Q4 2021 Allied Properties Real Estate Investment Trust Earnings Call
Please standby we're about to begin.
Good day and welcome to the Allied properties REIT fourth quarter 2021 earnings Conference call.
Today's conference is being recorded at this time I would like to turn the conference over to Mr. Michael Emery, President and Chief Executive Officer. Please go ahead Mr. Murray.
Thank you Jess and good morning, everyone and welcome to our conference call, Tom Cecelia, and who are here with me to discuss allied's results for the fourth quarter and year ended December 31 2021.
We may in the course of this conference call will 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 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 in our most recent quarterly report.
By way of overview 2021 was a strong year operationally and financially for allied.
<unk> per unit came in at $2 45, and <unk> per unit at $2.09 in both cases at record levels and at the high end of the range contemplated in our internal forecast.
Leasing activity exceeded our expectations for the year with the result that our average in place net rent per occupied square foot rose in all four quarters finished.
Finishing at $24.64 in the fourth quarter compared to $23 88.
In the comparable quarter last year.
Cecelia will summarize our financial results.
And speak about the ongoing augmentation of our financial and ESG reporting.
Tom will follow with an overview of leasing and operations will provide the development update and I'll finish with our current thinking about the future. So now over to cecelia.
Good morning, I'll touch on our balance sheet internal forecast on ESG.
First our balance sheet as.
As you know, we flex our balance sheet over the past two years to take advantage of acquisition opportunities that would not have been available to us in a normal environment.
Our confidence in doing so was bolstered by the fact that our current developments will increase our EBIT by approximately $80 million annually in the next few years.
That said, we're not prepared to flex our balance sheet further and have begun the process of getting our net debt to EBITDA back to our target range.
Our recently established at the market program will be helpful. We test <unk> in Q4, raising $30 million of equity at a weighted average price of $44 in <unk>.
Also helpful will be our development completions starting to become economically productive later this year and into 2023 and 2024.
Their contribution to earnings combined with discretionary use of the ATM of the ATM program will effectively allow us to more actively manage towards our targeted debt metrics.
Onto our internal forecast, we expect low to mid single digit growth in each of <unk> <unk> per unit.
<unk> unit and same math of NOI in 2020 to.
Consistent with previous internal forecast, we've assumed no new acquisitions and using debt to finance all activity both of which are highly unlikely.
Growth in SSO and <unk> will be the result of development completions, a full year of acquisitions completed in 2021 rent growth and occupancy growth to 94% later this year.
As with all our development projects on completion, the financial impact is moderated by the simultaneous D capitalization of costs, resulting in the full impact not being realized for 12 to 24 months.
Development completions are expected to contribute an incremental six cents to <unk> <unk> per unit in 2022 net of $1 million less in capitalization of costs. This.
This is primarily from economic occupancy commencing at the well Duncan in Adelaide and bright house Phase III.
Same asset NOI growth will be the result of occupancy and rent growth in Toronto, Montreal, Vancouver, and our UDC portfolio parking is assumed to return to pre pandemic levels straight.
Straight line rents on the total portfolio is expected to almost triple in 2022 2021 level as turnover vacancy is addressed in the latter half of 2022.
This sets us up for a strong 2023, when economic productivity from development completions continues to grow development.
Development completions are expected to contribute an incremental 14 <unk> of <unk> per unit net of $16 million less in capitalized costs. This.
This would be primarily from the well Dunkin' in Adelaide, Brighton hub phase III and <unk> phase II combined.
Combined with a full year of the acquisition is expected to close in Q3 of 2022 and economic occupancy from leasing activity completed in the rental portfolio.
The latter half of 2022, our current internal estimates are for growth in the mid to high range of <unk> <unk> per unit.
<unk> per unit and same asset NOI in 2023.
Now to ESG.
We continue to advance our ESG program in 2022.
Last year, we set an inaugural greenhouse gas intensity targets and our long term goal of achieving net zero for all new developments or major redevelopments.
This year, we will be evaluating our possible pathways net zero and preparing our team members and relevant partners for implementation of our de Carbonization roadmap.
We are committed to evaluating climate risks across the business and we will be undertaking a climate scenario analysis in the first quarter. You can expect our third annual ESG report to be released by July of this year, including disclosure of our performance against the task force on climate related financial disclosure.
<unk>, our Tcf D recommendation.
I'll now pass it to Tom for a discussion of our operating and leasing results.
Thank you cecelia.
By any measure 2021 was an excellent year of leasing at Allied.
Q4 was particularly strong.
Over the course of 2021, we bolstered our leasing team.
Adding three leasing managers, bringing our in house leasing and lease documentation team to 31 employees.
The team conducted over 1000 physical tours in the portfolio over the 12 months just about doubling the number of tours in 2020.
146 deals were completed in Q4.
Totaling just under 1 million square feet and 400 deals were completed for the year totaling $2 4 million square feet.
