Q2 2021 Allied Properties Real Estate Investment Trust Earnings Call

Thank you and good morning, everyone and welcome to our conference call, Tom Cecilia and who are here with me to discuss Allied results for the second quarter ended June 32021.

We may and the course of this conference call make forward bookings.

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.

And <unk>, most recently filed Aif and in our most recent quarterly report.

Material assumptions that underpin any forward looking statements. We make include those assumptions described under forward looking disclaimer and our most recent quarterly report.

Yes.

In my view.

<unk> across the country has done a great job with the vaccination program.

Our national success is restoring confidence necessary for people to return safely to a vibrant form of urban life.

Sure.

We see and feel the restoration of confidence and our business.

Operating and leasing momentum continued to accelerate and the second quarter.

<unk> and <unk> per unit rose to record levels of 62.

And 53.

Respectively, consistent with our expectations.

Average in place net rent per occupied square foot rose again in the second quarter coming in at $24.30.

Compared to $2004.13, and the first quarter.

3 and $23.29 in.

In the comparable quarter last year.

Despite the pandemic our space has become more productive economically over the past 6 quarters.

Cecilia will summarize our financial results.

And <unk> and speak about the ongoing augmentation of our financial and ESG reporting.

Tom will follow with an overview of leasing and operations.

Who will provide the development update and I'll finish with our current thinking on the future. So.

Our over to Cecilia.

Good morning, I'll speak on 3 things 1 are evolving disclosure.

To our progress on environmental social and governance practices.

And 3 our technology based initiatives.

First our evolving disclosure and.

Many of you know that we regularly solicit feedback so that we can provide the best information possible to our stakeholders.

And our Q1 report this year with the support of and Anthony <unk>, Our VP finance and accounting and her team and will.

And finally, our disclosure to make them most important information the most.

Most prominent and our quarterly report.

And our Q2 report you may have noticed that we added to the disclosure and our leasing section on pages 40, 41 and 61.

We've also been asked by investors to expand on leasing costs related to leasing activity in the period.

Which we understand the value of and we'll begin disclosing and our Q3 report.

We're doing this with the goal of evolving into a leader of public disclosure.

Our goal and reaches beyond the quarterly report and includes disclosure and our management information circular this is where and me at Tullow.

<unk> SVP legal counsel and corporate Secretary made a valuable contribution and her first few months with US earlier this year and we'll continue to do so in 2020.2 and onwards.

Second as our disclosure evolves, so do our ESG practices and related reporting Joe.

So black our VP corporate strategy and sustainability along with her team has been leading the way for us in that regard.

To provide some history and 2018, we committed to submit ourselves to external scrutiny by responding to the grasp the assessment.

Benchmarking tool to assess.

That's the ESG performance of real estate companies and.

And we did just that scoring 64 on our 2019 metrics. While this was considered quote a strong first year, showing and quote and a critical first step in establishing our baseline, it's certainly not where we want to be.

Joe from tend to release this year's ESG report, describing our 2020 metrics in October 2 months earlier than last year in order to include the results of our 2021 grabbed submission, which we consider and important part of reporting on our progress.

We're also in the midst of developing.

We and goals and targets for our most material ESG topics.

This year's report will outline specific water energy emissions and waste reduction targets for our business. We will also begin reporting under the global reporting initiative or G. R I and sustainable accounting.

<unk> Board SaaS fee frameworks, which we consider an important step and our ESG evolution.

Looking forward to reporting next year, we plan to align our disclosure timing with our peers in June 2022.

We're also preparing to expand our disclosure to include <unk>.

<unk> from the task force on climate related financial disclosure or Tcf D.

Our board management and the entire Allied team is actively engaged and fully committed to making progress on our ESG practices.

Our evolving ESG journey also includes and external.

And stance estimate of our status as an employer for the second year in a row, we engaged concentric at the advice of David Doll. Our VP talent. This has served us well as we've learned about the areas, where we have the opportunity to improve as an employer.

The employee survey was completed in.

April of this year as a result of it we've scored in the top quartile for employee engagement.

Sending us and the category of top Canadian employer for the second year in a row.

Third our technology based initiatives underway.

And Travis Boakye, our V P technology and his.

Team, we didn't Miss a beat and the last 18 months on our technology based initiatives.

And they all not only stayed on track, but with the strong interregional and inter departmental coordination and accountability, especially between the technology property accounting and property management teams.

<unk> also saw a strengthening of the team across the country. Our teams at all levels and in all regions have been tested and have successfully come through stronger by working together through unusual circumstances.

I'll now pass the call over to Tom.

Thank you Cecilia.

We were continuing our proactive approach to leasing by staying in constant touch with the active commercial brokers and each of our markets.

Results have been positive with tour activity up in Q2 getting closer to pre pandemic action and deal numbers are up as well.

We completed.

9 transactions in the quarter totaling 533000 square feet.

And of the 99 transactions 34, with new tenants to the portfolio and.

And equally encouraging there were 16 expansions completed.

When comparing average rents on maturing leases to average rents negotiated.

19, we achieved a 23, 8% increase and rents on space renewed or replaced and the portfolio.

It's worth mentioning and is fully expected the amount of space available for sublease and our portfolio declined considerably over the quarter.

We expect this trend will continue.

I.

And I'll provide an update on leasing activity and Montreal, Toronto, Calgary, and Vancouver, and conclude with an update on our urban data center portfolio.

And Montreal, our leasing team was especially busy completing 50% of all the transactions in the portfolio during the quarter.

There were many.

