydro-Québec, National Bank of Canada Gsoft, Unity Technologies, Yellow Pages Media eOne, Sapient Canada Attraction Media, Framestore, Ubisoft Centre Francophone de Toronto, Synaptive 4 .25% 5 .25% 4 .75% —% 4 .28% 5 .50% 4 .90% National Capital Commission Indigo, Shopify Sun Life, Ubisoft 71,260 5 .75% Royal & Sun Alliance (1) Allied acquired 700 de la Gauchetière in the third quarter ended September 30, 2019; the appraised fair value is the purchase price. (2) The Chambers is a leasehold interest property and the resulting valuation methodology is based on a full-term discounted cash flow model as there are less than 40 years remaining on the land lease. NETWORK-DENSE URBAN DATA CENTRES Allied operates three network-dense urban data centres (“UDCs”) in downtown Toronto: 151 Front W (“151”), 250 Front W (“250”) and 905 King W (“905”). Listed below are Allied’s UDCs measured by normalized LQA NOI. UDCs represent 15.7% of the total normalized LQA NOI for the period ended December 31, 2019. PROPERTY NAME NORMALIZED LQA NOI APPRAISED FAIR VALUE CAP RATE PRINCIPAL USERS 151 Front W, Toronto $32,636 $533,550 5 .25% 250 Front W, Toronto 905 King W, Toronto 14,067 4,604 311,130 6 .00% 93,270 6 .25% Beanfield, Cloud Service Provider, Cologix Total $51,307 $937,950 5 .60% Regular rental revenue represented 91.5% of normalized LQA NOI from UDCs in 2019. Ancillary rental revenue represented 8.5% of normalized LQA NOI from UDCs. Ancillary rental revenue is comprised of revenue from the rental of conduit space, rack space and cross-connect space. NORMALIZED LQA NOI % OF UDC Regular rental revenue Ancillary rental revenue Total normalized LQA NOI $46,954 4,353 $51,307 91 .5% 8 .5% 100% 35 Bell, Cologix, Equinix, Rogers, TELUS, TorIX, Zayo AWS, Cloud Service Provider ALLIED 2019 ANNUAL REPORT 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 36 ALLIED 2019 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 As a critical component of Canada’s communications infrastructure, 151 is a network-dense urban data centre, distinct from conventional suburban data centres. The latter are analogous to interchanges on small highways. While valuable, they are relatively easy to replicate. 151 is analogous to a massive interchange on an intersecting series of super- highways. It is exceptionally valuable and very difficult to replicate. 151 has not historically generated ancillary rental revenue in the form of interconnection fees, even though there are 26,480 cross-connects in the two existing meet-me rooms. With 151 becoming the landing point for Crosslake Fibre’s new fibre connection between Toronto and Buffalo, Allied will create a new meet-me room at 151, enabling it to generate ancillary rental revenue in the form of interconnection fees charged on a recurring monthly basis for cross- connects to the Crosslake’s fibre. 37 ALLIED 2019 ANNUAL REPORT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 connecting it to 151 with high-density fibre, 58,666 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 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 100 properties in Toronto (including properties in the development portfolio) now comprise 4.2 million square feet of GLA and are situated on 37.5 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 10.7 million square feet of GLA, 6.5 million square feet more than currently is in place. Allied entered the Montréal market in April of 2005. The 27 properties in Montréal now comprise 5.6 million square feet of GLA. As they are much larger buildings on average than those comprising the Toronto portfolio, the 39.1 acres of land on which they sit (immediately south, east and northeast 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 7.5 million square feet of GLA, 1.9 million square feet more than currently is in place. 38 ALLIED 2019 ANNUAL REPORT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 10.6 million square feet of potential incremental density, of which 1.9 million square feet is currently in PUD, and the remaining 8.7 million square feet is potential incremental density. Of the 8.7 million square feet of potential incremental density, 4.3 million square feet is reflected in the appraised fair values and the remaining 4.4 million square feet is not reflected in the appraised fair values. Potential Incremental Density (in sq.ft.) - Geographic Breakdown CURRENT PUD (ESTIMATED ON COMPLETION) POTENTIAL INCREMENTAL TOTAL POTENTIAL DENSITY GLA 5,344,000 10,689,357 CITY Toronto Kitchener CURRENT GLA 4,225,357 562,902 Total Toronto & Kitchener 4,788,259 Toronto Urban Data Centres 509,410 Total Urban Data Centres 509,410 Montréal Ottawa 5,608,522 231,468 Total Montréal & Ottawa 5,839,990 Calgary Edmonton Vancouver 1,045,023 297,851 467,642 1,120,000 147,000 1,267,000 — — — 317,500 306,000 — — Total Calgary, Edmonton & Vancouver 1,810,516 306,000 Total 12,948,175 1,890,500 317,500 1,568,000 332,000 5,676,000 — — — 1,568,000 1,148,000 230,000 59,000 1,437,000 8,681,000 1,041,902 11,731,259 509,410 509,410 7,494,022 231,468 7,725,490 2,499,023 527,851 526,642 3,553,516 23,519,675 The timing of development for the 8.7 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. 39 ALLIED 2019 ANNUAL REPORTAllied has initiated the intensification approval process for five rental properties in Toronto and one rental property in Montréal, all of which are owned in their entirety. These properties are identified in the following table: PROPERTY NAME NORMALIZED APPRAISED APPROVAL CURRENT GLA ON ESTIMATED LQA NOI FAIR VALUE STATUS USE GLA COMPLETION COMPLETION REZONING ESTIMATED King & Peter (1) $2,128 $81,080 Completed Office, limited retail 86,250 790,000 Unscheduled QRC West, Phase II (2) 1,268 36,030 Completed Office, retail 32,624 90,000 2022 Union Centre 1,006 107,860 Completed Office, limited retail 41,787 1,129,000 Unscheduled King & Brant (3) Adelaide & Spadina (4) 407 282 20,850 Completed Office, retail 16,340 130,000 2022 25,000 Completed Office, retail 11,015 230,000 Unscheduled Le Nordelec — 29,300 In Progress Office — 230,000 Unscheduled Total $5,091 $300,120 188,016 2,599,000 (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. 40 ALLIED 2019 ANNUAL REPORT 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. 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, 2019, the cost of Allied’s Properties Under Development was 9.4% of GBV (December 31, 2018 - 8.9%). 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. 41 ALLIED 2019 ANNUAL REPORTAllied has the following eight Properties Under Development: PROPERTY NAME USE ESTIMATED GLA ON COMPLETION (SF) % OF OFFICE DEVELOPMENT LEASED TELUS Sky, Calgary (1)(2) Office, retail, residential 425 Viger, Montréal (3) The Lougheed (604-1st SW), Calgary (4) Office, retail Office, retail College & Manning, 547-549 College, Toronto (1) Retail, residential Adelaide & Duncan, Toronto (1)(5) Office, retail, residential The Well, Toronto (1)(6) KING Toronto, Toronto (1)(7) Breithaupt Phase III, Kitchener (1) Total Office, retail Office, retail Office 218,000 317,500 88,000 27,000 230,000 763,000 100,000 147,000 1,890,500 64% 95% — — 100% 84% — 100% 81% (1) These properties are co-owned, reflected in the table above at Allied’s ownership. (2) 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. (3) The GLA components (in square feet) are as follows: 313,000 of office and 4,500 of retail. (4) 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. (5) The GLA components (in square feet) at our 50% share are as follows: 144,000 of residential, 77,000 of office and 9,000 of retail. (6) 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 578,000 of office, 185,000 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. (7) 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, 539 King W. The GLA components (in square feet) at our 50% share will be as follows: 200,000 of residential, 60,000 of retail and 40,000 of office. The following table sets out the fair value of Allied’s Properties Under Development as at December 31, 2019, as well as Management’s estimates with respect to the financial outcome on completion: PROPERTY NAME TRANSFER ESTIMATED ESTIMATED TO RENTAL APPRAISED ESTIMATED ESTIMATED YIELD COST TO PORTFOLIO VALUE ANNUAL NOI TOTAL COST ON COST COMPLETE TELUS Sky, Calgary (1) Q1 2020 $106,960 $7,650 - $8,310 $145,000 5 .3% - 5 .7% $4,310 425 Viger, Montréal Q1 2020 123,240 6,500 - 7,000 99,881 6 .5% - 7 .0% 4,000 The Lougheed (604-1st SW), Calgary Q1 2021 15,460 TBD TBD TBD TBD College & Manning, 547-549 College, Toronto (1) Q1 2021 12,880 975 - 1,125 30,597 3 .2% - 3 .7% 13,400 Adelaide & Duncan, Toronto (1) Q2 2021 84,550 10,125 - 11,500 190,600 5 .3% - 6 .0% 114,000 Breithaupt Phase III, Kitchener (1) (2) Q4 2021 10,530 5,375 - 5,500 78,652 6 .8% - 7 .0% 65,600 The Well, Toronto (1) Q1 2022 441,730 37,500 - 43,250 688,000 5 .5% - 6 .3% 296,300 KING Toronto, Toronto (1) (3) Q1 2023 26,660 5,000 - 6,000 75,932 6 .6% - 7 .9% 43,500 Total $822,010 (1) These properties are co-owned, reflected in the table above at Allied’s ownership percentage of assets and liabilities. (2) Breithaupt Phase III is comprised of 43 Wellington, 53 & 55 Wellington, 305 Joseph and 2-4 Stewart. (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, 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 $280,000 - $290,000. 42 ALLIED 2019 ANNUAL REPORT 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. 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 and 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. As of December 31, 2019, all units have been occupied for which $45,341 and $43,342 of revenue and related cost of sales, respectively, have been recognized in the consolidated statements of income and comprehensive income. Prior to 2019, a net fair value gain of $12,271 was recognized in condominium cost of sales on transfer of the property to residential inventory. On November 30, 2018, Allied entered into a joint arrangement with Westbank to develop KING Toronto. KING Toronto is a mixed-use 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. 43 ALLIED 2019 ANNUAL REPORTResidential inventory is as follows: King Portland Centre KING Toronto Current Non-current DECEMBER 31, 2019 DECEMBER 31, 2018 $— 114,910 $114,910 $— 114,910 $114,910 $36,612 103,690 $140,302 $36,612 103,690 $140,302 The changes in the aggregate carrying value of Allied’s residential inventory is as follows: Balance, beginning of year Acquisitions (1) Dispositions (1) Sale of residential units (2) Development expenditures Transfers from investment properties (3) Balance, end of year DECEMBER 31, 2019 DECEMBER 31, 2018 $140,302 10,454 (5,227) (43,342) 12,723 — $114,910 $28,239 — — — 8,373 103,690 $140,302 (1) On February 14, 2019, Allied acquired 464-466 Queen W, Toronto, at a purchase price of $10,454 and concurrently sold a 50% undivided interest to Westbank at a sale price of $5,227. This property will be transferred to the City of Toronto as parkland dedication related to the KING Toronto condominium development. (2) Allied recognized condominium cost of sales for the 132 units occupied at King Portland Centre. (3) On November 30, 2018, the fair market value of a portion of KING Toronto was transferred from investment property to inventory with the intention for future sale as condominium units. 44 ALLIED 2019 ANNUAL REPORT DEVELOPMENT COMPLETIONS PROPERTY COMPLETION INVESTMENT NOI COST FAIR VALUE CREATION % OF COST UNLEVERED VALUE STABILIZED YIELD ON VALUE CREATION AS QRC West, Toronto 2015 $130,000 $12,097 9 .3% $283,700 $153,700 118 .2% The Breithaupt Block, Kitchener 180 John, Toronto 189 Joseph, Kitchener 2016 2017 2017 $25,020 $1,950 $27,500 $1,600 $11,360 $720 7 .8% 5 .8% 6 .3% $46,010 $20,990 83 .9% $31,440 $3,940 $13,270 $1,910 14 .3% 16 .8% In addition to the development completions listed above, Allied most recently completed King Portland Centre, summarized below: In 2012, Allied entered into an equal two-way joint arrangement with RioCan to develop King Portland Centre. Allied and RioCan each acquired an undivided 50% interest in 642 King W and 620 King W and subsequently put them into development, completing 642 King W in early 2018 and 620 King W in early 2019. They are comprised of 297,200 square feet of GLA (Allied’s share 148,600 square feet) and are 99.7% leased. 602-606 King W is excluded from the figures below as they were never under development. KING PORTLAND CENTRE Land Costs Hard & Soft Costs INVESTMENT $21,478 64,437 Capitalized Interest & Operating Costs 5,033 UNLEVERED VALUE STABILIZED YIELD ON VALUE CREATION AS Condominium Profits (14,270) NOI COST FAIR VALUE CREATION % OF COST Total Development Costs $76,678 $6,361 8.3% $125,540 $48,862 63.7% The fair value is provided by our external appraiser, which is calculated based on the discounted cash flow method. LOANS RECEIVABLE As of December 31, 2019, total loans receivable outstanding is $245,303 (December 31, 2018 - $200,289). 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 $21,173 to Westbank. As at December 31, 2019, the loan receivable outstanding is $21,173 (December 31, 2018 - $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. In accordance with the loan agreement, the rate increased to 7.75% per annum upon placement of construction financing (December 31, 2018 - 6.17%). The loan is repayable when the joint arrangement obtains external permanent financing. 45 ALLIED 2019 ANNUAL REPORT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 pre-development costs of 400 West Georgia in Vancouver. The facility will initially be secured by a first charge on the property and upon permanent financing, the facility will be secured by Westbank’s covenant and a second charge with the construction lender having the first charge. On February 11, 2019, the facility was increased to $160,000. Interest accrues monthly at rates between 5.00% to 6.75% per annum in year one and is payable monthly at a rate of 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, 2019, is $106,292 (December 31, 2018 - $112,086). On November 30, 2018, Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied advanced $67,030 to Westbank for its purchase of a 50% undivided interest in the property. As at December 31, 2019, the loan receivable outstanding is $77,765 (December 31, 2018 - $67,030) and bears interest at a rate of 7.00% per annum. Interest accrues monthly and is payable on loan repayment. The loan is repayable at the earlier of November 23, 2023, or the closing of the condominiums. On March 18, 2019, Allied made an amendment to the joint arrangement with Perimeter to develop Breithaupt Phase III and a loan receivable arrangement to provide 50% of the pre-development costs. As at December 31, 2019, the loan receivable outstanding is $9,365 (December 31, 2018 - nil) and bears interest at a rate of 7.00% per annum. Interest accrues monthly and is payable on loan repayment. The loan is repayable upon completion of development and rent commencement, which is anticipated to be in the fourth quarter of 2021. On July 31, 2019, Allied entered into an arrangement with Westbank to provide a credit facility of up to $185,000, plus interest, for the land acquisition and the pre-development costs of 720 Beatty Street in Vancouver. The funding will initially be secured by a first mortgage on the property for a fixed term and bears interest at a rate of 7.00% per annum. Interest accrues monthly and is payable on loan repayment. On placement of construction financing, the mortgage will be secured by a second charge with the construction lender having the first charge. The credit facility matures in six years following approval of the project by the British Columbia Utilities Commission. On placement of permanent financing, Allied intends to acquire a 50% undivided interest in 720 Beatty based on an agreed upon formula. The loan outstanding as at December 31, 2019, is $30,708 (December 31, 2018 - nil). The table below summarizes the loans receivable as at December 31, 2019, and December 31, 2018. Adelaide & Duncan 400 West Georgia KING Toronto Breithaupt Phase III 720 Beatty Total loans receivable 46 DECEMBER 31, 2019 DECEMBER 31, 2018 $21,173 106,292 77,765 9,365 30,708 $21,173 112,086 67,030 — — $245,303 $200,289 ALLIED 2019 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 $5.5 billion as at December 31, 2019. 47 ALLIED 2019 ANNUAL REPORTDEBT Total debt and net debt are non-IFRS financial measures and do not have any standard meaning prescribed by IFRS. As computed by Allied, total debt and net debt may differ from similar computations reported by other Canadian real estate investment trusts and, accordingly, may not be comparable to similar computations reported by such organizations. Management considers total debt and net debt to be useful measures for evaluating debt levels and interest coverage. The following illustrates the calculation of total debt (net of transaction costs) and net debt as at December 31, 2019, and December 31, 2018: DECEMBER 31, 2019 DECEMBER 31, 2018 Mortgages payable Construction loans payable Unsecured revolving operating facility Senior unsecured debentures Unsecured term loans Total debt, IFRS basis Add: share of joint venture Total debt, proportionate share Less cash and cash equivalents (1) Net debt $737,448 23,210 — 945,369 449,154 $2,155,181 — $2,155,181 211,282 $1,943,899 $769,473 — 95,000 573,320 448,909 $1,886,702 70,909 $1,957,611 18,361 $1,939,250 (1) As of December 31, 2019, cash and cash equivalents attributable to TELUS Sky total $2,368 (December 31, 2018 - $302). The table below summarizes the scheduled principal maturity for Allied’s Mortgages Payable, Unsecured Debentures and Unsecured Term Loans: W/A INTEREST MORTGAGES MATURING UNSECURED INTEREST UNSECURED INTEREST RATE OF SENIOR W/A W/A CONSOLIDATED W/A INTEREST RATE OF MATURING PAYABLE MORTGAGES DEBENTURES RATE TERM LOANS RATE TOTAL DEBT 29,243 4 .95% 26,668 — — — — — 231,356 4 .19% 150,000 3 .93% 242,366 4 .72% 157,198 4 .31% — — — — 10,384 3 .63% 200,000 3 .64% — — 29,243 4 .95% 200,000 2 . 