Q2 2023 Allied Properties Real Estate Investment Trust Earnings Call

The Allied properties meet second quarter 2023 earnings conference call.

All lines have been placed on mute to prevent any background noise <unk>.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one thank you.

I would now like to turn the call over to Cecilia Williams, President and C. E. O. You may begin your conference.

Thanks, Josh Good morning, and welcome to our conference call.

Presenting briefly on the second quarter and enjoying my Nan N J P to answer questions myself.

Go with that.

We made in the course of this conference calls me forward looking statements.

About the future events for future performance.

Statement by their nature are subject to breath and uncertainty that may cause actual events or results to differ materially include.

Including those described under the heading risks and uncertainties in our 2022.

<unk>.

<unk> quarterly report.

Material assumption that underpin any forward looking statements, we make thanks window assumptions prescribed under forward looking statements and our most recent quarterly report.

Our second quarter was part in this operation.

First base remains strong as indicated by two or activity.

We also be significantly more space in the last quarter.

<unk> occupied square foot continues to increase.

Last four years to $23.51.

Higher interest expense and longer Lisa Timeframes resulted in lowering them budget statement in N Y F. S O N <unk> in the first half of the year.

Although temporary that's interest expense.

Going forward with the pay down $150 a desk.

That's where the ear has been impacted modern racing hard outlook. The good news is that we continue to see demand for Orange space project with sure activity continuing to increase.

Closing with a U D C transact will be deliberating in many ways.

Recently, the entire team <unk>.

Financially, we'll be able to meet obligations well barely using online to 2027.

Definitely six will also continue to improve as our development completion economically productive.

Our fourth annual E. S. T report was released on June 26th.

Pleased with the progress on our plans and neck, Gerald carpet, including establishing an internal cost of carbon to support internal decision, making and broadcasting.

More details on our progress will be disclosed in next year's report.

My confidence in our longterm outlook remains strong portfolio has performed well over the last three and a half years of upheaval and will continue to do so the sooner the current headwinds because ultimately we have the space that people want.

<unk> our team has never been stronger more focused or better integrated.

I hope that was helpful update we'd now be pleased to answer any questions.

At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

Your first question comes from the line of Jonathan Kilter with T V. Colin Your line is open.

Thanks, Good morning.

Alright.

First I guess just the the tourists familiar you talked about them being up year over year in quarter over quarter.

On the quarterly change how much of how 'bout tripped out if any is seasonality Q2 verses Q1.

It's hard to tell because.

We had a we had to actually have a pretty strong Q1 and so.

I I'm not sure if there doesn't seem to necessarily B Q.

Q seasonal impact.

Jonathan that we picked up on from a tourist perspective.

Okay, and then your over a year like how would that the the number of tourists how would that compare to.

Like it's a stronger office market that we saw a pre COVID-19.

I think this corner is representative of what we what is seen in a stronger office market. The average for that we had over the last three and a half years ago 219 per quarter. This quarter, we have 292.

Two orders were up in each so above the quarterly average in Toronto and Vancouver.

<unk> with Montreal B at the corner of the average.

Okay. That's helpful and then just switching to.

Called out the the castle is a non renewal there for for the pump and convey could see this quarter.

That's it that isn't intended vacation property over time.

Could you maybe give us a little bit more color on that were you hoping to get this this vacancy or will you be looking to put in a short term Kenneth how should that how should we think about that point.

We want is you know if we had an opportunity immediately we would've filled it it's not it's not a current day uhm intensification, but something that would be in the medium to longer term.

Okay. So you'll you'll you'll look to fill out with a short term kind of I guess.

Yep.

Okay, I will turn it back thanks.

Thank you.

Your next question comes from the lineup Lauren Palmer.

Palmer.

New line is open.

Thanks, Good morning Uhm.

Guidance you referenced a couple of a couple of things that drove the revision of guidance was there anything different that has changed in your outlook from when you initially issued the guidance to present day.