Average net rents achieved on renewals or replacements in 2021 or 26% higher than average rents in the expiring term.
Some leasing highlights in 2021 include.
100% pre leasing of our <unk> phase II project now under construction that Queen and Peter in Toronto.
We substantially advanced pre leasing of the office component at the well we made good progress in addressing a large non renewal at 111, Robert Breza in Montreal, We actually increased our leased area in Calgary and improve the leased area in our UDC portfolio.
We also completed a number of significant expansions for major tenants across the portfolio, including publishers almost doubling their space requirements.
As predicted the amount of space available for sublease in our portfolio decline considerably over the quarter. This trend will no doubt continue as companies realize they need their offices.
I will now provide an update on leasing activities in Montreal, Toronto, Calgary, and Vancouver, and conclude with an update on our urban data center portfolio.
Starting in Montreal. The team continues to complete small deals that RCA and Oprah buildings in St. Henry.
Following on the heels of a 30000 square foot deal with Molson Coors, Robert 111, Robert Breza, We have recently completed a deal for 40000 square feet.
We are currently negotiating with two companies for a total of 70000 square feet in that same building.
Moving to Toronto, we learned Monday of this week, the shopify elected not to exercise the right to expand by 90000 square feet of the world.
This will allow us to further diversify our mix of office tenants and we will most certainly achieve uplifts in net rents in the range of 10 to $15 per square foot.
It is also highly likely that the replacement tenant or tenants will begin to pay rent six months sooner than previously negotiated.
Shopify remains fully committed to 340000 square feet.
Strong demand for this project continues as we completed five transactions totaling 135000 square feet over the past three months in.
Indeed, the marketplace was waiting to learn about the availability of the 90000 square feet and our leasing team without any advertising had three inquiries by 11, a M yesterday stay tuned on this one.
Moving to our existing portfolio in Toronto, We mentioned on the last call. We were in the process of finalizing an expansion of existing tenants at 111, Queen Street East growing from 68000 to 120000 square feet that deal has been fully executed.
We also completed two deals for 22000 square feet at 312 Adelaide.
Just subsequent to the quarter and are working with an existing tenant at canyons Medina to move them from 25000 square feet to 55000 square feet of space.
In Calgary the team completed an impressive 17 transactions in the quarter and we actually increased our leased area to 86, 4%, which in the context of that market is quite good.
Subsequent to the quarter, we completed a 20000 square foot deal for vacant space and vintage one.
Most of the activity in this market is for deals of 5000 square feet and less with tenants seeking built out space. We have upgraded the number of suites in order to attract the small users.
<unk> Sky, we built three model suites, and two released fairly quickly last year and we are currently building out another four units.
We also have a deal under negotiation for 30000 square feet in that building, which we expect to complete.
In Vancouver, we completed three small transactions in the quarter and have good activity on available spaces.
Three year restoration project that Sunpower is now complete and scaffolding, which had been completely covering the building has now been removed.
This will greatly improve the desirability of this building and improved leasing which had been difficult during the restoration.
The Vancouver portfolio was 91% leased.
Okay.
Our urban Datacentres in Toronto, or 95, 2% leased overall with two small renewal transactions completed in Q4.
I will now turn the call over to Hugh.
Thanks, Tom this quarter is seeing advancements on both our planning activity as well as our construction activity fronts I will begin by giving you an overview of our major projects and then we'll follow that with an update on work we have done on our development pipeline.
At the beginning and Montreal work continues on the upgrade work at 1001, Robert Breza and RCA.
We have completed the majority of the base building work at 400 Atlanta.
The leasing team is now actively marketing those spaces of all three buildings.
In Central Canada, Despite the supply chain and manpower issues that Covid has created in the industry. We continue to make progress on all of our active construction projects.
At the well we have revised the anticipated completion date of the office tower from Q1 to Q2.
Tenants continue to take possession of their spaces as set out in their leases.
19, Dunkin', we were able to hand over the first floors to Thomson Reuters for their fit out work, we anticipate achieving occupancy of the office can vote or components in late Q2 early Q3.
In Kitchener work is being completed on the base building into the third phase of bright hop development, and we anticipate hanging over the space to Google for their fit out in early Q2.
We were able to achieve a significant milestone at our College Street JV project with Rio can.
The building achieve occupancy.
<unk> has had its first residents start to occupy their suites.
In Western Canada, we were able to achieve occupancy at 400 West Georgia.
Planning activity. This quarter has seen progress made on a number of submissions for future intensification projects sub.
Subsequent to quarter end, we were approved for the first phase of expansion of La <unk>.
We intend to bring this to market in the spring and would commence construction once we had achieved the pre leasing requirements. The.
The goal of this project is to both better serve our knowledge base workspace users as well as to advance our ESG commitments.
We believe we can do this through the exploration of building our first net zero carbon building.