86% 226,668 2 .86% — — — — — — — — 381,356 4 .08% 242,366 4 .72% 157,198 4 .31% 210,384 3 .64% 21,834 3 .59% — — 250,000 3 .99% 271,834 3 .96% 487 — 300,000 3 .11% 14,750 4 .04% — — — — 300,000 3 .39% — — — — — — 300,487 3 .11% 14,750 4 .04% 300,000 3 .39% $734,286 4 .38% $950,000 3 .44% $450,000 3 .49% $2,134,286 3 .77% 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 48 ALLIED 2019 ANNUAL REPORT The chart below summarizes the maturities of principal in regards to Allied’s debt obligations as at December 31, 2019: 49 ALLIED 2019 ANNUAL REPORTMORTGAGES PAYABLE As of December 31, 2019, mortgages payable, net of financing costs, total $737,448 and have a weighted average stated interest rate of 4.38% (December 31, 2018 - 4.38%). The weighted average term of the mortgage debt is 3.8 years (December 31, 2018 - 4.6 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: PRINCIPAL REPAYMENTS BALANCE DUE AT MATURITY DECEMBER 31, 2019 DECEMBER 31, 2018 2020 2021 2022 2023 2024 2025 2026 2027 2028 25,530 26,668 25,728 16,781 4,726 1,596 1,391 487 293 3,713 — 205,628 225,585 152,472 8,788 20,443 — 14,457 29,243 26,668 231,356 242,366 157,198 10,384 21,834 487 14,750 Mortgages, principal $103,200 $631,086 $734,286 $771,916 Net premium on assumed mortgages Net financing costs 5,400 (2,238) 924 (3,367) $737,448 $769,473 For the year ended December 31, 2019, in addition to regularly scheduled principal payments, Allied repaid mortgages totaling $172,642 with a weighted average interest rate of 4.22%. CONSTRUCTION LOANS PAYABLE As of December 31, 2019, and December 31, 2018, Allied’s obligation under the construction loans is as follows: JOINT ARRANGEMENT TELUS Sky Adelaide & Duncan OWNERSHIP DATE OF MATURITY DECEMBER 31, 2019 DECEMBER 31, 2018 33 .33% 50 .00% October 31, 2019 August 11, 2023 $— 23,210 $23,210 $70,909 — $70,909 50 ALLIED 2019 ANNUAL REPORT On June 23, 2015, the TELUS Sky joint arrangement obtained a $342,000 construction lending facility from a syndicate of Canadian banks for the TELUS Sky joint arrangement, in which Allied’s 33.33% share is $114,000. On August 8, 2019, the date of maturity was extended by two months to October 31, 2019, and bears interest at bank prime plus 70 basis points or banker’s acceptance rate plus 195 basis points. On October 31, 2019, Allied entered into a credit agreement to repay its share of the construction lending facility in its entirety. This resulted in lower interest cost and extended the weighted average term to maturity of Allied’s debt. Allied is providing a joint and several guarantee to support the facility and is earning a related guarantee fee. On January 31, 2019, the Adelaide & Duncan joint arrangement obtained a $270,000 construction lending facility from a syndicate of Canadian banks, in which Allied’s 50% share is $135,000. The loan matures on August 11, 2023, and bears interest at bank prime plus 35 basis points or bankers’ acceptance rate plus 135 basis points. Allied is providing a joint and several guarantee to support the construction facility for the Adelaide & Duncan development. On August 23, 2019, the Adelaide & Duncan joint arrangement entered into a swap agreement to fix 75% of construction costs up to $209,572 at 2.86%. In September 2019, Allied and Perimeter received a commitment from a syndicate of Canadian banks for a construction loan for the Breithaupt Phase III joint arrangement, subject to execution of definitive financing documents and completion of customary financing conditions. The commitment is expected to fund up to $138,000 (Allied’s 50% share being $69,000). The loan matures on December 2, 2022, and bears interest at bank prime or banker’s acceptance rate plus 120 basis points. Allied is providing a joint and several guarantee to support the facility and is earning a related guarantee fee. The construction loan has no balance outstanding as at December 31, 2019. UNSECURED REVOLVING OPERATING FACILITY As of December 31, 2019, and December 31, 2018, Allied’s obligation under the unsecured revolving operating facility is as follows: DECEMBER 31, 2019 DECEMBER 31, 2018 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 — (14,896) $385,104 $400,000 (95,000) (14,404) $290,596 51 ALLIED 2019 ANNUAL REPORTAs at December 31, 2019, Allied has access to an Unsecured Facility of $400,000 with a maturity of January 29, 2022. The Unsecured Facility bears 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. 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 has no balance outstanding as at December 31, 2019 (December 31, 2018 - $95,000). On January 21, 2020, Allied amended the Unsecured Facility to extend the maturity to January 30, 2023. The Facility will bear interest at bank prime plus 20 basis points or bankers’ acceptance plus 120 basis points with a standby fee of 24 basis points, subject to certain conditions being met. In the event that these conditions are not met, 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. SENIOR UNSECURED DEBENTURES As of December 31, 2019, and December 31, 2018, Allied’s obligation under the senior unsecured debentures is as follows: SERIES Series A Series B Series C Series D Series E INTEREST RATE DATE OF MATURITY INTEREST PAYMENT DATE DECEMBER 31, 2019 DECEMBER 31, 2018 3 .748% May 13, 2020 May 13 and November 13 $— $225,000 3 .934% November 14, 2022 May 14 and November 14 150,000 150,000 3 .636% April 21, 2025 April 21 and October 21 200,000 200,000 3 .394% August 15, 2029 February 15 and August 15 300,000 3 .113% April 8, 2027 April 8 and October 8 300,000 — — Unsecured Debentures, principal Net premium on Unsecured Debentures Net financing costs $950,000 $575,000 — 216 (4,631) (1,896) $945,369 $573,320 The Series A, B, C, D, and E debentures are collectively referred to as the “Unsecured Debentures”. On August 15, 2019, Allied issued $300,000 of 3.394% Series D Unsecured Debentures (the “Series D Debentures”) due August 15, 2029, with semi-annual interest payments due on February 15 and August 15 of each year commencing February 15, 2020. Debt financing costs of $1,843 were incurred and recorded against the principal owing. Proceeds from the Series D Debentures were used to redeem $225,000 of an aggregate principal amount of 3.748% Series A Debentures due May 13, 2020, in full, with a prepayment penalty of $2,563, repay amounts drawn on the Unsecured Facility in the amount of $55,000, and for general working capital purposes. 52 ALLIED 2019 ANNUAL REPORT On October 8, 2019, Allied issued $300,000 of 3.113% Series E Unsecured Debentures (the “Series E Debentures”) due April 8, 2027, with semi-annual interest payments due on April 8 and October 8 of each year commencing April 8, 2020. Debt financing costs of $1,760 were incurred and recorded against the principal owing. Proceeds from the Series E Debentures were used to prepay $165,752 aggregate principal amount of first mortgages, with a prepayment penalty of $3,455, repay amounts drawn on the Unsecured Facility in the amount of $60,000, and to fund its development and value-add initiatives. 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, 2019, and December 31, 2018, Allied’s obligation under the unsecured term loans is as follows: INTEREST RATE DATE OF MATURITY FREQUENCY OF INTEREST PAYMENT DECEMBER 31, 2019 DECEMBER 31, 2018 Unsecured Term Loan 3 .992% January 14, 2026 Monthly $250,000 $250,000 Unsecured Term Facility Tranche 1 Tranche 2 2 .830% 2 .890% Unsecured Term Loans, principal Net financing costs March 16, 2021 Quarterly 100,000 100,000 March 16, 2021 Quarterly 100,000 100,000 $450,000 $450,000 (846) (1,091) $449,154 $448,909 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. 53 ALLIED 2019 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 Unsecured Debentures Moody’s Investors Service BBB Baa2 Positive Stable DBRS Limited (“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.” On May 17, 2019, DBRS upgraded Allied’s trend from stable to positive. On December 4, 2019, DBRS upgraded Allied’s rating from BBB (low) to BBB, and maintained the positive trend. On June 25, 2018, Moody’s Investors Service Inc. (“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”. On April 9, 2019, Moody’s upgraded Allied’s outlook from stable to positive. On October 30, 2019, Moody’s upgraded Allied’s rating from Baa3 to Baa2, with a stable outlook. 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. 54 ALLIED 2019 ANNUAL REPORTFINANCIAL COVENANTS The Unsecured Facility, Unsecured Term Loans and Unsecured Debentures contain numerous financial covenants. Failure to comply with the covenants could result in a default, which, if not waived or cured, could result in adverse financial consequences. The related covenants are as follows: UNSECURED FACILITY AND UNSECURED TERM LOANS The following outlines the requirements of covenants as defined in the agreements governing the Unsecured Facility and Unsecured Term Loans. COVENANT Indebtedness ratio Secured indebtedness ratio Debt service coverage ratio Equity maintenance Unencumbered property assets value ratio THRESHOLD DECEMBER 31, 2019 DECEMBER 31, 2018 Below 60% Below 45% Consolidated adjusted EBITDA to be more than 1 .5 times debt service payments At least $1,250,000 plus 75% of future equity issuances ($2,683,314) Unencumbered property assets to be more than 1 .4 times total unsecured debt 26.1% 9.1% 2.5x 29 .4% 12 .5% 2 .2x 5,717,699 4,374,663 3.9x 71.5% 3 .8% 72 .4% Distribution payout ratio Maintain distributions below 100% of FFO SENIOR UNSECURED DEBENTURES The following outlines the requirements of covenants specified in the trust indenture with respect to the Unsecured Debentures. COVENANT THRESHOLD DECEMBER 31, 2019 DECEMBER 31, 2018 Pro forma interest coverage ratio Maintain a 12-month rolling consolidated pro forma EBITDA of at least 1 .65 times pro forma interest expense 3.1x 2 .9x Pro forma asset coverage test Maintain net consolidated debt below 65% of net aggregate assets on a pro forma basis 26.0% 29 .3% Equity maintenance covenant Maintain Unitholders’ equity above $300,000 5,717,699 4,374,663 Pro forma unencumbered net aggregate adjusted asset ratio Maintain pro forma unencumbered net aggregate adjusted assets above 1 .4 times consolidated unsecured indebtedness 4.4x 4 .2x As of December 31, 2019, 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. 55 ALLIED 2019 ANNUAL REPORT 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, 2019, and for December 31, 2018. Units, beginning of year 103,861,945 $2,835,395 92,935,150 $2,399,768 DECEMBER 31, 2019 DECEMBER 31, 2018 UNITS AMOUNT UNITS AMOUNT Restricted Unit plan (net of forfeitures) Unit option plan - options exercised — 277,854 (2,462) 10,437 — 84,595 Unit offering Units, end of year 18,699,000 882,102 10,842,200 122,838,799 $3,725,472 103,861,945 $2,835,395 (2,584) 3,043 435,168 As at February 5, 2020, 122,838,799 Trust Units and 1,213,310 options to purchase Units were issued and outstanding. On December 4, 2019, Allied raised gross proceeds of $345,449 through the issuance of 6,555,000 Units at a price of $52.70 per unit. Costs relating to the issuance totaled $14,568 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. On June 19, 2019, Allied raised gross proceeds of $345,524 through the issuance of 7,176,000 Units at a price of $48.15 per unit. Costs relating to the issuance totaled $14,571 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. On March 7, 2019, Allied raised gross proceeds of $230,018 through the issuance of 4,968,000 Units at a price of $46.30 per unit. Costs relating to the issuance totaled $9,750 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. 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. 56 ALLIED 2019 ANNUAL REPORTThe table below represents weighted average Units outstanding for: THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 117,917,803 103,859,370 112,443,006 97,785,091 330,747 203,197 288,044 180,620 118,248,550 104,062,567 112,731,050 97,965,711 Basic Unit Option Plan Fully diluted NORMAL COURSE ISSUER BID On February 20, 2019, 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 10,205,838 of its outstanding Units, representing approximately 10% of its public float as at February 14, 2019. The NCIB commenced February 22, 2019, and will expire on February 21, 2020, 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, 2019, Allied purchased 52,162 Units for $2,513 at a weighted average price of $48.18 per unit under its NCIB program, of which 51,858 were purchased for delivery to participants under Allied’s Restricted Unit Plan and 304 Units were purchased for certain employee rewards outside of Allied’s Restricted Unit Plan. 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. 57 ALLIED 2019 ANNUAL REPORTUNIT OPTION AND RESTRICTED UNIT PLANS Allied adopted a Unit Option Plan providing for the issuance, from time to time, at the discretion of the trustees, of options to purchase Units for cash. Participation in the Unit Option Plan is restricted to certain employees of Allied. The Unit Option Plan complies with the requirements of the Toronto Stock Exchange. The exercise price of any option granted will not be less than the closing market price of the Units on the day preceding the date of grant. The term of the options may not exceed ten years. Options granted prior to February 22, 2017 vest evenly over three years; options granted subsequently vest evenly over four years from the date of grant. All options are settled in Units. At December 31, 2019, Allied had issued options to purchase 1,213,310 Units outstanding, of which 604,445 had vested. At December 31, 2018, Allied had options to purchase 1,169,497 Units outstanding, of which 596,331 had vested. For the year ended December 31, 2019, Allied recorded a share-based payment expense related to options of $1,583 in general and administrative expense in the consolidated statements of income and comprehensive income (for the year ended December 31, 2018 - $1,346). 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, 2019, Allied had 287,023 Restricted Units outstanding (December 31, 2018 – 267,420). For the year ended December 31, 2019, Allied recorded a share-based payment expense related to Restricted Units of $2,437 in general and administrative expense in the consolidated statements of income and comprehensive income (for the year ended December 31, 2018 - $2,247). 58 ALLIED 2019 ANNUAL REPORTDISTRIBUTIONS TO UNITHOLDERS Allied is focused on increasing distributions to its Unitholders on a regular and prudent basis. During the first 12 months of operations, Allied made regular monthly distributions of $1.10 per unit on an annualized basis. The distribution increases since then are set out in the table below: MARCH, 2004 MARCH, 2005 MARCH, 2006 MARCH, 2007 MARCH, 2008 DECEMBER, 2012 Annualized increase per unit $0 .04 $0 .04 $0 .04 $0 .04 $0 .06 % increase Annualized distribution per unit 3 .6% $1 .14 3 .5% $1 .18 3 .4% $1 .22 3 .3% $1 .26 4 .8% $1 .32 $0 .04 3 .0% $1 .36 DECEMBER, 2013 DECEMBER, 2014 DECEMBER, 2015 DECEMBER, 2016 DECEMBER, 2017 DECEMBER, 2018 JANUARY 2020 Annualized increase per unit $0 .05 $0 .05 $0 .04 $0 .03 $0 .03 $0 .04 $0 .05 % increase Annualized distribution per unit 3 .7% $1 .41 3 .5% 2 .7% $1 .46 $1 .50 2 .0% $1 .53 2 .0% $1 .56 2 .6% $1 .60 3 .1% $1 .65 SOURCES OF DISTRIBUTIONS For the three months and year ended December 31, 2019, Allied declared $47,267 and $180,284, respectively in distributions (three months and year ended December 31, 2018 - $40,817 and $153,855, respectively). THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 Distributions declared $47,267 $40,817 $180,284 $153,855 Net income $264,960 $137,270 $629,223 $540,276 Cash flows provided by operating activities $67,577 $72,085 $245,650 $236,748 Normalized AFFO excluding condo marketing costs 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 $57,551 $46,795 $219,967 $177,254 $217,693 $96,453 $448,939 $386,421 $20,310 $31,268 $65,366 $82,893 $10,284 $5,978 $39,683 $23,399 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 2019. 59 ALLIED 2019 ANNUAL REPORTIn determining the amount of distributions to be made to Unitholders, Allied’s Board of Trustees consider many factors, including provisions in its Declaration of Trust, macro-economic and industry specific environments, the overall financial condition of Allied, future capital requirements, debt covenants, and taxable income. In accordance with Allied’s distribution policy, Management and the Board of Trustees regularly review Allied’s rate of distributions to ensure an appropriate level of cash and non-cash distributions. Management anticipates that distributions declared will, in the foreseeable future, continue to vary from net income as net income includes fair value adjustments and other non-cash items. While cash flows from operating activities are generally sufficient to cover distribution requirements, timing of expenses and seasonal fluctuations in non-cash working capital may result in a shortfall. These seasonal or short-term fluctuations will be funded, if necessary, by the Unsecured Facility. As such, the cash distributions are not an economic return of capital, but a distribution of sustainable cash flow from operations. Based on current facts and assumptions, Management does not anticipate cash distributions will be reduced or suspended in the foreseeable future. The current rate of distribution amounts to $1.65 per unit per annum (December 31, 2018 - $1.60 per unit per annum). COMMITMENTS At December 31, 2019, Allied had future commitments as set out below, excluding the amount held within equity accounted investments: Capital expenditures and committed acquisitions DECEMBER 31, 2019 $687,242 Commitments as at December 31, 2019, and December 31, 2018, of $1,238 and $719 were held within equity accounted investments. The above does not include Allied’s lease liability commitments, which are disclosed in Note 12 of the consolidated financial statements for the year ended December 31, 2019. 60 ALLIED 2019 ANNUAL REPORTSection V —Discussion of Operations The following sets out summary information and financial results for the three months and year ended December 31, 2019, and the comparable period in 2018. Unless otherwise noted, the figures in this section represents proportionate basis of accounting. 61 ALLIED 2019 ANNUAL REPORTNET INCOME AND COMPREHENSIVE INCOME The following table reconciles the consolidated statement of income and comprehensive income, on a proportionate basis, for the three months and year ended December 31, 2019, and December 31, 2018. THREE MONTHS ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 IFRS BASIS INVESTMENT IN JOINT VENTURE PROPOR- TIONATE BASIS IFRS BASIS INVESTMENT IN JOINT VENTURE PROPOR- TIONATE BASIS Rental revenue from investment properties Property operating costs Net rental income $134,306 (59,174) 75,132 Condominium revenue 30,600 Condominium cost of sales (29,022) Condominium profits Operating income 1,578 $76,710 $412 (102) 310 — — — $134,718 $112,889 $— $112,889 (59,276) (47,925) 75,442 64,964 30,600 (29,022) 1,578 — — — — — — — — (47,925) 64,964 — — — $310 $77,020 $64,964 $— $64,964 Interest expense (19,202) (91) (19,293) (14,422) (5,990) (904) (365) 5,149 — 94 — — (5,990) (5,220) (810) (365) 5,149 (1,609) (360) 2,573 — — — — — (14,422) (5,220) (1,609) (360) 2,573 216,130 (14,979) 201,151 101,395 (1,024) 100,371 8,098 — 8,098 (10,034) — (10,034) Net loss from joint venture (14,666) 14,666 — — — — (1,024) 1,024 — 1,007 — 1,007 $264,960 $— $264,960 $137,270 $— $137,270 General and administrative expenses Condominium marketing expenses Amortization of other assets Interest income Fair value gain on investment properties Fair value gain (loss) on derivative instruments Gain on disposal of investment properties Net income and comprehensive income 62 ALLIED 2019 ANNUAL REPORT YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 IFRS BASIS INVESTMENT IN JOINT VENTURE PROPOR- TIONATE BASIS IFRS BASIS INVESTMENT IN JOINT VENTURE PROPOR- TIONATE BASIS Rental revenue from investment properties $496,109 $1,147 $497,256 $436,396 $— $436,396 Property operating costs (210,747) (277) (211,024) (185,938) Net rental income 285,362 870 286,232 250,458 Condominium revenue 45,341 Condominium cost of sales (43,342) Condominium profits 1,999 — — — 45,341 (43,342) 1,999 — — — — — — — — (185,938) 250,458 — — — Operating income $287,361 $870 $288,231 $250,458 $— $250,458 Interest expense (66,403) (441) (66,844) (68,471) (21,953) — (21,953) (17,059) (4,214) (1,456) 17,351 (121) (4,335) — — (1,456) 17,351 (1,609) (1,556) 6,941 — — — — — (68,471) (17,059) (1,609) (1,556) 6,941 450,490 (26,152) 424,338 378,883 (1,848) 377,035 Net loss from joint venture (25,844) 25,844 (6,109) — (6,109) — — (6,470) (1,848) — (6,470) 1,848 — 1,007 — 1,007 — — $629,223 $— $629,223 $540,276 $— $540,276 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 Net income and comprehensive income for the three months and year ended December 31, 2019, increased by $127,690 and $88,947, respectively, over the comparable period in 2018. Excluding the effect of the prepayment cost, condominium profits, fair value changes on investment properties and derivative instruments, net income for the three months and year ended December 31, 2019, was up by $11,662 and $38,807, respectively, from the same period in the prior year. This was primarily due to an increase in net rental and interest income, partially offset by higher general and administrative expenses. 