And I will now mall deals with new companies at our RCA and El Pro buildings and save Henry.

This is an encouraging sign for the future as we will be well positioned to handle expansion as many of these small companies will inevitably growth.

The most notable transaction and the quarter was a renewal of beyond technologies for 30.

And square feet at Citi multimedia.

We are now and the process of finalizing an extension and expansion of our film industry tenant.

Going from 100000 square feet to 120000 square feet.

In addition, we have approximately 300000 square feet and active negotiations and Montreal.

We were delighted to announce recently the acquisition of Plas scar Vijay.

This project is exactly the type of differentiated space, we seek and will give us yet another opportunity to better serve our tenant base and the city.

And Toronto, we completed renewals with Synaptics for 35000 square.

He'd Verizon for 23000 square feet and service, Canada from 11000 square feet. We also completed a deal for a full floor, a 12000 square feet near the top of the tower at the well, bringing the pre leasing of the office tower to 86%.

There is approximately 450000 square feet of active negotiations.

Square feet, and our portfolio and Toronto.

And in Calgary in the context of the overall market, we are doing well as we gained leased area for the second quarter and a row. We currently stand at 86% leased.

Tour activity is particularly strong for small sized users and subsequent to the quarter we.

And we reached agreement on deals totaling 11000 square feet at Telus Sky.

There are approximately 200000 square feet of space and active negotiations and the Calgary portfolio.

In Vancouver, we continued to day leased 2 buildings as we reposition them for the long term.

We have about.

<unk> thousand square feet under discussion and this market.

Finally, with respect to our urban data centers as mentioned on the last call. We completed 22005 hundred square feet of new leasing at $2.50 front early in Q2.

And just subsequent to the quarter came to terms with an existing tenant at $1.51 front to lease the last.

50, meaning unit and the building of 7000 square feet.

This brings $1, 51% to 100% leased and our urban data.

Portfolio to 95% leased.

I should note that we're completing upgrades at $1.51 that include adding 3 megawatts of commercial power together.

And with related fully redundant backup systems. This upgrade allows us to accommodate recent and future demand and to ultimately generate more revenue per square foot at the property.

I will now turn the call over to Hugh.

Thanks, Tom I.

I would characterize this quarter as a return to normalcy for the majority of our development.

And in activity.

As a result, we have been able to make progress on all of our major construction projects.

I'll begin by giving you an overview of our major projects and then we'll follow that with an update on planning activity for our development pipeline.

Instruction activity <unk>.

Beginning in Montreal.

And the team continues to make progress on 400 Atlantic.

And 1 Boulevard, Robert Bourassa, formerly known as 700 to LG and has begun work on the upgrade of the RCA building.

And central Canada, we have been able to make solid progress and all of our major construction projects.

Beginning with the well we have topped off the office tower and closed on 2 more air rights sales and begun the final work on the office floors that will be occupied by our workspace users at the end of Q3 and into Q4.

King Toronto continues to be on track to reach grade by the end of the year.

And <unk> and the team has begun focusing on planning and work to build and flexibility for the future retail tenants.

In Western Canada, we have turned our attention towards leasing up our Lockheed building.

Our progress of work at Boardwalk, Revlon and Edmonton has resulted in the first deal and.

The team continues.

<unk> to make progress on this project and look to see where we can make further advances on the leasing front.

Our partner's West Bank have completed the majority of that based on the work at 400, West, Georgia, which has enabled the first tenants to start to fixed rate.

Planning activity and.

Toronto, we are able.

To make the to rezoning submissions for the expansion of the castle and the Bachelor Street Assembly. We have also been able to come to terms with the city for the expansion plans of 'twenty York.

Formal approval by the hour patch should occur in Q4 of this year.

The team has ramped up our planning activity for the northwest quarter of.

But diner with an anticipated submission for rezoning and at the end of this year or beginning of 2020.2.

And Montreal the team continues to push for the approval of the first expansion and Linda and her lack which is expected to be received in Q4 of this year.

With the new acquisition of <unk>.

King and as a team will now start to plan the east block expansion, we hope to have a well conceived plan by the end of the year.

This has been a solid quarter for our development activity. We have worked with our partners and suppliers to ensure that construction activity continues unabated and that we are sufficiently quantified the cost associated.

<unk> <unk> with any delays to our projects.

The team is excited to make progress on our future intensification projects across the country.

I will now turn the call back to Michael.

Thank you view as I mentioned in my letter to unitholders, we continue to make strategic infill acquisitions.

Positions principally in downtown Toronto.

These afford respectable yields and augment existing concentrations with future intensification potential.

We allocated $100 million to acquisitions like these and 2020 and another $94 million thus far.

Far and 2021.

We expect to continue allocating capital and this way over the remainder of the year.

As Tom and Hugh mentioned, we recently announced a large acquisition and Montreal, the urban office component of Plas Garo Vijay.

It will significantly enhance our ability to provide distinctive urban workspace to knowledge based organizations.

The acquisition will also help us begin to expand the range of knowledge based organizations. We serve to include the burgeoning biotech and life Sciences.

Sector.

And as Cecilia and Hugh have discussed we continue to allocate large amounts of capital to development activity with our completion and return estimates remaining fully intact.

We estimate that our current developments will increase our annual EBITDA by approximately <unk> <unk>.

$79 million and have a weighted average lease term of 13 years.

1 final comment Youll note that the cover and first 2 pages of our quarterly report illustrate how we plan to transform the ground floor of 700.

