Q3 2019 Earnings Call

October 31, 2019

Operator: Please stand by. We're about to begin. Good day, everyone, and welcome to the Allied Properties REIT Q3 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael Emory, President and Chief Executive Officer. Please go ahead.

Please standby we're about to began.

Good day, everyone and welcome to the Allied properties <unk> third quarter 2019 earnings Conference call Today's conference is being recorded.

At this time I would like to turn the conference over to Michael Armory, President and Chief Executive Officer. Please go ahead.

Thank you, let Nancy and good morning, everybody welcome to our conference call Tom Cecilia and you are here with me to discuss Allieds results for the third quarter and the three quarters ended September Thirtyth 2019.

Michael Emory: Thank you, Lynette, and good morning, everybody. Welcome to our conference call. Tom, Cecilia, and Hugh are here with me to discuss Allied's results for Q3 and the three quarters ended 30 September 2019. We may, in the course of this conference call, make forward-looking statements about future events or future performance. These statements, by their nature, are subject to risks and uncertainties that may cause actual events or results to differ materially, including those risks described under the heading Risks and Uncertainties in our most recently filed annual information form. Material assumptions that underpin any forward-looking statements we make include those assumptions described under Forward-Looking Disclaimer in our most recent quarterly report.

We may in the course of this conference call make forward looking statements about future events or future performance. These statements by their nature are subject to risks and uncertainties that may cause actual events or results to differ materially.

Including those risks described under the heading risks and uncertainties in our most recently filed annual information form.

[noise] material assumptions that underpin any forward looking statements. We make include those assumptions described under forward looking disclaimer in our most recent quarterly report.

By way of overview, we propelled strong internal and external growth in the first three quarters of 2019 with a mid single digit percentage increase in same asset in Hawaii.

Michael Emory: By way of overview, we propelled strong internal and external growth in Q1, Q2, Q3 of 2019, with a mid-single-digit percentage increase in same asset NOI, FFO per unit, and AFFO per unit, and an 8% increase in NAV per unit. We also raised more capital at lower cost this year than any other year in our history. Perhaps most notably, we allocated that capital to acquisitions and developments that fit squarely within our investment and operating focus while simultaneously improving our debt metrics to the point that they're now exactly where we want them to be. Cecilia will elaborate on our financial results. Tom will follow with an overview of operations. Hugh will provide a development update, and I'll finish with a few comments on our strategic outlook. Now over to Cecilia.

At that FFO per units and a Epo per unit and an 8% increase in in a the per unit.

We also raised more capital at lower cost this year than any other year in our history.

Perhaps most notably we allocated that capital to acquisitions and developments that fits squarely within our investment in operating focus.

Simultaneously improving our debt metrics. So the point that they're now exactly where we want them to be.

Cecilia will elaborate on our financial results, Tom will follow with an overview of operations.

I will provide a development update and I'll finish with a few comments on our strategic outlook. So now over to Sicilia.

Cecilia Williams: Good morning. I will summarize our financial results and how our balance sheet has been further strengthened by our capital program in the period. This quarter was one of our strongest ever. We achieved CAD 0.57 of FFO per unit, even with CAD 1.3 million of non-recurring condo marketing costs at King Toronto included in the calculation. Our annualized quarterly EBITDA reached CAD 320 million for the first time ever. Driven by occupancy growth in Montreal, Vancouver, Calgary, and UDC, and rent and occupancy growth in Toronto, our same-asset NOI in Q3 was up 5% from the comparable quarter last year, driving 7% growth in our normalized AFFO per unit. We expected same-asset NOI growth in Q3 to be lower than the growth in H1 2019 due to anticipated turnover vacancy in Toronto.

Good morning, I will summarize our financial results and how our balance sheet has been further strengthened by our capital program in the period.

This quarter was one of our strongest ever we achieved 57 cents of AFFO per unit, even with 1.3 million of nonrecurring condo marketing cost at King Toronto included in the calculation.

Our annualized quarterly EBITDA reached $320 million for the first time ever.

Driven by occupancy growth in Montreal, Vancouver, Calgary, and Judy C and rent and occupancy girls in Toronto, our same asset in a why in the third quarter was up 5% from the comparable quarter last year, driving 7% growth in our normalized FFO per unit.

We expect didn't say master NOI growth in this third quarter to be lower than the growth in the first half of 2019 due to anticipated turned over vacancy in Toronto.

Cecilia Williams: We expect the area affected by turnover vacancy to re-lease promptly and with material increases over prior in-place net rent. We continue to expect FFO, AFFO, and same-asset NOI to be in the low to mid-single digit range for the year. Moving on to our balance sheet and our capital program. Driven largely by the strength in our core markets, our NAV per unit at the end of the quarter was up 8% from the end of the comparable quarter last year. At quarter end, debt to EBITDA was 6.7x and represented 28% of our fair value, both metrics being in our targeted range. Interest coverage was 3.3x and making progress towards our goal of 4x. Our ratio of unsecured to secured debt was 1.1x at quarter end, with unsecured debt representing 53% of our total debt.

We expect the area affected by turnover vacancy to release promptly and with material increases over prior in place net rent.

We continue to expect ethical ethical and say mass and Hawaii to be in the low to mid single digit range for the year.

Moving onto our balance sheet and our capital program.

Driven largely by the strength in our core markets are any of the per unit at the end of the quarter was up 8% from the end of the comparable quarter last year.

At quarter end debt to EBITDA was 6.7 times and represented 28% of our fair value both metrics being in our targeted range.

Interest coverage was 3.3 times and making progress towards our goal of four times.

Our ratio of unsecured to secured debt was 1.1 times at quarter end with unsecured debt, representing 53% of our total debt.

Cecilia Williams: In light of very constructive market conditions and our ability to refinance existing debt favorably, we issued CAD 300 million unsecured debenture in October. Specifically, we used the proceeds to prepay CAD 166 million of mortgages, and to repay our share of the construction loan on Telus Sky, which was CAD 96 million. This was materially preferable to extending the construction loan as it reduced our interest costs and extended the weighted average term to maturity of our debt. As a result of all these debt refinancings, we increased our pool of unencumbered assets to CAD 5.2 billion, representing 71% of our asset base. This brought our ratio of unsecured to secured debt to 1.9 times, and unsecured debt as a percentage of total debt to 65%.

In light of very constructive market conditions in our ability to refinance existing debt favorably, we issued a 300 million unsecure debenture in October .

Specifically, we use the proceeds to pre pay 166 million of mortgages and to repay our share of the construction loan ontologies Sky, which was $96 million.

This would materially prefer able to extending the construction loan as it reduced our interest cost and extended the weighted average term to maturity of our debt.

As a result of all these debt refinancings, we increased our pool of unencumbered assets to $5.2 billion, representing 71% of our asset base. This brought our ratio of unsecured to secure debt to 1.9 times and unsecured debt as a percentage of total debt to 65%.

It also extended the weighted average term to maturity of our debt to 5.3 years and reduced our interest costs.

Cecilia Williams: It also extended the weighted average term to maturity of our debt to 5.3 years and reduced our interest costs. In addition, yesterday, we received an upgrade from Moody's to Baa2, which we're thrilled about. We've indicated recently that we would be funding our activities in a more balanced manner between debt and equity. 2019 to date is a perfect example of this. Of the CAD 1.175 billion raised so far this year, approximately CAD 575 million was equity and CAD 600 million was debt, which we've been able to deploy successfully towards CAD 525 million of acquisitions in the year, as well as funding development activity, and prepaying debt. We're pleased with the results of our capital allocation program to date. I will now pass the call to Tom for a discussion of our leasing and operating activities.

In addition, yesterday, we received an upgrade from Moody's to be double they too which were thrilled about.

Weve indicated recently that we wouldn't be funding our activities in a more balanced manner between debt and equity 29 team to date is a perfect example of this of the 1.175 billion rates. So far this year approximately 575 million was equity and 600 million was debt, which we've been.

Able to deploy successfully towards 525 million of acquisitions in the year as well as funding development activity and prepaying debt. We're pleased with the results of our capital allocation program to date.

I'll now pass the call to Tom for a discussion of our leasing and operating activities.

Thank you Cecilia.

Tom: Thank you, Cecilia. The leasing environment remains strong with demand in all of our markets. Between renewals, new deals in our existing portfolio, and properties under development, we leased 611,000 sq ft in Q3, for a total of just under 1.7 million sq ft year-to-date. As of 30 September, our occupied area was 94.5%, and our leased area 95%. We continued to see increases in net rents on space renewed or replaced. For the first three quarters of the year, rents grew by 19.7% on the affected area. While rental growth has largely been a result of substantial increases in Toronto, we are now beginning to see rent increases in our Montreal portfolio.

[Company Representative] (Allied Properties Real Estate Investment Trust): Thank you, Cecilia. The leasing environment remains strong with demand in all of our markets. Between renewals, new deals in our existing portfolio, and properties under development, we leased 611,000 sq ft in Q3, for a total of just under 1.7 million sq ft year-to-date. As of 30 September, our occupied area was 94.5%, and our leased area 95%. We continued to see increases in net rents on space renewed or replaced. For the first three quarters of the year, rents grew by 19.7% on the affected area. While rental growth has largely been a result of substantial increases in Toronto, we are now beginning to see rent increases in our Montreal portfolio.

Leasing environment remains strong with demand in all of our markets.

Team renewals new deals in our existing portfolio and properties under development, we leased 611000 square feet in Q3.

For a total of just under 1.7 million square feet year to date.

As of September Thirtyth are occupied area was 94.5% and at least area 95%.

We continue to see increases in net rents on space renewed or replaced.

For the first three quarters of the year rents grew by 19.7% on the affected area.

Well rental growth has largely been the result of substantial increases in Toronto, We're now beginning to see rent increases in our Montreal portfolio.

Moving from East to West I'll provide a brief update on leasing activity in our major markets, Montreal, Toronto, Calgary, and Vancouver, and then conclude with an update on our you DC space.

Tom: Moving from east to west, I'll provide a brief update on leasing activity in our major markets, Montreal, Toronto, Calgary, and Vancouver, and then conclude with an update on our UDC space. Beginning in Montreal, over the last 24 months, we've made great strides improving our leased area in this market, and we currently stand at 94% leased. At the start of 2019, we had three priorities in Montreal. One, to continue pushing our smaller units very aggressively. We're doing that successfully and filling small challenged spaces that have remained vacant for some time. Two, to increase net rental rates where possible, and we're now seeing rents slowly but surely edge up. Three, to complete the lease-up of our redevelopment of 425 Viger, where we're adding 100,000 sq ft to a 200,000 sq ft heritage building.

[Company Representative] (Allied Properties Real Estate Investment Trust): Moving from east to west, I'll provide a brief update on leasing activity in our major markets, Montreal, Toronto, Calgary, and Vancouver, and then conclude with an update on our UDC space. Beginning in Montreal, over the last 24 months, we've made great strides improving our leased area in this market, and we currently stand at 94% leased. At the start of 2019, we had three priorities in Montreal. One, to continue pushing our smaller units very aggressively. We're doing that successfully and filling small challenged spaces that have remained vacant for some time. Two, to increase net rental rates where possible, and we're now seeing rents slowly but surely edge up. Three, to complete the lease-up of our redevelopment of 425 Viger, where we're adding 100,000 sq ft to a 200,000 sq ft heritage building.