63 ALLIED 2019 ANNUAL REPORT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. Effective for the year ended December 31, 2019, NOI includes an adjustment to exclude the condominium revenue and cost of sales. 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 groups the cities by geographic location. Over the past year, Allied’s real estate portfolio has grown through acquisitions and development activities that have positively contributed to the operating results for the year ended December 31, 2019, as compared to the same period in the prior year. The following table reconciles operating income to net rental income and net operating income. Management considers NRI and NOI to be useful measures of performance for rental properties. NRI is a non-IFRS financial measure and should not be considered as an alternative to net income and comprehensive income, cash flow from operating activities or any other measure prescribed under IFRS. NRI does not have any standardized meaning prescribed by IFRS. NRI is comprised of operating income less condominium profits. THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 Operating income Condominium revenue Condominium cost of sales $77,020 $64,964 $288,231 $250,458 (30,600) 29,022 — — (45,341) 43,342 — — Net rental income $75,442 $64,964 $286,232 $250,458 Amortization of improvement allowances (1) Amortization of straight-line rents (1) NOI 7,935 (1,427) $81,950 7,788 (2,381) $70,371 30,997 (7,237) 28,819 (6,992) $309,992 $272,285 (1) Includes Allied’s proportionate share of the equity accounted investment for the following amounts for the three months and year ended December 31, 2019, respectively: amortization improvement allowances of $56 and $201 and amortization of straight-line rents of $463 and $1,343. 64 ALLIED 2019 ANNUAL REPORTThe following tables set out the NOI by segment and space type from the rental and development properties for the three months and year ended December 31, 2019, and the comparable period in 2018. SEGMENT Urban Workspace THREE MONTHS ENDED CHANGE DECEMBER 31, 2019 DECEMBER 31, 2018 $ % Montréal & Ottawa $23,125 28.2% $17,565 25 .0% $5,560 Toronto & Kitchener 37,040 45.2% 31,570 44 .8% 5,470 Calgary, Edmonton & Vancouver 9,095 11.1% 8,700 12 . 4% 395 Urban Workspace - Total 69,260 84.5% 57,835 82 .2% 11,425 Urban Data Centres 12,690 15.5% 12,536 17 .8% 154 NOI $81,950 100.0% $70,371 100 .0% $11,579 THREE MONTHS ENDED CHANGE TYPE OF SPACE DECEMBER 31, 2019 DECEMBER 31, 2018 $ Urban Workspace - Office $58,374 71.2% $49,303 70 .1% $9,071 Urban Data Centres 12,690 15.5% 12,536 17 .8% Urban Workspace - Retail Urban Workspace - Parking 6,397 4,489 7.8% 5.5% 5,238 3,294 7 .4% 4 .7% 154 1,159 1,195 NOI $81,950 100.0% $70,371 100 .0% $11,579 31 .7% 17 .3% 4 .5% 19 .8% 1 .2% 16 .5% % 18 .4% 1 .2% 22 .1% 36 .3% 16 .5% The increase in NOI for the three months ended December 31, 2019, was primarily the result of rent growth in Montréal and Toronto, contributions from acquisitions in Montréal and Vancouver and the development completion of King Portland Centre in Toronto. SEGMENT Urban Workspace YEAR ENDED CHANGE DECEMBER 31, 2019 DECEMBER 31, 2018 $ % Montréal & Ottawa $81,463 26.3% $68,555 25 .2% $12,908 Toronto & Kitchener 139,317 44.9% 122,410 45 .0% 16,907 Calgary, Edmonton & Vancouver 35,831 11.6% 32,182 11 . 8% 3,649 Urban Workspace - Total 256,611 82.8% 223,147 82 . 0% 33,464 Urban Data Centres 53,381 17.2% 49,138 18 .0% 4,243 NOI $309,992 100.0% $272,285 100 .0% $37,707 18 .8% 13 .8% 11 .3% 15 .0% 8 .6% 13 .8% 65 ALLIED 2019 ANNUAL REPORT YEAR ENDED CHANGE TYPE OF SPACE DECEMBER 31, 2019 DECEMBER 31, 2018 $ % Urban Workspace - Office $218,588 70.5% $188,629 69 .4% $29,959 15 .9% Urban Data Centres 53,381 17.2% 49,138 18 .0% 4,243 Urban Workspace - Retail 22,911 7.4% 21,629 Urban Workspace - Parking 15,112 4.9% 12,889 7 .9% 4 .7% 1,282 2,223 NOI $309,992 100.0% $272,285 100 .0% $37,707 8 .6% 5 .9% 17 .2% 13 .8% The increase in NOI for the year ended December 31, 2019, was primarily the result of occupancy and rent growth in Montréal and Toronto, rent growth in the UDC portfolio, contributions from acquisitions in Montréal and Vancouver and the development completion of King Portland Centre in Toronto. 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, 2018, to December 31, 2019. The same asset NOI of the development portfolio for the three months ended December 31, 2019, consists of 425 Viger, Adelaide & Duncan, King Portland Centre, KING Toronto, 305 Joseph, TELUS Sky, and The Well. 66 ALLIED 2019 ANNUAL REPORTUrban Workspace Montréal & Ottawa Toronto & Kitchener Calgary, Edmonton & Vancouver Urban Workspace Urban Data Centres Rental Portfolio - Same Asset NOI Urban Workspace Development Portfolio - Same Asset NOI Total Portfolio - Same Asset NOI Acquisitions Dispositions Lease terminations Development fees and corporate items NOI Amortization of improvement allowances Amortization of straight-line rents Condominium profits THREE MONTHS ENDED CHANGE DECEMBER 31, 2019 DECEMBER 31, 2018 $ % $17,581 33,354 7,540 58,475 12,690 71,165 962 962 $72,127 7,303 — 169 2,351 $81,950 (7,935) 1,427 1,578 $17,312 30,473 8,331 56,116 12,537 68,653 441 441 $269 2,881 (791) 2,359 153 2,512 521 521 $69,094 $3,033 1 .6% 9 .5% (9 .5)% 4 .2% 1 .2% 3 .7% 118 .1% 118 .1% 4 .4% 415 250 168 444 $70,371 (7,788) 2,381 — 6,888 (250) 1 1,907 $11,579 16 .5% (147) (954) 1,578 Operating income $77,020 $64,964 $12,056 18 .6% Same asset NOI of the total portfolio increased by 4.4% for the three months ended December 31, 2019. Same asset NOI of the rental portfolio increased by 3.7% as a result of rent growth in Toronto, Montréal and the UDC portfolio. Same asset NOI of the development portfolio increased by 118.1%, primarily as a result of rent commencement at King Portland Centre. The same asset NOI in the table below refers to those investment properties that were owned by Allied from January 1, 2018, to December 31, 2019. The same asset NOI of the development portfolio for the year ended December 31, 2019, consists of 425 Viger, Adelaide & Duncan, College & Palmerston (including 547 College), College & Manning, King Portland Centre (including 642 King), KING Toronto, The Lougheed (604-1st SW), Le Nordelec, TELUS Sky, and The Well. 67 ALLIED 2019 ANNUAL REPORT YEAR ENDED CHANGE DECEMBER 31, 2019 DECEMBER 31, 2018 $ % Urban Workspace Montréal & Ottawa Toronto & Kitchener Calgary, Edmonton & Vancouver Urban Workspace Urban Data Centres Rental Portfolio - Same Asset NOI Urban Workspace Development Portfolio - Same Asset NOI $70,561 126,580 30,892 228,033 53,226 281,259 5,129 5,129 $68,144 117,961 31,426 217,531 49,138 266,669 1,850 1,850 $2,417 8,619 (534) 10,502 4,088 14,590 3,279 3,279 Total Portfolio - Same Asset NOI $286,388 $268,519 $17,869 Acquisitions Dispositions Lease terminations Development fees and corporate items 16,657 — 801 6,146 734 1,181 460 1,391 NOI $309,992 $272,285 Amortization of improvement allowances (30,997) (28,819) Amortization of straight-line rents Condominium profits 7,237 1,999 6,992 — 15,923 (1,181) 341 4,755 $37,707 (2,178) 245 1,999 3 .5% 7 .3% (1 .7)% 4 .8% 8 .3% 5 .5% 177 .2% 177 .2% 6 .7% 13 .8% Operating income $288,231 $250,458 $37,773 15 .1% Same asset NOI of the total portfolio increased by 6.7% for the year ended December 31, 2019. Same asset NOI of the rental portfolio increased by 5.5% as a result of rent and occupancy growth in Toronto, Montréal, and Vancouver and rent growth in the UDC portfolio. Same asset NOI of the development portfolio increased by 177.2%, primarily as a result of rent commencement at King Portland Centre. 68 ALLIED 2019 ANNUAL REPORT INTEREST EXPENSE Interest expense for the three months and year ended December 31, 2019, and 2018 is as follows: Interest on debt: Mortgages payable Construction loans payable Unsecured Facility Unsecured Debentures Unsecured Term Loans Interest on lease liabilities Amortization, premium (discount) on debt Amortization, net financing costs THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 $8,102 $8,206 $33,989 $38,452 244 631 8,012 3,945 2,078 (449) 406 — 581 5,466 2,652 2,065 (98) 422 604 2,667 24,629 15,679 8,350 (1,000) 1,660 — 2,779 21,714 9,838 8,292 (1,828) 1,746 $22,969 $19,294 $86,578 $80,993 Less: Interest capitalized to qualifying investment properties and residential inventory (7,222) Interest expense excluding prepayment cost $15,747 Prepayment cost 3,455 (4,872) $14,422 — (26,193) $60,385 6,018 Interest expense, IFRS basis $19,202 $14,422 $66,403 Add: share from joint venture 91 — 441 (20,024) $60,969 7,502 $68,471 — Total interest expense, proportionate basis $19,293 $14,422 $66,844 $68,471 For the three months and year ended December 31, 2019, excluding capitalized interest and the prepayment cost, interest expense increased by $3,675 and $5,585, respectively, over the comparable period due to a higher balance of construction loans, unsecured debentures and term loans. For the three months and year ended December 31, 2019, capitalized interest increased over the comparable period with the continuation of development and upgrade activities across the portfolio. 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 audited consolidated financial statements for the year ended December 31, 2019, 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. 69 ALLIED 2019 ANNUAL REPORT GENERAL AND ADMINISTRATIVE EXPENSES For the three months and year ended December 31, 2019, general and administrative expenses increased by $770 and $4,894, respectively, from the comparable period. The increase is mainly due to higher compensation expenses related to Allied’s expanding management team, corporate expenses and professional fees. THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 Salaries and benefits $5,263 $4,870 $19,036 $15,277 Professional and trustees fees Office and general expenses Capitalized to qualifying investment properties Total general and administrative expenses 761 1,163 $7,187 (1,197) $5,990 814 566 $6,250 (1,030) $5,220 3,388 3,932 $26,356 (4,403) $21,953 2,801 2,823 $20,901 (3,842) $17,059 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 it is a useful measure of operating performance. In the third and fourth quarter of 2019, Allied incurred $2,563 and $3,455, respectively, of prepayment costs in connection with the favourable refinancing of unsecured debentures and first mortgages, which was partially offset by incremental condominium profits of $1,999 in the year. In June 2018, Allied incurred $7,502 of prepayment cost in connection with the favourable refinancing of the first mortgage on 151 Front W, Toronto. Allied initiated condominium pre-sales at KING Toronto, a 50/50 joint venture with Westbank, in the fourth quarter of 2018. The first three phases have sold well, and the fourth and final phase has been released to strong demand. For the year ended December 31, 2019, Allied incurred $4,335 (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.) Allied and Westbank have initiated construction of KING Toronto. Normalized FFO excluding condo marketing costs starts with the standardized definition of FFO and removes the effects of these one-time items. For the three months ended December 31, 2019, Normalized FFO excluding condo marketing costs totaled $0.583 per unit. This is an increase of $0.033 per unit, or 6.0%, over the comparable period in the prior year. The increase was primarily due to an increase in NOI and interest income, partially offset by higher general and administrative expenses. 70 ALLIED 2019 ANNUAL REPORT For the year ended December 31, 2019, excluding the prepayment cost and incremental condominium profits, Normalized FFO excluding condo marketing costs totaled $2.301 per unit. This is an increase of $0.119 per unit, or 5.5%, over the comparable period in the prior year. This was primarily due to an increase in NOI, interest income, and lower interest expense, partially offset by higher general and administrative expenses. 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, 2019, the Normalized FFO pay-out ratio excluding condo marketing costs was 68.5% and 69.5%, respectively. NORMALIZED ADJUSTED FUNDS FROM OPERATIONS (“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. For the three months ended December 31, 2019, Normalized AFFO excluding condo marketing costs totaled $0.487 per unit. This represents an increase of $0.037 per unit, or 8.2%, over the comparable period in the prior year. Normalized AFFO excluding condo marketing costs per unit increase is largely attributable to the changes in Normalized FFO excluding condo marketing costs discussed above, lower straight-line rents, partially offset by higher regular and recoverable maintenance capital expenditures. For the year ended December 31, 2019, Normalized AFFO excluding condo marketing costs totaled $1.951 per unit. This represents an increase of $0.142 per unit, or 7.8%, over the comparable period in the prior year. Normalized AFFO excluding condo marketing costs per unit increased primarily due to the changes in Normalized FFO excluding condo marketing costs discussed above, and lower regular leasing expenditures, partially offset by higher straight line rent, higher regular and recoverable maintenance capital expenditures and incremental leasing costs. 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, 2019, the Normalized AFFO excluding condo marketing costs pay-out ratio was 82.1% and 82.0%, respectively. 71 ALLIED 2019 ANNUAL REPORTThe following table reconciles Allied’s net income to FFO, Normalized FFO and Normalized AFFO for the three months ended December 31, 2019, and December 31, 2018. RECONCILIATION OF FFO, NORMALIZED FFO AND NORMALIZED AFFO THREE MONTHS ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 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 improvement allowances Adjustments relating to joint venture: Adjustment to fair value on investment properties Amortization of improvement allowances Interest capitalized (1) FFO One-time items (2) Normalized FFO (2) Condominium marketing costs Normalized FFO (2) excluding condo marketing costs Amortization of straight-line rents Regular leasing expenditures Regular maintenance capital expenditures Incremental leasing (related to regular leasing expenditures) Recoverable maintenance capital expenditures Adjustments relating to joint venture: Amortization of straight-line rents Normalized AFFO (2) excluding condo marketing costs Weighted average number of Units $264,960 (216,130) (8,098) — 1,968 7,879 14,979 56 690 $66,304 1,877 $68,181 810 $68,991 (964) (4,168) (1,852) (1,377) (2,616) (463) $57,551 $137,270 (101,395) 10,034 (1,007) 1,646 7,788 1,024 — 297 $55,657 — $55,657 1,609 $57,266 (2,381) (4,372) (796) (1,152) (1,770) — $46,795 $127,690 (114,735) (18,132) 1,007 322 91 13,955 56 393 $10,647 1,877 $12,524 (799) $11,725 1,417 204 (1,056) (225) (846) (463) $10,756 Basic Diluted Per Unit - basic FFO 72 117,917,803 103,859,370 14,058,433 118,248,550 104,062,567 14,185,983 $0.562 $0 .536 $0 .026 ALLIED 2019 ANNUAL REPORT Normalized FFO (2) Normalized FFO (2) excluding condominium marketing costs Normalized AFFO (2) excluding condominium marketing costs Per Unit - diluted FFO Normalized FFO (2) Normalized FFO (2) excluding condominium marketing costs Normalized AFFO (2) excluding condominium marketing costs Payout Ratio FFO Normalized FFO (2) Normalized FFO (2) excluding condominium marketing costs Normalized AFFO (2) excluding condominium marketing costs THREE MONTHS ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 CHANGE $0.578 $0 .536 $0 .042 $0.585 $0.488 $0.561 $0.577 $0.583 $0.487 71.3% 69.3% 68.5% 82.1% $0 .551 $0 .034 $0 .451 $0 .037 $0 .535 $0 .535 $0 .026 $0 .042 $0 .550 $0 .033 $0 .450 $0 .037 73 .3% 73 .3% (2 . 0%) (4 .0%) 71 .3% (2 . 8%) 87 .2% (5 .1%) (1) This amount represents the interest capitalized to Allied’s joint venture investment in TELUS Sky. This amount is not capitalized to properties under development under IFRS, but is allowed as an adjustment under REALPac’s definition of FFO. (2) In the fourth quarter of 2019, Allied incurred $3,455 of prepayment cost in connection with the favourable refinancing of first mortgages, which was partially offset by incremental condominium profits of $1,578. Allied normalized the presentation of FFO and AFFO by excluding these items. 73 ALLIED 2019 ANNUAL REPORT The following table reconciles Allied’s net income to FFO, Normalized FFO and Normalized AFFO for the year ended December 31, 2019, and December 31, 2018. YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 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 improvement allowances Adjustments relating to joint venture: Adjustment to fair value on investment properties Amortization of improvement allowances Interest capitalized (1) FFO One-time items (2) Normalized FFO (2) Condominium marketing costs $629,223 (450,490) 6,109 — 7,530 30,796 26,152 201 1,562 $540,276 (378,883) 6,470 (1,007) 5,986 28,819 1,848 — 1,186 $251,083 $204,695 4,019 255,102 4,335 Normalized FFO (2) excluding condo marketing costs $259,437 Amortization of straight-line rents Regular leasing expenditures Regular maintenance capital expenditures Incremental leasing (related to regular leasing expenditures) Recoverable maintenance capital expenditures Adjustments relating to joint venture: Amortization of straight-line rents Normalized AFFO (2) excluding condo marketing costs Weighted average number of Units (5,894) (18,353) (3,656) (5,271) (4,953) (1,343) $219,967 7,502 212,197 1,609 $213,806 (6,992) (19,900) (1,524) (4,190) (3,946) — $177,254 $88,947 (71,607) (361) 1,007 1,544 1,977 24,304 201 376 $46,388 (3,483) 42,905 2,726 $45,631 1,098 1,547 (2,132) (1,081) (1,007) (1,343) $42,713 Basic Diluted Per Unit - basic FFO Normalized FFO (2) Normalized FFO (2) excluding condominium marketing costs Normalized AFFO (2) excluding condominium marketing costs 74 112,443,006 112,731,050 97,785,091 14,657,915 97,965,711 14,765,339 $2.233 $2.269 $2.307 $1.956 $2 .093 $2 .170 $0 .140 $0 .099 $2 .186 $0 .121 $1 .813 $0 .143 ALLIED 2019 ANNUAL REPORT Per Unit - diluted FFO Normalized FFO (2) Normalized FFO (2) excluding condominium marketing costs Normalized AFFO (2) excluding condominium marketing costs Payout Ratio FFO Normalized FFO (2) Normalized FFO (2) excluding condo marketing costs Normalized AFFO (2) excluding condo marketing costs YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 CHANGE $2.227 $2.263 $2.301 $1.951 71.8% 70.7% 69.5% 82.0% $2 .089 $2 .166 $0 .138 $0 .097 $2 .182 $0 .119 $1 .809 $0 .142 75 .2% 72 .5% 72 .0% 86 .8% (3 .4%) (1 . 