Q3 2022 Allied Properties Real Estate Investment Trust Earnings Call
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Hi, Dan and welcome to the conference I like properties.
Third quarter.
Earning conference calls please go ahead.
Phone.
So my apologies to you a further delay and be for the fact that we're actually conducting miss on a cell phone.
RAMAR op.
Anyway. Good morning, welcome to the conference call, Tom Cecelia and you are here with me to discuss Allied's results for the third quarter ended September 32022, we may in the course of this conference call will make forward looking statements about future events or fewer.
<unk> performance.
These statements by their nature are subject to risks and uncertainties that may cause actual events or results to differ materially in.
Including those 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.
Allied third quarter operations were encouraging, especially in the context of growing macroeconomic uncertainty.
Failure will summarize our financial results.
Bob will follow with an overview of leasing in the operation.
Q2 will provide the development update.
And I'll finish with our current thinking on capital allocation.
So now over to Cecelia good morning, all.
I'll highlight some operating metrics, our financial position and progress on ESG.
Our operating metrics remain healthy we had our 12 consecutive quarter of increasing productivity of our space, reaching $25 56.
In place net rent per occupied square foot.
We also continued to see strong rent growth on renewal.
Space, which was seven 3% in the period.
We are however, starting to see the potential impact of recessionary sphere in the form of extended time to get to an executed lease deal.
Spike tour activity remaining strong.
We are keeping a close eye on this seemingly contradicting data to better understand changing market.
We're pleased with our financial position, we allocated $108 million of capital in the quarter to revenue enhancing and development activity, which is what we will continue focusing on for the foreseeable future with over 91% of our debt now on a fixed rate basis, our exposure to rising interest rates.
Mitigated.
Also our liquidity position is strong, allowing us to meet our commitments in 2024 without having to access either of the public capital markets.
We're pleased with our progress on ESG.
Score rose to 86 in the 2020 to gradually assessments up from 80 last year. This.
This improvement is the result of huge effort across the Allied team and we're already working on what we want to achieve and time to report next year ESG reports.
Across the company focused on serving our users and completing upgrades and development work to propel operating capabilities are.
Our operating platform has never been stronger with that I'll pass the call to Paul.
We have a.
Third quarter leasing completing 112 transactions totaling 424000 square feet.
Average rents achieved on renewals were $16, 6% higher than average rents expiring term.
We ended the quarter at 97% leased.
In the Colorado portfolio, and 91, 4% in the stabilized portfolio.
We started 2022 with an aggressive target of achieving 94% occupied.
And we remain focused on achieving that level.
But we will not make it by year end.
I note that allied has lower vacancy rate than the downtown markets every one of the cities in which we operate.
We expect to continue to outperform the market and have good momentum leading into year end.
In fact.
We have 109 transactions in negotiation right now representing 450000 square feet of net been lethal.
Which we are trying to complete before year end.
I will now provide an update on leasing activity on our recently acquired portfolio then provide a general update on activities in Montreal, Toronto, Calgary, and Vancouver, and will conclude with our urban centers.
With respect to the properties acquired March 31 of this year, we have made good progress on all front.
At least area in that portfolio was up slightly following at least recently completed four restaurant space.
West Broadway at Vancouver.
We are negotiating a renewal and expansion with our anchor tenant in Sherbrooke, and Montreal and expect to finalize before Youre right.
We have developed asset plans to optimize returns over the short medium and long term.
Yeah.
As an update in this regard we have started dialogue with moment factory and nor architects.
Of which our allied terms.
Asking them to collaborate with us and our partners at LT truck on the vision to completely re imagine the lobby of 175 works really well.
We are very excited about transforming this prominent building over the next 12 to 24 months at a time when much of Bloor Street will be undergoing transition.
In the meantime, we're engaged with three small tenants again expansion.
Turning to our general market update.
The most active market as Montreal.
The team completed 44 transactions totaling 150000 square feet.
Among the highlights in the quarter was 15000 square feet for Atlantic.
It is progressing.
111.
Wonderful efforts.
Subsequent to the quarter, we completed a deal for 16000 square feet at CCM.
We are now working to finalize the 26000 square foot deal with foodservice and at CCM.
When completed this deal will be an enormous upgrade to the tune of operating in the complex and the neighborhood.
We are at various stages of negotiation with large users.
One.
And 111, Robert Breza, these potential tax representing a total of 425000 square feet.
Yes.