[noise] beginning in Montreal over the last 24 months, we've made great strides improving our least area in this market and we currently stand at 94% leased.

At the start of 2019, we had three priorities in Montreal.

One to continue pushing our smaller units very aggressively.

Doing that successfully and filling small challenge spaces that have remained vacant for sometime.

Two.

Increased net rental rates, where possible and we're now seeing rent slowly, but surely edge up and three to complete the lease up of our redevelopment of for 25, BJ, We're adding 100000 square feet to a 200000 square foot Harris.

We currently stands at 53% leased in that project.

Tom: We currently stand at 53% leased in that project. We made the statement last quarter that we remain confident about leasing the rest of the building by year-end. Well, that's not changed. We have all the remaining space under negotiation with 4 tenants. Moving to Toronto, the urban office leasing market, if you're a landlord, has arguably never been better. Vacancy is extremely low, in our case, 1.3%, and rents continue to rise. When space becomes available for sublease, there are often multiple offers. Whenever we can, we end up terminating the existing tenant with a penalty to cover downtime, then realize sizable and immediate uplifts in rent from the new tenant. Base rents on King West are approaching CAD 50/sq ft net.

[Company Representative] (Allied Properties Real Estate Investment Trust): We currently stand at 53% leased in that project. We made the statement last quarter that we remain confident about leasing the rest of the building by year-end. Well, that's not changed. We have all the remaining space under negotiation with 4 tenants. Moving to Toronto, the urban office leasing market, if you're a landlord, has arguably never been better. Vacancy is extremely low, in our case, 1.3%, and rents continue to rise. When space becomes available for sublease, there are often multiple offers. Whenever we can, we end up terminating the existing tenant with a penalty to cover downtime, then realize sizable and immediate uplifts in rent from the new tenant. Base rents on King West are approaching CAD 50/sq ft net.

We made the statement last quarter that we remain confident about leasing.

Rest of the building by year end.

Well that's not changed.

I have all the remaining space under negotiation with four tenants.

Moving to Toronto, the urban office leasing market, if you're a landlord is arguably never been better vacancy is extremely low in our case, 1.3% and rents continue to rise.

When space becomes available for sublease, they're often multiple offers.

Whenever we can we end up terminating the existing tenant with a penalty to cover downtime then realize sizable and immediate uplifts in rent from the new tenant.

Base rents on King West are approaching $50 a square foot net.

Tom: Pre-leasing at The Well, our JV with RioCan, continues to go nicely as users are recognizing the unique opportunity this project represents. We are currently negotiating with tenants that will take us over 90% pre-leased. Moving to Calgary, we continue to maintain a very respectful 88.5% leased. By far, the most active segment in the market in Calgary is smaller tenants in the range of 2,000 to 5,000 sq ft. We can easily accommodate users of this size in our differentiated project, product along the belt line. At Telus Sky, our development project with Telus and Westbank, we commented last quarter that we were in the final stages of negotiation with a tenant of 62,000 sq ft. That deal is now done and ended up being 80,000 sq ft, bringing our leased area to 64%.

[Company Representative] (Allied Properties Real Estate Investment Trust): Pre-leasing at The Well, our JV with RioCan, continues to go nicely as users are recognizing the unique opportunity this project represents. We are currently negotiating with tenants that will take us over 90% pre-leased. Moving to Calgary, we continue to maintain a very respectful 88.5% leased. By far, the most active segment in the market in Calgary is smaller tenants in the range of 2,000 to 5,000 sq ft. We can easily accommodate users of this size in our differentiated project, product along the belt line. At Telus Sky, our development project with Telus and Westbank, we commented last quarter that we were in the final stages of negotiation with a tenant of 62,000 sq ft. That deal is now done and ended up being 80,000 sq ft, bringing our leased area to 64%.

Pre leasing up the well our JV with real can continues to go nicely as users are recognizing the unique opportunity. This project represents we're currently negotiating with parents that will take us over 90% appreciate.

Moving to Calgary, we continued to maintain a very respectful.

88.5% leased by far the most active segment in the market in Calgary is smaller tenants in the range of two to 5000 square feet. We can easily accommodate users of this size in our differentiated project product alarmed about why.

I tell us guy.

Development project will tell us in West Bank.

We commented last quarter that were in the final stages of negotiation with the tenet of 62000 square feet.

That deal is now done and end up being 80000 square feet, bringing our least area to 64%.

Tom: As often happens in real estate, as a building takes shape and potential users can physically see and fully understand the opportunity, interest levels increase. Telus Sky is nearing completion, and its very distinctive form on the Calgary skyline is being noticed. As a result, our leasing activity has been up in recent months. In Vancouver, the office market, like Toronto, is exceptionally strong. We have only 2% of our space available in our existing portfolio, and all units are seeing activity. Lastly, our urban data center space renewal program at 151 Front continues to exceed expectations. Year-to-date, we've renewed almost 25% of the GLA in the building and achieved a weighted average lease term of 13 years. Just after quarter end, we finalized an early long-term renewal with another national carrier.

[Company Representative] (Allied Properties Real Estate Investment Trust): As often happens in real estate, as a building takes shape and potential users can physically see and fully understand the opportunity, interest levels increase. Telus Sky is nearing completion, and its very distinctive form on the Calgary skyline is being noticed. As a result, our leasing activity has been up in recent months. In Vancouver, the office market, like Toronto, is exceptionally strong. We have only 2% of our space available in our existing portfolio, and all units are seeing activity. Lastly, our urban data center space renewal program at 151 Front continues to exceed expectations. Year-to-date, we've renewed almost 25% of the GLA in the building and achieved a weighted average lease term of 13 years. Just after quarter end, we finalized an early long-term renewal with another national carrier.

As often happens and real estate as a building take shape and potential users can physically C and fully understand the opportunity interest levels increase.

Tell us Sky is nearing completion and it's very distinctive for from the Calgary Skyline is being noticed.

As a result, our leasing activity has been up in recent months.

In Vancouver, the office market like Toronto is exceptionally strong we've only 2% of our space available in <unk> in our existing portfolio and all units are seeing activity.

Lastly, our urban data center space.

Our renewal program of 151 front continues to exceed expectations year to date, we've renewed almost 25% of the GLP in the building and achieved a weighted average lease term 13 years.

Just after quarter end, we finalized an early long term renewal with another national occur. This transaction achieved a significant increase in revenue sooner than we expected and further solidifies our ecosystem.

Tom: This transaction achieved a significant increase in revenue sooner than we expected and further solidifies our ecosystem. In Q3, vacancy increased in 151 Front as two tenants consolidated their operations, reducing their footprint in the building, but continue to require equal or greater power allocations. This is ultimately very positive for us as we're able to generate more revenue per square foot as tenants draw more power but require less space. We are currently in active negotiations with one potential user new to the market to backfill all of the space and expect to finalize the transaction in the near term. At 250 Front, we continue to work with three small tenants totaling 25,000 sq ft. If we complete these transactions, we will be 82% leased at 250 Front, 99% leased at 151 Front, and 93% leased in the UDC portfolio.

[Company Representative] (Allied Properties Real Estate Investment Trust): This transaction achieved a significant increase in revenue sooner than we expected and further solidifies our ecosystem. In Q3, vacancy increased in 151 Front as two tenants consolidated their operations, reducing their footprint in the building, but continue to require equal or greater power allocations. This is ultimately very positive for us as we're able to generate more revenue per square foot as tenants draw more power but require less space. We are currently in active negotiations with one potential user new to the market to backfill all of the space and expect to finalize the transaction in the near term. At 250 Front, we continue to work with three small tenants totaling 25,000 sq ft. If we complete these transactions, we will be 82% leased at 250 Front, 99% leased at 151 Front, and 93% leased in the UDC portfolio.

In Q3 vacancy increase in 151 cents as two tenants consolidated their operations, reducing their footprint in the building.

But to continue to require equal or greater power applications. This is ultimately very positive for us as we're able to generate more revenue per square foot as tenants draw more power, but require less space.

We're currently an active negotiations with one potential user new to the market to backfill all of the space and expect to finalize the transaction in the near term.

Twofifty front, we continued to work with three small tenants totaling 25000 square feet.

If we complete these transactions, we will be 82% leased up to 50 from 99% leased at 151.

93% leased in the DC portfolio.

Before turning the call over to Q I wanted to make a comment about the ecosystem. We have created in our portfolio by virtue of our size mix of tenants and strategic clustering of buildings.

Tom: Before turning the call over to Hugh, I wanted to make a comment about the ecosystem we have created in our portfolio by virtue of our size, mix of tenants, and strategic clustering of buildings. At 12.3 million sq ft of workspace with heavy concentrations in Toronto and Montreal, we are constantly working with our users to provide growth and occasionally to downsize. I recently asked our leasing teams to identify how many times we've accommodated a tenant's need for more space. It was no real surprise to learn we've accommodated over 100 tenants in the last 5 years. It's a definite advantage to be able to offer tenants flexibility to expand or contract within the portfolio. As we continue to grow, our opportunity to serve our existing customers just gets better.

[Company Representative] (Allied Properties Real Estate Investment Trust): Before turning the call over to Hugh, I wanted to make a comment about the ecosystem we have created in our portfolio by virtue of our size, mix of tenants, and strategic clustering of buildings. At 12.3 million sq ft of workspace with heavy concentrations in Toronto and Montreal, we are constantly working with our users to provide growth and occasionally to downsize. I recently asked our leasing teams to identify how many times we've accommodated a tenant's need for more space. It was no real surprise to learn we've accommodated over 100 tenants in the last 5 years. It's a definite advantage to be able to offer tenants flexibility to expand or contract within the portfolio. As we continue to grow, our opportunity to serve our existing customers just gets better.

A 12.3 million square feet of workspace with heavy concentrations in Toronto, Montreal, we're constantly working with our users to provide growth and occasionally downsize.

I recently asked our leasing teams to identify how many times weve accommodated attendance need for more space. It was no real surprised to learn weve accommodate over 100 tenants in the last five years.

It's a definite advantage to be able to offer tenets flexibility to expand or contract within the portfolio.

As we continue to grow our opportunity to serve our existing customers just gets better.

I will now turn the call over to you for a discussion on our development activities.

Tom: I will now turn the call over to Hugh for a discussion on our development activities.

[Company Representative] (Allied Properties Real Estate Investment Trust): I will now turn the call over to Hugh for a discussion on our development activities.

Hugh: Thanks, Tom. We continue to make progress on both our active development projects as well as on our future development pipeline. I'll first provide an overview of our construction progress and then provide an overview of approvals. Projects under development. We are nearing completion of the base building work at 425 Viger. The project remains on track for completion at the end of 2019, with a lead tenant beginning its fit-out work in the new year. Work at Le Nordelec is nearly complete. The team is now focusing on miscellaneous work for the existing and new workspace users. In Toronto, we have completed the work required to allow condo purchasers at King Portland Center to occupy the majority of units. Registration and closings will occur in Q4 2019 and Q1 2020, respectively. Construction on The Well continues to progress on schedule.