8%) (2 .5%) (4 .8%) (1) This amount represents the interest capitalized to Allied’s joint venture investment in TELUS Sky. This amount is not capitalized to properties under development under IFRS, but is allowed as an adjustment under REALPac’s definition of FFO. (2) In the third and fourth quarter of 2019, Allied incurred $2,563 and $3,455, respectively, of prepayment costs in connection with the favourable refinancing of unsecured debentures and first mortgages, which was partially offset by incremental condominium profits of $1,999 in the year. In June 2018, Allied incurred $7,502 of prepayment cost in connection with the favourable refinancing of the first mortgage on 151 Front W, Toronto. Allied normalized the presentation of FFO and AFFO by excluding these items. 75 ALLIED 2019 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, 2019, Allied incurred (i) $4,168 in regular leasing expenditures or $9.46 per leased square foot, (ii) $1,852 in regular maintenance capital expenditures and (iii) $2,616 of recoverable maintenance capital expenditures. For the year ended December 31, 2019, Allied incurred (i) $18,353 in regular leasing expenditures or $10.68 per leased square foot, (ii) $3,656 in regular maintenance capital expenditures and (iii) $4,953 of recoverable maintenance capital expenditures. For the year ended December 31, 2019, Allied invested $84,784 and $297,046, 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, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 Regular leasing expenditures Regular maintenance capital expenditures Recoverable maintenance capital expenditures $4,168 $1,852 $2,616 $4,372 $796 $1,770 $18,353 $3,656 $4,953 $19,900 $1,524 $3,946 Revenue-enhancing capital and development costs $84,784 $94,809 $297,046 $238,740 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, 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. 76 ALLIED 2019 ANNUAL REPORTThe ratio of Net Debt to Adjusted EBITDA is included and calculated each period to provide information on the level of Allied’s debt versus Allied’s ability to service that debt. Adjusted EBITDA is used as part of this calculation as the fair value changes and gains and losses on investment property dispositions do not impact cash flow, which is a critical part of the measure. The following table reconciles Allied’s net income and comprehensive income to Adjusted EBITDA for the year ended December 31, 2019, and December 31, 2018. THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 DECEMBER 31, 2019 DECEMBER 31, 2018 Net income and comprehensive income for the period Interest expense Amortization of equipment and other assets Amortization of improvement allowances $264,960 $137,270 $629,223 $540,276 19,293 365 7,935 14,422 360 7,788 66,844 1,456 30,997 68,471 1,556 28,819 Fair value (gain) on investment properties (201,151) (100,371) (424,338) (377,035) Fair value loss (gain) on derivative instruments (8,098) (Gain) loss on disposal of investment properties — 10,034 (1,007) 6,109 — 6,470 (1,007) Adjusted EBITDA $83,304 $68,496 $310,291 $267,550 77 ALLIED 2019 ANNUAL REPORTSection VI —Historical Performance The following sets out summary information and financial results, on an IFRS basis, for the eight most recently completed fiscal quarters. 78 ALLIED 2019 ANNUAL REPORTQ4 2019 (1) Q3 2019 (1) Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 (1) Q1 2018 Rental revenue from investment properties $134,306 $127,867 $117,449 $116,486 $112,889 $109,630 $106,983 $106,894 Condominium revenue 30,600 14,741 — — — — — — Property operating costs $(59,174) $(54,284) $(47,857) $(49,432) $(47,925) $(46,145) $(45,540) $(46,328) Condominium cost of sales (29,022) (14,320) — — — — — — Operating income $76,710 $74,004 $69,593 $67,054 $64,964 $63,485 $61,443 $60,566 Net income and comprehensive income Weighted average units (diluted) $264,960 $121,191 $99,895 $143,177 $137,270 $204,654 $113,652 $84,700 118,248,550 116,563,480 110,368,003 105,546,682 104,062,567 100,680,315 93,868,833 93,099,918 Distributions $47,267 $46,393 $44,484 $42,140 $40,817 $39,575 $37,210 $36,253 FFO $66,304 $63,674 $62,557 $58,548 $55,657 $55,253 $43,750 $50,035 FFO per unit (diluted) $0 .561 $0 .546 $0 .567 $0 .555 $0 .535 $0 .549 $0 .466 $0 .537 FFO pay-out ratio 71 .3% 72 .9% 71 .1% 72 .0% 73 .3% 71 .6% 85 .1% 72 .5% Normalized FFO (1) $68,181 $65,816 $62,557 $58,548 $55,657 $55,253 $51,252 $50,035 Normalized FFO per unit (diluted) (1) Normalized FFO pay-out ratio (1) Normalized FFO (1) per unit (diluted) excluding condominium marketing costs $0 .577 $0 .565 $0 .567 $0 .555 $0 .535 $0 .549 $0 .546 $0 .537 69 .3% 70 .5% 71 .1% 72 . 0% 73 .3% 71 .6% 72 .6% 72 .5% $0 .583 $0 .576 $0 .579 $0 .563 $0 .550 $0 .549 $0 .546 $0 .537 Normalized AFFO (1) $56,741 $56,866 $51,840 $50,186 $45,186 $47,034 $42,610 $40,815 Normalized AFFO per unit (diluted) (1) Normalized AFFO pay-out ratio (1) Normalized AFFO (1) per unit (diluted) excluding condominium marketing costs $0 .480 $0 .488 $0 .470 $0 .475 $0 .434 $0 .467 $0 .454 $0 .438 83 .3% 81 .6% 85 .8% 84 .0% 90 .3% 84 .1% 87 .3% 88 .8% $0 .487 $0 .499 $0 .482 $0 .484 $0 .450 $0 .467 $0 .454 $0 .438 79 ALLIED 2019 ANNUAL REPORT  - continued Net debt as a multiple of annualized adjusted EBITDA Q4 2019 (1) Q3 2019 (1) Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 (1) Q1 2018 5 .8x 6 .7x 5 .6x 6 .2x 7 .1x 6 .3x 6 .8x 7 .7x Total indebtedness ratio 26 .1% 28 .1% 25 .8% 27 .0% 29 .4% 27 .6% 29 .9% 34 .0% Total rental GLA 12,948 12,878 11,507 11,422 11,192 10,953 10,940 10,929 Leased rental GLA 12,278 12,234 11,080 11,010 10,826 10,541 10,435 10,380 Leased area % 94 .8% 95 .0% 96 .3% 96 .4% 96 .7% 96 .2% 95 .4% 95 .0% (1) In the third and fourth quarter of 2019, Allied incurred $2,563 and $3,455, respectively, of prepayment costs in connection with the favourable refinancing of unsecured debentures and first mortgages, which was partially offset by incremental condominium profits of $1,999 in the year. In June 2018, Allied incurred $7,502 of prepayment cost in connection with the favourable refinancing of the first mortgage on 151 Front W, Toronto. Allied normalized the presentation of FFO and AFFO by excluding these items. 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 7.7x to 5.8x over the last eight quarters. 80 ALLIED 2019 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, 2019, 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, 2019, 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, 2019, and notes contained therein. 81 ALLIED 2019 ANNUAL REPORTSection VIII —Disclosure Controls and Internal Controls Management maintains appropriate information systems, procedures and controls to provide reasonable assurance that information that is publicly disclosed is complete, reliable and timely. The Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”) evaluated, or caused to be evaluated under their direct supervision, the design and operating effectiveness of disclosure controls and procedures (as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) at December 31, 2019, 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, 2019, 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, 2019, 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. 82 ALLIED 2019 ANNUAL REPORTSection IX — Risks and Uncertainties There are certain risk factors inherent in the investment and ownership of real estate. Real estate investments are capital intensive, and success from real estate investments depends upon maintaining occupancy levels and rental income flows to generate acceptable returns. These success factors are dependent on general economic conditions and local real estate markets, demand for leased premises and competition from other available properties. Allied’s portfolio is focused on a particular asset class in seven metropolitan real estate markets in Canada. This focus enables Management to capitalize on certain economies of scale and competitive advantages that would not otherwise be available. 83 ALLIED 2019 ANNUAL REPORTFINANCING AND INTEREST RATE RISK Allied is subject to risk associated with debt financing. The availability of debt to re-finance existing and maturing loans and the cost of servicing such debt will influence Allied’s success. In order to minimize risk associated with debt financing, Allied strives to re-finance maturing loans with long-term fixed-rate debt and to stagger the maturities over time. Allied’s current debt-maturity schedule is set out below: Interest rates on total debt are between 2.83% and 5.08% with a weighted average interest rate of 3.77%. The weighted average term of our debt is 5.19 years. The aforementioned excludes the revolving Unsecured Facility and construction loans, refer to note 11(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. 84 ALLIED 2019 ANNUAL REPORTCREDIT RISK Allied is subject to credit risk arising from the possibility that users may not be able to fulfill their lease obligations. Allied strives to mitigate this risk by maintaining a diversified user-mix and limiting exposure to any single user. Allied’s exposure to top 10 users is 22.2% 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, 2019, Allied had $245,303 in loans receivable, the majority of which is 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: 85 ALLIED 2019 ANNUAL REPORTIn evaluating lease roll-over risk, it is informative to determine Allied’s sensitivity to a decline in occupancy. For every full-year decline of 100 basis points in occupancy at its average rental rate per square foot, Allied’s annual Normalized AFFO would decline by approximately $4,972 (approximately $0.044 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. 86 ALLIED 2019 ANNUAL REPORT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. TAXATION RISK On June 22, 2007, specified investment flow through trusts or partnerships (“SIFT”) rules were introduced and changed the manner in which certain trusts are taxed. Certain distributions from a SIFT would not be deductible in computing the SIFT’s taxable income and therefore the distributions would be subject to trust entity level tax, at the general tax rate applicable to Canadian corporations. Trusts that meet the REIT exemption are not subject to SIFT rules. The determination as to whether Allied qualifies for the REIT exemption in a particular taxation year can only be made with certainty at the end of that taxation year. Asset tests need to be met at all times in the taxation year and revenue tests need to be met for the taxation year. While there is uncertainty surrounding the interpretation of the relevant provisions of the REIT exemption and application of SIFT rules, Allied expects that it will qualify for the REIT exemption. JOINT ARRANGEMENT RISK Allied has entered into various joint arrangements and partnerships with different entities. If these joint arrangements or partnerships do not perform as expected or default on financial obligations, Allied has an associated risk. Allied reduces this risk by seeking to negotiate contractual rights upon default, by entering into agreements with financially stable partners and by working with partners who have a successful record of completing development projects. 87 ALLIED 2019 ANNUAL REPORT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. 88 ALLIED 2019 ANNUAL REPORTSection X — Property Table Urban Workspace DECEMBER 31, 2019 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant & Unleased Total Leased Leased % 28 Atlantic 32 Atlantic 47 Jefferson 64 Jefferson 905 King W College & Manning - 559-563 College (1) College & Palmerston - 491 College (1) The Castle - 135 Liberty The Castle - 41 Fraser 10,065 50,434 6,884 78,820 — — — — 51,262 1,400 24,627 2,634 8,863 3,717 55,152 13,921 — — The Castle - 47 Fraser 7,468 3,480 The Castle - 49 Fraser The Castle - 53 Fraser 17,472 79,048 — — The Castle - 8 Pardee — 2,681 King West 404,016 13,912 141 Bathurst 183 Bathurst 241 Spadina 10,101 — 24,136 5,643 24,833 6,046 379 Adelaide W 38,560 3,045 383 Adelaide W 387 Adelaide W 4,515 6,500 — — 420 Wellington W 31,221 3,163 — — — — — — — — — — — — — — — — — — — — — 10,065 50,434 6,884 78,820 52,662 27,261 12,580 55,152 13,921 10,948 17,472 79,048 2,681 — — — — — — — — — — 10,065 100 .0% 50,434 100 .0% 6,884 100 .0% 78,820 100 .0% 52,662 100 .0% 27,261 100 .0% 12,580 100 .0% 55,152 100 .0% 13,921 100 .0% 10,948 100 .0% 7,109 10,363 59 .3% — — 79,048 100 .0% 2,681 100 .0% 417,928 3.2% 7,109 410,819 98.3% 10,101 29,779 30,879 41,605 4,515 6,500 34,384 — — — — — — — 10,101 100 .0% 29,779 100 .0% 30,879 100 .0% 41,605 100 .0% 4,515 100 .0% 6,500 100 .0% 34,384 100 .0% 89 ALLIED 2019 ANNUAL REPORT Urban Workspace DECEMBER 31, 2019 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant & Unleased Total Leased Leased % 425 Adelaide W 72,404 2,903 425-439 King W 66,486 23,497 441-443 King W 6,377 2,904 445-455 King W 31,513 16,342 460 King W 461 King W 468 King W 469 King W 10,144 4,285 38,689 35,833 63,121 — 61,618 12,273 478 King W (2) — 4,351 485 King W 500 King W 522 King W 544 King W 12,339 — 44,130 21,598 28,850 21,863 16,340 — 552-560 King W 6,784 17,395 555 Richmond W 296,162 1,850 579 Richmond W 662 King W 668 King W 26,818 33,731 — — — 6,934 80-82 Spadina 60,004 16,009 96 Spadina 79,450 8,815 King Portland Centre - 602-606 King W (1) King Portland Centre - 642 King W (1) 19,208 6,346 7,382 4,900 King West Central 1,121,416 225,995 116 Simcoe 179 John 180 John 185 Spadina 200 Adelaide W 208-210 Adelaide W 15,461 70,923 45,631 55,213 26,614 11,477 — — — — — — 217-225 Richmond W 30,205 22,587 257 Adelaide W 42,763 — 312 Adelaide W 62,420 5,583 331-333 Adelaide W 19,048 3,725 358-360 Adelaide W 50,786 — 90 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 75,307 89,983 9,281 47,855 14,429 74,522 63,121 73,891 4,351 12,339 65,728 50,713 16,340 24,179 951 74,356 98 .7% — — — — — — — — — — — — — 89,983 100 .0% 9,281 100 .0% 47,855 100 .0% 14,429 100 .0% 74,522 100 .0% 63,121 100 .0% 73,891 100 .0% 4,351 100 .0% 12,339 100 .0% 65,728 100 .0% 50,713 100 .0% 16,340 100 .0% 24,179 100 .0% 298,012 4,850 293,162 98 .4% 26,818 33,731 6,934 76,013 88,265 — — — — 26,818 100 .0% 33,731 100 .0% 6,934 100 .0% 76,013 100 .0% 575 87,690 99 .4% 25,554 3,383 22,171 86 .8% 12,282 375 11,907 97 .0% 1,347,411 10.4% 10,134 1,337,277 99.3% 15,461 70,923 45,631 55,213 26,614 11,477 52,792 42,763 68,003 22,773 50,786 — — — — — — 15,461 100 .0% 70,923 100 .0% 45,631 100 .0% 55,213 100 .0% 26,614 100 .0% 11,477 100 .0% 2,698 50,094 94 .9% — 42,763 100 .0% 2,294 65,709 96 .6% — — 22,773 100 .0% 50,786 100 .0% ALLIED 2019 ANNUAL REPORT Urban Workspace DECEMBER 31, 2019 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant & Unleased Total Leased Leased % 375-381 Queen W 21,541 11,083 20,275 19,060 38,583 8,332 51,058 — — — — — 32,624 39,335 46,915 51,058 — — 32,624 100 .0% 39,335 100 .0% 8,332 38,583 82 .2% — 51,058 100 .0% 298,782 8,213 — 306,995 — 306,995 100 .0% 388 King W 82 Peter 99 Spadina QRC West - 134 Peter, Phase I QRC West - 364 Richmond W, Phase I Union Centre 38,279 41,787 — — Entertainment District 940,846 78,583 193 Yonge Downtown 106 Front E 184 Front E 34,349 16,898 34,349 16,898 24,146 10,554 84,115 4,829 35-39 Front E 34,653 13,822 36-40 Wellington E 15,494 9,993 41-45 Front E 20,958 14,239 45-55 Colborne 30,622 13,158 47 Front E 49 Front E 9,068 4,337 9,482 10,435 50 Wellington E 22,112 12,454 56 Esplanade 60 Adelaide E 70 Esplanade 59,270 22,137 105,571 4,608 19,590 6,109 St. Lawrence Market 435,081 126,675 137 George 1,770 — 204-214 King E 115,426 13,837 230 Richmond E 73,542 — 252-264 Adelaide E 44,536 2,582 489 Queen E 70 Richmond E Dominion Square - 468 Queen N Dominion Square - 468 Queen S 31,737 34,333 — — 30,398 3,523 34,313 9,091 — — — — — — — — — — — — — — — — — — — — — — — — — — 38,279 41,787 — 38,279 100 .0% 4,952 36,835 88 .2% 1,019,429 7.9% 18,276 1,001,153 98.2% 51,247 51,247 0.4% 34,700 88,944 48,475 25,487 35,197 43,780 13,405 19,917 34,566 81,407 110,179 25,699 — — — — — — — 51,247 100 .0% 51,247 100.0% 34,700 100 .0% 88,944 100 .0% 48,475 100 .0% 25,487 100 .0% 35,197 100 .0% 1,592 42,188 96 .4% — — — 13,405 100 .0% 19,917 100 .0% 34,566 100 .0% 1,177 80,230 98 .6% — — 110,179 100 .0% 25,699 100 .0% 561,756 4.3% 2,769 558,987 99.5% 1,770 129,263 73,542 47,118 31,737 34,333 1,770 — —% — — 129,263 100 .0% 73,542 100 .0% 1,404 45,714 97 .0% — — 31,737 100 .0% 34,333 100 .0% 33,921 4,683 29,238 86 .2% 43,404 — 43,404 100 .0% 91 ALLIED 2019 ANNUAL REPORT Urban Workspace DECEMBER 31, 2019 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant & Unleased Total Leased Leased % Dominion Square - 478-496 Queen 6,552 33,526 QRC East - 111 Queen E 172,881 38,549 QRC South - 100 Lombard 44,671 — Queen Richmond 590,159 101,108 — — — — 40,078 211,430 44,671 — 40,078 100 .0% 3,046 208,384 98 .6% — 44,671 100 .0% 691,267 5.3% 10,903 680,364 98.4% Toronto 3,525,867 563,171 — 4,089,038 31.6% 49,191 4,039,847 98.8% 189-195 Joseph 25 Breithaupt (3) 51 Breithaupt (3) 72 Victoria 26,462 46,845 66,355 89,860 — — — — The Tannery - 151 Charles W 307,570 25,810 Kitchener 537,092 25,810 — — — — — — 26,462 46,845 66,355 89,860 — — — — 26,462 100 .0% 46,845 100 .0% 66,355 100 .0% 89,860 100 .0% 333,380 4,785 328,595 98 .6% 562,902 4.3% 4,785 558,117 99.2% Toronto & Kitchener 4,062,959 588,981 — 4,651,940 35.9% 53,976 4,597,964 98.8% The Chambers - 40 Elgin 195,994 5,500 The Chambers - 46 Elgin 29,974 — Ottawa 225,968 5,500 3510 Saint-Laurent 85,687 15,022 3575 Saint-Laurent 165,501 19,276 400 Atlantic 87,181 292 4446 Saint-Laurent 72,798 7,251 451-481 Saint-Catherine W 20,879 9,984 480 Saint-Laurent 50,249 6,323 5445 de Gaspé 480,945 896 5455 de Gaspé 465,071 22,539 5505 Saint-Laurent 244,685 2,221 6300 Parc 181,180 3,736 645 Wellington 129,017 8,115 700 de la Gauchetière W 954,114 41,617 740 Saint-Maurice 67,692 — 8 Place du Commerce 48,306 11,633 85 Saint-Paul W 79,404 — Cité Multimédia - 111 Duke 358,913 12,571 Cité Multimédia - 50 Queen 27,071 — 92 — — — — — — — — — — — — — — — — — — — — 201,494 29,974 — 201,494 100 .0% 2,430 27,544 91 .9% 231,468 1.8% 2,430 229,038 99.0% 100,709 184,777 87,473 80,049 30,863 56,572 481,841 487,610 246,906 184,916 137,132 995,731 67,692 59,939 79,404 371,484 27,071 15,537 85,172 84 .6% 15,887 168,890 91 .4% 5,164 82,309 94 .1% 3,209 76,840 96 .0% 2,350 28,513 92 .4% 15,360 41,212 72 .9% — 481,841 100 .0% 24,392 463,218 95 .0% — 246,906 100 .0% 7,008 177,908 96 .2% — 137,132 100 .0% 131,917 863,814 86 .8% — — 67,692 100 .0% 59,939 100 .0% 18,382 61,022 76 .9% 4,530 366,954 98 .8% — 27,071 100 .0% ALLIED 2019 ANNUAL REPORT Urban Workspace DECEMBER 31, 2019 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant & Unleased Total Leased Leased % Cité Multimédia - 700 Wellington 135,232 — Cité Multimédia - 75 Queen 253,311 2,513 Cité Multimédia - 80 Queen 65,044 4,203 Cité Multimédia - 87 Prince 100,116 1,040 El Pro Lofts - 644 Courcelle 145,030 8,451 Le Nordelec - 1301-1303 Montmorency Le Nordelec - 1655 Richardson Le Nordelec - 1751 Richardson & 1700 Saint-Patrick 7,550 32,893 — — 787,001 42,401 RCA Building - 1001 Lenoir 304,555 39,013 Montréal 5,349,425 259,097 — — — — — — — — — — 135,232 255,824 69,247 101,156 153,481 7,550 32,893 829,402 343,568 12,005 123,227 91 .1% 644 255,180 99 .8% 3,152 66,095 95 .5% — 101,156 100 .0% 32,910 120,571 78 .6% — 7,550 100 .0% — 32,893 100 .0% 28,212 801,190 96 .6% 63,731 279,837 81 .5% 5,608,522 43.3% 384,390 5,224,132 93.2% Montréal & Ottawa 5,575,393 264,597 — 5,839,990 45.1% 386,820 5,453,170 93.4% 613 11th SW 617 11th SW — 4,288 3,230 6,306 Alberta Block - 805 1st SW 9,094 22,540 Alberta Hotel - 808 1st SW 28,036 20,424 Atrium on Eleventh - 625 11th SE 34,870 1,410 Biscuit Block - 438 11th SE 51,298 — Burns Building - 237 8th SE 75,040 1,249 Cooper Block - 809 10th SW 35,256 Customs House - 134 11th SE 73,352 Demcor Condo - 221 10th SE 14,253 Demcor Tower - 239 10th SE 25,749 — — — — Five Roses Building - 731-739 10th SW (4) Glenbow - 802 11th SW (4) — — 10,432 3,660 Glenbow - 822 11th SW (4) 4,848 3,919 Glenbow Annex - 816 11th SW (4) Glenbow Cornerblock - 838 11th SW (4) Glenbow Ellison - 812 11th SW (4) — 4,511 5,499 5,606 5,676 — — Kipling Square - 601 10th SW 48,502 — — — — — — — — — — — — — — — — — — 4,288 9,536 31,634 48,460 36,280 51,298 76,289 35,256 73,352 14,253 25,749 10,432 3,660 8,767 4,511 11,105 5,676 48,502 — — 4,288 100 .0% 9,536 100 .0% 1,534 30,100 95 .2% 10,563 37,897 78 .2% 9,316 26,964 74 .3% — 51,298 100 .0% 1,070 75,219 98 .6% 5,278 29,978 85 .0% — 73,352 100 .0% 14,253 — —% 6,022 19,727 76 .6% — — 10,432 100 .0% 3,660 100 .0% 2,168 6,599 75 .3% — 4,511 100 .0% 573 10,532 94 .8% 5,676 — —% 13,281 35,221 72 .6% 93 ALLIED 2019 ANNUAL REPORT Urban Workspace DECEMBER 31, 2019 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant & Unleased Total Leased Leased % Leeson Lineham Building - 209 8th SW LocalMotive - 1240 20th SE Odd Fellows - 100 6th SW Pilkington Building - 402 11th SE Roberts Block - 603-605 11th SW 33,241 57,537 33,474 40,253 — — — — 23,645 27,499 Sherwin Block - 738 11th SW (4) 10,845 4,895 Telephone Building - 119 6th SW 63,063 — Vintage Towers - 322-326 11th SW 190,219 20,418 Woodstone Building - 1207-1215 13th SE Young Block - 129 8th SW 33,152 7,734 — — Calgary 907,866 137,157 Boardwalk Building - 10310 102nd NW Revillon Building - 10310 102nd NW Revillon Parkade - 10230 104th NW 121,318 18,067 149,029 — — 9,437 Edmonton 270,347 27,504 1040 Hamilton 36,276 9,162 1050 Homer 1220 Homer 1286 Homer 151-155 West Hastings 28,483 14,215 21,708 25,637 38,512 — — — 2233 Columbia Street 21,591 6,852 342 Water 365 Railway 840 Cambie 948-950 Homer 18,416 2,886 31,528 89,377 45,003 — — — Sun Tower - 128 West Pender 76,303 1,693 Vancouver 432,834 34,808 — — — — — — — — — — — — — — — — — — — — — — — — — — — 33,241 57,537 33,474 — 33,241 100 .0% 4,871 52,666 91 .5% — 33,474 100 .0% 40,253 — 40,253 100 .0% 51,144 15,740 63,063 210,637 33,152 7,734 16,989 34,155 66 .8% — 15,740 100 .0% — 63,063 100 .0% 3,758 206,879 98 .2% 14,217 18,935 57 .1% 2,414 5,320 68 .8% 1,045,023 8.1% 111,983 933,040 89.3% 139,385 — 139,385 100 .0% 149,029 17,393 131,636 88 .3% 9,437 — 9,437 100 .0% 297,851 2.3% 17,393 280,458 94.2% 45,438 42,698 21,708 25,637 38,512 28,443 21,302 31,528 89,377 45,003 77,996 12,167 33,271 73 .2% — — — — — — — — — 42,698 100 .0% 21,708 100 .0% 25,637 100 .0% 38,512 100 .0% 28,443 100 .0% 21,302 100 .0% 31,528 100 .0% 89,377 100 .0% 45,003 100 .0% 4,182 73,814 94 .6% 467,642 3.6% 16,349 451,293 96.5% Calgary, Edmonton, & Vancouver 1,611,047 199,469 — 1,810,516 14.0% 145,725 1,664,791 92.0% Total Office and Retail 11,249,399 1,053,047 — 12,302,446 95.0% 586,521 11,715,925 95.2% 94 ALLIED 2019 ANNUAL REPORT Urban Workspace DECEMBER 31, 2019 PROPERTIES Office GLA Retail GLA Urban Data Centres GLA Total GLA % Total GLA Total Vacant & Unleased Total Leased Leased % 151 Front W 250 Front W 905 King W Urban Data Centres Total Rental Portfolio, Excluding PUD Transfers King Portland Centre - 620 King W (1) Total Rental Portfolio, Including PUD Transfers — — — — — — — — 277,744 277,744 28,008 249,736 89 .9% 173,000 173,000 55,900 117,100 67 .7% 58,666 58,666 — 58,666 100 .0% 509,410 509,410 3.9% 83,908 425,502 83.5% 11,249,399 1,053,047 509,410 12,811,856 98.9% 670,429 12,141,427 94.8% 128,599 7,720 — 136,319 — 136,319 100 .0% 11,377,998 1,060,767 509,410 12,948,175 100% 670,429 12,277,746 94.8% Note that the table above does not include ancillary residential properties, which total 12 and are 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 95 ALLIED 2019 ANNUAL REPORT PROPERTIES UNDER DEVELOPMENT ESTIMATED GLA ON COMPLETION (SF) TELUS Sky, Calgary (1) 425 Viger, Montréal The Lougheed (604-1st SW), Calgary College & Manning, 547-549 College, Toronto (2) Adelaide & Duncan, Toronto (3) The Well, Toronto (4) KING Toronto, Toronto (3)(5) Breithaupt Phase III, Kitchener (6) Total Development Portfolio 218,000 317,500 88,000 27,000 230,000 763,000 100,000 147,000 1,890,500 (1) TELUS/Westbank/Allied Joint Venture (2) RioCan/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: 200,000 of residential, 60,000 of retail and 40,000 of office. (6) Perimeter/Allied Joint Arrangement. Breithaupt Phase III is comprised of 43 Wellington, 53 & 55 Wellington, 305 Joseph and 2-4 Stewart. ANCILLARY PARKING FACILITIES NUMBER OF SPACES 25 203 39 15 47 121 12 65 171 71 769 7-9 Morrison, Toronto 15 Brant, Toronto 78 Spadina, Toronto 105 George, Toronto 301 Markham, Toronto 388 Richmond, Toronto 464 King, Toronto 478 King, Toronto (1) 560 King, Toronto 650 King, Toronto Total Parking (1) Lifetime/Allied Joint Arrangement 96 ALLIED 2019 ANNUAL REPORT Consolidated Financial Statements For the Years Ended December 31, 2019 and 2018 97 ALLIED 2019 ANNUAL REPORTManagement’s Statement of Responsibility for Financial Reporting The accompanying consolidated financial statements, management’s discussion and analysis of results of operations and financial condition and the annual report are the responsibility of the Management of Allied Properties Real Estate Investment Trust (“Allied”). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and where appropriate, include amounts which are based on judgments, estimates and assumptions of Management. Management has developed and maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition, and liabilities are recognized. The Board of Trustees (the “Board”) is responsible for ensuring that Management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its Audit Committee (the “Committee”), which is comprised entirely of independent trustees. The Committee reviews the consolidated financial statements with both Management and the independent auditors. The Committee reports its findings to the Board, which approves the consolidated financial statements before they are submitted to the Unitholders of Allied. Deloitte LLP (the “Auditors”), the independent auditors of Allied, have audited the consolidated financial statements of Allied in accordance with Canadian generally accepted auditing standards to enable them to express to the Unitholders their opinion on the consolidated financial statements. The Auditors have direct and full access to, and meet periodically with the Committee, both with and without Management present. Michael R. Emory PRESIDENT AND CHIEF EXECUTIVE OFFICER Cecilia C. Williams, CPA, CA EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 98 ALLIED 2019 ANNUAL REPORT Independent Auditor’s Report TO THE UNITHOLDERS AND THE BOARD OF TRUSTEES OF ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST OPINION We have audited the consolidated financial statements of Allied Properties Real Estate Investment Trust (the “Trust”), which comprise the consolidated balance sheets as at December 31, 2019 and 2018, 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, 2019 and 2018, 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. 99 ALLIED 2019 ANNUAL REPORTOur opinion on the financial statements does not cover the other information and we do 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. As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 100 ALLIED 2019 ANNUAL REPORT- 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 5, 2020 101 ALLIED 2019 ANNUAL REPORTALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2019 AND DECEMBER 31, 2018 (in thousands of Canadian dollars) NOTES DECEMBER 31, 2019 DECEMBER 31, 2018 Assets Non-current assets Investment properties Residential inventory Investment in joint venture and loan receivable 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 Other liabilities Lease liabilities Current liabilities Debt Accounts payable and other liabilities Total liabilities Unitholders’ equity 5 6 7 8 9 20 8 10 6 11 13 12 11 13 Total liabilities and Unitholders’ equity Commitments and Contingencies (note 26) The accompanying notes are an integral part of these consolidated financial statements. $7,469,265 $6,162,457 114,910 95,596 247,413 39,788 103,690 18,456 202,367 28,518 7,966,972 6,515,488 208,914 3,863 129,944 — 342,721 18,059 11,077 45,838 36,612 111,586 $8,309,693 $6,627,074 $2,125,938 $1,850,621 33,923 155,221 2,315,082 29,243 247,669 276,912 2,591,994 5,717,699 $8,309,693 — 156,663 2,007,284 36,081 209,046 245,127 2,252,411 4,374,663 $6,627,074 Gordon Cunningham TRUSTEE 102 Michael R. Emory TRUSTEE ALLIED 2019 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2019 AND 2018 YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 (in thousands of Canadian dollars, except unit and per unit amounts) NOTES Rental revenue from investment properties Condominium revenue Total revenue Property operating costs Condominium cost of sales Total operating expenses Operating income Interest expense General and administrative expenses Condominium marketing expenses Amortization of other assets Interest income Fair value gain on investment properties 18 18 6 11 (f) 19 9 5 Fair value loss on derivative instruments 14, 25 (d) Net loss from joint venture Gain on disposal of investment properties Net income and comprehensive income Income per unit Basic Diluted Weighted average number of Units 17 Basic Diluted $496,109 45,341 541,450 (210,747) (43,342) (254,089) 287,361 (66,403) (21,953) (4,214) (1,456) 17,351 450,490 (6,109) (25,844) — $629,223 $5.60 $5.58 112,443,006 112,731,050 The accompanying notes are an integral part of these consolidated financial statements. $436,396 — 436,396 (185,938) — (185,938) 250,458 (68,471) (17,059) (1,609) (1,556) 6,941 378,883 (6,470) (1,848) 1,007 $540,276 $5 .53 $5 .51 97,785,091 97,965,711 103 ALLIED 2019 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF UNITHOLDERS’ EQUITY FOR THE YEAR ENDED DECEMBER 31, 2019 AND 2018 (in thousands of Canadian dollars) NOTES TRUST UNITS RETAINED EARNINGS CONTRIBUTED SURPLUS TOTAL Balance at January 1, 2018 15 $2,399,768 $1,134,614 $14,640 $3,549,022 Net income and comprehensive income — 540,276 Unit offering (net of issuance costs) 15 435,168 — Distributions — (153,855) Unit option plan – options exercised Contributed surplus – Unit option plan Restricted Unit plan (net of forfeitures) 16 (a) 16 (a) 16 (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 (in thousands of Canadian dollars) NOTES TRUST UNITS RETAINED EARNINGS CONTRIBUTED SURPLUS TOTAL Balance at January 1, 2019 15 $2,835,395 $1,521,035 $18,233 $4,374,663 Net income and comprehensive income — 629,223 Unit offering (net of issuance costs) 15 882,102 — Distributions — (180,284) Unit option plan – options exercised Contributed surplus – Unit option plan Restricted Unit plan (net of forfeitures) 16 (a) 16 (a) 16 (b) 10,437 — (2,462) — — — — — — — 1,583 2,437 629,223 882,102 (180,284) 10,437 1,583 (25) Balance at December 31, 2019 $3,725,472 $1,969,974 $22,253 $5,717,699 The accompanying notes are an integral part of these consolidated financial statements. 104 ALLIED 2019 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2019 AND 2018 (in thousands of Canadian dollars) NOTES DECEMBER 31, 2019 DECEMBER 31, 2018 YEAR ENDED Operating activities Net income for the year Fair value gain on investment properties Fair value loss on derivative instruments Realized gain on derivative instruments (Gain) on disposal of investment properties 5 25 (d) 25 (d) Interest expense (excluding capitalized interest) 11 (f) Interest paid (excluding capitalized interest) 20, 5, 6 Interest income Interest received Net loss from joint venture Amortization of equipment and other assets Amortization of improvement allowances Amortization of straight-line rents 20 7 9 5 5 Amortization of discount on debt 11 (f) Amortization of lease liabilities Unit compensation expense Additions to residential inventory Change in other non-cash financing items 16 6 7 Change in other non-cash operating items 7, 20 Cash provided by operating activities Financing activities Repayment of mortgages payable Proceeds from senior unsecured debentures (net of financing costs) Repayment of senior unsecured debentures Proceeds from unsecured term loan (net of financing costs) Principal payments of lease liabilities Distributions paid to Unitholders Proceeds of Unit offering (net of issuance costs) Proceeds from exercise of Unit options Restricted Unit Plan (net of forfeitures) 4, 11 (a) 11 (d) 11 (d) 11 (e) 15 15, 16 15, 16 $629,223 (450,490) 6,109 (2,146) — 66,403 (60,079) (17,351) 12,102 25,844 1,456 30,796 (5,894) (1,127) (1,279) 4,020 (17,950) (3,316) 29,329 245,650 (192,878) 596,397 (225,000) — (2,049) (177,760) 882,102 10,437 (2,462) $540,276 (378,883) 6,470 — (1,007) 68,471 (69,363) (6,941) 6,941 1,848 1,556 28,819 (6,992) (1,828) (68) 3,593 (8,373) 1,924 50,305 236,748 (213,653) — — 99,190 (24) (152,123) 435,168 3,043 (2,584) 105 ALLIED 2019 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2019 AND 2018 - continued (in thousands of Canadian dollars) NOTES DECEMBER 31, 2019 DECEMBER 31, 2018 YEAR ENDED Proceeds from notes receivables Proceeds from Unsecured Revolving Operating Facility Repayments of Unsecured Revolving Operating Facility Proceeds from construction loan Financing costs Loan receivable payments received 8 (b) 11 (c) 11 (c) 11 (c) 8 (a) Loan receivable issued to third-party 7, 8 (a), 20 Cash provided by financing activities Investing activities Acquisition of investment properties Deposits on acquisitions Additions to investment properties (including capitalized interest) Additions to equipment and other assets Leasing commissions Improvement allowances Cash used in investing activities 4 10 (d) 5, 7 9 5, 7 5 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 20) The accompanying notes are an integral part of these consolidated financial statements. 551 575 338,000 470,000 (433,000) (400,000) 23,210 (96) 35,057 (178,566) 673,943 (370,075) (28,250) (274,707) (396) (17,533) (37,777) (728,738) 190,855 18,059 $208,914 — (719) — (44,943) 193,930 (123,279) — (217,440) (2,613) (21,022) (54,024) (418,378) 12,300 5,759 $18,059 106 ALLIED 2019 ANNUAL REPORT ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019 AND 2018 (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, 2019, and 2018, 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, 2019, and 2018, were approved and authorized for issue by the Board of Trustees on February 5, 2020. (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. 107 ALLIED 2019 ANNUAL REPORTThe preparation of these consolidated financial statements requires Allied to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates, which, by their nature, are uncertain. The impact of such estimates is pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods. Significant estimates and assumptions include the fair values assigned to investment properties, interest rate derivative contracts, and allowances for doubtful accounts. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of Allied and its subsidiaries. Subsidiaries are all entities over which Allied has control, where control is defined as the power to direct the relevant activities of an entity so as to obtain benefit from its activities. Control exists when a parent company is exposed to, or has rights to, variable returns from the subsidiaries and has the ability to affect those returns through its power. Subsidiaries are consolidated from the date control is transferred to Allied, and are de-consolidated from the date control ceases. Intercompany transactions between subsidiaries are eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Allied. All subsidiaries have a reporting date of December 31. (d) Investment properties At the time of acquisition of a property, Allied applies judgment when determining if the acquisition is an asset acquisition or a business combination. Allied classifies its acquisitions as asset acquisitions when it acquires properties or a portfolio of properties and it has not assumed any employees or acquired an operating platform. Investment properties include rental properties and properties under development that are owned by Allied, or leased by Allied as a lessee, 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 ‘total revenue’ and ‘total operating 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. 