In Toronto, we completed 26 deals totaling 135000 square feet in the runoff portfolio.
The office component at the well it's 98%.
We're in discussions with a few groups for the last remaining piece.
Our buildings at 468, King when 85, 135, Liberty that'd be great.
And that work is nearing completion, making these buildings ready for new tenants in 2023.
In Calgary, we are maintaining our lease area number at 85, 6%, which in the context of that market is quite good.
We completed 17 transactions totaling 40000 square feet during the quarter.
Hello, Sky and 72% for eastern we have early stage negotiations with one tenant for 20000 square feet and is completed we will bring that project 76% leased.
In Vancouver, we COVID-19 deals totaling 45000 square feet.
We are 94, 1% leased with good activity.
Finally to our UDC space in Toronto, we completed a renewal and expansion in the quarter with an existing tenant at $2 50 front.
Bringing us now to 99, 5% leased in that portfolio.
I will now turn the call.
Thanks, Paul.
This quarter, we're seeing progress made on both current construction projects as well as our planning for future projects.
Begin by giving an overview of our major projects and then we'll follow that with an update on work we have done on our development pipeline.
Construction activity.
Beginning in Montreal. The team continues to advance work on the rehabilitation up 35 75 Boulevard.
Yes.
<unk>.
The transformation with household one Bravo restaurant and a bit of work at 400.
These four large scale multiyear redevelopment projects continue to remain on track to permit <unk> to position the properties.
Premier workspace for knowledge based organizations Sir.
In Toronto, we have made progress on all of our active construction projects.
At the well the team continues to complete basis for both the office and retail users. Thank you Matt.
For the expansion of <unk>.
We have reached a third floor, while we had hoped to have one building cost out by the end of October industrywide labor shortages have pushed that date out too early.
We continue to make progress on our joint venture projects with Westpac in both Toronto, and Vancouver, and Toronto at King Toronto, We're climbing above grade with some parts of the project Hydra reach the third floor.
Our 19 Duncan and the team continues to push to achieve occupancy late in October early November to allow us to offer providers to occupy their space. We hope the top off the building by the end of the year.
In Western Canada work continues on Boardwalk, Revlon, and our JV project with Blackberry, I mean Ali and Vancouver.
The team had begun foundation work scopes radars to begin climbing up to grade.
By the end of the year.
Based on the work for this project is anticipated to be completed in late Scott.
Premium activity.
The team has been primarily focused on the execution of asset development and redevelopment projects this quarter.
Montreal the team has commenced preliminary discussions with the city on the potential upgrading and space that would accommodate lifestyle. Since you said at the east block of gardens.
These initial discussions have been positive and we.
Random beginning assembling a team to determine the full potential of effects.
Overall, the team has made solid progress across all of our development activities.
<unk> taken advantage of the work done at previous quarters on a new development approvals the focus to focus on advancing work on the vacancy that great redevelopment projects and major development projects I will now turn the call back.
Good luck with your statement.
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Well this is proving to be quite an adventure.
Have to extend apologies again.
Feel compelled to point out.
The conference call provider is an organization that supports working from home.
And that May explain the complete disaster that they have perpetrated on us.
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Ben or we live now on the line.
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<unk>.
I'm almost at a loss for words, and I don't think I've ever been at a loss for words in my adult life.
Anyway, let me continue.
Capital allocation is always important but never more so than in times of macroeconomic uncertainty.
As mentioned last quarter, we're focusing on completing the developments in our pipeline.
Which we expect will add approximately $82 million to our annual EBITDA over the next few years. This alone will improve our relatively strong debt metrics in an organic manner.
And hopefully this has been a somewhat useful and comprehensive update for you Lord knows it hasnt been a continuous one at we'd now be pleased to answer any questions you may have.
Can't vouch for the success.
The connection, but we will do our very best to answer any and all questions you are able to put to us.
Then if we could turn this over to questions now that would be very helpful.
If you'd like to ask a question. Please press star one now on your telephone keypad. If you would like to Redraw a question. Please press star two.
The first question comes from the line of Jonathan.
Tricia. According from TD Securities. Please go ahead.
Hey, Jonathan.
Good morning.
So we're still on track.
I think there's a lot of front.
First first question just may.
Maybe give a little bit more color on the the longer sales cycle. You guys are seeing for leasing is that is that all types of tenants all geographies.
Maybe just a little bit more color on that yeah. I think it's it's a good question and it's an interesting experience. We're having I think we would say that the high volume of tour activity.