[Company Representative] (Allied Properties Real Estate Investment Trust): Thanks, Tom. We continue to make progress on both our active development projects as well as on our future development pipeline. I'll first provide an overview of our construction progress and then provide an overview of approvals. Projects under development. We are nearing completion of the base building work at 425 Viger. The project remains on track for completion at the end of 2019, with a lead tenant beginning its fit-out work in the new year. Work at Le Nordelec is nearly complete. The team is now focusing on miscellaneous work for the existing and new workspace users. In Toronto, we have completed the work required to allow condo purchasers at King Portland Center to occupy the majority of units. Registration and closings will occur in Q4 2019 and Q1 2020, respectively. Construction on The Well continues to progress on schedule.

Thanks, Tom we continue to make progress on both our active development projects as well as on our future development pipeline.

Ill first provide an overview of our construction progress and then provide an overview of approvals projects under development.

We are nearing completion of the base building work at for 25 VJ.

Project remains on track with completion at the end up 2019 with a lead tenant beginning its fit out work in the new year.

Work Adler, nor lack is nearly complete the team is now focusing on miscellaneous work for the existing and new workspace users.

In Toronto, we've completed the work required to allow condo purchasers King Portland Center to occupy the majority of units registration and closings will occur in Q4 2019 at Q1 2020, respectively.

Construction on the well continues to progress on schedule at the end of the quarter. We had reached the night for of the office tower.

Hugh: At the end of the quarter, we had reached the ninth floor of the office tower. We have reached grade on a number of other buildings. This project remains on track to meet our lease obligations for delivery of the base building. For the JV project with Westbank at Adelaide and Duncan, we have completed the majority of the excavation on-site. We have adjusted the anticipated cost, excuse me, for this project to match our latest projection now that we have tendered the majority of the work. In Kitchener, our partners, Perimeter Development, have begun demolition and excavation on phase three of our Breithaupt joint venture. In Western Canada, we have begun interior demolition of our Lougheed Building. We continue to project a nine-month construction period, which should see the completion of the project in the summer of 2020.

[Company Representative] (Allied Properties Real Estate Investment Trust): At the end of the quarter, we had reached the ninth floor of the office tower. We have reached grade on a number of other buildings. This project remains on track to meet our lease obligations for delivery of the base building. For the JV project with Westbank at Adelaide and Duncan, we have completed the majority of the excavation on-site. We have adjusted the anticipated cost, excuse me, for this project to match our latest projection now that we have tendered the majority of the work. In Kitchener, our partners, Perimeter Development, have begun demolition and excavation on phase three of our Breithaupt joint venture. In Western Canada, we have begun interior demolition of our Lougheed Building. We continue to project a nine-month construction period, which should see the completion of the project in the summer of 2020.

We have reached grade on a number of other building.

This project remains on track to meet our lease obligations for delivery of the base building.

For the JV project with West Bank I believe in Duncan we've completed the majority of the excavation onsite we've adjusted the anticipated cost excuse me.

For this project to match our latest projection now that we attended the majority of the work.

In Kitchener, our partners perimeter development have begun demolition and excavation on phase three of our REIT hop joint venture.

In Western Canada, we have begun interior demolition of our loss the building.

We continue to project a nine month construction period, which should see the completion of the project in the summer of 2020.

Hugh: We anticipate achieving occupancy at Telus Sky late this year with Telus occupying the building in early 2020. Intensification approvals. Community Council has approved our Adelaide and Spadina project. The zoning should become binding by mid-2020. We anticipate receiving similar approval for our King and Brant in November, with binding approval to occur in December of this year or January 2020. These projects will be brought to the market in the new year. I will now turn the call back to Michael.

[Company Representative] (Allied Properties Real Estate Investment Trust): We anticipate achieving occupancy at Telus Sky late this year with Telus occupying the building in early 2020. Intensification approvals. Community Council has approved our Adelaide and Spadina project. The zoning should become binding by mid-2020. We anticipate receiving similar approval for our King and Brant in November, with binding approval to occur in December of this year or January 2020. These projects will be brought to the market in the new year. I will now turn the call back to Michael.

We anticipate achieving occupancy at tallest sky in late this year with tell us occupying the building in early 2020.

Intensification approvals.

Three any council has approved our idle agents, but I know projects.

Zoning should be combining by mid 2020.

We anticipate receiving similar approval for King and brand in November with binding approval to occur in December of this year or January of 2020.

These projects will be brought to the market in the new year.

Ill now turn the call back to Michael.

Michael Emory: Thanks, Hugh. While certainly underpinned by strong market fundamentals, our results in Q1, Q2, and Q3 of 2019 were also made possible by an investment and operating strategy that we've executed relentlessly and creatively since our IPO in 2003. We have deep confidence in and strong commitment to our strategy of consolidating and intensifying distinctive urban workspace and network-dense UDCs. We firmly believe that our strategy continues to be 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. Raising and allocating capital successfully are critical to the execution of any strategy. In my view, the ability to allocate large amounts of capital successfully is the determinative capability.

Thanks you.

Well certainly underpinned by strong market fundamentals our results in the first three quarters of 2019 were also made possible by an investment in operating strategy that we've executed relentlessly and creatively since our IPO in 2003.

We have deep confidence in and strong commitment to our strategy of consolidating and intensifying distinctive urban workspace and network dense you Dcs.

We firmly believe that our strategy continues to be underpinned by the most important secular trends in Canadian and global real estate. We also firmly believe that we have the properties that people and the platform necessary to execute our strategy for the ongoing benefit.

Of our unitholders.

Raising and allocating capital successfully are critical to the execution of any strategy.

In my view the ability to allocate large amounts of capital successfully is the determinative capability without it there can be no ongoing ability to raise capital successfully.

Tom: Without it, there can be no ongoing ability to raise capital successfully. Allied has proven ability to raise large amounts of capital at low cost.

[Company Representative] (Allied Properties Real Estate Investment Trust): Without it, there can be no ongoing ability to raise capital successfully. Allied has proven ability to raise large amounts of capital at low cost.

Allied has proven ability to raise large amounts of capital at low cost. This year alone. We completed two equity offerings for aggregate proceeds of $575 million and to unsecured debenture offerings for aggregate proceeds of $600 million more import.

Michael Emory: This year alone, we completed 2 equity offerings for aggregate proceeds of CAD 575 million and 2 unsecured debenture offerings for aggregate proceeds of CAD 600 million. More importantly, I believe Allied has the ability to allocate large amounts of capital while adhering to a proven investment and operating strategy. The net proceeds of the equity offerings this year were used primarily to fund acquisitions and developments, whereas the net proceeds of the unsecured debenture offerings were used primarily to refinance existing debt. Our ability to raise and allocate large amounts of capital bodes well for our strategic outlook. We expect to allocate large amounts of capital to acquisitions and developments over the remainder of 2019 and in the coming years.

Secondly, I believe allied has the ability to allocate large amounts of capital while adhering to a proven investments and operating strategy.

The net proceeds of the equity offerings. This year were used primarily to fund acquisitions and development.

Whereas the net proceeds of the unsecured debenture offerings were used primarily to refinance existing debt.

Our ability to raise and allocate large amounts of capital bodes well for our strategic outlook.

We expect to allocate large amounts of capital to acquisitions and developments over the remainder of 2019 and in the coming years.

Michael Emory: While the public capital markets are certainly variable, we're confident in our ability to raise the needed capital at low cost and in a manner consistent with our unwavering commitment to the balance sheet. Among other things, the capital raised in 2019 enabled us to achieve our targeted debt metrics on or ahead of schedule. While we fully intend to maintain our debt metrics within targeted ranges, we see our unsecured debenture program becoming a more important source of capital going forward. We believe that unsecured debentures are the optimal debt instrument for a public real estate organization, particularly one like Allied, with an active and substantial development and value add pipeline. Accordingly, we intend to repay or prepay all outstanding mortgages in as opportune a manner as possible. Building a strong, deep, and well-composed team is also critical to the execution of any strategy.

Well the public capital markets are certainly variable, we're confident in our ability to raise the needed capital at low cost and in a manner consistent with our unwavering commitment to the balance sheet.

Among other things the capital raised in 2019 enabled us to achieve our targeted debt metrics on or ahead of schedule.

Well, we fully intend to maintain our debt metrics within targeted ranges, we see our unsecured debenture program, becoming a more important source of capital going forward.

We believe that unsecured debentures are the optimal debt instrument for a public real estate organization, particularly one like allied with an active and substantial development and value add pipeline.

Accordingly, we intend to repay or pre pay all outstanding mortgages in as opportunism manner as possible.

Building, a strong deep and well composed team is also critical to the execution of any strategy.

Michael Emory: In my view, Allied has made consistent progress in this regard over the past decade. In recent years, we focused intently on interdepartmental and interregional coordination and accountability with demonstrable and encouraging results. Not only is the Allied team stronger, deeper, better composed, and better organized than ever before, it's fully unified around Allied's vision and mission, which I spoke about in my letter to unit holders. I won't repeat myself here other than to reiterate that Allied's vision and mission statements are the aspirational context within which we pursue sustained profitability for the benefit of our unit holders. I do hope this has been a useful and comprehensive update for you. We'd now be pleased to answer any questions you may have. Back to you, Lynette.

In my view Allied has made consistent progress in this regard over the past decade.

In recent years, we focused intently on inter departmental and inter regional coordination and accountability with demonstrably oil and encouraging results.

Not only as the allied team stronger deeper better composed and better organized than ever before it's fully unified around Allieds vision and mission, which I spoke about in my letter to unitholders.

Repeat myself here other than to reiterate that Allieds vision and mission statements are the aspirations context within which we pursue sustained profitability for the benefit of our unitholders.

I do hope this has been a useful and comprehensive update for you. We now be pleased to answer any questions you may have.

Back to you on that.

Operator: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is the star key followed by the digit one. We'll pause for a moment. We do have a few callers in the queue. Again, that is the star key followed by the digit one if you have a question or comment. We'll hear first from Frederic Blondeau from Echelon Wealth Partners.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're joining us today using a speakerphone. Please make sure. Your mute function is turned off to a larger signal to reach our equipment again that is the starkey followed by the digit one well pause for a moment.

It was a few callers on the Q again that is the Starkey followed by the digit one if you have a question or comment well here first from Fred Blondo from echelon wealth partners.

Thank you and good morning.

Frédéric Blondeau: Thank you and good morning.

Michael Emory: Good morning.

Good morning, I just want its I just wanted to touch on your expectations in terms of development costs.

Frédéric Blondeau: I just wanted to touch on your expectations in terms of development costs. Looks like you once again increase your cost estimates for some of your projects. What would be your general views or your base scenario on development costs for the next 12, 24 months?

Like you.

Once again increase your cost estimates for some of your projects.

What would your general views are your base scenario on development costs for the next 12 24 months.

It's impossible to predict the extent to which they will escalate, but they will escalate. The good news for Allied is as we speak today, a very very significant portion of our development costs are now fixed contracts.

Michael Emory: It's impossible to predict the extent to which they'll escalate, but they will escalate. The good news for Allied is, as we speak today, a very, very significant portion of our development costs are now fixed contracts.