108 ALLIED 2019 ANNUAL REPORTInvestment properties are externally appraised quarterly and are reported in the consolidated balance sheets at their fair values. Fair value is based on valuations prepared by a nationally recognized and qualified independent professional appraiser with sufficient experience with respect to both the geographic location and the nature of the investment property and supported by market evidence. Any gain or loss resulting from a change in the fair value of an investment property is immediately recognized in the Consolidated Statements of Income and Comprehensive Income. The fair value of each investment property is based upon, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions at the balance sheet date, less future estimated cash outflows in respect of such properties. The independent professional appraiser engaged by Allied predominantly uses the discounted cash flow method to determine fair value, whereby the income and expenses are projected over the anticipated term of the investment and combined with a terminal value, all of which is discounted using an appropriate discount rate. Properties under development are measured using both a comparable sales method and a discounted cash flow method, net of costs to complete, as of the balance sheet date. For further details on methods used, refer to note 5. Valuations of investment properties are most sensitive to changes in discount rates and capitalization rates. Allied has applied judgment based on the extent that costs are incurred to enhance the service potential of the property in determining whether certain costs are additions to the carrying amount of investment properties or will be expensed. Allied has applied judgment when reporting its properties under development. The cost of properties under development includes the acquisition cost of the property, direct development costs, realty taxes and borrowing costs attributable to the development. See 2 (g) below for further information regarding Allied’s accounting for borrowing costs. (e) Joint Arrangements Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Joint operation 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. A joint operation usually results from direct interests in the assets and liabilities of an investee. 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. 109 ALLIED 2019 ANNUAL REPORTJoint venture A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets relating to the arrangement, and usually results from the establishment of a separate legal entity. Allied accounts for its joint ventures using the equity method. The share of results of earnings (loss) of the joint venture is reflected in the consolidated statement of income and comprehensive income. Under the equity method, an investment in a joint venture is recognized initially in the consolidated balance sheet at cost and adjusted thereafter to recognize Allied’s share of the profit or loss and other comprehensive income of the joint venture in accordance with Allied’s accounting policies. When Allied’s share of losses of a joint venture exceeds Allied’s interest in that joint venture (which includes any long-term interests that, in substance, form part of Allied’s net investment in the joint venture), Allied continues recognizing its share of further losses to the extent that Allied has incurred legal or constructive obligations or made payments on behalf of the joint venture. When Allied transacts with a joint venture, profits and losses resulting from the transactions with the joint venture are recognized in Allied’s consolidated financial statements only to the extent of interests in the joint venture that are not related to Allied. (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. 110 ALLIED 2019 ANNUAL REPORT(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. (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 Loans and receivables Loans and receivables Other financial liabilities Accounts payable and other liabilities Other financial liabilities Interest rate swaps Fair value through profit or loss Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Fair value 111 ALLIED 2019 ANNUAL REPORTAllied designated its accounts receivable, loans and notes receivable, and cash and cash equivalents as loans and receivables; its debt and accounts payable and other liabilities as other financial liabilities. All derivatives, including embedded derivatives, are classified 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. FINANCIAL ASSETS Financial assets are classified as loans and receivables or fair value through profit or loss. Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets or liabilities, with the exception of those classified as at fair value through profit or loss, are accounted for as part of the respective asset or liability’s carrying value at inception and amortized over the expected life of the financial instrument using the effective interest method. Transaction costs directly attributable to the acquisition or issuance of financial assets or liabilities classified as at fair value through profit or loss are recognized immediately in net income. Allied assesses, on a continual basis, whether there is objective evidence that a financial asset that is not carried at fair value through profit or loss is impaired based on changes in the credit risk of the financial asset since initial recognition. An impairment loss, which is the excess of the carrying amount over the fair value, is recognized if the present value of estimated future cash flows discounted at the original effective interest rate inherent in the loan is less than its carrying value and is measured as the difference between the two amounts. Impairments are recognized in the Consolidated Statements of Income and Comprehensive Income. FINANCIAL LIABILITIES Financial liabilities are classified and measured as disclosed in the table above. Financial liabilities are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest method, except for financial liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognized in profit or loss. Allied measures its debt, finance lease obligations, and accounts payable and other liabilities, at amortized cost using the effective interest method. All interest-related charges are reported in the Consolidated Statements of Income and Comprehensive Income and are included within ‘Interest expense’, except for those interest-related charges capitalized to qualifying properties under development or rental properties. 112 ALLIED 2019 ANNUAL REPORT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”). 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. (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 16 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 Restricted Units and Unit Options may not occur until the participant has remained employed by Allied for three and four years, respectively 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. 113 ALLIED 2019 ANNUAL REPORT(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. (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 17 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 the outstanding unit purchase options. 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 16 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 adopted in 2019 IFRS 16 - LEASES (“IFRS 16”) Allied has adopted IFRS 16, as issued by the IASB in January 2016, which replaces IAS 17, Leases, and related interpretations effective on January 1, 2019. Allied has elected to apply the standard on a modified retrospective basis and accordingly the comparative period has not been restated. IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance leases and requires the lessee to recognize a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases (lease term of 12 months or less) and leases of low-value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged with the distinction between operating leases and finance leases being retained. However, IFRS 16 requires enhanced disclosures to be provided by lessors. 114 ALLIED 2019 ANNUAL REPORTAllied has historically recorded five land leases and accounted for the respective leases as finance leases under IAS 17. Accordingly, the adoption of IFRS 16 resulted in a change in the description of the line item entitled finance lease obligations to the new line item entitled lease liabilities. There was no impact to the measurement of the finance lease obligations and corresponding investment properties on the adoption of IFRS 16. As no right-of-use asset or lease liabilities have been recognized in the period there is no cumulative effect adjustment required to be recorded in retained earnings on initial application of IFRS 16. For short-term leases and leases of low-value assets, Allied has elected to recognize the lease expense in the period in accordance with the practical expedients of IFRS 16. This expense is presented within property operating costs and/or general and administrative expenses, as applicable, in the consolidated statements of income and comprehensive income. The total amount expensed during the year ended December 31, 2019, is $270. The adoption of IFRS 16 did not have an impact on the consolidated statements of cash flows as all short-term leases and low-value asset payments continue to be recorded within cash provided by operating activities line items. (q) Comparative figures As a result of the condominium sales earned in the year ended December 31, 2019, a revised sub-total entitled operating income has replaced the previous sub-total net rental income on the face of the consolidated statement of income and comprehensive income. Also, the comparative figures have been revised for the accounting related to a joint venture (see Note 7) and related segment disclosures. 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. 115 ALLIED 2019 ANNUAL REPORT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. Key Sources of Estimation - The fair value of investment properties is dependent on available comparable transactions, future cash flows over the holding period and discount rates and capitalization rates applicable to those assets. For further details, see note 5. The review of anticipated cash flows involves assumptions relating to occupancy, rental rates and residual value. In addition to reviewing anticipated cash flows, management assesses changes in the business climate and other factors which may affect the ultimate value of the property. These assumptions may not ultimately be achieved. JOINT ARRANGEMENTS Judgments Made in Relation to Accounting Policies Applied - Judgment is applied in determining whether Allied has joint control and whether the arrangements are joint operations or joint ventures. In assessing whether the joint arrangements are joint operations or joint ventures, management applies judgment to determine Allied’s rights and obligations in the arrangement based on factors such as the structure, legal form and contractual terms of the arrangement. 116 ALLIED 2019 ANNUAL REPORTLEASES Judgments Made in Relation to Accounting Policies Applied - Prior to the adoption of IFRS 16, 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. 4. ACQUISITIONS AND DISPOSITIONS During the year ended December 31, 2019, Allied completed the following property acquisitions from third parties: PROPERTY ACQUISITION DATE PROPERTY TYPE INVESTMENT PROPERTY INTEREST ACQUIRED 738-11th SW, Calgary April 9, 2019 Office, Retail 6,145 2233 Columbia, Vancouver April 11, 2019 Office, Retail 25,074 2-4 Stewart, Kitchener 1050 Homer, Vancouver May 9, 2019 Development 1,791 May 27, 2019 Office, Retail 41,420 53-55 Wellington, Kitchener June 3, 2019 Development 371 1001 Rue Lenoir, Montréal July 2, 2019 Office, Retail 82,091 700 de la Gauchetière, Montréal July 17, 2019 Office, Retail 335,714 365 Railway, Vancouver 134-11th SE, Calgary September 26, 2019 November 28, 2019 Office Office Ancillary residential properties, Toronto (1) - Residential 18,988 14,800 23,074 $549,468 (1) Allied acquired eight ancillary residential properties in 2019. 50% 100% 50% 100% 50% 100% 100% 100% 100% 100% 117 ALLIED 2019 ANNUAL REPORT The total purchase price for the above noted properties of $549,468 is comprised of net cash consideration of $370,075, the assumption of other liabilities of $17,442 and mortgage assumptions of $161,951. During the year ended December 31, 2018, Allied completed the following property acquisitions from third parties: PROPERTY 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 ACQUISITION DATE PROPERTY TYPE INVESTMENT PROPERTY INTEREST ACQUIRED January 18, 2018 Parking $7,529 January 25, 2018 Retail January 30, 2018 Office, Retail February 12, 2018 Retail June 21, 2018 Parking October 15, 2018 October 15, 2018 Office Retail Office Retail November 30, 2018 December 3, 2018 Office, Retail 1,750 1,110 5,970 888 18,072 2,287 40,061 12,547 20,074 33,108 $143,396 100% 50% 100% 50% 50% 100% 50% 100% 100% 100% 100% 151 West Hastings, Vancouver November 30, 2018 644 Courcelle, Montréal December 19, 2018 Office, Retail The total purchase price for the above noted properties of $143,396 is comprised of net cash consideration of $123,279, the assumption of other liabilities of $1,442, and mortgages payable of $18,675. DISPOSITIONS During the year ended December 31, 2019, Allied did not dispose of any investment properties. During the year ended December 31, 2018, Allied completed the following disposition of an investment property to a third party: PROPERTY KING Toronto (1) Total selling price Net selling costs Working capital adjustments Loan Issuance Net cash consideration received DISPOSITION DATE November 30, 2018 PROPERTY TYPE SELLING PRICE Residential, Office, Retail $63,225 $63,225 (20) 3,825 (67,030) $— (1) Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied sold a 50% undivided interest to Westbank. KING Toronto is comprised of the following properties: 489 King W, 495 King W, 499 King W, 511-529 King W, 533 King W, and 539 King W. 118 ALLIED 2019 ANNUAL REPORT 5. INVESTMENT PROPERTIES Changes to the carrying amounts of investment properties are summarized as follows: DECEMBER 31, 2019 DECEMBER 31, 2018 PROPERTIES UNDER PROPERTIES UNDER RENTAL DEVELOPMENT RENTAL DEVELOPMENT PROPERTIES (“PUD”) TOTAL PROPERTIES (“PUD”) TOTAL Balance, beginning of year $5,592,216 $570,241 $6,162,457 $5,168,621 $387,365 $5,555,986 Additions: Acquisitions Improvement allowances Leasing commissions 547,306 37,755 13,310 2,162 22 4,223 549,468 143,396 — 143,396 37,777 48,607 17,533 13,823 5,417 7,199 54,024 21,022 Capital expenditures 55,428 219,279 274,707 40,091 177,349 217,440 Dispositions — — Transfers from PUD 98,850 (98,850) Transfers to PUD (6,530) 6,530 Transfers to residential inventory Transfers to other assets Lease liabilities — (152) 1,887 — — — — — — — — (67,030) (67,030) 67,180 (67,180) (185,770) 185,770 — — — (103,690) (103,690) (152) 1,887 (17,631) 1,884 — — (17,631) 1,884 Amortization of straight-line rent and improvement allowances Fair value gain on investment properties (24,882) (20) (24,902) (23,287) 1,460 (21,827) 439,027 11,463 450,490 335,302 43,581 378,883 Balance, end of year $6,754,215 $715,050 $7,469,265 $5,592,216 $570,241 $6,162,457 For the year ended December 31, 2019, Allied capitalized $20,979 of borrowing costs to qualifying investment properties (December 31, 2018 - $18,760). Included in the rental properties amounts noted above are right-of-use assets with a fair value of $509,860 (December 31, 2018 - $502,040) representing the fair value of Allied’s interest in five investment properties with corresponding lease liabilities. The leases’ maturities range from 24.8 years to 82.5 years. 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. 119 ALLIED 2019 ANNUAL REPORT (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. Discount rate Terminal capitalization rate Overall capitalization rate Discount horizon (years) WEIGHTED AVERAGE DECEMBER 31, 2019 DECEMBER 31, 2018 6.63% 5.38% 4.98% 10 6 .64% 5 .55% 5 .13% 10 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 $833,623 $394,781 $(357,039) $(681,502) 120 ALLIED 2019 ANNUAL REPORT 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 and 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. As of December 31, 2019, all units have been occupied for which $45,341 and $43,342 of revenue and related cost of sales, respectively, have been recognized in the consolidated statements of income and comprehensive income. On November 30, 2018, Allied entered into a joint arrangement with Westbank to develop KING Toronto. KING Toronto is a mixed-use 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. For the year ended December 31, 2019, Allied capitalized $5,214 of borrowing costs to qualifying residential inventory (December 31, 2018 - $1,264). Residential inventory is as follows: King Portland Centre KING Toronto Current Non-current DECEMBER 31, 2019 DECEMBER 31, 2018 $— 114,910 $114,910 $— 114,910 $114,910 $36,612 103,690 $140,302 $36,612 103,690 $140,302 121 ALLIED 2019 ANNUAL REPORT The changes in the aggregate carrying value of Allied’s residential inventory is as follows: Balance, beginning of year Acquisitions (1) Dispositions (1) Sale of residential units (2) Development expenditures Transfers from investment properties (3) Balance, end of year DECEMBER 31, 2019 DECEMBER 31, 2018 $140,302 10,454 (5,227) (43,342) 12,723 — $114,910 $28,239 — — — 8,373 103,690 $140,302 (1) On February 14, 2019, Allied acquired 464-466 Queen W, Toronto, at a purchase price of $10,454 and concurrently sold a 50% undivided interest to Westbank at a sale price of $5,227. This property will be transferred to the City of Toronto as parkland dedication related to the KING Toronto condominium development. (2) Allied recognized condominium cost of sales for the 132 units occupied at King Portland Centre. (3) On November 30, 2018, the fair market value of a portion of KING Toronto was transferred from investment property to inventory with the intention for future sale as condominium units. 7. INVESTMENT IN JOINT VENTURE AND LOAN RECEIVABLE Investment in joint venture and the associated loan receivable is comprised of the following: Investment in joint venture Loans receivable from joint venture DECEMBER 31, 2019 DECEMBER 31, 2018 $(8,439) 104,035 $95,596 $18,456 — $18,456 On July 2, 2013, Allied entered into a partnership agreement whereby Allied holds a one-third voting and economic interest in 7th Avenue Sky Partnership (“TELUS Sky”). TELUS Sky was created with the specific purpose of acquiring the entire beneficial interest in the property located at 100-114 7th Avenue SW, Calgary and participating in its construction and development. On October 31, 2019, Allied advanced a construction loan in the amount of $96,142 to TELUS Sky, with the loan having a maximum limit of $114,000. The loan matures on August 31, 2021, and bears interest at bank prime plus 45 basis points or banker’s acceptance rate plus 145 basis points. As at December 31, 2019, the loan receivable outstanding is $104,035 (December 31, 2018 - nil). Allied is providing a joint and several guarantee, in the amount of $114,000 to support the TELUS Sky facility. 