He is constant across our major markets, Montreal, Toronto, Calgary and Vancouver.
And I would say the beginning of the stretching out of negotiating timeframes.
He is more or less constant as well.
Cecelia mentioned.
There is an inherent contradiction in what we're seeing because typically we would see tours decline concurrently.
With negotiated timeframe stretching out.
What we're seeing now is is somewhat contradictory, but I don't think we can ignore the stretching out of negotiating timeframes. The fourth quarter is going to be extremely informative to us in this regard as Tom mentioned I think we have 109.
Transactions in the works now we never get every transaction done no matter how buoyant the environment.
But.
If.
Negotiating timeframes continue to stretch out and people put decisions often show next year that will tell us one.
If on the other hand, we get our normal level of transactions across the finish line in the fourth quarter that will tell us something else.
I can.
Kelly, you or predict now which of those two realities will present themselves. The one thing I can assure you is we will know.
Soon and we will include monthly burn in our.
Projection or internal forecast for 2023.
So I don't think that's terribly helpful. Jonathan.
That is their use.
Sorry.
Are you still seeing a tour activity sort of maintain itself into into Q4.
Yes.
Okay Dennis.
Okay. That's that's helpful and then secondly for.
I guess 2023 renewals.
You don't you don't have a ton I think only 11% of total but like how are those how are those conversations going do you think you'll get the same sort of.
Normal annual renewal rate.
Yeah.
I think we rolled out or it might be going with marvell conversations.
Should have been taking place for a while.
We'll get our share as usual.
Okay, So theres no big.
Theres no big known vacancies coming.
They're there.
This week, no law, where education that is going to happen with respect to.
Rapidly surprise.
I think it's maybe the best answer.
We're aware of all the non renewals for 2023 and renegotiating everybody else.
Yes.
Okay.
And then just just lastly, just to.
Clarify it in case I missed this.
Or.
Whatever on the on your <unk>.
In your remarks, Tom, but I think you said you had about 450000 square feet under negotiation right now and then when you were talking about Montreal, you said, there was 425 square feet under negotiation is that correct.
Yes, but it's a it's a different category of tenant exposure larger transactions that probably will take two more months to advance.
There's 450000 square feet of negotiations taking place right now that we hope to complete before year end.
The 425000 square feet of Montreal is.
<unk> big loss that is going to take us a little bit of time.
Okay. So those are sort of separate number said.
Yes.
Okay. Thanks, I'll turn it back.
The next question comes from the line of Jenny Mao calling from BMO. Please go ahead.
Thanks, Good morning.
I wanted to get a better sense of the trend for capitalized interest estimate your projects finish off I think this quarter, it's sitting at $14 6 million. So I'm just wondering if that's nearing sort of a.
Our Max value and if you can give us some guidance in terms of how that kind of comes off in the next couple of years.
Yes, I think you can assume that the Q3 level.
Is what will come through the next couple of quarters and I'll give more specific guidance on that on our February call as it relates to our 2023.
Our forecast.
Okay. So could I presume that is going to be fairly lumpy then between let's say the second half of 'twenty three and into 'twenty four.
Yes, because as our agile development completion transferring to the rental portfolio in tranches.
You'll see it you will see it kind of lumpier, so there'll be more than average for the year that I think is for next year on the fab one call.
Okay. So just just a bit further on that so let me take a while for example, it would be on a I guess, a phase by phase or a specific building by building basis is that sort of a trigger for our capitalized interest to come in for the property.
Correct. So we've given you the timing that we include in the staffing chart in the MD&A page seven and four will be have rent commencement and that should give you pretty good approximation of the timing of key capitalization.
Okay. That's really helpful. Thank you.
And then switching to the 94% occupancy target that you guys are pushing out I'm, just wondering if you'd be willing to venture perhaps a timeframe for when you think allied could get to that point.
We would not.
Yes.
Okay I've got to ask.
And then lastly, just wondering on in terms of capital allocation. Now these are small numbers, but wondering what your thoughts are on the on the distribution Allied has got a pretty good track record of a of an increase on an annual basis and given the EBITDA that you expect them to come in from development site is that something that gives you comfort in.
Perhaps maintaining that track record that you've built.
Got it.
That's a good question and a fair question as you know it is a board decision.
What I can say.
As part of management.
Is that we see no reason why our pattern will not be maintained.
Late in 2022.
Perfect. Thank you very much I'll turn the call back.
Right.