The team has also advanced the work on the approval of Bathurst Assembly. The castle can spit Ina and real town, we are targeting approval for the backers of assembly in the fall of 2022.
This quarter has seen progress made across all of our development work despite industry wide disruptions to the supply chain and manpower. The team remains focused on maintaining momentum on all active developments.
Advancing work on future opportunities.
I will now turn the call back to Michael.
Thank you Hugh.
While omicron put a bit of a damper on the reopening in Canada. It doesn't appear to have undermined the restoration of confidence among our customers.
As of January 31, this year, 87% of the users in our portfolio occupying.
Occupying 90% of the total GLA in our portfolio have reopened their workspace and are bringing employees back to work.
We don't have information on the exact number of employees that these users have brought back to their workspace, but we do know that the reopening and our portfolio continues across the country.
As the global pandemic appears to be coming to an end I am reminded of the thesis I articulated in early April of last year.
It advanced the proposition that the global pandemic would benefit the commercial real estate industry by accelerating three established secular trends, one urban intensification to humanistic operation and three stress tested leadership.
As I pointed out then I can't prove the thesis.
Only human behavior over time, we will do that or not.
What I can say at this point in time.
Is that human behavior as allied experienced that over the course of 2021 strongly supports the thesis.
I intend to update the thesis in early April of this year and perhaps periodically thereafter.
I hope this has been a useful and comprehensive update for you. We would now be pleased to answer any questions that you may have.
Thank you, ladies and gentlemen for any questions or comments you may signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, it is star one to ask a question.
We'll go first to Jonathan Culture TD Securities. Your line is open. Please go ahead.
Thanks, Good morning.
Morning.
First question just on the same property NOI was a little negative.
Bottle and catcher in the quarter can you maybe give us a little bit of color on that.
Hi, Jonathan.
It would be relating to parking and carryover of vacancy.
Okay, so that should flip.
Flip this this year.
Yes.
Okay, Yes.
Okay, and then on the <unk>.
Element side on the well noticed the costs were the costs for the project were up about 5% versus Q3.
Maybe give us a little bit a little bit of color on that.
For sure if they are related to two things one is the extension of the construction schedule.
And two is activities that's happened on site.
With the impacts of Covid.
Okay. So so just sort of timing of supply chain.
Exactly exactly.
Okay Fair enough and then for this year, what's what's your expected spend on development for <unk>.
'twenty two.
It will be about $200 million and then it'll drop in 2023 to under $100 million.
Okay.
That's it for me, Thanks, I'll turn it back.
Thank you.
We'll go next time Mario Sir Scotiabank. Please go ahead.
Hi, good morning.
Yeah.
Just one one quick question on the capital allocation for the year.
And the letter to unit holders.
Highlighting the expectation to allocate a large amount of capital in.
In 'twenty, two which is consistent with prior years.
$360 million of acquisitions.
There's kind of $300 million to $500 million a reasonable range in terms of targeted acquisitions. This year.
So how do you think about funding.
Unexpected activity given the current pricing policy.
Mario given the extent of opportunities.
Visible to us.
It would be very easy for us to achieve a comparable level of acquisitions in 2022, if not more.
If not considerably more potentially.
There are two limiting factors. However that we have to recognize the first is as Cecelia mentioned, we are not prepared to flex our balance sheet any further.
The second is we are not prepared to issue substantial amounts of equity below NAV per unit.
That could ultimately.
Delay or constrain our ability to take advantage of opportunities that we expect to become available to us.
But we have explored.
<unk> developed a number of options.
That would allow us to utilize capital.
Without raising equity below NAV per unit.
And without putting upward pressure on our debt metrics I don't want to elaborate on that any further but I do want to reiterate the two governing propositions for capital allocation in 2022. They are as follows one we will not flex our balance sheet.
Any further number two we will not raise substantial amounts of equity below NAV per unit.
Perfect Okay.
And I don't know if you can answer this given your.
The comment just now.
Our JV something.
<unk> would increasingly consider it's not something you've historically done but is that.
The option you are looking at are not necessarily for specific assets puts us in general the philosophy of JV.
Changing overtime.
That is definitely one option that has been <unk>.
Extensively explored and is available to us.
In terms of funding acquisition opportunities in a way that don't violate either of the two propositions I articulated with respect to capital allocation yes.
But it's only one there are others.
Okay.
Just maybe a bit more color on your acquisition seven West Hastings.
November of last year, but just.
Can you remind us of what the plans are there for that also.
It is a spectacular heritage asset probably along with our Sunpower, which by the way is featured on the cover of our annual report.
Post restoration.
Along with the Sunpower is.
Arguably the finest heritage structure in the city of Vancouver.
Is heavily occupied by a very large number of small users on short term leases.
That are structured in the old way of leasing.
Which is essentially gross we plan to work with the existing tenant base and if my memory serves 140 tenants there.
Or there were at least on an acquisition, we want to work with all of them to find a way to transform the building into a leasing format that is more consistent with our operating format, but we genuinely want to do that in a way that retains.