122 ALLIED 2019 ANNUAL REPORT Allied accounts for its interests in joint ventures using the equity method. The financial information below represents TELUS Sky at 100%, as well as Allied’s one-third interest. DECEMBER 31, 2019 DECEMBER 31, 2018 Current assets (including cash and cash equivalents) Non-current assets Current liabilities Non-current liabilities Net assets of TELUS Sky at 100% Net assets of TELUS Sky at Allied’s share (1) Revenue Expenses Interest expense General and administrative expense Fair value loss Net loss and total comprehensive loss of TELUS Sky at 100% Net loss and total comprehensive loss at Allied’s share (1) (1) Includes costs only pertaining to Allied, and not the joint venture. $9,377 320,880 (43,457) (312,117) $(25,317) $(8,439) $3,441 (830) (1,326) (362) (78,455) $(77,532) $(25,844) $7,391 285,568 (24,865) (212,726) $55,368 $18,456 $— — — — (5,543) $(5,543) $(1,848) Opening balance Net earnings Distributions Ending balance DECEMBER 31, 2019 DECEMBER 31, 2018 $18,456 (25,844) (1,051) $(8,439) $20,304 (1,848) — $18,456 The comparative figures for the year ended December 31, 2018, have been revised in respect of the accounting for Allied’s investment in TELUS Sky from a joint operation to a joint venture. As a result the consolidated balance sheet, statement of income and comprehensive income and statement of cash flow accounts summarized in the table below were revised; and there was no impact on net income, earnings per share and the consolidated statement of equity. The revision had an immaterial impact on the January 1, 2018, opening balance sheet. 123 ALLIED 2019 ANNUAL REPORT PREVIOUSLY REPORTED ADJUSTMENT REVISED PRESENTATION Consolidated Balance Sheet, as at December 31, 2018 Investment properties $6,257,647 $(95,190) $6,162,457 Investment in joint venture and loan receivable Cash and cash equivalents Accounts receivable, prepaid expenses and deposits Current debt Accounts payable and other liabilities Consolidated Statement of Income & Comprehensive Income for the year ended December 31, 2018 Interest expense Fair value gain on investment properties Net loss from joint venture Consolidated Statement of Cash Flows for the year ended December 31, 2018 Cash provided by operating activities — 18,361 47,999 106,990 217,334 (67,285) 375,848 — Fair value (gain) on investment properties (375,849) Change in other non-cash financing items Change in other non-cash operating items 1,918 51,758 Cash provided by financing activities 18,456 (302) (2,161) (70,909) (8,288) (1,186) 3,034 (1,848) (3,034) 6 (1,453) 18,456 18,059 45,838 36,081 209,046 (68,471) 378,882 (1,848) (378,883) 1,924 50,305 Proceeds of construction loan 24,151 (24,151) — Cash used by investing activities Additions to investment properties Leasing commissions 8. LOANS AND NOTES RECEIVABLE Loans and notes receivable are as follows: Loans receivable (a) Notes and other receivables (b) Current Non-current 124 (244,210) (21,023) 26,770 1 (217,440) (21,022) DECEMBER 31, 2019 DECEMBER 31, 2018 $245,303 5,973 $251,276 $3,863 247,413 $251,276 $200,289 13,155 $213,444 $11,077 202,367 $213,444 ALLIED 2019 ANNUAL REPORT (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 $21,173 to Westbank. As at December 31, 2019, the loan receivable outstanding is $21,173 (December 31, 2018 - $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. In accordance with the loan agreement, the rate increased to 7.75% per annum upon placement of construction financing (December 31, 2018 - 6.17%). 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 pre-development costs of 400 West Georgia in Vancouver. The facility will initially be secured by a first charge on the property and upon permanent financing, the facility will be secured by Westbank’s covenant and a second charge with the construction lender having the first charge. On February 11, 2019, the facility was increased to $160,000. Interest accrues monthly at rates between 5.00% to 6.75% per annum in year one and is payable monthly at a rate of 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. The loan outstanding as at December 31, 2019, is $106,292 (December 31, 2018 - $112,086). On November 30, 2018, Allied entered into a joint arrangement with Westbank to develop KING Toronto. As part of the arrangement, Allied advanced $67,030 to Westbank for its purchase of a 50% undivided interest in the property. As at December 31, 2019, the loan receivable outstanding is $77,765 (December 31, 2018 - $67,030) and bears interest at a rate of 7.00% per annum. Interest accrues monthly and is payable on loan repayment. The loan is repayable at the earlier of November 23, 2023, or the closing of the condominiums. On March 18, 2019, Allied made an amendment to the joint arrangement with Perimeter to develop Breithaupt Phase III and a loan receivable arrangement to provide 50% of the pre-development costs. As at December 31, 2019, the loan receivable outstanding is $9,365 (December 31, 2018 - nil) and bears interest at a rate of 7.00% per annum. Interest accrues monthly and is payable on loan repayment. The loan is repayable upon completion of development and rent commencement, which is anticipated to be in the fourth quarter of 2021. On July 31, 2019, Allied entered into an arrangement with Westbank to provide a credit facility of up to $185,000, plus interest, for the land acquisition and the pre-development costs of 720 Beatty Street in Vancouver. The funding will initially be secured by a first mortgage on the property for a fixed term and bears interest at a rate of 7.00% per annum. Interest accrues monthly and is payable on loan repayment. On placement of construction financing, the mortgage will be secured by a second charge with the construction lender having the first charge. The credit facility matures in six years following approval of the project by the British Columbia Utilities Commission. The loan outstanding as at December 31, 2019, is $30,708 (December 31, 2018 - nil). 125 ALLIED 2019 ANNUAL REPORT (b) As at December 31, 2019, the balance of notes and other receivables includes $3,713 of mortgage receivables (December 31, 2018 - $10,967) 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. 9. OTHER ASSETS Other assets consist of the following: Equipment and other assets (1) Property, plant and equipment (2) Prepaid deposits (3) Interest rate swap derivative assets DECEMBER 31, 2019 DECEMBER 31, 2018 $5,081 17,782 13,202 3,723 $39,788 $6,141 17,631 — 4,746 $28,518 (1) During the year ended December 31, 2019, Allied recorded amortization of equipment and other assets of $1,456 (December 31, 2018 - $1,556). (2) This relates to owner-occupied property. (3) These are deposits from the sale of residential condominium units for KING Toronto, which are held in trust. 10. 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, 2019 DECEMBER 31, 2018 $7,686 46,569 15,258 60,431 $129,944 $7,271 3,581 9,647 25,339 $45,838 User trade receivables include minimum rent, annual common area maintenance recoverable costs, 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 an impairment based on expected credit losses as required. 126 ALLIED 2019 ANNUAL REPORT The movement in the allowance for doubtful accounts is reconciled as follows: 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 (b) Other user receivables YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 $2,333 2,837 (1,008) (263) $3,899 $2,342 2,926 (1,469) (1,466) $2,333 Other user receivables pertain to unbilled operating costs such as common area maintenance and property tax recoveries and chargebacks. Included in this amount is $40,153 of condominium sales receivables related to King Portland Centre (net of deposits). (c) Miscellaneous receivables Miscellaneous receivables consist primarily of property taxes recoverable from municipalities and insurance claims. As at December 31, 2019, 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), deposits relating to acquisitions of $29,080 (December 31, 2018 - $3,780) and deposits held in trust of $18,340 (December 31, 2018 - $9,000) received from the sale of residential condominium units. 127 ALLIED 2019 ANNUAL REPORT11. 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 (a) Mortgages payable DECEMBER 31, 2019 DECEMBER 31, 2018 $737,448 23,210 — 945,369 449,154 $769,473 — 95,000 573,320 448,909 $2,155,181 $1,886,702 $29,243 2,125,938 $2,155,181 $36,081 1,850,621 $1,886,702 Mortgages payable have a weighted average stated interest rate of 4.38% as at December 31, 2019 (December 31, 2018 - 4.38%). The mortgages are secured by a first registered charge over specific investment properties and first general assignments of leases, insurance and registered chattel mortgages. PRINCIPAL REPAYMENTS BALANCE DUE AT MATURITY DECEMBER 31, 2019 DECEMBER 31, 2018 2020 2021 2022 2023 2024 2025 2026 2027 2028 25,530 26,668 25,728 16,781 4,726 1,596 1,391 487 293 3,713 — 205,628 225,585 152,472 8,788 20,443 — 14,457 29,243 26,668 231,356 242,366 157,198 10,384 21,834 487 14,750 Mortgages, principal $103,200 $631,086 $734,286 $771,916 Net premium on assumed mortgages Net financing costs 5,400 (2,238) 924 (3,367) $737,448 $769,473 128 ALLIED 2019 ANNUAL REPORT (b) Construction loans payable As of December 31, 2019, and December 31, 2018, Allied’s obligation under the construction loans is as follows: JOINT ARRANGEMENT OWNERSHIP DATE OF MATURITY DECEMBER 31, 2019 DECEMBER 31, 2018 Adelaide & Duncan 50 .00% August 11, 2023 23,210 $23,210 — $— On January 31, 2019, the Adelaide & Duncan joint arrangement obtained a $270,000 construction lending facility from a syndicate of Canadian banks, in which Allied’s 50% share is $135,000. The loan matures on August 11, 2023, and bears interest at bank prime plus 35 basis points or bankers’ acceptance rate plus 135 basis points. Allied is providing a joint and several guarantee to support the construction facility for the Adelaide & Duncan development. On August 23, 2019, the Adelaide & Duncan joint arrangement entered into a swap agreement to fix 75% of construction costs up to $209,572 at 2.86%. In September 2019, Allied and Perimeter received a commitment from a syndicate of Canadian banks for a construction loan for the Breithaupt Phase III joint arrangement, subject to execution of definitive financing documents and completion of customary financing conditions. The commitment is expected to fund up to $138,000 (Allied’s 50% share being $69,000). The loan matures on December 2, 2022, and bears interest at bank prime or banker’s acceptance rate plus 120 basis points. Allied is providing a joint and several guarantee to support the facility and is earning a related guarantee fee. The construction loan has no balance outstanding as at December 31, 2019. (c) Unsecured revolving operating facility As of December 31, 2019, and December 31, 2018, Allied’s obligation under the unsecured revolving operating facility is as follows: 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 — (14,896) $385,104 $400,000 (95,000) (14,404) $290,596 DECEMBER 31, 2019 DECEMBER 31, 2018 129 ALLIED 2019 ANNUAL REPORT As at December 31, 2019, Allied has access to an Unsecured Facility of $400,000 with a maturity of January 29, 2022. The Unsecured Facility bears 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. 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 has no balance outstanding as at December 31, 2019 (December 31, 2018 - $95,000). On January 21, 2020, Allied amended the Unsecured Facility to extend the maturity to January 30, 2023. The Facility will bear interest at bank prime plus 20 basis points or bankers’ acceptance plus 120 basis points with a standby fee of 24 basis points, subject to certain conditions being met. In the event that these conditions are not met, 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. (d) Senior unsecured debentures As of December 31, 2019, and December 31, 2018, Allied’s obligation under the senior unsecured debentures is as follows: SERIES Series A Series B Series C Series D Series E INTEREST RATE DATE OF MATURITY INTEREST PAYMENT DATE DECEMBER 31, 2019 DECEMBER 31, 2018 3 .748% May 13, 2020 May 13 and November 13 $— $225,000 3 .934% November 14, 2022 May 14 and November 14 150,000 150,000 3 .636% 3 .394% 3 .113% April 21, 2025 April 21 and October 21 200,000 200,000 August 15, 2029 February 15 and August 15 300,000 April 8, 2027 April 8 and October 8 300,000 — — Unsecured Debentures, principal Net premium on Unsecured Debentures Net financing costs $950,000 $575,000 — 216 (4,631) (1,896) $945,369 $573,320 The Series A, B, C, D and E Debentures are collectively referred to as the “Unsecured Debentures”. On August 15, 2019, Allied issued $300,000 of 3.394% Series D Unsecured Debentures (the “Series D Debentures”) due August 15, 2029, with semi-annual interest payments due on February 15 and August 15 of each year commencing February 15, 2020. Debt financing costs of $1,843 were incurred and recorded against the principal owing. Proceeds from the Series D Debentures were used to redeem $225,000 of an aggregate principal amount of 3.748% Series A Debentures due May 13, 2020, in full, with a prepayment penalty of $2,563, repay amounts drawn on the Unsecured Facility in the amount of $55,000, and for general working capital purposes. 130 ALLIED 2019 ANNUAL REPORT On October 8, 2019, Allied issued $300,000 of 3.113% Series E Unsecured Debentures (the “Series E Debentures”) due April 8, 2027, with semi-annual interest payments due on April 8 and October 8 of each year commencing April 8, 2020. Debt financing costs of $1,760 were incurred and recorded against the principal owing. Proceeds from the Series E Debentures were used to prepay $165,752 aggregate principal amount of first mortgages, with a prepayment penalty of $3,455, repay amounts drawn on the Unsecured Facility in the amount of $60,000, and to fund its development and value-add initiatives. The respective financing costs and premium recognized are amortized using the effective interest method and recorded to Interest Expense (note 11 (f)). (e) Unsecured term loans As of December 31, 2019, and December 31, 2018, Allied’s obligation under the unsecured term loans is as follows: INTEREST RATE DATE OF MATURITY FREQUENCY OF INTEREST PAYMENT DECEMBER 31, 2019 DECEMBER 31, 2018 Unsecured Term Loan 3 .992% January 14, 2026 Monthly $250,000 $250,000 Unsecured Term Facility Tranche 1 Tranche 2 2 .830% 2 .890% Unsecured Term Loans, principal Net financing costs March 16, 2021 Quarterly 100,000 100,000 March 16, 2021 Quarterly 100,000 100,000 $450,000 $450,000 (846) (1,091) $449,154 $448,909 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 11 (f)). 131 ALLIED 2019 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 lease liabilities Amortization, discount on debt Amortization, net financing costs Less: Interest capitalized to qualifying investment properties and residential inventory Interest expense excluding prepayment cost Prepayment cost Interest expense YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 $33,989 $38,452 604 2,667 24,629 15,679 8,350 (1,000) 1,660 $86,578 (26,193) $60,385 6,018 $66,403 — 2,779 21,714 9,838 8,292 (1,828) 1,746 $80,993 (20,024) $60,969 7,502 $68,471 Borrowing costs have been capitalized to qualifying investment properties and residential inventory, where applicable, at a weighted average rate of 3.77% per annum (December 31, 2018 – 3.94%). (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. Mortgages payable, principal repayments Mortgages payable, balance due at maturity Construction loans payable Unsecured Debentures Unsecured Term Loans 2020 2021 2022 2023 2024 THEREAFTER TOTAL $25,530 $26,668 $25,728 $16,781 $4,726 $3,767 $103,200 205,628 225,585 152,472 43,688 631,086 3,713 — — — — — — — 23,210 150,000 200,000 — — — — — — — 23,210 800,000 950,000 250,000 450,000 Total $29,243 $226,668 $381,356 $265,576 $157,198 $1,097,455 $2,157,496 A description of Allied’s risk management objectives and policies for financial instruments is provided in note 25. 132 ALLIED 2019 ANNUAL REPORT 12. LEASE LIABILITIES Allied’s future minimum lease liability payments as a lessee are as follows: 2020 (1) 2021 - 2024 (1) THEREAFTER DECEMBER 31, 2019 DECEMBER 31, 2018 Future minimum lease payments $9,699 $40,299 $453,202 $503,200 $512,865 Interest accrued on lease obligations 526 875 — 1,401 911 Less: amounts representing interest payments (10,225) (41,174) (297,981) (349,380) Present value of lease payments $— $— $155,221 $155,221 (357,113) $156,663 (1) The future minimum lease payments prior to 2024 are less than the effective interest on the lease liabilities. Some of Allied’s 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 lease agreements contain renewal options, purchase options, escalation clauses, additional debt and further leasing clauses. For the year ended December 31, 2019, minimum lease payments of $11,629 were paid by Allied (December 31, 2018 - $8,335). 13. ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities consists of the following: Trade payables and other liabilities Prepaid user rents Accrued interest payable Distributions payable to Unitholders Residential deposits (1) Interest rate swap derivative liability (2) Current Non-current (3) DECEMBER 31, 2019 DECEMBER 31, 2018 $157,014 63,844 10,473 16,338 23,203 10,720 $122,075 54,958 5,418 13,814 5,000 7,781 $281,592 $209,046 $247,669 33,923 $281,592 $209,046 — $209,046 (1) These deposits relate to KING Toronto in 2019 and King Portland Centre in 2018. (2) The interest rate swap derivative liability is classified as non-current in 2019. (3) Non-current liabilities are composed of residential deposits totaling $23,203 and an interest rate swap derivative liability totaling $10,720. 133 ALLIED 2019 ANNUAL REPORT 14. FAIR VALUE MEASUREMENTS The classification, measurement basis, and related fair value disclosures of the financial assets and liabilities are summarized in the following table: DECEMBER 31, 2019 DECEMBER 31, 2018 CLASSIFICATION/ MEASUREMENT CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE Financial Assets: Loans and notes receivable (note 8) Amortized cost 251,276 251,276 213,444 213,444 Loan receivable from joint venture (note 7) Amortized cost 104,035 104,035 — — Cash and cash equivalents (note 20) Amortized cost 208,914 208,914 18,059 18,059 Accounts receivable (note 10) Amortized cost 69,513 69,513 20,499 20,499 Interest rate swap derivative assets (note 9) FVTPL 3,723 3,723 4,746 4,746 Financial Liabilities: Debt (note 11) Mortgages Amortized cost 737,448 759,823 769,473 798,485 Construction loans payable Amortized cost 23,210 23,210 — — Unsecured Facility Amortized cost — — 95,000 95,000 Unsecured Debentures Amortized cost 945,369 966,973 573,320 570,616 Unsecured Term Loans Amortized cost 449,154 457,310 448,909 454,350 Interest rate swap liability (note 13) FVTPL 10,720 10,720 7,781 7,781 Accounts payable and other liabilities (note 13) Amortized cost 270,872 270,872 201,265 201,265 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. 134 ALLIED 2019 ANNUAL REPORT The following table presents the hierarchy of assets and liabilities: DECEMBER 31, 2019 DECEMBER 31, 2018 LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 1 LEVEL 2 LEVEL 3 Financial Assets: Loans and notes receivable (note 8) Loan receivable from joint venture (note 7) — — 251,276 104,035 Cash and cash equivalents (note 20) 208,914 — Accounts receivable (note 10) Interest rate swap derivative assets (note 9) Financial Liabilities: Debt (note 11) Mortgages Construction loans payable Unsecured Facility Unsecured Debentures Unsecured Term Loans Interest rate swap liability (note 13) Accounts payable and other liabilities (note 13) — — — — — — — — — 69,513 3,723 759,823 23,210 — 966,973 457,310 10,720 270,872 — — — — — — — — — — — — — — 18,059 — — — — — — — — — 213,444 — — 20,499 4,746 798,485 — 95,000 570,616 454,350 7,781 201,265 — — — — — — — — — — — — The carrying value of Allied’s financial assets and liabilities approximates the fair value except for debt (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 represent a net liability as at December 31, 2019, is $6,997 (December 31, 2018 - $3,035). 