No just won't be originally issued the ninth at the end of January It was based on has different interest expense.

Cost of dead.

Materialize in the first half of the corner now that'll be addressed in the second half ice we pay off a billion dollars a day.

So that would be the the main difference.

Okay pay a billion dollars that will definitely help and then I believe last call you mentioned the gold trying to get through round 90 per cent committed occupancy by your <unk> do you think that's still achievable.

We're targeting to finish the year with a higher lease area than what we started that's that's always been the goal and we're we're still targeting that.

Okay fair enough there.

And then one other kind of ticky-tacky when I noticed the teller Skylawn was extended for a year could you maybe get some color of what was behind that.

It's just finishing up the.

Upgrade.

Sorry, the development and the the residential component.

Surely it is a loan to our partner it is not alone to us.

Yeah <unk>.

It's facility Allies has no debt in relation to tell the sky nor does it tell us so.

The relation to tell the sky it really slowly.

Parker.

And it's not indicative of anything maybe a broader issues of westberg.

It's it's.

No it's not.

Okay, great. Thank you so much for the color.

Your next question comes from the lineup at Karnak with National Bank Financial Your line is open.

Hey, guys just quickly going back to the occupancy side of things are you in the press release provided a fairly sizeable list of leasing velocity that you're done in Montreal seems to figure pretty prominently I know there was so they can see there, but but is that a market where you are.

Still expecting kind of to pick up some some incremental occupancy and then with regards to maybe the the tannery is there any any news on that space.

Absolutely.

Occupancy there.

We are currently in negotiations with a user.

Looking to take a significant amount of space.

Okay. Thank.

Thank you and then on unleashing cost T I's and leasing costs, particularly in and it looks like renewal space more so than the new leasing has has picked up a bit over the last couple of quarters is there is there anything to that or is it just specific to the space that's being least at this point.

Specific to the space.

Space.

Been in place for some time.

Time for for more of a <unk>.

Work to be done so to speak so it is very much space specific.

Okay and then the last one for me I noticed in your your commentary [laughter] you highlighted something that I think most of us know, but the new one one of the largest urban land banks, it's economically productive, but you mentioned mixed views density potential if you could kind of give us a sense of.

As to whether your thought has changed on the office versus residential component to that mixed use density potential and then maybe on the potential to monetize any of that.

Two medium term or if you plan on building it up yourself.

And that is Michael.

We have not.

Shifted or altered our focus on distinctive urban work space with respect to our justification potential as you know we have always been prepared.

We have always believed.

That makes you skip densification very expensive land in the inner city is the best way to realize value.

Probably the most spectacular example of that in our history and go seek.

The same thing.

We will not develop condominium residential space.

Forward.

Toronto.

<unk> not the norm.

Are you prepared to have mixed use.

Retail office and rental residential Unappropriate size give me inner city and no one owes.

More appropriate sites for that give me inner city vanilla.

So it doesn't reflect a shift in.

Our emphasis it will always be on the stage of urgent work space.

We have always recognize going as far back as about 2012.

That's the best way to intensify high value.

I am.

In Toronto and elsewhere.

Is with a mixed use format, we will get more support from the municipal authorities will get more support from the market.

And we'll be able to create something that is more durable over time, which is why we want it to be rental residential to the extent areas of residential.

And just with regards to the residential rental is that something again. This is probably not imminent, but it's something that you would own yourselves and manager or would you like to have a partner.

Uhm.

<unk> with it.

We might.

Some damage, but we would absolutely one hour proportionate interest or.

Higher interest.

In rental Rez, we we.

We are very pleased with the rental component to tell the sky.

Never happens to all of that and definitely.

The rental component of 19, Okay, which will start to fill out either late this year or early next year will be an astounding upset with 150 per cent of it.

Alright, So I think it's a very good asset for us to own mixed use urban development, we won't come out I can't imagine and simply develop rental residential buildings.

Very happy too.

Rental residential.

Components of mixed use urban development.