The existing users.
Or possibly relocate some of them to other buildings, we have with a more allies like leasing structure.
So that will be a gentle rolling upgraded for lack of a better term.
The Dominion building is very close to Sunpower.
And actually it.
Sunpower and the landing.
Our almost off to optimally located in relation to one another.
And so at the landing we can acquire we can accommodate excuse me larger single floor users at Dominion, we can accommodate mid sized single floor users and at the Dominion building, we can accommodate a large number of smaller users and we.
Want to continue to accommodate.
All such users because we want an ecosystem.
In our portfolio in Vancouver, and elsewhere as you know that allows us to accommodate the broad range of creative businesses in our economy today.
Okay.
More really quick one for me on the first relates to your UPC cap rates are they are flat quarter over quarter to five 3%, including wonder if the one front, which is 100% occupied.
I think we've seen a lot of transactions in the North American market.
Pretty healthy valuations that would suggest once that you werent front in particular is well below a five cap rate also so I guess the question.
What do you think are the catalysts to recognize the inherent value of 151 in particular in terms of the cap rate and valuation and more broadly across UTC portfolio, which then valued at $1 1 billion today.
We are very aware of the transactions you've adversity too.
We have not reflected.
Those transactions in our IRS value.
At the end of Q4 not.
Not because we don't think it's appropriate, but we wanted those transactions to close.
With certainty and we wanted to work with our independent appraiser Cushman <unk>.
In terms of determining what impact those transactions have on our underlying.
Urban data center values.
The transactions aren't perfect comparables to our $1 51 front, but theyre much better comparables than some of the transactions that occurred either earlier in 2021 or previously.
So we will be striving to reflect that accurately.
Precisely.
As we go through 2022.
Okay. My last question just in terms of Montreal are thinking the last quarter with.
With respect to the RCA building. It was mentioned that there was one potential user for 50000 square feet looking at the space is that potential users still there in terms of a possibility or is that opportunity come and gone.
That is for 30000 square feet, Mario and we're trading paper with that tenant.
Okay.
I would translate that into yes.
Okay.
[laughter].
We'll move next to a question from Mike market is Jardin Securities. Your line is open. Please go ahead.
Thank you and good morning, everybody.
Three quick ones on my end Sealy just to clarify and thank you. So much for the expected incremental contribution from developments I think it's helpful for all of us.
<unk> in 2022 is pretty clear with the 14th.
Referenced in 2023 is that relative to zero or is that incremental to the six months in 2022.
The incremental from 2022 to 2023 is another incremental 14th.
Yes.
$16 million the capitalized both of those.
Incremental yeah. So.
Statically all else equal if you did 241 today then that's another 20.
$2 41 in 2021, that's another 20 in total you expect correctly.
Got it okay. That's helpful. Thank you.
Yes.
Maybe just refresh our memory.
<unk>.
You own the air rights.
Bringing in center and I, just noticed a $50 million transaction.
And your rates at noon center could you maybe elaborate on what that was.
Sure.
Sure that is.
At roughly five two acres immediately to the south of the Union Center site above the rail lands.
There we closed the acquisition of <unk>.
Air Rights I believe in the fourth quarter.
So it is it is literally five two acres of land that really runs directly south of the Union Center site I guess with the boundary on.
The east being.
Europe York and the boundary on the west being Simco and it basically goes to the far side of the rail lands.
And.
Is a very very good.
Incremental asset for Us at Union Center and will in time.
<unk> mint, our ability to create value on that larger site.
Okay, that's great and would that would that be followed by a resubmission of the proposal.
Center as it currently stands.
It Unfortunately, it isn't necessary, we just got approval for what I would call.
Union Center 3.0.
Which we're very happy with I think I think it's now at about 133 million square feet.
We will clearly.
Yes.
Build it.
And.
Construct on the remainder of the existing site in a way that allows us to utilize the air rights most efficiently, but we don't have to change how we're going to use the portion of the site.
That Union Center three point O is on.
Okay.
Last one for me before I turn it back to you.
My peers just.
Michael your commentary with respect to the opportunity set going to be on the acquisition.
It seems to be just not on par, but maybe more.
Bullish.
For lack of better term.
Going forward.
All I ask is 250 front part of that opportunity set.
Well, let me respond to the general question first.
I should and will respond to the specific one second.
<unk>.
I believe a lot of portfolio rebalancing.
Is going to occur in 2022 and onward.
Which could.
Im not saying inevitably will but which could see high quality office opportunities that fit our investment and operating focus come our way.
So generally I actually think the environment for continued consolidation.
Of appropriate urban office space in Montreal, Toronto, Calgary, and Vancouver will be good for us specifically as to $2 50 front. The CVC building. It is a matter of public knowledge and is widely known.
That CBC initiated a process through CBRE.
