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Alaris Equity Partners Income Trust (AD.UN) (TSE:AD.UN) executives emphasized what they called strong underlying operating performance in 2025, while noting that reported results were weighed down by unrealized foreign exchange losses. The trust also highlighted record capital deployment, balance sheet actions to align financing with its U.S.-dollar investment base, and an outlook that management said supports continued growth with a payout ratio expected to remain below its long-term target range.
2025 results: operating growth, FX-driven volatility in reported earnings
Chief Financial Officer Amanda Frazer said 2025 was “a strong year from an operating perspective,” citing growth in total revenue and operating income, an increase in net book value per unit over the year, and record deployment. She added that “reported earnings were affected by unrealized foreign exchange losses,” while underlying operations remained solid.
On the income statement, management said total revenue and operating income rose 15.9% in Q4 and 14% for the full year, driven primarily by stronger fair value performance across the portfolio. Frazer cited a $73.2 million net realized and unrealized gain on partner investments in 2025 compared with $47.3 million in 2024.
Partner distributions: preferred stability, common variability
Total partner distribution revenue declined 2.6% in Q4 and 2.5% for the year. Frazer said preferred partner distribution revenue was flat in Q4 and increased 4.2% for the year, reflecting contributions from new and follow-on investments in Berg, PEC, McCoy, Shipyard, Cresa, Renew and Optimus. Those gains were partly offset by deferred distributions from GWM, a lower yield on Ohana following a 2024 transaction, and deferred distributions from FMP during the year.
Common distribution revenue declined 36.3% in Q4 and 33% for the year due largely to timing and variability. Frazer noted that 2024 included elevated common distributions from Fleet and a one-time common distribution from Ohana that did not recur in 2025. Excluding those items, she said common distributions from the rest of the portfolio increased about 10% year over year. The annualized distribution yield on preferred capital invested was 12.4% for both the quarter and full year.
Fair value and expenses: gains across several partners, lower G&A
Alaris recorded net unrealized fair value gains of $8.6 million in Q4 and $72.1 million for the year on partner investments. In the fourth quarter, the most notable increases came from Fleet and SCR, with smaller positive adjustments across several other partners, partly offset by decreases in FMP and PEC. For the full year, the largest valuation increases were in Shipyard, Edgewater, and Fleet, partly offset by declines in GWM and FMP.
The total value return on invested capital was 3.1% in Q4 and 16.2% for the year, combining realized cash distributions and unrealized fair value changes relative to invested capital.
Frazer said operating costs and other expenses within the acquisition entities decreased 17.9% in Q4 and 2.7% for the year, primarily due to lower income taxes, partly offset by higher transaction costs and increased finance costs tied to funding new investments. At the trust level, general and administrative expenses fell 17.3% in Q4 and 10.6% for the year, which she attributed mainly to lower management bonus accruals driven by lower realized gains.
Finance costs increased in both the quarter and the year, reflecting the issuance of a $92 million convertible debenture in June and a $115 million convertible debenture in December, plus amortization of related financing costs.
Distributable cash flow, payout ratio, and unit repurchases
Earnings from operations increased 34.8% in Q4 and 17.3% for the year. However, earnings and comprehensive income for Q4 2025 was a loss of $200,000 compared with income of $77.9 million in Q4 2024, driven primarily by an unrealized FX loss of $20.0 million in Q4 2025 versus an unrealized FX gain of $61.6 million a year earlier. Excluding unrealized FX in both periods, management said Q4 earnings and comprehensive income was $19.7 million, up 20.9% year over year.
For the full year, earnings and comprehensive income decreased 61% to $90.8 million compared with $234.4 million in 2024, reflecting the swing in unrealized FX and the absence of a non-recurring $30.3 million gain related to an accounting transition recorded in January 2024. Excluding unrealized FX in both years and excluding the 2024 transition gain, Frazer said 2025 earnings and comprehensive income were $142.0 million, up 15.2% from $123.0 million in 2024.