The next question question comes from the line of Matt Commack, calling from National Financial. Please go ahead.
Hey, guys.
Actually it would be.
The incremental disclosure on your top tenants can you can you kind of give us a centers.
Or what what will happen with the cloud space It seems like the maturities.
Pretty imminent on that.
Should we expect that this tenant will continue on or if not is the prospects.
No I think it's it's a good question and I I do think that disclosure was helpful.
The.
Not the cloud infrastructure activity, but the hyperscale.
Activity, which is the largest component of the three.
He is not the highest and best use.
Network and interconnection space and happily we will be getting that space back at the end of this year.
And we will be reached re leasing it as network and interconnection space, probably at a 20% to 25% premium to what we are obtaining now.
The reality is.
Hyper scalar is don't need the capacity.
Of high quality.
Network and interconnection space and are prepared to pay for it long term.
We in turn don't want to accommodate hyper scaler.
Not because it isn't a great use but it's not the highest and best use of the UDC portfolio. We have so we will be working that and indeed have been working at a.
Very successfully for some time now.
We're very close to releasing a third of that space.
And I'm extremely confident that we will release the entire space at a very significant increments.
Timing that the Hyperscale use afforded us was really really helpful to us sort of bridge the five year gap, we got the.
We got the facility fully leased and now we can upgrade that mass component. So I don't see us ever accommodating hyperscale, there's again not because they are not good users, but they're simply not prepared to pay the levels of brands that we can command.
In network and interconnection spacer facility, we have.
Okay, No fair enough and I saw that I think generally you brought up your mark to market potential.
On on the UDC portfolio, but.
So it just from a modeling standpoint, I guess, we can assume that that component of the near term maturity comes off and then kind of as built back up over the course of next year should we assume it takes.
A bit longer than that.
The course of next year, I think is correct and.
And you're quite right.
The rent charge, which is an important part of our disclosure.
Was altered to reflect exactly what you and I have just been discussing.
No fair enough and then on 400 West Georgia and.
The new development component of the Shadow Vijay.
Can you give us a sense as I think ahead of the modeled for this quarter and next but what would the timing be on when those are brought in or purchased and then brought into IPP.
Laskhar BJ add this quarter.
Indeed, it's expected to close at the end of this week or actually up tomorrow.
In fact, which is great. It's a spectacular building.
And we're extremely pleased with it and we're working extensively with.
A tremendous roster.
Biotech and life science users as we had hoped to complete that space.
400, West Georgia is also growing extraordinarily well there is expansion occurring within the building and within the tenant base in the building that should get the final three floors leased before the end of the year and I believe that will transition at some point in 'twenty.
23, do we know when around the middle around the middle So mid 2023 mid year next year.
Okay, that's very helpful.
And then on on the G&A for this quarter Cecelia was there anything onetime in nature. It was it was lower than I guess, what we were forecasting but I.
I don't know if we are theres some seasonality I think obviously Q4 is a bit higher but how should we think of this figure in the context of looking forward.
I think Q3 is there is a good basis to assume going forward. There is seasonality because of when the restricted units are amortized earlier in the year and then you know.
You mentioned Q4 based on our final.
Final compensation payouts, but otherwise Q3 didn't have any unusual one time items in either direction.
Okay, Perfect and then Dave one ear on straight line rent, but I think that's allowed development deliveries probably in that converts to cash rent over a period of diamond in the next quarter or two or will it stay elevated.
We're developing more.
Yes.
Sorry I.
Sorry.
I got on it it doesn't matter I'm not going to model it in that much detail. So I'll leave it at that.
I'll ask one last one, though just a bit of a more general commentary.
We've always looked at allied is kind of a place that you'll have the flight to quality given the assets that you own in the type.
But we're trying to kind of weigh this against what's happening with technology companies just from a valuation standpoint, and obviously theres been a bit of a shift in the market.
How should we how should we gauge kind of or reflects between these two kind of opposite sort of flight to quality in a tougher office market, but also technology companies are facing some financial pressures do you think it impacts the leasing going forward for your portfolio.
Here's how we're thinking about it to date, Matt and you articulate.
You articulated well.
It is becoming clearer and clearer to us that ally does represent a flight to quality in all our major markets, whether it's Montreal, Toronto, Calgary, and Vancouver and that is encouraging.
We are not seeing any dimunition.
In the demand on the part of Tech users.
For space in our major markets and indeed, we continue to see more demand.