To ascertain the extent to which and the price at which the market was prepared to transact.
On the purchase of the CVC building.
That process was explicitly conducted.
With the knowledge that Allied has a right of course.
And that at the end of the process.
The CVC would then deal with allied in relation to its right of first offer.
So that everything I have said is a matter of public record.
And known to all.
Also.
It is.
My belief that the CBRE process is largely complete if not complete.
And Thats the extent of public information, whether the right of first offer will translate favorably for us or not is unknown.
I can tell you as I've said for years, our interest level is high.
So im confident.
But not certain.
That we will end up.
In a position to buy the.
The CVC building.
Whether we actually do it or not is unknown.
So I'm trying to be as open and honest as I can without.
Being inappropriate in terms of what I disclose.
But everything I have disclosed specifically Mike is is public information and is known to all in the industry.
No I appreciate that.
Maybe Michael I know you've confirmed your interest in the building in the past maybe you could just.
Give us a refresher as to the operational fit within Allied.
That's a potential.
It is I mean, the way to think about it it is roughly 1 million square feet roughly half will be.
Will be leased to the CBC long term.
Won't be a lot of growth in the lease, but it'll be a very long term lease with a very high caliber covenant the remainder of the building has.
Exactly the kind of transformational potential.
For which allied is known.
And as you also know of 170000 square feet or so of the remainder is already leased two allied.
As part of our urban data center portfolio for what was originally a 50 year term less a day and what is probably now a 41% or 42 year term.
So what we would have really is is an aggregation of a very stable base, albeit not one that's likely to grow materially over time.
Then.
Another base that is materially underutilized.
That we will be able to upgrade and reposition.
In the way we have so many other buildings with similar physical attributes and then finally of course, we will own the urban data center portfolio free and clear. This is all if we do this transaction. So that's I think the way to look at it.
How it was presented to the to the open market.
For bidding and there were bidders who stepped forward.
And that will then allow us CBC to determine how best to deal with our right of first offer.
Michael I appreciate your transparency and that's excellent color. Thank you I'll turn it back.
Okay.
We'll move next to Brad Sturges with Raymond James Your line is open. Please go ahead.
Hi, good morning.
Good morning, just on.
400, West Georgia there.
Highlighted.
The ramp up on occupancy starting now can you just give a timeline on.
To the extent you can in terms of the.
What the potential could be for the occupancy stabilization there at the project.
In terms of.
Why is that what youre, saying occupancy stabilization.
In terms of percentage when we will get to where we hopefully will have that by Q3.
Which.
No.
Yes, 95% is what we would consider stabilized occupancy in Q3 would be when we closed on that transaction. So it would coincide with when it comes on our books.
That would be our expectation okay.
Okay.
And then I guess.
Just one other question in terms of.
Funding some of your growth initiatives you have.
Still some assets for sale on the balance.
Listed on the balance sheet.
Year.
Would there be a scenario where you consider.
More.
100% asset sales at this stage.
The capital markets arent.
At a point, where you feel comfortable raising equity or how should we think about.
Asset sales beyond what's listed for sale right now.
That's an option Brad that is available to us.
The to held for sale are moving toward completion on schedule although.
We can never be certain they'll complete until they complete.
There is another smaller non core asset in Toronto that we might transact on but when I say there are options available to us.
Im not postulating large scale asset sales on our part.
Okay.
It makes sense I'll turn it back thank you.
We'll go next to Caitlin Burrows with Goldman Sachs.
Hi, good morning in the prepared remarks, I think you guys mentioned, reaching 94% occupancy later this year.
Wondering if you could give some detail on the cadence of that expected occupancy improvement and then just clarify whether that's the total portfolio or the stabilized properties.
Hi, Katelyn for sure that would be the total rental portfolio and it would start ramping up from an occupancy perspective in the second half of 2022.
Okay.
And then separately I don't think Thats only talked about yet and I know I'm going to say it wrong, but last July .
Announced that Jessica group with developing 708.
Hey, Hubert which you would buy.
In the second half of 'twenty two around the time of completion.
I mean that is still the plan can you go through how we expect to fund that project in particular and to what extent that property in may contribute to earnings in 'twenty two.
Again, we will fund that subject to the parameters I articulated.
In my answer with respect to allocation or capital allocation.
And as I say, there are known options available to us that's not not too.
Lots to diminish that particular acquisition, but it is not particularly large.
But as I say, we will not funded.
With equity below NAV per unit.
And we will not.
We will not funded by flexing our balance sheet further.
Okay.
And then maybe to quicker ones.
Wondering if the internal assumptions that you outlined for 2002, and even 'twenty three assume any additional ATM usage or if you were at PHP ATM in a small way would that be kind of like an incremental update.
No we don't assume any ATM usage, we assume everything is funded with debt so that would be an incremental usage.
Okay.