Frédéric Blondeau: Mm-hmm. Well, that's fair. Thanks. In terms of residential development, what should we expect in regards to revenue and I guess net profit margins for Q4 and next year?

Yes.

Okay. That's fair thanks, and in terms of residential development, what should we expect in regards to revenue and I guess net profit margins for Q4 and next year.

Very little.

Michael Emory: Very little. Our rental residential assets are not going to be operational for another two or three years. The only residential revenue we will be earning, in the remainder of 2019 and the early part of 2020 will be condo revenues, which of course aren't part of our recurring revenue stream or our recurring earnings base. They will be isolated and, to be quite honest, inconsequential as far as we're concerned.

Our rental residential assets are not going to be operational for another two or three years.

The only residential revenue we will be earning.

In the remainder of 2019 in the early part of 2020 will be condo revenues, which of course aren't part of our recurring revenue stream or recurring earnings base. So they will be isolated and to be quite honest inconsequential as far as we're concerned.

Okay, and just looking at your strategy down the road you do you still see enough development opportunities to counterbalance for I guess, a less compelling buying in the ground and there could be a time.

Frédéric Blondeau: Mm-hmm. Okay. Just looking at your strategy down the road, do you still see enough development opportunities to counterbalance for, I guess, a less compelling buying ground in Canada, or there could be a time when you would start looking for potential acquisitions maybe in the US?

When.

You would start looking for potential acquisitions, maybe in the U.S.

I don't envisage Allied looking to the us or outside of Canada as major cities for at least five years.

Michael Emory: I don't envisage Allied looking to the US or outside of Canada's major cities for at least five years.

Frédéric Blondeau: Okay. Okay, great. Thank you.

Okay.

Okay, great. Thank you.

Michael Emory: You're welcome.

Welcome.

Well hear next from Chris Cooper from CBC.

Operator: We'll hear next from Chris Couprie from CIBC.

Good morning.

Chris Couprie: Good morning.

Michael Emory: Good morning.

Good morning.

Chris Couprie: Just had a couple questions on Montreal. 700 De La Gauchetière. The occupancy in the MD&A versus what was kind of in the initial press release, I'm just wondering if you can reconcile what happened there. Looks like maybe there was a GLA change in the GLA. Secondly, the-

Just had a couple of questions no on Montreal.

700 deal G.

The occupancy in the Mdna versus what was kind of in the initial press release.

If you can reconcile what happened there.

And actually maybe there was a GL H a change in the Julie.

Secondly.

Michael Emory: Well, let me answer that first.

Answer that first that we'll get to your second question.

Chris Couprie: Sure.

Michael Emory: We'll get to your second question. The GLA increased because there is an area below grade that we believe we can convert to income-producing area. That's that. The change in occupied area is solely a result of our having obtained possession of the second floor from National Bank as expected, and frankly as hoped for in August or September of this year. This will allow us to basically create the base building environment on that floor that will represent how we want to transform the building going forward. National Bank was able, under the terms of the arrangement put in place with the prior owner, to give that space back to us.

The GL a increase because there is an area of below grade that we believe we can convert to income producing area.

That's that the change in occupied area is solely a result of our having.

Obtained.

Possession of the second floor from National Bank as expected and frankly as hoped for in August or September of this year.

This will allow us to basically create the base building environment on that floor that will represent how we want to transform the building going forward So national Bank.

Was able and under the terms of the arrangement to put in place with the prior owner to give that space back to us it was effectively functioning as swing space and we were delighted to get it back because it enables us to basically create what will be a large scale model suite.

Michael Emory: It was effectively functioning as swing space, and we were delighted to get it back because it enables us to basically create what will be a large scale model suite, that will illustrate what the space will be like when we get rid of the hideous drop ceilings and the drywall fire rating around the columns, et cetera, et cetera, et cetera. That explains that.

That will illustrate what the space will be like when we get rid of the hideous drop ceilings and the drywall fire rating around the call and successor et cetera, et cetera. So that explains that okay perfect.

Chris Couprie: Okay, perfect. I guess just two follow-up questions. One, just occupancy in Montreal in general. Those two buildings that you recently acquired, what's the kind of expectation or thoughts on time to lease those properties up? And then secondly, there was an increase in the intensification opportunity in Montreal. I was just wondering if that was associated with the buildings that were recently acquired or something else.

And then.

I guess just to follow up questions. One just on occupancy in Montreal in general.

Those two those two buildings that you recently acquired.

The kind of expectation or or thoughts on time to lease those properties up and then secondly.

There was an increase in the intensification opportunity in Montreal.

Just wondering if that was associated with the buildings that were recently acquired or or something else.

Michael Emory: Okay. Both relate to the RCA building. If I remember correctly, we acquired the RCA building approximately 80% occupied. We expect to lease the remainder of the space or the 20% that's unoccupied reasonably expeditiously. Having said that, we are not going to develop or execute a final strategy for either the RCA building or the El Pro Lofts building in the Saint-Henri submarket, in the near term. We're gonna continue to run them as they have been run, which is essentially as community buildings for a large number of smaller tenants. That's because we wanna understand more fully how that submarket is evolving and how those buildings can be optimally reconfigured for long-term occupancy by the kind of tenants we serve.

Okay, both relate to the RC a building if I remember correctly, we acquired the RC a building approximately 80% occupied.

We expect to lease the remainder of the space or the 20% Thats unoccupied reasonably expeditiously, having said that.

We are not going to.

Well look or execute a final strategy for either the RC a building or the L. pro loss building in the same Henry sub node.

In the near term, we're going to continue to run them as they have been run which is essentially as community buildings for a large number of smaller tenants.

That's because we want to understand more fully how that sub market is evolving and how those buildings can be optimally reconfigured for long term occupancy by the kind of tenants we serve.

Michael Emory: In terms of the additional intensification opportunity in Montreal, my guess is, not having reviewed it specifically with the team, it all derives from the RCA building.

In terms of the additional.

Michael Emory: In terms of the additional intensification opportunity in Montreal, my guess is, not having reviewed it specifically with the team, it all derives from the RCA building.

Intensification opportunity in Montreal, My guess is not having reviewed it specifically with the team.

Both derives from the our CA building.

Okay. Thanks, a lot I'll turn it back.

Chris Couprie: Okay, thanks a lot. I'll turn it back.

Youre welcome.

Michael Emory: You're welcome.

Well hear next from Jonathan culture from TD Securities.

Operator: We'll hear next from Jonathan Kelcher from TD Securities.

Jonathan Kelcher: Thanks. Good morning.

Thanks, Good morning.

Good morning.

Michael Emory: Good morning.

Jonathan Kelcher: First on 151 Front. When in the quarter did that vacancy occur? Really, what I'm really asking is how much NOI did you not have in the quarter?

First on on 151 front.

When did that big within the quarters that they can see occur.

And really what I'm really asking is how much and why did you not habit.

<unk>.

It came back in August .

Michael Emory: It came vacant August of this year.

Of this year.

Okay, so presumably two thirds of the quarter.

Jonathan Kelcher: Okay.

Michael Emory: Presumably two-thirds of the quarter.

Jonathan Kelcher: Okay. When it sounds like you're talking to a tenant, would you sort of say mid-next year you'd expect the revenue to come back?

Okay and win.

It sounds like you're talking to a tenant would that would you sort of say mid next year you'd expect.

Revenue to come back.

Michael Emory: Yeah. We're working on dates now, and it looks like it'll be in H2. That'll get finalized hopefully shortly. It may even be phased, and some of it will be deployed into 2021.

Yes, we're working on dates now and it looks like it'll be in the second half of the year.

Delegates finalized hopefully shortly.

And it may even be phased in some of it.

We'll be deployed into 2021.

Okay.

Jonathan Kelcher: Okay. Would it be fair to assume that on the renewals that you did in the quarter at 151, that you're now gonna start to get more interconnection fees?

Would it be fair to assume that.

On the on the renewals that you did in the quarter 151 that your your dog it does start to get more interconnection fees.

No.

Michael Emory: No. Ancillary revenue will go up somewhat, but the real increase is what we call normal or regular rental revenue, and it's significant.

And and silly revenue will go up somewhat but the real increases what we call normal or regular rental revenue.

And it's significant.

Okay. So.

Jonathan Kelcher: Okay. Would it be fair to say your leasing the new space that's vacant right now, the market rents you show for your UDC, would that be sort of a fair ballpark to look at?

To be fair to say your leasing the new.

Space. So speaking right now the market rents you show for you do see would that be it sort of a fair ballpark to to look up.

Yes.

Michael Emory: Yes.

Okay, and then just switching to tell us sky.

Jonathan Kelcher: Okay. Just switching to Telus Sky. You had a good quarter leasing there. What type of tenants are those?

<unk>.

Yeah, good quarter leasing what type of tenants are those.

Almost exclusively tami tenants.

Michael Emory: Almost exclusively TAMI tenants.

Jonathan Kelcher: Okay. Are they sort of new to the market or expanding, or are you sort of stealing from the belt line there?

Okay or are they sort of new to the market or expanding or you are you sort of stealing from the beltline there.

If I had to guess I'd say half are new to the market and half our if you will coming out of other.

Michael Emory: If I had to guess, I'd say half are new to the market and half are, if you will, coming out of other properties in the city.

Properties in the city.

Okay, and then what sort of T.I.s do you expect on telescopes and for that actually for 25 VJ when they when they come on next year.

Jonathan Kelcher: Okay. What sort of TIs do you expect on Telus Sky and actually 425 Viger when they come on next year?

What's sort of leasehold improvement allowances.

Michael Emory: What sort of leasehold improvement allowances?

Jonathan Kelcher: Yep.

Michael Emory: I mean, as we budgeted them, we expect them to come in.

As as we budgeted them, we expect them to come in.

Okay, but but you haven't disclosed those budgets.

Jonathan Kelcher: Okay. You haven't disclosed those budgets yet, have you?

Michael Emory: No, we haven't.

Jonathan Kelcher: That's not in your total cost?

Sure that's not in your total cost.

Jonathan Kelcher: That's not in your total cost?

Okay.

Michael Emory: No.

Jonathan Kelcher: Okay. Okay, thanks. I'll turn it back.

Okay. Thanks, I'll turn it back.

Well move next to Mario Saric from Scotiabank.

Operator: We'll move next to Mario Saric from Scotiabank.

Hi, good morning.

Mario Saric: Hi. Good morning.

Michael Emory: Good morning.

Good morning.

Mario Saric: Maybe just coming back to Jonathan's question on 151 Front. Just very high level, if we had to summarize, kind of the revenue post consolidation of the two tenants at the higher rent with the expected revenue coming in from the backfill space, if and when it gets done. What kind of uptick in overall revenue on that space would that represent in percentage terms?

Maybe or this is coming back to Jonathan's question on 151 front, just very high level, if we have to summarize.

Kind of the revenue post consolidation of the two tenants are the higher rent was expected revenue coming in from on the backfill space isn't when it gets done what kind of up to can overall revenue on that.

Space would that represent in percentage terms.

Well.

Michael Emory: Well, it's likely gonna be somewhere in the range of double the rent that was there before. They're coming off of leases that were in existence for some time, Mario, and we're gonna quite likely double the revenue.

Likely going to be somewhere in the range of double the rent that was there before.