Emanating from Tech you use in the city of Calgary Ben is historically the case now admittedly the historical cases, almost negligible, but nonetheless, we are seeing more demand on the part of tech users in the city of Calgary in Montreal, Toronto and Vancouver It remain.
The vast bulk.
But the demand we are seeing I don't know Tom whether the 109 deals you're looking at can be categorized.
In terms of tech and non tech, but my guess is it's probably pretty tech heavy.
Yeah.
Tech would be the biggest chunk yeah.
I'm guessing.
Third.
I'm actually just looking at the list now okay. So.
Probably about a third and then knowledge base would get us much higher.
And that's the interesting thing tech.
It depends what one needs biotech and I'm not trying to be glib or acute insight into that.
But in Montreal for example, it's much more multimedia post production.
Knowledge based organizations in Vancouver, It's pure tech, it's what any of US would define as tech and then in Toronto, It's probably a combination.
So at the moment.
Matt we're not seeing.
Impact on tech demand for our space that doesn't mean, we won't over the remainder of 2022 and into 2023, but we're not seeing it yet but again, we think more in terms of knowledge based than tech.
Think that is a broader cross section I mean, postproduction and multimedia is on fire.
Hollywood is basically trying to.
Coupled with the fact that we consumed.
Don't know five years of content in a year and a half of the endemic.
So that we're seeing.
Real depth in I don't know, whether it comes with them the rubric attack or not.
Yep Yep gaming so part is that.
Tech biotech.
Biotech and life science the demand, we're seeing it most pronounced in Montreal.
Is that tech or is it not I don't know.
But we're absolutely seeing that demand there and it is beginning to translate into into deals.
Okay.
Fair comment I don't know if thats helpful, but but that's kind of how we see it now.
And we're obviously going to be monitoring this super.
Super carefully.
Makes sense and if I could just one quick follow up on the V. J. The site I think it is to the east.
I think at a time you were considering an RFP for something in the vaccine production type.
Area is that what you're discussing with the city or has it evolved into something broader biotech was.
I think I think what <unk> described in his presentation is the piece.
Jason that has.
And old entirely replaceable building on it.
We're working with <unk> and his team are working with the city.
Now.
To get it approved for biotech and life science.
So we don't have a specific.
Tenant earmarked for that site, but we are making real progress and clearly have the support of the city.
In rezoning it for biotech and life Sciences.
And we also in Thomas leading discharge, we also are developing extensive.
Relationships with existing.
Existing and potential biotech and life science users because there is no doubt that they want to concentrate in that part of Montreal near the front.
There is absolutely no doubt whatsoever, and and so we want to make that particular opportunity available to satisfy that use because we won't be able to meet all the demand in the building that we're closing on tomorrow, we will meet side of it which is great.
But we certainly won't be able to meet all of it and we'd like to be able to meet more of it going forward, but that's that's.
That's a sort of medium term kind of reality, it's going to working with the city of Montreal was a long process.
And then actually leasing and building. This is also a long process. So that is not imminent.
But I do think it's a very real avenue of growth for Allied in the city of Montreal.
Okay that makes sense that area of the city has come a long way with mission. So.
It is it's amazing the transformation there.
Okay. Thank you very much for the color guys.
Thank you.
The next question comes from the line of Gaurav Mehta, calling from <unk>.
Capital markets. Please go ahead.
Thank you and good morning, everyone.
Two very quick questions from me.
Now firstly, just focusing on the decline in leasing velocity and when you're speaking with tenants can.
Can you comment on how much the.
The decline can be attributed to the restroom home debate versus being in a recessionary cycle.
It's a great question and here's how we think about it.
The fact that tour velocity continues to accelerate.
Is to me fairly definitive.
In terms of those users having made the determination that work space is a major component of how they get their work done.
And as such a very good signal.
Bye.
Interpretation of the stretching out.
Of the negotiating framework that's entirely.
Based on what I would call uncertainty in the face of an anticipated recession.
And people are just saying should we wait six months before we make a 510 15 year commitment and I believe that has everything to do with recessionary fear and nothing to do with.
Yes.
Organization, having made the determination.
That they had to work from home.
Okay, Great and just just to stay on that line of thinking out when you're thinking about net trends across your portfolio and even the broader market given that we're going to be in a tough macro tape.
How are you thinking about demand and met trends going forward, especially since you just mentioned, but demand made.
Slow down slightly for the rest of attorney to and into 2020 three as well.
I didn't quite get the question go out are you asking what our thoughts are with respect to.