And then lastly, it looks like the salaries and benefits were higher in the fourth quarter than they have been I know you mentioned that you hired three new leasing manager. So is that related to that hiring in more of a permanent increase or was there something one time or a mix.
That would be the Q4 G&A uptick you would have seen was for the final bonus payout for the year. So it was a bit of a year to date catch up on compensation.
So as we think about this year would you say that like 2021 question growth rates from that it's reasonable to assume.
For 2022, you should assume G&A will be in line with 2021, but excluding the one point to a $1 3 million of severance expense that we had in 'twenty. One so almost flat from 'twenty one to 'twenty two.
Okay. Thanks.
Thanks, that's all.
We'll go next to Matt Cornick at National Bank Financial Your line is open. Please go ahead.
Good morning, guys.
Everybody is trying to figure out how you buy things without financing them. So just a quick question in terms of potential vendors.
And the market is there an appetite at this point for them to take back equity at NAV in Allied has that potential.
Way to get at some of these assets, while not issuing at a discount.
It is a theoretical possibility yes.
It's never one we've executed.
Nor is it.
Nor is it how we approach.
Vendors.
So it is a theoretical possibility I don't know if its a real possibility.
Okay fair enough.
With regards to the 94% occupancy in the rental portfolio is that purely lease up of vacant space or is the component of that just bringing on sort of fully leased development properties as well.
No it would mostly be driven by leasing up turnover vacancy not so much on the development because on our larger developments, we're actually very highly leased so.
Okay, No fair enough and then on the I guess a follow up on.
C J multimedia.
It sounds like you have prospects there that they've been there for a while but it's sitting I guess one of them the.
Robert versus sitting at 49% occupied what is that where we should expect some of that lease up in the second half of the year or should that come in the near term.
I think we can expect some considerable lease up in that building that.
While some of that.
Those prospects have been sitting there.
We're getting closer and closer.
So I think youre going to see some some movement over the course of the next few months.
Okay.
Sure.
And then.
No.
Last one.
With regards to 400 West Georgia.
How should we think about that it's coming to completion, but just the outlay versus what you've learnt against that asset.
Is that contemplated in guidance coming in are being purchased.
Completion.
Yes so.
Our our.
Our outlook our forecast or estimate includes the two acquisitions that we've already committed to just no new acquisitions. So it includes closing on 400 West Georgia in Q3, and it will actually be a net cash inflow, because we will be repaid our loan.
And we will put permanent financing mortgage financing on the property, which will result in net cash to us.
Over and above our buy in to the project.
Okay, no that makes sense and last one 7% any BD is that.
In process I'm not sure exactly where it stands at this point or what the prospect would be for that to be completed and brought into the REIT.
It's a timely question.
The rate that we have advanced against that project slowed considerably.
In 2021.
The plan, we have there is not dissimilar to the plan we executed at the well we're going to commit to the below grade construction.
Pre pre leasing threshold.
Knowing that if we get to grade without having met the pre leasing threshold, we can always stop and wait.
It's never something we want to do.
It does allow us to.
Close the temporal gap without committing to what I would call full scale speculative development.
We are enjoying considerable.
Preliminary progress in pre leasing that.
Project.
Which is quite large for Vancouver, it's roughly 600000 square feet. Our share 300. So it is not gigantic but in the context of Vancouver. It is quite large and the approach. We've taken is is to fund.
The sub turanian structure backup to grade.
And if necessary stop once we get there is no pre leasing in place.
Our experience at the well is any indication and our assessment of the strength of the Vancouver market Acura.
Accurate.
Easily get to our pre leasing thresholds.
Before we get back to grade there, but.
So it's a timely question it hasnt been a big.
Drag on capital for Us and we're getting a very good return on what capital we advance.
But that that will accelerate a little in 2022, but under no circumstances are we building that on spec.
I appreciate that and then sorry, one last one on the guidance for the view on 2023.
It sounds like I mean, if you can go from 89, 9% occupancy to 94. This year I understand that some of the growth would be delayed into next year, but.
Is there any sense of conservatism in your forecast there for sort of high single digit same property or not same property <unk> per unit growth.
All of the mid to high I would say if we were to err on one side it would be on the side of conservatism of conservatism, but I wouldnt say its highly conservative.
Okay. Thanks, guys.
Yeah.
Okay.
We'll go next to <unk> RBC capital markets. Your line is open. Please go ahead.
Thanks, and good morning.
I believe last night last quarter, you mentioned getting back to maybe 95% occupancy in 2023.
I'm, just curious as to perhaps maybe upside to that target just given I guess the expedition get to 94 by the end of this year.
I do.
This is Michael speaking of course, I believe there is upside.
Hi.
But it's not unrealistic, but once you get to 95% across the country.
It's hard to get higher than that.
If we brought developments in.
Into the rental portfolio that were fully leased maybe.
But once you get to 95% across the country, especially given the level of ongoing upgrade activity that we.
Engage in in an effort to boost our average in place net rent per square foot overtime.