There are coming off of leases that were in existence for some time aereo and we're going to wait likely double the revenue.

Perfect Okay.

Mario Saric: Perfect. Okay. Maybe shifting gears back to Montreal. I think you've been mentioning for a couple of quarters now that you're starting to see kinda rent growth in the market. You know, how would you characterize the inning in which you think the rent growth cycle in Montreal stands today in comparison to Vancouver and Toronto, which you've articulated may be slowing in a couple of years when the supply comes on? I'm just curious in terms of the duration, the expected duration of the rent growth cycle that you see in Montreal and why that may be different from past cycles in the city.

Then maybe shifting gears back to Montreal, I think you've been mentioning for a couple of quarters now that you're starting to see.

Kind of rent growth in the market how would you characterize the in which you think the rent growth cycle in Montreal.

Stands today in comparison to Vancouver, and Toronto, which you've articulated maybe slowing.

In a couple of years and support comes on I'm. Just curious in terms of the duration you expected duration of the rent growth cycle, but you see in Montreal, and why that maybe different from past cycles in the city.

Mario I think and this of course is.

Michael Emory: Mario, I think, and this of course is educated guesswork, rather than scientific estimation. My guess is we'll see rent growth for a longer period of time in Montreal than in Toronto and Vancouver, simply because there's no material amount of new supply being added to that market, and there is significant demand. I think the rent growth will be more modest than we've experienced in Toronto and Vancouver. I also think it will last longer, simply because there is unlikely to be any material new supply of office space built in the city, in the next 2 to 3 years. Whereas in both Vancouver and Toronto, as you know, there is material new supply under construction that is almost certainly going to satisfy a very significant portion of the excess demand for workspace in the urban core of both cities.

Educated guess work rather than scientific estimation, but my guess is we'll see rent growth for a longer period of time in Montreal, Ben in Toronto, and Vancouver simply because there is no material amount of new supply being added to that mark.

Okay, and there is significant demand.

So I think the rent growth will be more modest than we've experienced in Toronto and Vancouver, but I also think it will last longer.

Simply because there is unlikely to be any material new supply of office space built in the city.

In the next two to three years, whereas in both Vancouver, and Toronto as you know there is material new supply under construction that is almost certainly going to satisfy a very significant portion of the excess demand for work space in the urban core of both cities.

Okay.

Mario Saric: Got it. Okay. Just sticking to Montreal, I guess after the acquisition of the RCA building and 700 De La Gauchetière, Montreal is about 46% of your portfolio GLA and notably less on NOI. As you've highlighted, there's a lot of positive momentum in Montreal, especially for loft-style space that you own. How should we think about your future growth in the market in relation to total portfolio growth? Meaning, is there a cap in terms of what you would like Montreal to be as a percentage of the total portfolio, or is it very much again, opportunity based in terms of investment going forward?

And then just sticking to Montreal.

After the acquisition of your see building and sort of deal G materials were 46% of your portfolio Julie.

We lost on along.

As you probably there's a lot of positive momentum in Montreal.

Especially for lost style space.

How should we think about your future growth in the market in relation to total portfolio growth.

Meaning is there is a recap in terms of.

You would like material to be as a percentage of the total portfolio or is it very much again opportunity based.

In terms of investment going forward.

We don't have a preconception about what relationship our Montreal portfolio should bear to our Toronto portfolio, which will always be our largest.

Michael Emory: We don't have a preconception about what relationship our Montreal portfolio should bear to our Toronto portfolio, which will always be our largest, especially in terms of earnings, but frankly also in terms of area, even though at the moment, the rental portfolio in Montreal is slightly larger than the rental portfolio in Toronto. Once you factor in the development completions, Toronto will again be much larger in terms of both area and total NOI or total earnings. I don't feel the need at this point to curtail or slow down the exploitation of good opportunities in the City of Montreal. There does come a point in time where we would probably take the view or take the position that we don't want any additional exposure to Montreal relative to our remaining exposure in Toronto, Calgary, and Vancouver. I don't think we're there yet.

Especially in terms of earnings, but frankly also in terms of area, even though at the moment the rental portfolio in Montreal is slightly larger than the rental portfolio in Toronto. Once you factor in the development completions, Toronto will again be much larger in terms of.

Both area and.

Total and NOI higher or total earnings.

I don't feel the need at this point to curtail or slow down the exploitation of good opportunities in the city of Montreal, There does come a point in time, where we would probably.

Take that view or takes a position that we don't want any additional exposure to Montreal relative to our remaining exposure in Toronto, Calgary, Vancouver, but I don't think we're there yet.

Michael Emory: We're seeing a very encouraging number of infill acquisition opportunities in Toronto, in Calgary, and in Vancouver. I'm actually very pleasantly surprised that we are able to acquire these opportunities that are so strategic to existing concentrations we have on such favorable economic terms when there's so much money chasing so little real estate. We remain able to do it. The opportunities generally come to us off market, not all the time, but generally. While Montreal has certainly been the highlight in terms of sheer volume of growth in 2019, we've actually had a really encouraging number of infill acquisitions in Toronto, in Calgary, and in Vancouver in relation to the size of those markets. They're not falling behind Montreal in terms of area and especially in terms of earnings or NOI, as might appear at first blush.

We're seeing a very encouraging number.

In feel acquisition opportunities in Toronto in Calgary and in Vancouver.

I'm actually very pleasantly surprise.

That we are able to acquire these opportunities that are so strategic to existing concentrations, we have on such favorable economic terms when there's so much money.

Facing so little real estate, but we remain able to do it and the opportunities generally come to us off market not all the time, but generally so while Montreal has certainly been the highlights in terms of sheer volume.

Some of growth in 2019, we've actually had a really encouraging number of infill acquisitions in Toronto in Calgary and in Vancouver in relation to the size of those markets. So they're not falling behind Montreal in terms of area and especially in terms of earnings.

Or an ally.

As might appear at first blush, but all that said there does come a point in time, when we're going to want our portfolio in Montreal to bear a certain relationship to our portfolio in the other three major cities in Canada, plus Kitchener with.

Michael Emory: all that said, there does come a point in time when we're going to want our portfolio in Montreal to bear a certain relationship to our portfolio in the other three major cities in Canada, plus Kitchener, which is a market where we expect to be able to continue to grow and where we expect to be active, for the foreseeable future.

Which is a market, where we expect to be able to continue to grow and where we expect to be active.

For the foreseeable future.

Understood. Okay. My last question and someone related given your commentary on a positive acquisition pipeline.

Mario Saric: Understood. Okay, my last question and somewhat related, given your commentary on a positive acquisition pipeline in your markets. In the past, you've talked about potentially introducing JV relationships, whether it's on acquisitions or potential development activities going forward. Is that something that you envision coming to fruition more on the acquisition side or on the development side in the near term?

In your markets.

In the past you've talked about potentially introducing JV relationships, whether it's on acquisitions or.

Potential development activities going forward.

Got something.

Oh, you envision coming to fruition more on the acquisition side or on the development side.

Okay.

In the near term Merial more on the acquisition side.

Michael Emory: In the near term, Mario, more on the acquisition side. Maybe to elaborate a little bit because that was rather a terse answer. We've reached a point where the incentive to joint venture developments, especially developments that are solely owned by Allied, is diminishing. Our financial capabilities, our development capabilities, and our ultimate operating capabilities make it very prudent for us to undertake those kind of developments for our own account and on a solo basis, if you will. My expectation is that the kind of collaborative activities that we've been talking about in terms of leveraging our balance sheet will take the form of acquisitions.

Maybe to elaborate a little bit because that was rather a tourist answer.

Weve reached a point.

Where the incentive.

Two joint venture developments, especially developments that are solely owned by Allied is diminishing.

Our financial capabilities, our development capabilities, and our ultimate operating capabilities make it very prudent for us to undertake those kind of developments for our own account and on a solo basis. If you will so my expectation is that the the kind of.

Collaborative.

Activities that we've been talking about in terms of leveraging our balance sheet, we'll take the form of acquisitions.

Pardon me not our balance ice.

Mario Saric: Got it.

Michael Emory: Pardon me, not our balance. Cecilia corrects me quite rightly.

Cecilia corrects me quite well not leveraging their balance sheet balance sheet.

Cecilia Williams: We're not leveraging our balance sheet.

Mario Saric: We're not leveraging our balance sheet.

Michael Emory: We're not leveraging the balance sheet. That's almost an axiom at Allied. We're going to leverage our platform, Mario, not our balance sheet. My apologies.

That's almost asthma allied we're going to leverage our platform [laughter].

Merial not our balance sheet my apologies.

Mario Saric: Understood, I guess. I guess the implicit assumption in all of that would be Union Center would inherently be a development that would fall into the next development cycle as opposed to anytime soon.

Understood I guess and you guys the implicit assumption and all that would be.

In center.

Development that would fall into the next April as opposed to anytime soon.

Michael Emory: I would say two things in that regard. A, you're quite right, it will fall into the next development cycle in all probability. Number two, in all probability, we will do it on our own.

I would say to two things in that regard eight you're quite right. It will fall into the next development cycle in old probability number two in all probability.

We will do it on our own.

Okay.

Mario Saric: Okay. Thank you.

<unk>.

Well move next to Mike Marchita from Daystar Dan.

Operator: We'll move next to Michael Markidis from Desjardins.

Thank you.

Michael Markidis: Thank you. A couple of things on my agenda here. First off, sounds like there's a lot of good stuff going on in the UDC portfolio, even though you have some transitory downtime at 151 Front. A little bit of incremental leasing at 250 and space under negotiation, which could take that number up meaningfully. At the same time, the NOI contribution from UDC has plateaued over the last several quarters. Going forward, you know, if the stars were to align, let's say you get to 100% on 250, and just given the leasing that you've done at 151, it sounds like you're getting significant bumps on early renewals right now.

Couple of things on wage and here. So first off sounds like there's a lot of good stuff going on in the you do see portfolio just with the even though you have some transitory downtime at 151 front I'm, a little bit of incremental leasing it to 50 and space under negotiation, which could take that number up meaningfully.

At the same time the.

Annualized contribution from you do you see is plateaued over the last several quarters. So.

Going forward.

Stars would align lets say you get to 100% on on 250, and just given the leasing that you've done it 151 sounds like you're getting significant bumps on early renewals right now.

Michael Markidis: Where do you see sort of the CAD 13 to 14 million of quarterly NOI going to over the next couple of years?

Where do you see sort of the $13 million to $14 million.

Quarterly NOI.

Going to over the next couple of years.

Mike I'd, rather hold on that one we have resisted the temptation to project forward with respect to you DC, even though we have stated publicly and we stand by the statements that we expected to grow at a rate.

Michael Emory: Mike, I'd rather hold on that one. We have resisted the temptation to project forward with respect to UDC, even though we have stated publicly, and we stand by the statements, that we expect it to grow at a rate that would exceed the rate of growth in our workspace portfolio. We may be in a position at the end of Q4 when we report annually to segment our UDC income streams, if you will. We may be prepared based on that to make a cautious forward projection. We have resisted the temptation to do so so far, and I'm going to resist it today as well.

That would exceed the rate of growth in our workspace portfolio, we may be in a position.