So both share and Montreal, which will be known going forward as 1001 Boulevard and <unk>.

For those interested in further detail we've posted division document on the homepage of our website.

The document illustrates much more fully.

<unk>.

The user and community experience, we plan to create at the properties.

We expect to have the transformation of the ground floor completed by mid 2022.

And we've just about completed the base building transformation of a sample floor.

And.

Fully opinion is turning out extraordinarily well.

We'll be using the floor to illustrate how the work environment can be transformed throughout the building over time.

And I hope this has been a useful and comprehensive update for you and we'd now be pleased.

To answer any questions you may have.

Ladies and gentlemen to ask a question you can simply by pressing star 1 on your telephone keypad day do.

Keep in mind, if you're using a speaker phone and make sure. The mute function is released so that signal can reach our equipment. Once again star 1 for any questions. We will hear first from Fred.

And <unk> with <unk> capital markets.

Thank you and good morning all.

I'll be quick just 1 quick question for Tom in terms of the sublease space within your portfolio and also I guess overall and <unk>.

So are these absolute levels in line with our scenario at this stage and.

What should we be expecting for the remainder of the year. Thank you.

We saw a significant decrease and sublease space as did the rest of the market.

And Thats question and we do expect the companies will take their space off the market as they returned to work.

They are realizing they need the space.

Yes, that's why I mentioned and absolute levels.

627000 square feet.

More or less in line with your scenario, where you would have expected I guess, a lower and lower number at this stage.

Oh, it's more or less in line with as we as we thought.

Perfect. Thank you that's it from me.

And now we'll take a question from Caitlin Burrows with Goldman Sachs.

Oh, Hi, good morning, I was just wondering if you could give some details on the current conversations you're having with your tenants in terms of the return to office progress and plans and then what you think.

Thank god, they're telling you that means or does it mean for their ultimate space.

Space needs.

We're speaking to all of our tenants.

And quite frequently and.

There is.

Wide range of opinions about how quickly they will resume occupying.

And their space.

Some are asking their staff to come back.

Right away and some in September and October some will be phasing in.

And it relates to.

And the comfort level of public transit and the level of vaccinations.

Interest.

Interestingly.

I said and my speaking notes there were 16 expansions in the quarter. So many tenants are actually taking more space.

And to allow their.

Employees, a little more elbow room.

We think that trend will continue.

Got it okay.

And then maybe.

I know I'm not going to say the name right. So Michael though the the larger acquisition that you referenced at the end of your prepared remarks, there and.

Montreal could you just give a little bit more detail on.

And why that property was attractive to you the long term plans for it and kind of timing of anything.

In particular, that's going on there.

Sure and if it's any consolation Caitlin I mispronounce it almost.

And consistently myself, it's actually Plas Garvey, J and I'm inclined to call it plus <unk>, which of course reveals that.

And angle.

Phone and and not very competent.

And that but in any event. It is in my opinion, a spectacular mixed use urban project.

And that was commenced about a decade ago.

And is grounded.

In the restoration of 1 of the finest heritage structures and this country.

And that of course is Garvey Shay itself or and early railway station in the city of Montreal that was designed in the way the conventional British railway stations, where.

And at the time with the railcars actually coming right into the building where the hotel accommodation.

Existed so that that restoration started about a decade ago.

And the space became the home.

And several.

Were extremely successful indigenous tech firms in the city of Montreal.

The owner just then expanded the vision to include <unk>.

Residential and hotel space at what I think of as the rear of the property and then.

Will do urban work space, just behind the heritage structure with all of the structures forming in a way a surround with an interior courtyard, which is beautifully designed and which will be utilized.

And then we will buy both the users of the buildings that different users and the public.

It's also in an area of Montreal that is transforming spectacularly as we speak.

I'm merely because of the Finalization of our Mega Hospital complex.

<unk> called the Sean.

And it employs and 17000 people.

And is instrumental in terms of medical education Medical research and of course health care I think there are 1000 beds.

That.

Next killer facility and its 1 of 2 Mega hospitals in the city interestingly the other Mega hospital or New Mega Hospital is immediately north of our St. Henry node. So we expect both hospitals to drive.

Transformation.

In the areas surrounding Platt scar Vijay, which we just bought as well as the area surrounding our pro and the RCA building, which Tom mentioned a moment ago.

So for US it was a very logical acquisition.

And extremely well executed.

<unk> mixed use urban development and the city of Montreal, which we know is continuing to experience accelerating demand for workspace on the part of a broadening range of knowledge based organizations and of course.

Perhaps the newest element of that range is the biotech and life sciences sector, which and Canada is very much behind.

Where it is and the United States and I think Theres, a very strong belief.

That the biotech and life Sciences sector.

And then we will strive to catch up.

And that both the governments.

And the venture capitalists are now prepared to support that evolution.

And Canada's major cities and we expect it to be very pronounced and the city of Montreal.

And as well as the city of Toronto, and Vancouver going forward.

But the rationale for plastic air Vijay is it is ideally suited.

And for what I think will be and emerging biotech and life sciences ecosystem and downtown Montreal, and so we love the asset.

And can't exactly the kind of facility, we want to make available to those we serve and as you know we serve knowledge based organizations that is our mission.

Every acquisition we make.

Is designed to enable us to better serve knowledge based organizations and major Canadian.

It is cities every development, we undertake and complete is designed to do the same thing we don't buy for buying sake, we don't development for development sake, we do both if and only if it will make us a better.

Space partner.

Canadian for knowledge based organizations.

In this country and frankly around the world.