Demand in the near term.
Our water parks around metrics.
Our own met rents in the near term.
<unk> as you go through a tough macro tape.
Mhm.
Yes.
On thoughts on metrics.
Sorry Mega trends.
Net rents I'm, sorry, yes, I apologize.
Okay fifth mid band telephone technology.
Anyway that raw good luck, yes, yes, our belief is and again, we you know I want to express this with with appropriate caution.
And caution isn't exactly my strong suit, but but I think it's appropriate here.
In Toronto.
We expect to continue to see upward pressure.
On rental rates.
On renewal.
That's for sure.
We continue to believe there will be some upward pressure on rental rates with respect to our developments.
Now, they're just about leased which which I'm very happy about.
But I think we expect to see upward pressure.
There in Montreal, which is much more a an upgrade market. We certainly expect to see upward pressure on rental rates in the buildings that we have redeveloped and 400 Atlantic is a great example of that which is leasing up now.
Because of the redevelopment is complete.
Yes.
And then in Vancouver at.
To the extent we have vacancy.
Do expect the upward pressure on rental rates to continue.
But in the Montreal market with respect to compete.
Completed space I don't envisage much upward pressure on rental rates.
In 2023 and 2024.
But I do expect to see it in the upgraded properties big time.
Toronto in terms of our space generally.
I think we will continue to see some level of upward pressure.
<unk> always expected that to plateau.
Once the new development.
Inventory is completed and certainly by 2024, I would expect rental rates in Toronto to start to plateau.
But not before that.
And I'll again, okay.
That's an expectation, it's imperfect, but but what we're seeing on the ground suggests that that's the case, but that could deteriorate if the recessionary fears start to take hold.
In a big way.
Then that that clearly could put.
Downward pressure on rental rates. The interesting thing is the recessionary fears which are real.
I've had more impact on the capital markets than they have at the moment on our.
But that doesn't mean, they won't have impact.
Over the remainder of 2022 and into 2023, we've always done well in a downturn always and we know we will again.
Whatever the downturn branches.
So.
I I really do want to express a caveat with respect to what we're seeing because it could change the.
The environment within which we are operating could deteriorate.
Especially.
If we go into a deep.
Recessionary environment.
Okay and thank you for the color Michael.
Turn it back to the operator.
Okay. Thank you.
The next question comes from the line of Tummy beer, calling from RBC capital markets. Please go ahead.
Thanks, Good morning, maybe just coming back to the steel coming back to the occupancy comments, maybe stretching stitching together everything that you've said today, Michael with respect to leasing pipeline.
The developments coming online.
There's obviously some some recessionary concerns that certainly escalated you think there is enough momentum to drive occupancy higher over the next few quarters or do you see it kind of just holding steady or.
Any color you can share on that front.
While you're trying to ask me the same question Jenny.
Mi, albeit more indirectly in your case look I really want to avoid trying to predict anything.
<unk> now and when we actually provide our 2023 outlook.
Of course, I expect occupancy to increase over the remainder of the year and into next.
But.
There is a level of uncertainty that.
I think would make it almost imprudent for me to prematurely make that.
Predictions so.
I think the right thing for US to do is is to experience Q4, one thing to remember leasing isn't that cyclical.
It tends to slow down a little in August .
As everybody is working from home so to speak or working from their cottage or.
At the cottage.
But it has picked up very rapidly in September and the one thing we know from long experience is December 31 is a massive deadline for leasing we were actually finalizing deals on December 31, 2021, I remember I wasn't here, but a big.
Part of the team was and they were literally signing deals that date, so it's a big big.
Deadline.
In the leasing cycle that we have experienced over a very long period of time, now and frankly before I make any bold pronouncements I really want to see how the fourth quarter plays out.
Got it no that's helpful.
Just I did want to I did have a question on the 2023 your estimated development contribution I think through the schedules on page 70, something.
Of the of the MD&A there wasn't dropped in the estimated NOI contribution in 2023 relative to what I think you had last quarter. Now. This does these numbers I think overall 80 million bucks, but they can swing around I guess on a quarterly basis in terms of your disclosure, but was there anything in particular.
That drove that rather sizable drop from.
The disclosure in Q2 and this is again the 2023 NOI contribution from development.
Very simply pommy, it's just timing of completion and commencement of reps.
Okay.
So the aggregate number isn't impaired in any way right.
It's the timing of ramp in 2023 is going to be a little later than we initially forecast.