At the end of Q4, when we report annually to segment are you DC.

Income streams, if you will.

And we may be prepared based on that too to make a cautious forward projection, but we have resisted the temptation to do so so far and and I'm going to resist it today as well.

Michael Markidis: Okay. That's fair. I guess then just in terms of the contribution of the revenue streams, it sounds like there's a little bit of ancillary income uptick at 151. Crosslake Fibre, I can't recall if that's done yet, but I think you're expecting to set up another meet-me room there, which would drive material interconnection fee revenue. I think there's also a meaningful ancillary revenue opportunity at 250 Front. I guess two questions. A, is that still the case in your mind? B, have we recognized even a smidgen or a fraction of that potentially yet?

Okay, that's fair.

I guess then just in terms of the contribution of the revenue streams. It sounds like there's a little bit of ancillary income up ticket 151.

Cross like I can't recall, if that's done yet, but I think you're expecting sort of another meet me room, there, which would drive material interconnection fee revenue I think there's also a meaningful ancillary revenue opportunity to 50 front.

I guess two questions as is that still the case in your mind and B, we recognize even a smidgen.

Fraction of that potentially.

Michael Emory: The answer is unequivocally yes. You identified the key opportunities perfectly. Crosslake Fibre at 151 Front. AWS Direct Connect for the most part at 250 Front. They have begun to build, and we expect to be in a position to report in conjunction with our year-end results, the extent of the build to date. It isn't dramatic. It wouldn't choke a horse yet, but it is beginning to build, and it may afford us a basis by year-end to start to cautiously project what the build might look like, and what rate of build we might be able to expect.

The answer is.

Equivocally, Yes, and you identified the key opportunities perfectly cross like fiber at one to do on front.

Hey, Ws direct connect for the most part at Twofifty front, they have begun to build and we expect to be in a position to report in conjunction with our year end results.

The extent of the build to date it isn't dramatic it wouldn't choco horse yet, but it is beginning to build and it may afford us a basis by year end to start to cautiously project, what the build might look like.

And what rate of build we might be able to expect.

But it has I mean, you identified the revenue sources very correctly.

Michael Markidis: Okay.

Michael Emory: I mean, you identified the revenue sources very correctly. It has begun to build. As I say, we will in all likelihood be prepared to disclose very specifically that build by year end, along with the mark-to-market growth that we've seen in the regular rental revenue. Two other, what I'll call ancillary rental revenue sources, that have also been growing, but that we don't expect to grow as meaningfully over time as we would hope the interconnection revenue does.

And it has begun.

To build and as I say, we we will in all likelihood be prepared to disclose very specifically that build by year end along with the mark to market growth that we've seen.

In the regular rental revenue and two other what I'll call and silly rental revenue sources.

That have also been growing but that we don't expect to grow as meaningfully over time as as we would hope the interconnection revenue does.

Michael Markidis: Okay, great. We'll look forward to that. Two smaller ones here on my end. Just, with your first condo closings happening in Q3, it looked like the margin was pretty slim relative to what one might expect on a condo project. Is there a timing impact there? I guess going forward, I know it's not part of your recurring FFO, but if we think about the remainder of the closings that are set to happen in Q4 of this year and Q1 of next year, would you expect to see a material uptick?

Okay, Great look forward to that to smaller ones here on my end just on what your first condo closings happening in Threeq you.

It looks like the margin was pretty slim relative to what one might expect on a condo project is there a timing impacts there and I guess going forward I know, it's not part of your recurring AFFO, but if we think about the remainder of the closings that are set to happen in the fourth quarter of this year in first quarter next year would you expect to see material uptick.

Cecilia Williams: Hi, Mike. The incremental condo profit that you saw of CAD 421,000 was just on top of the CAD 10 million that was already recognized. If you look on page 41, it gives you a better sense of the net condo profits to date. The 421 was based on, you know, upgrades that were done by the occupiers of the 50 units with an adjustment on final construction costs on those. The margins are certainly not only CAD 421,000. They'll be over CAD 10 million by the time everything is registered and closes in Q1 of 2020.

Hi, Mike on the the incremental condo profit that you saw a 421000 was just on top of the 10 million that was already recognized.

And so if you look on page 41. It gives you a better sense of the net condo profit to date. The for 21 was based on upgrades that were done by the occupiers of the 50 units with an adjustment on auto on final construction costs on those so.

The margins are certainly not only 421000 Dolby over 10 million by the time everything is registered and closes in Q1 of 2020.

Michael Markidis: Okay.

Cecilia Williams: Under IFRS, the bulk of that profit would have been recognized when the assets were moved into inventory a year or two ago.

So under IRS the bulk of that profit would have been recognized when the assets, but moved into inventory a year or two ago God. It got it. So it's a fair value adjustment beforehand, and not exactly stopper out okay doctors that up. Thank you. Okay. And then lastly on a 400, Georgia can you just remind us in terms of when that project is expected to be.

Michael Markidis: Got it. It's a fair value adjustment beforehand and not.

Cecilia Williams: Exactly.

Michael Markidis: Okay.

Cecilia Williams: Exactly.

Michael Markidis: Okay. That clears that up. Thank you. Okay. Lastly on 400 Georgia, can you just remind us in terms of when that project is expected to be stabilized, and then from a timing perspective, when the, I guess, classification on your end would move from being a receivable to actually having a 50% ownership interest?

Stabilized and then from a timing perspective when the.

I guess classification on your year end would move from being a.

A receivable to actually having.

50% ownership interest.

At we anticipate that one being completed within two years at which point it will enter into our we will close on the property enter into our income producing property portfolio. So so sounds like that's about two years okay.

Hugh: We anticipate that one being completed within two years, at which point we will close on the property, and it'll enter into our income producing property portfolio.

[Company Representative] (Allied Properties Real Estate Investment Trust): We anticipate that one being completed within two years, at which point we will close on the property, and it'll enter into our income producing property portfolio.

Michael Markidis: It sounds like that's about two years out. Okay. Yeah. Great. That's it for me. Thank you.

Michael Markidis: It sounds like that's about two years out. Okay. Yeahbbbbbbbbbbbbbbbbbbbbbbb. Great. That's it for me. Thank you.

Great. That's it for me thank you.

Thank you.

Michael Emory: Thank you.

Caitlin Burrows from Goldman Sachs. Your line is open.

Operator: Caitlin Burrows from Goldman Sachs, your line is open.

Caitlin Burrows: Hi. Good morning.

Hi, good morning.

Michael Emory: Good morning.

Good morning, maybe.

Caitlin Burrows: Maybe, Canada's western region, the same asset NOI growth picked up in the quarter to 3.1 percent, which is the highest in a few years. I guess I was wondering, could you give some color on whether that's due to any new strength in Calgary or just maybe a mixed impact from more Vancouver and/or Edmonton?

I I Canada's Western region, the same center NOI growth picked up in the quarter.

3.1 person, which is the highest in a few years. So I guess I was wondering could you give some color on whether that's due to any new strength in Calgary or just maybe a mixed impacts from more Vancouver and our Edmonton.

Hi, Caitlin, it's primarily driven from Vancouver, So just the strength of the market there.

Cecilia Williams: Hi, Caitlin. It's primarily driven from Vancouver, so just the strength of the market there.

Caitlin Burrows: Got it. Okay. Another quick one on the condo side. I think you guys had previously said that the condo marketing expenses would come down in H2. It didn't look like that quite happened in Q3, but wondering if we should still expect that either in Q4 or later.

Got it Okay and then another quick one on the condo side I think you guys had previously said that the condo marketing expenses I would come down in the second half didn't look like that quite happened in the third quarter, but wondering if we should still expect that either in the fourth quarter. Later, there that we remain a involved in the sales Act.

Hugh: That we remain involved in the sales activity through Q4, but then it should teeter off dramatically in the new year.

[Company Representative] (Allied Properties Real Estate Investment Trust): That we remain involved in the sales activity through Q4, but then it should teeter off dramatically in the new year.

Levity through Q4, but then it should.

Peter off dramatically in the new new year.

Got it.

Caitlin Burrows: Got it. Last one, just last quarter, you announced the Westbank deal, and we thought that interest income would increase with that. That was another one that was close to flat in the quarter. Just wondering, why was that? Should we expect an increase in interest income going forward?

And then last one.

Just last quarter, you announced the West Bank deal and we thought that interest income would increase with that but that was another one that was close to flatten the quarter. So just wondering.

Was that and should we expect an increase in interest income going forward.

So part of the long to West Bank on 400, West, Georgia was repaid and.

Cecilia Williams: Part of the loan to Westbank on 400 West Georgia was repaid, and it was almost offset by refinancing on 720 Beatty, which is why you would have seen it not increase. We would expect that to increase over the next few quarters as the loan on 720 Beatty increases.

Was almost offset by a refinancing on 720, BD, which is why you would have seen it not increase and we would expect that to increase over the next few quarters as the loan on 720 BT increases.

Got it okay. That's all for now thanks.

Caitlin Burrows: Got it. Okay, that's all for now. Thanks.

Michael Emory: Thank you.

Thank you.

Well hear next from Jain Rodriguez from Raymond James.

Operator: We'll hear next from Johann Rodrigues from Raymond James.

Hi, I'm these 3 million square feet.

Johann Rodrigues: Hi. The 3 million sq ft-

Michael Emory: Hi.

Sorry, the 3 million square feet of potential incremental density that.

Johann Rodrigues: Sorry. The 3 million sq ft of potential incremental density that in the statements you say has some attributable value, I guess, in the NAV. Do you know what the value of that would be maybe on a per sq ft basis?

Event in the statements you say has some attributable value I guess than the Navy.

The value of that would be maybe on a per square foot basis.

I don't know off the top of my head Johan I can tell you that is made up of the sites that are identified in our future intensification potential which is on.

Cecilia Williams: I don't know off the top of my head, Johann. I can tell you that it is made up of the sites that are identified in our future intensification potential, which is on page 34. That would be 2.6 million square feet of the 3 million. Then there's an incremental 400,000 square feet where there's land value that's been identified and baked into the IFRS value to get to the 3 million.

Page 34, so that would be 2.6 million square feet of the three nine and then there's an incremental 400000 square feet weathers land value, that's been identified and baked into the IRS value to get to the 3 million.

Okay.

Johann Rodrigues: Okay. Then, on your expiries, it looks like, you know, in the Western region, there's about 270,000 sq ft expiring next year, where the expiring rent is, looks like CAD 2.50 above market rent. Can you just maybe talk about that? Is the expectation that you'll see kind of a

Okay.

And then.

On your Expirees it looks like you know in the Western region, There's about 270000 square feet expiring next year, where the expiring rent is looks like $2.50 above market rent.

Can you just maybe talk about that and.

Expectation that you'll see kind of a slip in rents on renewal or sorry, which which you're you're lucky 2021.

Johann Rodrigues: Slip in rents on renewal or

Cecilia Williams: Sorry, which year are you looking at? In 2021?

Johann Rodrigues: Twenty twenty. No, twenty twenty.

No 20 2020.

Michael Emory: 2020. Yes. I think our current expectation is that there is a negative gap, if you will, between in place and market. I think the bulk of that space is in the city of Edmonton, not the city of Calgary. We do expect that negative mark-to-market, if you will, in 2020, as we sit here today. That could change for the better, it could change for the worse, but that would be our expectation today.