That's probably more.

More than you asked for but there is.

And I was actually going to ask a quick follow up.

And as you think about that property and Montreal, then is it 1 where you're just going to use your expertise to.

And you said up to the right sorts of users.

Opposed to needing some large amount of redevelopment and capital from Allied.

In the near term, we will be striving to do 2 things 1 to realize the full potential.

Of Gar Vijay itself, it's largely.

And we complete but there is a tremendous amount of space below grade that we believe can be transformed and monetized or if you will.

And productive economically going forward, so we want to bring it to its fullest potential and we think we're well.

Italy to do that we also want to complete the lease up of the new building that is under construction and.

And is 24% pre leased to Novartis.

We are well equipped to complete that lease up our Montreal leasing team is extraordinarily deep and extraordinarily.

Narrowly busy and our relationships with the brokerage community and Montreal are extraordinarily deep.

And we feel we can complete the lease up of that building, perhaps by year end, but certainly by completion.

The building and mid <unk>.

22, <unk>, just rolled a little bit when I set by year end, but that might be a little ambitious, but but that's what we're going to strive for but we're certainly going to strive to have.

The leasing completed by mid 2022 when.

And when the building itself is ready for.

Users to take occupancy and to build out their space.

Thank you.

And ladies and gentlemen, if you find your question has been answered you can remove yourself from the queue by pressing star too we will now move to our next question and the queue Mark Rothschild with Canaccord. Please go ahead.

Thanks, and good morning, everyone.

And Mark maybe just maybe.

And maybe just following up on something that you kind of sort of you spoke kind of different ways, you have long been favorable on Montreal, and yes, and sizable acquisitions there right now and you spoke at a number of different reasons why you like those.

The acquisitions, whether it's specific submarket of the type of properties.

To what extent is this driven by a real interest and being more active and life sciences or is this just that.

This is where the deal flow was now and it's an area that you'd like.

We have been aware of this development Mark for about 3 years.

We looked at it 3 years ago.

As a potential development parkman and while we liked the asset very much then we were very busy with northern leg and we were very busy completing that the gas Bay properties. So we felt taking on yet another significant development.

<unk> channel.

And <unk>.

Might've overburden the team and might have represented.

And excess allocation to to developments and the city of Montreal at that point in time.

The owners have completed the development for the most part very successfully in the intervening.

And so we would have bought this whether or not it.

<unk> facilitated accommodating biotech.

And life Sciences uses.

It is exactly the kind of asset we want to own and operate and major Canadian cities across.

3 years, and the fact that it actually may enable us to begin to serve biotech and life science users systematically and well was an added benefit but we would have bought that in a heartbeat.

At its current stage of completion.

The company, even if it didn't afford that to us because at the moment, it's accommodating some of the finest technology users and the city of Montreal and its ability to do that going forward. In my opinion is extremely strong and we may or may not have mentioned this in the material that.

<unk> issued publicly but theres massive residential development occurring just to the east of class scar Vijay.

And so what we're seeing.

Unfold actually is the formation of a new mixed use urban environment.

<unk> and downtown Montreal that in many ways.

<unk>, what we've seen at King and spit diner, or and the St Lawrence market area, or and mile and and Montreal or and gas town in Vancouver.

No.

And it's an area of intense.

And we positive urban transformation and its exactly the kind of thing Allied wants to be part of.

Okay, great. Thanks.

Since the beginning of Covid, you were very strong and your belief that people would return to the office and in a material way.

More recently, you've been quoted publicly as being very.

Force forlorn, this and pushing others to be more active in this regard.

Your comment on if these quotes that we've seen from you have been you do you feel that you've been accurately portrayed as being so strong with your comments and maybe share with us.

And the feedback you've received on those comments.

Yes, the journalist who wrote.

The article for the Globe did so responsibly accurately and with my express permission.

So I was accurately quoted I think the headline.

Was manipulated a little bit by the editors at.

The globe.

And made a bit more sensational and then my commentary was or at least then my commentary was intended to be.

But I know only too well that it's very easy for the press to distort commentary, but to be clear the article was fair.

And reasonable and.

Entirely consistent and its content with what I said.

I believe what I said.

And I continue to stand by it.

It was a view shared by a very wide spread.

In the business community in Canada, and particularly in Toronto.

And I do think business has a responsibility to lead I think Canadian business. The banks in particular did an excellent job at the beginning.

Of the pandemic leading.

Large numbers of employees, where they needed to be led which was to working from home that was the right thing to do the banks were strong.

<unk> articulate and what had to be done.

And I think the Canadian business community was strong clear and articulate in terms of what had to be done and did the right thing.

With our essential workers remaining.

In the workplace as needed to protect either assets or people.

And as the case may be.

I think it's incumbent upon business to lead back.

And to work to lead back into the urban environment. There are many many small businesses employed and many many men.

And women.

Who are unable to open.

And unable to offer employment to those men and women if we don't come back so.

So I believe it's incumbent upon all of us.

Including the chartered banks, who are leaders in our economy and in our community.

<unk> and in our country.

GAAP to return.

Does that mean, everybody has to return of course not.

There are people, who desperately want to return to work and with the vaccine program, having been so successful in this country. After a somewhat shaky start to be sure.

It's time to come back.

And it is incumbent upon business to lead in my opinion. So that's why I said, what I said I stand by it I was probably a little more provocative and confrontational than I normally am.

But I'll answer for that and I stand by what I said.

I appreciate the extra commentary thanks, so much.

Okay.

Yeah.