And Youre right with most of the fee revenue.
Yes.
Sorry.
Well I think with most of that be tied to the well it looks like a few extra theater leases were pushed back by a quarter or two or something like that.
Yes, Anthony you're the connection we have with you is not good.
So if you could just speak a little louder that would be helpful.
Okay.
Hopefully this is better.
Mike maybe just banks.
Okay, maybe just switching gears with respect to.
Capital recycling, you've done a little bit in terms of dispositions this year, but and I think theres still one one property that's held for sale you as you think ahead.
And you kind of balance your leverage targets as well can you maybe just provide some color on how youre thinking about capital recycling over the next call it year or so.
Yes.
And thank you for for that.
Telephonic clarity that that was really helpful. I heard the whole question.
We have for several years now Ben.
If you will representing to you and our constituents that we have considerable optionality.
In terms of.
Monetizing non managing interests.
In our.
Rather large national portfolio.
And we've also represented.
That we have been working on developing those relationships.
Quietly and systematically.
EBIT through the pandemic.
And then in an effort to to gauge how.
How much optionality we have.
How significant it could be how efficiently we could execute.
Transactions of that sort.
So.
I think the best answer that I can give it to you.
Is that we are very confident.
Of our ability to monetize one managing interests in various aspects.
Of our portfolio.
On financial terms that would be very attractive to us.
And the proceeds of which we would dedicate almost circulated to proactively improving our debt metrics there.
They are going to improve organically for the reasons we've discussed.
On completion of the development pipeline.
But we are.
Well prepared to take a more proactive approach to doing that.
I'm not sure.
Projecting that we will.
Or loans, but I am saying in response to your question.
That we're very well prepared in terms of relationships.
And in terms of four shops too.
To execute on that.
Kind of transaction.
We consider it to be in the best interest of Allied and its constituents.
That I think is helpful as I can be.
So even though we haven't talked about this a lot over the past two or three years.
We have been both to thinking and working.
Towards establishing our capability in that regard.
That is that's very helpful. I will turn it back thanks.
The next question comes from the line of Dean Wilkinson, calling from CIBC. Please go ahead.
Thank you and good morning, everyone.
<unk>.
I'm like a boomerang I keep coming back.
We got rid of it.
Do you know how many times I've heard that.
Just a question on the King Toronto.
The asset impairment there was that just straight up on the front end.
On contracted costs.
Coming in higher just because of inflation or was there something else going on there.
There is a cost increase but also the delays in the construction as well as the higher.
Cost of equity.
Okay.
Got it.
And then you know I guess natural extension of that on the 300 and change million that you've got left on the cost to complete under the pod is there any element of that that would be let's call. It on contracted risks given inflation and sort of.
The increased costs associated with that or do you have a big enough buffer baked into those construction budgets to to be able to absorb that.
The intention is to have that delta is contingency into that number. So we have a large previously set aside to deal with those kinds of cost increases.
Perfect and then we know contingencies always get use so that's all I had thanks everyone.
Thank you.
We currently have no questions coming through as a final reminder, if you would like to ask a question press Star one now.
Okay.
Yeah.
We have a question.
From Mario Sorry, <unk>, calling from Deutsche Bank. Please go ahead.
Okay.
Thank you and the I'm sorry for a prolonged age.
This event.
Look a couple of questions.
But we're almost there.
The first question for Tom just a clarification on the research and development.
Pipeline.
You do have a 400000 square feet expiring in Q4 some of your comments on discussion about 450000 square feet.
That new leasing.
Would that be above and beyond.
Larry.
Mario sorry, the connection is bad.
And I don't think any of US quite got I know you were talking about 450000 square feet of new leases, but but I couldnt get the question.
Okay.
Sure.
A little.
Okay.
The question was.
Tom talked about 450000 square feet of.
Net new leasing discussions.
That's fairly comparable to the amount of inspiring in Q4 of this year. So I just wanted to get a better understanding of what are the 450000.
Above and beyond what is expiring.
It is above and beyond are generally there is a big chunk of the 450000 square feet.
Absolutely brand new deals for us.
Tenants.
There are some tenants that are renewing or expanding that also.
A factor in the 450000 square feet.
But a big chunk of it is brand new tenants.
Is that just answering the question I think so.
Yeah, that's great. Thanks, Tom.
Hi.
Second question, just dovetails kind of on the capital recycling comments Michael Julian.
Earlier.
It seems like the ability to execute on.