I, even I can't imagine there is great upside above 95%.
And it would be temporary in our entire history.
Even when we were much smaller focused entirely on Toronto, which was a market over which.
One could argue we have more control.
Sure.
97 might have been.
Just a great let we've hit 95 before but it didn't last long.
Seven we have achieved but it was a smaller portfolio more discrete.
Not subject to geographic variation, so I don't think there'd be a lot upon me, but maybe some.
Got it and maybe just maybe building on the commentary around leasing.
I guess, we haven't talked too much about.
Has there been a shift at all in any kind of sentiment maybe maybe it's more specific to your to your user base.
But has there been a shift in sentiment in terms of space needs.
At all just given where we're sitting today I guess hopefully through the latest wave and through Omicron I'm. Just curious if you could provide some color there.
I don't discern.
Shift in sentiment among our customers.
And I also don't discern.
A material shift.
<unk>.
Generally.
In the urban Toronto markets Pardon me the urban Canadian markets.
I think there's perhaps a potential shift in sentiment among the accounting firms.
There is clearly no shift in sentiment among the law firms, which is interesting the accounting firms being accountants are desperately anxious to reduce occupancy costs I don't think there'll be successful in doing it ultimately, but if there is a shift in sentiment or at least.
Explicit vacillation.
With the major accounting firms.
A lot of there.
Teams are hoping desperately to work from their cottage for as long as they can.
And as happy as they can.
That might be a bit of an overstatement, but but it is not inaccurate, but overall I don't discern a big shift certainly among our customers.
And indeed I think among.
The major customers of the conventional office towers.
In Canada.
I think the banks are wrestling.
With minimally engaged employees.
But I don't think that will ultimately result in.
They're changing their fundamental view towards office space I may be wrong in saying that I I, certainly have no inside knowledge or at least not much.
But that's what I say.
One person of influence said to me, we will be talking about hybrid working.
For another 18 or 24 months and when that 18 to 24 months is over we'll be back to working exactly as we did and this person has a tremendous amount of influence in relation to the organization. He leads.
Again can I extrapolate from that across.
The major user segments in the towers no.
Do I think it's safe extrapolation, probably yes.
Again, the only sort of vocal.
Vacillate or.
Are the major accounting firms.
They just don't know, which way is up and theyre, hoping desperately that they can I don't know.
<unk> taken a hell of a lot easier and not have to.
And not have to show up on site.
But the lawyers learned very quickly that while they can function on an emergency basis and that way they can't build legal practices. They can't train young people.
By working from home.
So they pulled their sublease space they put the sublease space on the market really really quickly in 2020 and they pulled it off the market almost as quickly.
Got it thanks, thanks for the color.
Yes, maybe just with respect to the well in this space not exercised by Shopify, what what's your sense you did mention of course, some discussions that are underway with with other tenants. What's your sense of the timing of when you may actually have some some deal signed on that space.
Okay.
I would say, we're going to start dialog on the space serious dialogue with a number of parties right away.
And expected within the next two or three months, we'll have deals completed.
Okay.
<unk>.
And just.
Coming back to maybe the ATM.
See I think you mentioned that the.
The guidance assumes no further equity issuance or no equity issuance.
But yet the ATM is still in its still in use so I'm just curious how should we think about the use the ATM and for the year Ed.
The ACM.
Cool.
So a box and it will be one of many ways that we will be funding our activity I don't know.
We're not going keep raising a significant amount of equity to the <unk>.
It'll be a small amount.
$150 million to $250 million I don't know it all depends on on how our what our cost of equity is.
So I wouldn't expect it to have a material impact on our forecast.
No the one thing I'd add to that <unk>.
I think opportunistic is the right word we see it as long term an extremely valuable tool for allied.
In funding development activity.
And in reducing debt.
With a view to getting to our target levels for debt to EBITDA, that's where we see it being immensely valuable to us, but what we're not prepared to do as I've said it.
At the outset is raise huge amounts of equity below NAV per unit. So the extent to which we use it in 2022 will entirely be governed or largely be governed.
Bye.
Our trading.
Price relative to our NAV per unit.
<unk>.
The faster our trading price approaches the NAV per unit in all likelihood the more we will use it.
And as I say on an ongoing basis, when we get to what I'll call a fully stabilized.
Trading value whatever that proves to be.
He is using that.
Very significantly on an annual basis.
Because of the cost of equity is so much lower.
And because we can we can issue if you will into the market on an entirely discretionary and opportunistic basis. The trial run we did in the fourth quarter was extremely successful.
To my way of thinking.
We raised $30 million, essentially which is not a lot of equity.
At around 44 or five on average.
Very volatile market. This was almost as omicron hit.
And introduced an extreme amount of volatility into the.
The equity markets worldwide.
Even in that context, we were able to raise what for US is a material amount of money at a very good weighted average price in relation to the trading the walks and.