Now, we will hear from Jonathan <unk> with TD Securities.

Thanks, Good morning.

First question, just going back to plus Garvey Shay.

And on the second building are you you guys are you guys, 100% responsible for the lease up of that.

We are responsible for leasing.

And the vendor will be paying the costs associated with the leasing, but we are responsible for exits.

During the leasing and we are at risk if the leasing isn't executed.

Okay. So it's a set price basically no matter what day.

That is correct with the vendor funding leasing costs. According to a formula that worked fully.

And agreement.

Agreement on.

But we have the responsibility to find and.

And negotiate with the users of the building above and beyond the 24% lease to Novartis.

Okay, and how does the rents and.

Building.

And compare to say downtown Montreal or some of your other submarkets.

The rents are entirely consistent.

In the new complex.

And with what we can obtain.

And our best quality.

Differentiated urban workspace and Montreal.

Okay.

Does that imply that there's room for the.

The other building is under rented and any form.

I believe <unk> is a bit below.

Kit, but not materially, especially given the quality of the principal user and giving the given the term of commitment made by that user.

<unk>.

And without wanting to ruin Tom's day, a second time.

So maher healing as we might be able to do a little better on lease up of the new building than initially achieved.

With the lead tenant and frankly, that's not unusual.

Lead tenant usually gets the best.

<unk> deal if we look at the World for example, a much larger scale leasing.

Effort that Tom and Tim LOE and others on our leasing team oversaw.

The initial transaction with shopify was by and away the most favorable.

Economic.

Mightily for the user.

And each subsequent transaction was better in terms of net effective rental rates payable to the owners of satellite and real Ken. So I would expect the same to occur here.

But as I say the pricing was based on achieving the same level of leasing.

As the pre lease not a higher level. So there is a bit of and opportunity and I don't want to overstated and I certainly can't surface categorically at this point in time, but there is a bit of and opportunity for us to do a bit better.

Okay that sounds good just switching gears to leasing and.

And the new disclosure.

Termed and maturity.

For the quarter was sub 4 years.

And.

And I guess, that's obviously below your <unk> and <unk>.

Place average of 5.6.

Was that was there anything special in this quarter that would have had it lower.

Tenants being more conservative or anything like that.

Jonathan There is nothing I'm aware of it was a relatively modest quarter in terms of lease Expiries was at 250000 square feet and facility or $4.50. It was roughly about 350 that we released from.

From maturing, okay, So 350000 matured and the quarter, which is not a lot.

For us I mean, we usually have more maturing in any given quarter. There was nothing that stood out and Jonathan Although you are quite right that the term to maturity of the renewed leases.

And is somewhat shorter than the weighted average term to maturity of our portfolio overall.

But there was nothing that stood out as sort of a truncated renewal that I can recall.

A lot of the deals that were done and RCA.

Short term deals strategically so we're trying to.

Position the building to be most attractive to other users and somewhat larger users. So many of the deals were.

And <unk>.

3 year deals so that's probably skewed the number a little bit yes, because we're trying to we really want to.

Ultimately re lease.

RCA and a and a much more and.

Static way then we have to date so.

These tenants are effectively on a holding pattern for us and might be repositioned over to El pro or elsewhere, yes, okay that makes a lot of sense. So there is an answer Jonathan and I just didn't have it.

Perfect and then lastly, just.

Yeah, Tom I guess I'm very positive about what you're seeing and in terms of demand.

Where do you guys think you can end the year on an occupancy.

That's a great question and the demand actually is amazing.

On.

For US right now, it's so hard to predict we are optimistic we think our oxfam occupancy levels will go up and.

And most markets.

Hard to predict.

Okay, but higher than Q2's, and hopefully the bottom and then.

First to grow from there.

We hope so.

Jonathan I'm going to give you an answer and you know that it's going to be at the optimistic and of the range.

But that means a lot of pressure on Tom coming from this call.

But there is 1 factor that is giving us pause.

And here and that is something we adversity too when we explained our internal forecast for 2021 for the first time when.

When we issued our Q4 results from 2020 and that is some turnover vacancy that we know we're going to sustain.

And at Citi multimedia in Montreal.

Were it not for that I would be constantly telling you that our occupancy would increase meaningfully over the remainder of 2021 and Tom would probably agree with me because of that we.

We are all a little hesitant now having said that let me say this.

Tom and Tim and the team are doing a brilliant job of replacing the tenants that are not were doing not renewing at Citi multimedia.

And I think Theres, a very good chance.

That we will end up with much less turnover vacancy and perhaps no real hit to occupancy or leased area. As a result of these non renewals, but we don't know that yet so to.

To summarize were it not for that our occupancy would absolutely go up across the portfolio.

By the end of 2021 because of that there is some.

Risk that we have to recognize that our occupancy gain will be temporarily.

Reduced or deferred.

As we deal with that turnover agency.

Hi.

<unk>.

And I think we're going to do very very well with that space, we've already done really well with it and the caliber of the tenants is even more encouraging but we're not there yet we don't have all of the space committed and it could put some downward pressure on our occupancy at least where a couple of quarters before.

Before we then and returned to what I think would be a steady trend upward. So were the risk. We have is the upward trend might be deferred.

But it certainly isn't going to turn into.

A downward trend, but the upward trend and occupancy and leased area might be delayed as.

As a result of those non renewals, which we've known about for a long time and at Virtu to when we.

And put our internal forecast together for 2021.

John and I was being quite cautious and answering the question, but I'll also say.

Net.

And quite eager for our Q3.