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 9) Interest rate swap derivative liability (note 13) Net (liability) DECEMBER 31, 2019 DECEMBER 31, 2018 $3,723 (10,720) $(6,997) $4,746 (7,781) $(3,035) 135 ALLIED 2019 ANNUAL REPORT DEBT 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). 15. 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, 2019, and December 31, 2018. DECEMBER 31, 2019 DECEMBER 31, 2018 UNITS AMOUNT UNITS AMOUNT Units, beginning of year 103,861,945 $2,835,395 92,935,150 $2,399,768 Restricted Unit plan (net of forfeitures) (note 16(b)) — (2,462) — (2,584) Unit option plan - options exercised (note 16(a)) 277,854 10,437 84,595 3,043 Unit offering Units, end of year 18,699,000 882,102 10,842,200 435,168 122,838,799 $3,725,472 103,861,945 $2,835,395 On December 4, 2019, Allied raised gross proceeds of $345,449 through the issuance of 6,555,000 Units at a price of $52.70 per unit. Costs relating to the issuance totaled $14,568 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. On June 19, 2019, Allied raised gross proceeds of $345,524 through the issuance of 7,176,000 Units at a price of $48.15 per unit. Costs relating to the issuance totaled $14,571 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. On March 7, 2019, Allied raised gross proceeds of $230,018 through the issuance of 4,968,000 Units at a price of $46.30 per unit. Costs relating to the issuance totaled $9,750 and were applied against the gross proceeds of the issuance and charged against Unitholders’ equity. 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. 136 ALLIED 2019 ANNUAL REPORTDISTRIBUTIONS On January 15, 2020, Allied declared a distribution for the month of January 2020 of $0.1375 per unit, representing $1.65 per unit on an annualized basis to Unitholders of record on January 31, 2020. NORMAL COURSE ISSUER BID On February 20, 2019, 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 10,205,838 of its outstanding Units, representing approximately 10% of its public float as at February 14, 2019. The NCIB commenced February 22, 2019, and will expire on February 21, 2020, 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, 2019, Allied purchased 52,162 Units for $2,513 at a weighted average price of $48.18 per unit under its NCIB program, of which 51,858 were purchased for delivery to participants under Allied’s Restricted Unit Plan and 304 Units were purchased for certain employee rewards outside of Allied’s Restricted Unit Plan. 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. 137 ALLIED 2019 ANNUAL REPORT16. 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 3, 2015 March 3, 2020 302,706 $40 .60 (208,689) — 94,017 94,017 March 1, 2016 March 1, 2026 540,480 $31 .56 (186,466) (19,132) 334,882 334,882 February 22, 2017 February 22, 2027 279,654 $35 .34 (15,717) February 14, 2018 February 14, 2028 198,807 $40 .30 February 13, 2019 February 13, 2029 323,497 $47 .53 — — — — 263,937 124,110 198,807 51,436 (1,830) 321,667 — 1,645,144 (410,872) (20,962) 1,213,310 604,445 YEAR ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 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 $31.56-47.53 7.02 $31 .56-40 .60 6 .26 YEAR ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 Number of Units Weighted average exercise price Number of Units Weighted average exercise price Balance at the beginning of the year 1,169,497 $36.05 1,057,084 $35 .24 Granted during the year Forfeited during the year Exercised during the year Balance at the end of the year 323,497 (1,830) (277,854) 1,213,310 47.53 47.53 37.56 $38.75 198,807 (1,799) (84,595) 1,169,497 40 .30 31 .56 35 .97 $36 .05 Units exercisable at the end of the year 604,445 $34.49 596,331 $36 .12 138 ALLIED 2019 ANNUAL REPORT Allied accounts for its Unit Option Plan using the fair value method, under which compensation expense is measured at the date options are granted and recognized over the vesting period. Allied utilizes the Black-Scholes Model for the valuation of Unit options with no performance criteria. Assumptions utilized in the Black-Scholes Model for option valuation are as follows: Unit options granted Unit option holding period (years) Volatility rate Distribution yield Risk-free interest rate Value of options granted YEAR ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 323,497 10 18.85% 3.37% 1.87% $1,980 198,807 10 24 .48% 3 .87% 2 .32% $1,354 The underlying expected volatility was determined by reference to historical data of Allied’s Units over 10 years. For the year ended December 31, 2019, Allied recorded a share-based payment expense of $1,583 in general and administrative expense in the consolidated statements of income and comprehensive income (for the year ended December 31, 2018 - $1,346). (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 the year Granted Expiration of restriction year Forfeited Restricted Units, end of the year YEAR ENDED YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 267,420 51,858 (31,586) (669) 287,023 241,557 61,733 (35,870) — 267,420 139 ALLIED 2019 ANNUAL REPORTFor the year ended December 31, 2019, Allied recorded a share-based payment expense of $2,437 in general and administrative expense in the consolidated statements of income and comprehensive income (for the year ended December 31, 2018 - $2,247). 17. 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 Fully diluted 18. TOTAL REVENUE Total revenue includes the following: YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 112,443,006 288,044 112,731,050 97,785,091 180,620 97,965,711 YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 Rental revenue (1) Tax and insurance recoveries Miscellaneous revenue (2) Operating cost recoveries Total rental revenue from investment properties Condominium revenue Total revenue $227,528 83,368 22,506 162,707 $496,109 45,341 $541,450 $200,760 69,144 9,687 156,805 $436,396 — $436,396 (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 $271,583 $844,713 $938,739 $2,055,035 2020 2021 - 2024 THEREAFTER TOTAL 140 ALLIED 2019 ANNUAL REPORT19. GENERAL AND ADMINISTRATIVE EXPENSES YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 Salaries and benefits Professional and trustee fees Office and general expenses Capitalized to qualifying investment properties Total general and administrative expenses $19,036 3,388 3,932 $26,356 (4,403) $21,953 20. SUPPLEMENTAL CASH FLOW INFORMATION Cash and cash equivalents include the following components: $15,277 2,801 2,823 $20,901 (3,842) $17,059 Cash Short-term deposits Total cash and cash equivalents DECEMBER 31, 2019 DECEMBER 31, 2018 $208,414 500 $208,914 $17,059 1,000 $18,059 The following summarizes supplemental cash flow information in operating activities: YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 Supplemental Interest paid on debt (including capitalized interest (note 11)) Interest received $86,272 $12,102 $89,387 $6,941 The following summarizes supplemental cash flow information in financing activities: YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 Supplemental Non-cash loan issuance (note 8) Non-cash proceeds from loan receivables Non-cash mortgage payments $5,540 $6,703 $6,703 $— $67,030 $— 141 ALLIED 2019 ANNUAL REPORT The following summarizes supplemental cash flow information in investing activities: YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 Supplemental Mortgages assumed (note 4) $161,951 $18,675 The following summarizes the change in non-cash operating items: YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 Net change in accounts receivable, prepaid expenses and deposits Add back: Deposits from acquired properties Change in inventory due to sale of residential units Net change in loans and notes receivable 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 (net of assumed mortgage premiums) Change in non-cash operating items $(97,308) 28,250 43,342 6,340 72,546 (6,324) (2,524) (2,939) — (12,054) $29,329 $631 — — 195 54,461 892 (1,732) (3,707) 1,007 (1,442) $50,305 142 ALLIED 2019 ANNUAL REPORT 21. JOINT OPERATIONS 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, its share of the obligations with respect to liabilities, and its share of revenues and expenses for the joint operations in which it participates. Allied’s joint arrangements are governed by agreements with the respective co-owners. Included within the agreements are standard exit and transfer provisions that include, but are not limited to, buy/sell and/or right of first offers or refusals that provide for unwinding the arrangement. Allied is liable for its proportionate share of the obligations of the arrangement. In the event that there is default on payment by the co-owner, credit risk is typically mitigated with an option to remedy any non-performance by the defaulting co-owner, as well as recourse against the asset, whereby claims would be against both the underlying real estate investments and the co-owner in default. PROPERTIES LOCATION CURRENT STATUS 478 King W 642 King W 731-10th SW 802-838 11th SW, Glenbow Assembly Toronto, ON Toronto, ON Calgary, AB Rental Property Rental Property Rental Property Calgary, AB Rental Property Adelaide & Duncan Toronto, ON Property Under Development Breithaupt Block Kitchener, ON College & Manning Toronto, ON Rental Property and Property Under Development Rental Property and Property Under Development College & Palmerston Toronto, ON Rental Property KING Toronto Toronto, ON Property Under Development King Portland Centre Toronto, ON Sherwin Block Calgary, AB Rental Property Rental Property The Well (1) Toronto, ON Property Under Development OWNERSHIP DECEMBER 31, 2019 DECEMBER 31, 2018 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% —% 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 met. The commercial component is comprised of the office and retail components of the property under development. Total assets Total liabilities DECEMBER 31, 2019 DECEMBER 31, 2018 $1,034,433 $273,556 $795,029 $150,838 143 ALLIED 2019 ANNUAL REPORT YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 Revenue Expenses Income before fair value adjustment on investment properties Fair value (loss) gain on investment properties Net income (loss) gain 22. SEGMENTED INFORMATION $63,068 (55,960) 7,108 (10,213) $(3,105) $10,362 (5,998) 4,364 69,788 $74,152 IFRS 8, Operating Segments, requires reportable 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 geographic location consisting of three areas. Allied has relabelled the previous segments referred to as Eastern Canada, Central Canada and Western Canada to be known as Montréal and Ottawa, Toronto and Kitchener, and Calgary, Edmonton, Vancouver. The comparative periods have been updated to conform to the revised segment naming convention and current period terminology. The CODM measures and evaluates the performance of Allied’s operating segments based on net rental income and condominium profits. Management reviews assets and liabilities on a total 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 operating income to net income for the year ended December 31, 2019, and 2018. 144 ALLIED 2019 ANNUAL REPORTSEGMENTED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year ended December 31, 2019 MONTRÉAL & OTTAWA TORONTO & KITCHENER CALGARY, EDMONTON & VANCOUVER (1) URBAN DATA CENTRES CONDO- MINIUMS JOINT VENTURE (TELUS SKY) TOTAL Rental revenue from investment properties $144,849 $208,035 $56,311 $88,055 $— $(1,141) $496,109 Property operating costs (73,040) (79,460) (23,599) (34,919) — 271 (210,747) Net rental income $71,809 $128,575 $32,712 $53,136 $— $(870) — — $— — — $— — — $— — 45,341 — 45,341 — (43,342) — (43,342) $— $1,999 $— Condominium revenue Condominium cost of sales Condominium profits 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 Net loss from joint venture Net income and comprehensive income (1) Includes Allied’s proportionate share of revenue and expenses of its investment in TELUS Sky (66,403) (21,953) (4,214) (1,456) 17,351 450,490 (6,109) (25,844) $629,223 145 ALLIED 2019 ANNUAL REPORT SEGMENTED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year ended December 31, 2018 MONTRÉAL & OTTAWA TORONTO & KITCHENER CALGARY, EDMONTON & VANCOUVER URBAN DATA CENTRES JOINT VENTURE (TELUS SKY) 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 $57,989 $117,823 $26,961 $47,685 $— 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 Net loss from joint venture Loss on disposal of investment properties Net income and comprehensive income 23. INCOME TAXES (68,471) (17,059) (1,609) (1,556) 6,941 378,883 (6,470) (1,848) 1,007 $540,276 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. 146 ALLIED 2019 ANNUAL REPORT 24. 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, the joint venture, 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, 2019, real estate service revenue earned from these properties was $373 (for the year ended December 31, 2018 - $290). The loan to the joint venture has a balance outstanding of $104,035 (December 31, 2018 - nil) (see Note 7). 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: YEAR ENDED DECEMBER 31, 2019 DECEMBER 31, 2018 $4,552 3,337 $7,889 $4,386 2,895 $7,281 Salary, bonus and other short-term employee benefits Unit-based compensation 25. 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 lease liabilities. 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. 147 ALLIED 2019 ANNUAL REPORT 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, 2019, the debt to gross book value ratio was 26.1% (December 31, 2018 - 29.4%) and debts having variable interest rates or maturities of less than one year aggregated to 0.4% of gross book value (December 31, 2018 - 3.0%). On November 19, 2019, 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 $2,000,000. 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, 2019. (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, 2019, 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, 2019, the Unsecured Facility, which is at a floating interest rate and is exposed to changes in interest rates, had no balance outstanding (December 31, 2018 - $95,000). 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. 148 ALLIED 2019 ANNUAL REPORTAS AT DECEMBER 31, 2019 -1 .0% +1 .0% CARRYING AMOUNT INCOME IMPACT INCOME IMPACT Mortgages and construction loans payable maturing within one year $29,243 $292 $(292) (c) Credit risk As Allied has provided loans and advances to facilitate property development, further credit risks arise in the event that borrowers default on the repayment of their amounts owing to Allied. Allied’s loans and advances will be subordinate to prior ranking mortgages or charges. As at December 31, 2019, Allied had $245,303 outstanding in loans receivable (December 31, 2018 - $200,289) and $104,035 outstanding in joint venture loan receivable (December 31, 2018 - nil). 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. Credit risk from user receivables arises from the possibility that users may experience financial difficulty and be unable to fulfill their lease commitments, resulting in Allied incurring a financial loss. Allied manages credit risk to mitigate exposure to financial loss by staggering lease maturities, diversifying revenue sources over a large user base, ensuring no individual user contributes a significant portion of Allied’s revenues and conducting credit reviews of new users. Management reviews user receivables on a regular basis and reduces carrying amounts through the use of an allowance for doubtful accounts and the amount of any loss is recognized in the consolidated statements of income and comprehensive income within property operating costs. As at December 31, 2019, and December 31, 2018, the allowance for doubtful accounts totals $3,899 and $2,333, 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 DECEMBER 31, 2019 DECEMBER 31, 2018 $2,658 835 4,193 $7,686 $1,693 1,719 3,859 $7,271 149 ALLIED 2019 ANNUAL REPORT(d) Liquidity risk 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 5.08% for December 31, 2019 (December 31, 2018 - 3.59% and 5.58%). As at December 31, 2019, Allied has entered into interest rate derivative contracts to limit its exposure to fluctuations in interest rates on $84,594 of its variable rate mortgages payable and $450,000 of its variable rate Unsecured Term Loans (December 31, 2018 - $208,712 and $450,000, 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, 2019, Allied recognized as part of the change in fair value adjustment on derivative instruments a net loss of $6,109 (for the year ended December 31, 2018 – a net loss of $6,470). 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. (e) Maturity Analysis The undiscounted future principal and interest payments on Allied’s debt instruments are as follows: 2020 2021 2022 2023 THEREAFTER TOTAL Mortgages payable $60,378 $56,665 $258,352 $259,552 $213,055 $848,002 Construction loans payable 772 772 772 Unsecured Debentures 32,694 32,694 182,694 Unsecured Term Loans 15,700 209,980 9,980 23,725 17,454 9,980 — 26,041 886,544 1,152,080 269,960 515,600 Total $109,544 $300,111 $451,798 $310,711 $1,369,559 $2,541,723 150 ALLIED 2019 ANNUAL REPORT26. 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, 2019, and December 31, 2018, were $687,242 and $401,806, respectively. Commitments as at December 31, 2019, and December 31, 2018, of $1,238 and $719 were held within equity accounted investments. 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 $15,036 (December 31, 2018 - $14,545). 27. SUBSEQUENT EVENTS On January 14, 2020, Allied completed the purchase of 3530-3540 Saint-Laurent, Montréal, for total cash consideration of $13,000. On January 15, 2020, Allied completed the purchase of 4396-4410 Saint Laurent, Montréal, for total cash consideration of $18,000. On January 16, 2020, Allied completed the purchase of 54 The Esplanade, Toronto, for a total purchase price of $25,000, comprised of net cash consideration of $15,000 and a mortgage assumption of $10,000. On January 28, 2020, Allied completed the purchase of 747 Square-Victoria, Montréal, for total cash consideration of $276,000. 151 ALLIED 2019 ANNUAL REPORT2020 Outlook MID-SINGLE-DIGIT % GROWTH IN SANOI MID-SINGLE-DIGIT % GROWTH IN FFO/UNIT MID-SINGLE-DIGIT % GROWTH IN AFFO/UNIT CONTINUED GROWTH IN NAV/UNIT CONTINUED STRONG DEBT-METRICS CONTINUED GROWTH IN UNENCUMBERED ASSETS ALLIED PROPERTIES REIT 134 PETER STREET, SUITE 1700 TORONTO, ONTARIO M5V 2H2 T 416.977.9002 F 416.306.8704 alliedreit.com 

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