Yet I think our current expectation is.

That there is a negative gap if you will between in place in market I think the bulk of that spaces in the city of Edmonton.

Not the city of Calgary.

But but we do expect that negative mark to market.

If you will.

In 2020, as we sit here today that could change for the better it could change for the worse, but that would be our expectation today.

Okay.

Johann Rodrigues: Okay. Okay, Edmonton. Okay, thanks. I'll turn it back.

Okay and okay. Thanks, I'll turn it back.

Michael Emory: Okay, thank you.

Okay. Thank you.

Okay and that is the Starkey followed by the digit one if you have a question or comment well move next to Matt Cornell from National Bank financial.

Operator: We'll move next to Matt Kornack from National Bank Financial.

Matt Kornack: Good morning, guys. I think in Tom's comments, you mentioned something to the effect that King West net rents are now at CAD 50 a sq ft. Just looking at what you have coming up for maturity in Toronto, I guess Kitchener's in there as well, but Toronto's the bulk of it, and you're sitting at low CAD 20 net rents on the existing. Would you say that is just a very small pocket within King West? Do you think that's sustainable as supply comes online? And sort of how does it trail off as you move off of King West onto Richmond or even onto the east side of King?

Good morning, guys.

And can Toms comments, you mentioned something to the effects that.

King less net rents are now at $50 a square foot.

Looking at what you have coming up for maturity in Toronto, I guess kitchens in there as well the Charles the bulk of it you're sitting at low 20 dollar net rents on the existing would you say that is that just a very small pockets within king was do you think that's sustainable as supply comes online and sort of how does it trail off as you move off.

The king west on to Richmond, or even onto the side of Keybanc.

You know I I think the demand is is really strong and supply will remain very low and rent should be maintained up in the high fortys low fiftys.

Tom: You know, I think the demand is really strong and supply will remain very low, and rents should be maintained up in the high 40s, low 50s. The rents on King West are the highest, but it doesn't diminish a great deal if you remain in the neighborhood.

[Company Representative] (Allied Properties Real Estate Investment Trust): You know, I think the demand is really strong and supply will remain very low, and rents should be maintained up in the high 40s, low 50s. The rents on King West are the highest, but it doesn't diminish a great deal if you remain in the neighborhood.

The rents on King West are the highest but it doesn't diminish a great deal. If you will remain in the neighborhood.

Matt Kornack: Okay. There's an exceptional mark-to-market opportunity in your existing leases. That's been a pretty significant rise just in the near term as well. What would you say sort of 2, 3 years ago King West net rents would've been at?

Okay.

So there's an exceptional mark to market opportunity in your existing.

Leases and that's been a pretty significant rise just in the near term as well what would you say sort of two three years ago getting less net rents would have been.

Maybe high Thirtys, maybe mid thirties.

Tom: Maybe high thirties, maybe mid-thirties.

[Company Representative] (Allied Properties Real Estate Investment Trust): Maybe high thirties, maybe mid-thirties.

Matt Kornack: Okay. Wow. I guess on King Toronto, one for Cecilia as well as just a more general comment, can you speak to how the condo sales have gone there? There have been some anecdotes that seem to be quite positive. How will that be accounted for? Because it sounds like in your answer to Mike earlier on the existing King Portland ones that there's earlier recognition of that gain.

Okay well.

And then I guess on King Toronto, one for so it's really as well as just a more general comment.

Can you speak to how the condo sales have gone there there's been some anecdotes that seem to be quite positive.

And then how will that be accounted for because it sounds like in your answer to to Mike earlier on the existing can cortland ones that Ah theres earlier recognition of that gain.

But we haven't disclosed how they how many units have been sold the we have certainly met our targets for pre sales prior to construction, we're getting what should commence dispatch in November .

Hugh: We haven't disclosed how many units have been sold, but we have certainly met our targets for pre-sales prior to construction beginning, which should commence in November.

[Company Representative] (Allied Properties Real Estate Investment Trust): We haven't disclosed how many units have been sold, but we have certainly met our targets for pre-sales prior to construction beginning, which should commence in November.

Okay and.

Matt Kornack: Okay. On the accounting of it, Cecilia, if you could quickly touch on how it will ultimately

David on the accounting of its just really if you could quickly touch on how it will ultimately be accounted for.

Cecilia Williams: Yeah.

Matt Kornack: be accounted for.

Cecilia Williams: Yeah. It's page 38 in our Q3 MD&A shows the breakdown of what's currently in our residential inventory, so not part of our investment property. The King Toronto piece currently stands at CAD 114 million on our balance sheet in inventory. That would've been transferred over. I don't remember if it was Q4 or Q1, and so it would've been transferred over at fair value less the cost to complete. You'll see that balance increasing based on spend, essentially. When we disclose the results under development completions when it's completed in 2023, you'll see what the net proceeds are. We tried to outline it in footnote 3 on page 37.

Yes so.

Page 38 in Q3 Mdna shows the breakdown of whats currently in our residential inventory so not part of our investment property. So the King Toronto piece currently stands at 114 million on our balance sheet and inventory that would have been transferred over I don't remember if it was Q4.

Q1, and so it would have been transferred over at fair value less the cost to complete so you'll see that volumes increasing based on based on spend essentially and then when we disclosed the results under development completions was completed in 2023 years.

See what the net proceeds are it it we tried to outline it in footnote three on page 37. So the estimated gross proceeds from the rest will be 280 million and our share and that netted against the estimated total cost of the project, which is how we get to the yield on cost on page 37, I can walk you.

Cecilia Williams: The estimated gross proceeds from the res will be CAD 280 million at our share, and that's netted against the estimated total cost of the project, which is how we get to the yield on cost on page 37.

Matt Kornack: Okay.

Cecilia Williams: I can walk you through the more detailed calc if you like. We did try to lay it out, but it's not.

Through them for detailed Calgary, if you like we did try to lay it out but it does that make that makes sense [laughter] and Matt. It's Michael speaking I think I can be a little more forthcoming with respect to the sales.

Matt Kornack: No. That makes sense.

Michael Emory: Yeah. Matt, it's Michael speaking. I think I can be a little more forthcoming with respect to the sales. I mean, Hugh's right, we haven't announced the sales publicly. I can say confidently and I think appropriately that at least 72% of the units are sold today unconditionally with very substantial deposits in place. I can also say that the price per foot is unquestionably a record in the King Spadina node, and certainly noteworthy in urban Toronto as a whole.

I mean Hughes right we haven't.

Announced the sales publicly.

But I can say confidently and I think appropriately that at least 72%.

The units are sold today unconditionally with very substantial deposits in place.

I can also say that the price per foot is unquestionably a record in the cadence, but I note and certainly noteworthy in urban Toronto as a whole.

Matt Kornack: Mm-hmm. Yeah, I know that's consistent with sort of the general rumors out there. Congratulations on the project. With regards to the retail, is it gonna be a similar approach to what you've done on The Well in that you wait until closer to completion so that you can maximize the rent you get on the retail component?

Today, I know that that's consistent with sort of.

The general rumors out there, but congratulations on the project and then with regards to the retail is it going to be a similar approach to what you've done on the well in that you wait until closer to completions league and maximize the rent to get on the retail component.

Absolutely we will not even began.

Michael Emory: Absolutely. We will not even begin leasing the residual commercial component of King Toronto for a year. We're working with an agent that we have selected for that project on developing a merchandising plan and on developing a target market for King Toronto, but we have no intention of striving to enter into lease transactions in the next 12 months. If someone came out of the blue with a marvelous offer for us, we'd obviously speak with them. Our intention is not to even initiate the leasing of the office component, which has actually become quite excellent in my view. It was originally less than optimal. The way the structure was ultimately designed, the office space has become perfect for King and Spadina. The retail space is very good.

Leasing the residual commercial component of King Toronto for a year.

We're working with.

An agent that we have selected for that project on developing and merchandising plan and on developing a target market for King Toronto, but we have no intention of striving to enter into lease transactions in the next 12 months.

If someone came out of the blue.

With a marvelous offer for us, we obviously speak with them, but our our intention is not to even initiate the leasing of the office component, which has actually become quite excellent in my view it was originally.

Less than optimal but the way the structure was ultimately designed the office space has become perfect for King and spit either at the retail space is very good it has certain challenges and certain tremendous opportunities associated with it.

Michael Emory: It has certain challenges and certain tremendous opportunities associated with it, and we're really working through a merchandising plan and a leasing program for that. Tom's overseeing it, but the team is adamant that we won't even begin discussions, unless something unusual comes out of the woodwork for at least a year.

And we're really working through a merchandising plan and the leasing program for that.

Harms overseeing it but the team is adamant that we won't even begin discussions unless something unusual comes out of the would work for at least a year.

Matt Kornack: Okay. No, that makes sense.

Okay, No that's remembering that we we can't deliver on that project until when you 20, Threeandme Treasury I'm 2023, so pre leasing to office users is of course standard fare pre leasing to retail users, especially over such an extended.

Michael Emory: Remembering that we can't deliver on that project until when, Hugh? 2020

Hugh: The end of 2023. Yep.

[Company Representative] (Allied Properties Real Estate Investment Trust): The end of 2023. Yep.

Michael Emory: End of 2023. Pre-leasing to office users is, of course, standard fare. Pre-leasing to retail users, especially over such an extended timeframe, is not normal. In our view, at least when it comes to urban street front retail, is not optimal.

Timeframe is not normal and now and in our view at least when it comes to urban Street front retail is not optimal.

Matt Kornack: Right. Well, needless to say, looking forward to seeing it be built. Thanks, guys.

Well needless to say looking forward to seeing it to be.

The bill.

Thanks. Thank you. So are we I think we're going into the ground and and Hugest has one more thing to worry about.

Michael Emory: Oh, thank you. Are we. I think we're going into the ground and Hugh just has one more thing to worry about.

[laughter].

Hugh: It's small, though. It's okay.

[Company Representative] (Allied Properties Real Estate Investment Trust): It's small, though. It's okay.

Small, though [laughter].

Michael Emory: Small and simple.

Small and simple.

Hugh: Yeah.

[Company Representative] (Allied Properties Real Estate Investment Trust): Yeah.

Well move next to Brad stir just from ice securities.

Operator: We'll move next to Brad Sturges from iA Securities.

Hi, there.

Brad Sturges: Hi there.

Michael Emory: Good morning.

Good morning.

Brad Sturges: Good morning. Just with the commentary around the unsecured debt market that you plan to utilize, obviously, with the credit rating upgrade, the plan is to repay mortgage debt that's outstanding. I guess, what would be the timeline to, or thought process to, have that all fully repaid? Any commentary or thoughts on what the prepayment cost could be associated with that?

Good morning.

Just with the the commentary around the unsecured debt market do you plan to utilize obviously it.

The credit rating upgrade.

The plan is to to repay mortgage debt.

Standing I guess.

What would be the timeline to or thought process to to have that all fully repaid and then.

Any commentary or thoughts on what the prepayment cost could be associated with that.

Yeah I'll answer the question almost in reverse.