Conference call, because I think we will be able to.

Suggest some really positive news, we're getting close on some sizable tenants, we're not there yet, but we're getting close.

Okay. That's it from me thanks.

Our next question will come from Howard Leung with Veritas.

And research.

Thanks, Good morning.

Good morning.

So 1 I wanted to wanted to follow up on the same asset.

NOI for the rest of the year I think the forecast we're still kept at low to mid single digits this quarter as well.

The investment is pretty strong I guess is.

Is that because a big portion of the growth. This quarter was from the wind up of the provisions from last year.

And no we the provisions remain in place so we have not reversed them and.

And brought them in.

Income at all.

So I think the $3 million provision and aggregate.

<unk> and place and we expect it to remain in place for a while we don't anticipate bringing it into income until there's more clarity with respect to the reopening.

But at the.

NOI was strong certainly because in the second quarter of 2020.

And we participated in the sector, our program and agreed to abate and 25% of the rent payable by some of our retail users as part of that program I think we'll see the same.

If you will.

Favorable comparable quarter and Q3.

And for that reason, we've also seen rent growth.

Material rent growth really.

Over the comparable quarter. So I think the combined impact of the 2 things has given rise to pretty healthy.

These same asset NOI growth and as I say, we expect that to potentially.

Taper and Q3 and Q4, if we sustain the kind of turnover vacancy. We initially thought we would sustain.

And in Montreal at Citi Multimedia if were able to.

With that.

And to have very quick releasing and very quick re occupancy which is possible then I think there'd be a little less pressure on our same asset NOI.

In Q3 and Q4.

And.

But the number we forecast I guess forecast.

Avoid and what we forecast for 2021 is actually predicated on having a reasonable amount.

Turnover vacancy with respect to Expiries, and Montreal, and Q3 and Q4 of 2021.

Right right that makes sense thats, so thats been.

That's been taken and Thats why its.

And it's built into the forecast.

I guess on that note and the leasing.

To take on tons as well, but.

And the expanded disclosure on the tourism and.

And the lease terms was pretty helpful.

It looks like the.

The tours and maybe it's a seasonal.

Yes, it's gone up and also the conversion rate.

Kind of take transaction done towards its gone up is that kind of what youre expecting are you expecting to even grow your conversion rates.

For the rest of the year.

And we're always pressing too to that 1000.

But I think we will.

And I think that continued increase and tour activity as our teams and every market.

And are encouraging their broker relationships to bring their tenants to allied and.

And these contacts are absolutely happening.

Every day and every market and so we saw.

We'll see and it was about a 25% increase and tour activity from Q.

2 over Q1 and that trend will probably continue.

And I think we will get better and better and converting those tours and the real deal.

Great and would you say that I guess compared to pre COVID-19.

And the tours have they kind of reached what you saw back then or are we still kind of a ways off.

I think we're getting we're getting close to it now.

Because of the extra efforts by the team.

Okay.

Great.

Thanks, so much for answering my questions Thats It from me.

Thank you.

Now moving onto <unk> with Royal Bank of Canada capital markets.

Thanks, Doug good morning.

Just in terms of the renewal and he's seen you mentioned the <unk> 16 lease expansions and I'm just curious Stephen.

And then do you have an estimate of how many tenants may reduce their space.

And are there any conversations around a more flexible lease terms.

We're not seeing any tenant and reducing their space.

Nor have we had conversations.

To date.

In that regard that doesn't mean, we won't.

And we don't know what people are thinking fully yet.

But we've had no discussions with any tenant.

And along those lines thus far.

Got it so.

And another sort of encouraging sign I guess, so far this year.

In terms of.

The leasing spreads it was nice to see a strong rebound in Q2, I guess some of that was just less space and Calgary, but.

You look ahead.

Are you seeing any pressure on the ability to sort of continue to hit those spreads on a gulfport.

Basis.

And at least through and through 2021.

I would say, we're going to continue to enjoy really good spreads because the demand is strong.

Number 2 is as we talk this up the activity.

With all of our teams is up.

And it's going.

And it turned out to.

Show that the rents are going to go up is just supply and demand.

And then just coming back to the comments around the occupancy outlook.

I. Appreciate this is still and it's still a lot of moving parts, but but to what extent.

Does perhaps new supply impact your view, I guess, particularly and Toronto over the next call. It 12 to our next 18 months or zone.

We've been monitoring the new supply for years now.

Very carefully.

And with active assistance.

And on the part of the better brokerage firms.

Yes.

And to be very candid I don't anticipate the new supply and Toronto, having any negative impact on allied portfolio whatsoever remember too that allied is a significant.

Part of the new supply.

If there are 8 million square feet.

Coming toward completion and Allied is behind roughly 1.5 million square feet with 100% lease up at 19.

<unk> and.

And 86% lease up at the well of course at our share and that real can share.

And.

What Tom didn't mention.

Which we all know is very much in the works is a final transaction at the well.

Don could for all practical purposes.

Get the office space to full lease up it's not done yet and.

And it's never over till it's over.

It is and at very advanced state of negotiation and Finalization and.

So our belief that new space by.

Either way as a weighted average lease term of around 13 years. So we don't see the new space, having any negative impact on allied portfolio.

And where it might have some negative impact is on the limited amount of supply in urban Toronto that is Virgin.

Net corn obsolescence, but again, we're very lucky and this market. The demand is so great and has historically for the last 5 years at least been so great that there is very little space that hasnt been upgraded to the new standard of.

<unk> operations that tenants quite rightly expect today so.