And we were able to do that without disrupting the market in any way shape or form.
So for US it was a great trial run.
But it didn't represent a huge aggregation of equity on our part.
But it was a great trial run and we're confident we can use it successfully.
When our cost of equity reaches a point that we consider acceptable.
Got it. Thank you just one last one from me I know, where we've hit the 60 minute Mark.
On the same property NOI outlook, the low to mid single digit guidance for the year I guess overall.
Just curious how does that sort of roughly break out across your core markets. We had some pretty strong results in Montreal, Toronto slipped a little bit.
And I guess Western Canada was down a bit but just curious what you can share with us on that.
Yes, it would it would be.
Well into that range and in central and UDC, and then offset by continuing softness in Calgary and then in March in Montreal, as we lease up the turnover vacancy.
That is a bit of softness in 2022 as it relates to same asset NOI.
Thanks, very much I'll turn it back.
We'll take our next question from Scott from CIBC. Your line is open. Please go ahead.
Thanks, and good morning.
If we can return once again to the well it sounds like face rates are trending pretty strongly on good demand.
As you get close to full occupancy.
How are trends <unk> trending with respect to average lease term.
Ti's haven't been.
Haven't changed a great deal over the course of our leasing program. What's happened most recently I would say.
Helping us achieve really good rents is we can physically take people into the building up to the floors and they can see what theyre going to be occupied.
And that makes a big difference.
For companies rather than leasing from our plan.
And leasing from renderings, they can physically see what theyre going to be.
Sitting in.
And I think that has helped us achieve higher rents.
And what about other markets.
Say, Vancouver, especially 400 West Georgia.
No change in <unk> in Vancouver.
<unk> and <unk>.
A little bit of free rent is the order of the day in Calgary.
And Theres been no change in Montreal.
Okay. Just one last question are you seeing any backfill they can see on new developments coming on the market.
Our existing portfolio, let's say some of your older older buildings.
No we haven't needed to cannibalize.
Our existing portfolio to fill any of our development properties.
I can't think of a single instance.
Where someone is moving out of an existing property.
Intuit property with the possible exception of Conrad at cadence for Diana and they'll be moving out of one of our best brick and beam buildings in the country.
Into the well and back filling that space is the easiest thing in the world for us to do we're actually looking forward to that I did mentioned in my in my speaking notes that there was a 25000 square foot user at Kings Diana movie.
Moving to 55000 square feet, we're getting close to that deal, but that is theyre moving to a brick and beam building thats being refurbished today.
But diana so if that was what prompted the question.
Not the case and by the way we have users ready to take the 25000 square feet. Once this tenant makes the move.
So as Michael said, there's nobody that's leaving the portfolio.
At our expense.
So thats, but on a property would be the vacation.
IBM.
It would.
Okay. That's great. That's very helpful. Thanks, I'll turn it over.
We will take our final question from Jenny MA BMO capital markets. Your line is open. Please go ahead.
Thanks, and good morning.
I appreciate the color that was provided on the on what goes into the guidance just wanted to touch on the debt to EBITDA.
Think about the pathway of that what that might take would it more or less resemble the occupancy moves that youre expecting so kind of trend kind of steady where its been at year end for the first half of this year and you're trying to trend down.
And then the second part of my question is when you are talking about a target.
Could be zoned in on if you're targeting returning more to a 2020 levels sort of in that seven range or were pre pandemic six range.
I think.
The worst case scenario, if I can describe it that way.
See our return to target levels of net debt Abbott actually trailing our occupancy gain.
Over the course of 2022, so I wouldn't see getting to our target levels. In 2022, I think it will be in 2023 organically and what gets US there organically of course is the introduction of roughly $80 million in EBITDA one.
That is hitting our statement on a recurring basis, we see ourselves getting.
Down into the low sevens, maybe even the high sixes.
But I don't think we get our debt to Abbott back too.
Our target, which is let's call it sevens.
By the end of 2022, unless our cost of equity.
Proves materially.
And we over <unk> as we have done in the past, but that I'm not counting on so I think realistically, it's going to take us until 'twenty three late 'twenty three sort of get back to our target range or maybe even early 'twenty four.
Okay, Great that's really helpful.
This is earlier you had mentioned the straight line rent is expected to triple This year I think I heard that right could you give us a bit more detail on sort of the timing of how that flows through.
Yes that would basically be the result of.
The turnover vacancy from 'twenty to 'twenty, one being addressed in 2022 in the latter half so we'd have significant straight line rent coming online from that.
Okay, Great second half okay, great. That's all for me. Thank you.
Thank you.
And with no other questions holding I will turn the conference back to management for any additional or closing comments.
Alright, well, thank you one and all for participating in our conference call.
We will keep you apprised of our progress going forward in the meantime have a great day. Thank you.
Ladies and gentlemen that will conclude today's call. We thank you for your participation you may disconnect at this time.
Yes.
Okay.
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Yes.
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