Net distributable cash flow per unit fell 24.3% in Q4 and 16% for the year, which management attributed to timing and variability of common partner distributions, the timing of cash tax payments, and higher transaction-related activity. Even so, the payout ratio was 64.2% in Q4 and 56.6% for the year, below Alaris’ target range of 65% to 70%. The trust repurchased and canceled 465,000 units under its NCIB at an average price of $18.87 per unit, for total consideration of $8.8 million; including repurchases, the payout ratio on cash disbursements was 62% for the year.
Balance sheet actions, 2026 outlook, and portfolio updates
Frazer said Alaris amended its senior credit facility during 2025, extending maturity to September 2029 and converting the facility from CAD 500 million to US$450 million to better align borrowing capacity with its U.S.-dollar investment base. At year-end, $312.8 million was drawn, leaving about $138 million available for new transactions. The two convertible debenture issuances carried interest rates of 6.5% (June) and 6.25% (December), and were used to support investment activity and repay senior indebtedness at the acquisition entity level.
Management described portfolio conditions as constructive, citing a weighted average ECR of about 1.5x. Frazer noted pressure in FMP due to suspended contracts tied to changes in U.S. federal procurement policies, and in GWM due to lower earnings and deferred distributions as it works through a senior covenant issue. In Q4, Alaris invested $115 million in Optimus, $30 million in Renew, and $20.5 million in a follow-on investment in Cresa.
Looking ahead, Frazer said Alaris expects Q1 2026 total partner revenue of about $46.9 million. Based on current contractual terms and assumptions, she put run-rate revenue for the next 12 months at about $200 million and run-rate G&A at about $20.5 million. The trust expects a 2026 run-rate payout ratio in the 60% to 65% range.
In the Q&A, CEO Steve King said he was optimistic about potential monetization opportunities despite a less “frothy” market, citing large amounts of undeployed private equity capital and strong demand for high-quality assets. He also said 2026 could be a year when Alaris begins to “harvest” common equity investments initiated in 2019, though he noted timing and execution of divestitures are uncertain. King said management expects at least two partners could sell this year, potentially triggering common equity gains that could be redeployed.
Additional portfolio updates included:
- Sono Bello: King described GLP-1 impacts as “net-net…neutral” on liposuction volumes, while highlighting growth in skin tightening and breast augmentation. He said the company is retrofitting locations to accommodate the latter and that partners are “probably looking at, kinda 28-29 for crystallization.” He also said Sono Bello does not expect to use payment-in-kind in 2026.
- GWM and FMP: King said both were ahead of budget early in 2026, with GWM showing contract wins and FMP seeing signs that U.S. government spending is returning in its sector.
- Ohana: King said “Click to Cancel” instituted by Planet Fitness corporate negatively affected membership growth, though he said there were no issues with profitability and that the effect is not viewed as long-term. He added Alaris could be interested in acquiring additional locations if some franchisees sell.
- Shipyard: Management said a slower start after a transaction earlier in the year impacted cash flows used in its DCF-based valuation, contributing to a Q4 fair value tightening, while reiterating no underlying issues.
- Edgewater: King said the nuclear engineering firm has won large contracts and that management expects increased common dividends, citing nuclear as a “very hot space.”
On capital allocation, King said the trust will “play it by ear” regarding renewing the NCIB depending on trading levels, while emphasizing a desire to establish a consistent dividend growth track record. He added that being at the low end of the target payout ratio leaves Alaris in a position to consider another dividend raise as incremental earnings from deployment comes in.
About Alaris Equity Partners Income Trust (AD.UN) (TSE:AD.UN)
Alaris Equity Partners Income Trust is an open-ended trust. The Trust, through its subsidiaries, indirectly provides alternative financing to private companies (Partners) in exchange for distributions with the principal objective of generating stable and predictable cash flows for payment of distributions to unitholders of the Trust. Distributions from the Partners are adjusted each year based on the percentage change of a top-line financial performance measure such as gross margin and same-store sales and rank in priority to the owner’s common equity position.
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