And this isn't Calgary and I say this not to knock Calgary, but Calgary has a lot of.

Office space Verging on obsolescence and it is going to have to be dealt with as that market recovers.

Building, Toronto has very little and none of it and our portfolio.

Got it and just maybe going back to Tom's comments earlier about.

Potentially some positive news in Q3 was that with respect to Montreal or city multimedia or was that comment more with respect to.

Potential work at the World in terms of leasing.

It was with respect to Montreal and city multimedia.

Okay.

Any thoughts on when maybe this lease at the well could.

Could come to fruition.

It'll happen when it happens.

And.

I would hope.

I can tell you. This the next time, we reported it either will have died.

<unk> been completed.

Okay.

Alright.

Maybe 1 last 1 from me just in terms of the.

First as Sealy and the capitalized interest did increase.

Kris rather sizable in the quarter just.

And as completions do ramp up and particularly the well just curious if you could comment on the outlook for from the capitalized interest.

Yes.

It does go up as we continue investing and our development pipeline. So you can expect it to continue.

And.

Increasing this year and begin to taper next year as we have fixed during and occupancy commencing at the well.

In particular that would be the biggest driver.

And.

Got it thanks very much.

And we'll turn it back.

Thank you.

Now, we will hear from Matt <unk> with National Bank financial.

Hey, guys.

I'll start actually with a follow up question to Tommy's questioning there and really appreciate the timing on when leases actually.

Sure.

Cash paying.

For the world, but will the capitalized interest falloff at the beginning or as those spaces are leased and then also with regards to the straight line rent should we assume that the sort of <unk> increases earlier on and the process and that would be the cash rent commencement.

For those leases that you've identified at the well.

So the capitalized interest as we begin and getting our occupancy permit and the fixture and begins it will be a bit of a phased approach. So it is not going to happen I'll, let Brian and so it will probably happen over a 6 to.

The 12 month period.

You can probably use the new disclosure we have on page 61 in terms of rent commencement as a rough guide.

And sorry, sorry, Matt what was your second question, Yes, just whether it's so those dates that you've provided is that sort of at the beginning of fixed during or is that when cash rents would be paid.

Ryan, Yes, that's a rent commencement that's cash rent and so fixed chain would be anywhere between 6 to 12 months prior to that okay.

Okay. So we would expect the <unk> to trend sort of.

6 months before those figures fair enough exactly yeah, Okay, no thats perfect.

And then on.

Novartis is that.

And all sort of corporate space or their lab component to that.

The office space and then also do you think novartis at the beginning of a trend and I think most of the <unk>.

Biotech companies and Montreal, and look at and the West Island and.

Carbon areas do you foresee a move from the West Island to downtown buy more of these guys.

The answer to the first question is it's all office space. There is no lab component too.

Second question. The answer is yes, I don't want to suggest there's going to be a tidal wave.

And so of movement from the suburbs into the inner city.

There definitely is a trend to the inner city and I think the the gravitational pull is coming from the 2 mega hospitals. So.

So yes.

Certainly.

1 of the reasons behind the decision Novartis made.

And is proximity to what they believe will be a biotech and life science.

Ecosystem.

And that definitely underpins their decision they're actually selling.

<unk>.

And they are building.

Once this move is completed and.

In the suburbs and.

I do believe there will be a trend along those lines, but I certainly wouldn't want to suggest it's it's going to be a tidal wave. It's just I think some of these.

<unk> are going to want to be in.

Closer proximity to kind of diverse biotech and life Sciences ecosystem.

And and I think that's what we'll be pulling them if they do elect to move.

Fair enough.

And it was.

But on King with a week or 2 ago pre the opening of indoor dining and it's hard to get a reservation on a patio, but interested and your thoughts with regards to retail and in terms of.

Tenant health as well as.

Maybe parking revenue throughout the balance of the year and if we can't predict waves.

Because of Covid, but if things continue on this trajectory how should we think about those 2 items.

While our retail users.

And King and Medina, and and the St. Lawrence market area in particular are fortunate because there and mixed use parts of the city.

So even if the office re population.

And is slow in those areas and by the way and is beginning to accelerate.

There is plenty of custom for them from the people, who live and those areas. So our retailers throughout this pandemic.

And have been able to.

If you will get to maximum demand for whatever they are allowed to provide under the rules right away because of the residential populations the same isn't true.

Of the retail user.

<unk> at the base of the towers are in the underground pass system.

Because people, who live and downtown East and downtown and West are not migrating to those areas to give trade to those businesses, but and downtown east itself and downtown and west itself the minute the retailers can.

Open they've got all the demand they can serve and satisfy.

Now that the.

The environment is 1 of almost full opening its going to be very interesting, but our expectation is and our observations are.

They are there.

They're as busy or busy.

<unk> and EVAR.

We expect all of our key independent owner operated retail and service businesses to survive and indeed to prosper going forward.

Makes sense and 1 quick follow up on the King project, you mentioned something with regards to the real.

Total users there is there any anticipation of changing what what's going to be offered there maybe skewing more towards office or are you sticking with the same plan in terms of the base of that building.

And sticking with exactly the same plan.

And there'll be a number of retail uses and restaurants.

And of course and.

And some limited amount of office.

Fair enough thanks, guys.

Thank you.

Yeah.

Now move to a question from R&R Procopio with Prometheus.

Yeah.

Oh Hello.

Thank you for taking my call on my comes from.

And I apologize Steve and.

And these have been the grass commodity.

And a bit later.

And first on from.