Michael Emory: Yeah. I'll answer the question almost in reverse. The bulk of the existing mortgages that have modest prepayment costs associated with them have been prepaid. The balance at the moment, and this, of course, can change with time and interest rate fluctuations, but the balance at the moment would be inappropriately expensive to prepay. In the near term, we think we've exhausted all the opportunities to prepay first mortgages in a manner that leaves very little gap between prepayment cost and the present value of interest savings. I think that will change as we go forward. I think the bulk of unsecured debenture offering that we do, let's say, in the next 12 to 18 months, will be to repay existing unsecured debt, where the prepayment penalties, if any, are much, much more appropriate in relation to interest cost savings.

The bulk of the existing mortgages.

That have modest prepayment cost associated with them have been prepaid.

The balance at the moment and this of course can change with time and interest rate fluctuations, but the balance at the moment.

Would be in appropriately expensive to prepay.

So in the near term, we think we've exhausted all the opportunities to prepay first mortgages in a manner that leaves very little gap between prepayment cost and the present value of interest savings.

I think that will change as we go forward I think the bulk of unsecured debenture offering that we do let's say in the next 12 to 18 months will be to repay existing unsecured debt.

Where the prepayment penalties if any are.

Our much much more appropriate in relation to interest cost savings. So I don't see a great deal more mortgage financing prepayment in the next 12 to 18 months, although rates could change in a way to to make that more opportune for us as we put it in the in the letter, but I don't think.

Michael Emory: I don't see a great deal more mortgage financing prepayment in the next 12 to 18 months, although rates could change in a way to make that more opportune for us as we put it in the letter. I don't think it's going to be opportune in the next 12 to 18 months.

It's going to be opportune in the next 12 to 18 months.

Okay.

Brad Sturges: Okay. The 160-

Michael Emory: But every-

Everything.

Sorry.

Brad Sturges: The CAD 166 million that was. Sorry.

It was.

Sorry.

Michael Emory: Sorry. I apologize. Every mortgage that has been prepaid, CAD 166 million, the relationship between the prepayment penalty and the present value of the interest savings has been very, very favorable. Or put differently, the negative differential has been very, very small. There are a number of mortgages that come due over the next 12 to 18 months. Obviously, we'll repay those with proceeds from unsecured debenture financing in all likelihood. If you look at our debt maturity schedule, there's not too much of that left in 2020. There's a bit more in 2021 and then a fairly substantial amount in 2022, I believe.

Sorry, I apologize every mortgage that has been paid prepaid the 166 million the relationship between the prepayment penalty and the present value of the interest savings has been very very favorable.

Or put to the the negative differential has been very very small.

But.

There are a number of mortgages that come due over the next 12 to 18 months, obviously will repay those.

With proceeds from unsecured debenture financing or likelihood, but if you look at our debt maturity schedule that there's not too much of that left.

In 2020, Theres a bit more in 2021, and then a fairly substantial amount in 2022 I believe.

Brad Sturges: Okay. Just last question, just maybe going back to the infill acquisition opportunity or what you're seeing, just maybe give a little bit of a broader sense or general sense of what the quantum of that pipeline or the opportunities you're looking at right now within Toronto, Calgary, and Vancouver.

Okay.

And then just last question, just maybe going back to the infill acquisition opportunity or what you're seeing just.

Maybe give a little a broader sensor general sense of what's what the quantum of that pipeline or is the opportunities you're looking at right now within trundle colored in Vancouver.

Michael Emory: Fair question. If I'm looking to the remainder of 2019, the order of magnitude is CAD 50 to 80 million.

Fair question, if I, if I'm looking to the remainder of 2019. The order of magnitude is 50 to 80 million.

Yeah.

Brad Sturges: Yep. Great. Thank you.

Great. Thank you.

Michael Emory: You're welcome.

Well hear welcome from Howard long from Baird toss investment research.

Operator: We'll hear next from Howard Leung from Veritas Investment Research.

Hi, good morning, and I, just want that turned to the.

Howard Leung: Good morning.

Michael Emory: Good morning.

Howard Leung: I just wanted to turn to the potential incremental density. You've added some kind of over 300,000 sq ft, and most of that, I think, has to do with the acquisitions in Montreal, but there's also a little bit in Western Canada, I think, that was added. Are you continuously still identifying incremental density opportunities even with your existing portfolio?

Potential incremental density.

You've added.

Some kind of over 300000 square foot square feet and most of that I think has to do with the acquisitions in Montreal, but there's also a little bit in Western Canada. I think that was added do you are you continuously still identifying.

Incremental density opportunities, even with your existing portfolio.

Michael Emory: Yes. Although the little bit of incremental excess density, I believe, would be associated with recent acquisitions we've made in the city of Vancouver. To answer your question, it is an ongoing activity of the asset management and development team here at Allied.

Yes.

Yes, although the the little bit of incremental.

Excess density I believe would be associated with recent acquisitions, we've made in the city of Vancouver.

But but but to answer your question. It is an ongoing.

Activity of the asset management and development team here at Allied.

Right.

Howard Leung: Right. Just related to that, I think there was 2.7 million sq ft that was in the fair value in Q2, and now it's 3 million that's reflected out of the 8.7. What's the process for that to kind of determine when that gets recognized in the appraised fair values?

And just related to that I think.

There were 2.7 million square feet that was in the fair value in Q2 and now it's a 3 million that's reflected out of the 8.7 <unk>, what's the what's the process for that to kind of determine when that gets recognized in the second the appraised fair values.

That is of Congress station between Cushman, who does our quarterly appraisals of our entire portfolio and our asset management team and it's very much an asset by asset.

Cecilia Williams: That is a conversation between Cushman & Wakefield, who does our quarterly appraisals of our entire portfolio and our asset management team. It's very much an asset-by-asset assessment. They would reassess every single site that we own and determine each quarter whether there's a new land value that needs to be added to the IFRS value in terms of determining how that should be reflected on our balance sheet. It would be a recognition of incremental land value that under IFRS, Cushman & Wakefield and management would feel is appropriate to recognize on the balance sheet.

Assessment.

And so they would reassess every single site that we own and determine each quarter, whether there's a new land value that needs to be added to the IRS value in terms of determining.

How that should be reflected our balance sheet. So it would be and recognition of incremental land value that under IRS.

Cushman and management would feel as appropriate to recognize on the balance sheet.

Michael Emory: Am I right in thinking that?

Am I right and so something that.

Howard Leung: So something-

Yes.

Michael Emory: Go ahead, sorry.

Go ahead Sir.

Howard Leung: Sorry. Sorry, go ahead. Yeah.

No I am I right in thinking that one of the factors we have to consider is whether it's actually developable today, if theres an impediment like rising lease.

Michael Emory: No. Am I right in thinking that one of the factors we have to consider is whether it's actually developable today?

Cecilia Williams: Correct.

Michael Emory: If there's an impediment.

Cecilia Williams: Correct.

Michael Emory: like an existing lease, or a structural weakness in terms of additional, we can't recognize it until we've addressed that impediment.

Or a structural weakness.

In terms of additional we can't recognize it until we've addressed that impact yes are we take like what we refer to as a hybrid approach and 388 Canwest would be.

Cecilia Williams: Yeah. We take what we refer to as a hybrid approach. 388 King West would be, you know, a perfect example of that. We have a tenant in place, and so we can't necessarily get to any development activity right away, but it's something that would be in Cushman & Wakefield's model maybe 15 years down the road. It would be part of the terminal value that then gets discounted. It's a very site-by-site specific assessment that gets done.

A perfect example of that we have a tenant in place and so we can't necessarily.

Got to any development activity right away, but it's something that would be in question is model, maybe 15 years down the road and so it would be part of the terminal value that then gets discounted so.

It's a very safe by site specific assessment that gets done.

Right that makes sense and they get something like with Union Center, because if it's further along in the intensification process would that be.

Howard Leung: Right. That makes sense. I guess something like with Union Centre, because it's further along in the intensification process, would that be one of the buildings that is recognized or is it might not be because there's sort of, there's still tenants?

Would that be.

That is recognized or is it might not be because there's still tenants.

Michael Emory: It is partially recognized because there's absolutely no impediment to our constructing that project other than our own prudence and discretion, if you will. We are free and entitled legally to construct that project today and therefore can and have recognized some of the value inherent in the land. If, on the other hand, there was a material impediment to our ability to do that, like an existing tenant, whose lease we had to work through or live through in order to get to the point where we could build, then that would clearly, if you will, impede our ability to recognize that value in the IFRS statement. In the case of Union Centre, a significant portion of that land value is recognized in our IFRS valuation.

It is partially recognized because there's absolutely no impediments to our constructing that project other than our own prudence and discretion. If you will.

We are free.

And in title legally to construct that project today, and therefore can and have recognized some of the value.

Inherent in the land if on the other hand, there was a material impediment to our ability to do that like an existing tenant.

Whose lease we had to work through or live through in order to get to the point, where we could.

Build then that would clearly if you will impede our ability to recognize that value in the IRS statement.

But but in the case of Union centre, a significant portion.

That land value is recognized in our I FRS valuation.

Right right that makes sense.

Howard Leung: Right. No, that makes sense. I just wanted to turn to the Telus Sky. I think there was an increase in pre-leasing, which is great. Then there's also, I think it's a slight increase in cost as well, the anticipated total cost. There's still, I think, about just under CAD 50 million left of estimated costs. Do you expect the cost estimates to continue to go up for that project? Or is that kind of the final, you know, around CAD 145 million is probably the right number?

And then I just wanted to turn Kb to tell US Guy I think the there was an increase in pre leasing which is which is great and then theres also a I think it's a slight increase in cost as well.

Total cost.

Theres still I think about just under 15 million domestic left of estimated costs.

Do you expect that to the cost adjustments to continue to go up for that project or is that kind of a final you don't allow 145 million is probably the right number.

Hugh: We don't expect that number to go up. What we've done is taken a kind of a fulsome look at the project. There have been delays in delivering space, which has resulted in cost escalations. We've now taken a more fulsome look at it and believe that this is where it's going to land.

That we don't expect that number to go up what we've done is taking the kind of wholesome look of the project there have been delays in delivering space, which has resulted in cost escalations.

[Company Representative] (Allied Properties Real Estate Investment Trust): We don't expect that number to go up. What we've done is taken a kind of a fulsome look at the project. There have been delays in delivering space, which has resulted in cost escalations. We've now taken a more fulsome look at it and believe that this is where it's going to land.

So we've now taken a more fulsome look at it and believe that where this is where it's going to land.

Sounds good thanks, guys I'll turn it back.

Howard Leung: Great. Sounds good. Thanks, guys. I'll turn it back.

Michael Emory: Thank you.

Thank you.

Yes.

And at this time there are no additional callers on the Q.

Operator: And at this time, there are no additional callers in the queue.

Okay, well. Thank you everyone for participating in the call. We look forward to keeping you apprised of our progress on an ongoing basis until then have a great day. Thank you.

Michael Emory: Okay. Well, thank you everyone for participating in the call. We look forward to keeping you apprised of our progress on an ongoing basis. Until then, have a great day. Thank you.

That does conclude today's teleconference. We thank you all see your participation.

Operator: That does conclude today's teleconference. We thank you all for your participation.

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