Potential disposition <unk>, you're referring to some really really high.
Just curious in terms of I don't know if you can answer the question, but in terms of the willingness is how do we how do we think about that.
Catalysts.
Going forward, whether it's macroeconomic uncertainty whether it's.
Further increases in private market cap rates not for the types of asset could you go and look for other classes of outlets.
What are some of the factors that you're thinking.
Think about in terms of.
The willingness of executing on that potential strategy.
Okay, I think I got the question and there are three things that we're evaluating.
In thinking about this.
One is wildly.
While this while it's not the goal or the purpose.
We'll only execute a good trade.
Period full stop.
<unk> isn't to execute a culture a good trade that that is that as a goal is insufficiently motivating for us.
But.
It's sort of a necessary condition, but not a sufficient condition. It has to be a good trade.
Number one.
More importantly, getting to goals there are two goals that are motivating to us.
And.
Would take necessary to sufficient.
Number one.
We may want to proactively.
Through our debt metrics and not.
Wait for the organic improvement to occur.
That's number one number two.
We always want to establish relationships.
We're complementary expertise.
Becomes part of what we achieved.
Through.
The transaction and since 2011.
We have been establishing joint venture relationships with organizations not so much because they.
They brought capital.
Two the activity, but because they brought complementary expertise.
Our relationship with perimeter is a great example.
They have real development expertise.
Along the perimeter.
Of the greater Toronto area, we donors.
And so the relationship we established the perimeter way back in 2012 I think it was.
Involved not really bringing us capital at all we brought the capital to the.
To the program by bringing us expertise.
In developing.
Kitchener that we simply didn't have and how successful that partnership has been west bank Likewise Rio can likewise in each case.
Partner brought complementary expertise and and and in each case the relationship has made us stronger.
And made us more successful in whatever we happen to have been focusing on collectively so.
To sort of summarize this because it is a good question and we have been thinking about it for a very long time number one.
Necessary that we do a good trade, but not sufficient.
Two and three.
It has to help us address our debt metrics in a meaningful way.
And it has to bring complementary capability I wouldn't call it necessarily expertise, but complementary capability.
To ally and we've been saying for two or three years now and I'm frustrated that we haven't been able to deliver on this.
Although in fairness to me and US a pandemic has intervened and we seem to be.
Moving out of a pandemic into a recession, so I don't feel terrible about not having.
Achieved this broader goal to date.
But we want to lever our platform.
Our history, primarily as elaborate our access to the capital markets.
And now and for some time, we've wanted to lever our platform. So if we do a deal of the sore I described or alluded to it will be something that levers our platform for bringing complementary expertise to our business.
Long winded answer but.
But hopefully a help one mario.
But I want to repeat one thing emphatically.
Not just going to go out there and do a trade. So that we can establish a data point, that's going to make everybody feel warm and fuzzy.
We'll not do that.
For two reasons, one is kind of an idiotic.
Undertaking and two it won't make anyone feel warmer and pricier in this environment.
So that is not the rationale that will support what.
We do if we do anything in this regard.
Great. Thanks, Michael.
Awesome.
If I may just one last one maybe for Cecelia just in terms of the IRS.
We were pretty flat.
This quarter aside from the uptick in Calgary.
CBRE came out yesterday with.
What kind of cap rate survey I got my actual transactions on the survey basis at a noting cap rates for downtown office.
<unk>.
Across the board 25 30 basis points.
Major markets.
In terms of your thought process on the cap rate is it simply a function of just.
No Craig.
And allied specific type properties or notwithstanding that the confidence level high that cap rates have not changed for your properties.
So we do adjust our cap rate, but it's based on actual transactions.
<unk> completed as opposed to.
Different research reports so there was a trade in Calgary in Q3, which justified us bringing up the cap rate and yeah, and some of our Calgary office.
We will continue looking at other transactions that take place in assets that might be comparable to our asset base, and then and we'll revisit accordingly.
Great. Thank you.
No problem.
Okay.
There are no further questions. So I will hand, you back to your host to conclude today's conference.
Well, thank you Ben and thanks to all of you for enduring the most adventurous conference call with US I think at the end we did.
Manage to share a lot of information with you and I Hope you found it helpful.
And I hope all the conference calls that you participate in going forward are technologically better than this catastrophe was so thank you again and if there are follow up questions don't hesitate to call any of us.
Thank you Paul.
You may now disconnect.
Please stay connected on the line.
Yeah.