Mr. Guinee expensing of G&A. This quarter can you comment on that.

Pardon me comment on the severance.

Yes, we.

We evaluated.

People in our property accounting and operations teams earlier, this year and determined that in part because of process improvements and technology improvements.

<unk>.

We didn't need the same level of coverage as previously.

We also looked at people and the operations team and concluded.

And that.

There may be some misalignment in relation to our core values on the part of.

Certain people and some.

If you will levels of disengagement and decided to.

Address those issues, all and the Toronto team.

And we decided to address them if you will.

At once.

<unk>.

As the pandemic was ending.

Had the pandemic not occurred we probably would've addressed these issues much sooner and.

Probably and.

In early 2020, but in an effort to keep everybody hole during the pandemic.

We addressed them.

Yes.

Earlier this year, so that's what that relates to.

Okay. So that's a 1 off.

And from.

And the second portion of the <unk> like all day.

700 from the back.

And what kind of plans to financing.

Oh, I'm, sorry, you broke up a little bit there what was the question.

On the second question of the <unk> for the 7 habits and Beth.

How are you planning to financing.

Oh, how are we planning to finance the acquisition of the building under construction pre.

At least to Novartis.

Haven't determined that yet it will depend on a number of factors it will depend on our cost of debt at the time and our debt metrics. It will depend on our cost of equity at the time.

But we haven't had to make that decision and won't have.

Have to make that decision.

Until about a year from now and we're fortunate to be in a position of.

I won't call it extreme liquidity, but very considerable liquidity. So so we can afford to wait in terms of deciding how optimally.

To fund that particular acquisition, it's not small certainly, but it's also not massive.

And.

My guess is we'll probably end up funding it on a leverage neutral basis.

And with equity coming either.

From the equity capital markets or from the disposition of noncore assets, which is how we are funding.

The let's call it the equity component of the acquisition of the properties at the end of August hope.

I hope that's helpful.

Okay. Thank you that's a Goldman Sachs.

Thank you.

And it looks like we have 1 final question and our Q, we will take our final question today from Jimmy <unk> with BMO capital markets.

Thanks, and good morning.

And I appreciate the expanded disclosure it's always welcome just.

A couple of questions on the pass car T. J could you give us any color on how to think about P and.

And yields on this assets combined office component and the and Atlanta, the small office piece.

That's a question we've been asked a lot and the way we have consistently.

Insert it is to say that the going in Unlevered yields are entirely consistent with what is taking place in that market today.

Okay, Great and then turning to the biotech and the life Sciences case it sounds like this is a bit.

Leann and a new direction for you guys and very very early days, but I'm wondering if there is any opportunity to be acquiring such properties or is that direction for allied.

More driven by organic growth, starting with with that piece of land at our classic RBC.

About the acquisition opportunities appear to be limited primarily because.

And the biotech and life Sciences evolution in Canada.

<unk> very much behind.

And where it is and the United States and in other countries.

So the opportunity to buy assets is limited, it's not non existent, but it is limited.

I think there is a greater opportunity to create assets that will serve the different <unk>.

<unk>.

And the biotech ecosystem.

System and of course, those segments would range from very small startups.

Right through to very large.

Enterprises, and as I say and Canada were very behind in every respect at the small and have the spectrum and at the very large and.

The spectrum, but there is a strong belief from the part of I think both governments and businesses that Canada needs to improve in this area. We certainly have the intellectual capability and the educational capability to improve and probably most important.

And there is significant.

Ounce of VC funding, becoming available in Canada for the first time.

A long time for exactly this kind of evolution, but we're very early stage there are very few.

True.

Complexes in existence today and that could simply be acquired.

Great. Thank you and then as far as.

It further and to ask a question what is allied appetite or a range of the spectrum.

The kinds of assets relative to operate.

And from office, all the way too.

And I intend to be lab space and you've got some.

<unk> operating and UTC portfolio, which is more technical so what's your appetite and range.

2 investing from the biotech and life Sciences.

We would ultimately like to develop the capability of serving the entire.

Tire spectrum.

And from if you will base building and intense.

Facilities with wet labs, right through to office space, and the sort that novartis will be leasing.

So we want to develop the capability of serving the entire spectrum.

Pretty quiet right our expertise with respect to the base building and intense reality and our UDC space.

I think gives us a head start.

And understanding and ultimately managing.

And more.

Our intense base building type of facility like <unk>.

Biotech and life Sciences users would need.

There are differences of course, but frankly, the UDC environment is more intense more demanding more complex.

And.

Any biotech or life science facility can possibly be we believe.

That said, we have a lot to learn we are not experts, we're not pretending to be.

Allied has typically.

<unk> been careful.

Expanding its operating focus we will work.

And then burst.

And we'll jog and if things go well, we will start to run, but we're not going to start to run on day, 1 and we're not suggesting to anyone that we have in house all the expertise we need to serve these kind of tenants the way they need to be served.

We're highly confident of our ability to develop that expertise and we have the financial and I think locational capabilities.

To do that ultimately so the key will be developing the expertise.

Great. Thank you very much.

Thank you.

Ladies and gentlemen, this will conclude your question and answer session for today and I'll turn the call back over to your host for any additional or closing remarks.

Thank you and thanks to all of you for participating in our conference call. We will keep you apprised of our progress going forward and wish you.

So well in the interim have a good day. Thank you.

And with that ladies and gentlemen, this does conclude your conference for today, we do thank you for your participation and you may now disconnect.

Okay.

<unk>.

<unk>.

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