Makes sense makes sense.

Your next question comes from the line Alright, as mature with I E capital markets. Your line is open.

Thank you and good morning, everyone.

Just on the <unk> front are there any nonrenewal that you see coming up over the next few months across the portfolio.

Nothing of significance.

Negotiations with the Elisa coming up in the 19 eighties.

Well the the new line.

Okay, Great and just as a follow up to that you know on the positive renewals, leaving spread this quarter could you perhaps provide some color on what's driving that and how do you see that trend Oh the future.

[noise] Lee.

One second you, having a high level.

I I do now.

Level in 2022, primarily driven by the one nine renewal and kitchen are about.

<unk> 75.

80% renewal rate this year.

Okay, Okay fantastic.

And lastly, and this is this is a broader macro question on your guidance trim Uhm as you trim the guidance and how much would you <unk>.

Factor in the stubborn work from home that you're seeing in the M. T V cities versus being in a negative economic cycle.

What were you hoping to account too.

To.

Opposing forces wanted.

Temporary impact with a higher interest rate in the first half of a year, which we will be more than offsetting in a second.

That.

Combine the leg.

The name.

<unk>.

That.

Parallel with our high level of interactivity.

Instead of to the the bleeding.

The matrix.

We are still very confident that <unk>, it's a matter of time.

Really if I work from home perspective, because what we're seeing more and more.

What I should say that increasing levels of physical.

<unk>.

Sorry.

The country and not just the artwork.

All of the highest quality state.

Okay, great. Thank you for the color phacelia, all coming back to the Al Qaeda.

Your next question comes from the lineup Penny, Sir with RBC capital markets. Your line is open.

Thanks, Good morning, maybe just building on the on the last question in the comments there just again, just giving them maybe the resilience that we have seen in the economy and labor markets are are you noticing any shift in the tone with your tenant's in terms of at least in discussions and alright is there perhaps any concern over a recession.

Weighing on space needs or.

Maybe the timelines is taken to connect to space.

It's really more about the.

Economic uncertainty.

I guess longer decision, making timeframe, but.

In terms of people, believing that Ain't no longer.

Office space I still need it for a question of.

Whether it's the same amount or.

Yeah.

We're still seeing you know great demand.

<unk> uses and some medical services.

So can you hear that.

Consistent with being in the mail.

Okay and it just on the on the Shopify suddenly space and you're a P.

They're on you know where that stands or farmer's son on releasing it from.

I'll I'll say hobby that we're pleased with how things are progressing there and I can't really comment any further at this point.

If there was.

Significance like a.

And a big chunk of the space and that type of scenario would you would you engage with that kind of directly or or is it too early to say at this stage.

Pardon me.

Not to interject unduly, but.

Have found over a very long period of time that.

No large user.

Lease space, they will always want to deal directly with the owner and that will certainly be the case here. There is almost no possibility of a.

A large user sub leasing brown shopify.

They will want to be indirect contract with the owner and the owner will be quite prepared.

To enter into direct.

Contract with good replacement users.

Work to the benefit of both the owner and chocolate by over time.

That's how I think this will unfold almost certainly that's how it almost invariably unfold, especially with large space, which we've dealt with on many instances over the years. So there's no question as to how Israel.

It's just a question of whether with Hulu and we will work collaboratively with chocolate by to achieve a result that is good for both the owner.

And the original.

And we will be successful in doing that.

Got it Okay and then just one last one for me.

I'm looking at the I guess, the intense vacation uhm pipeline that you disclose in your in your in your MD&A I think it's on page 68.

I think you would just go with the value of roughly 700 million, but what sort of N. Why are these properties generating I I believe in at some point early last year, you you stopped disclosing the sort of annualized Santa while I'm not sure if what what maybe the reason widespread if if you have any update on that that'd be helpful.

I think the reason, we would have to stop and Bobby was because of the uncertainty in the market with respect to the future demand for office space with respect to construction costs with respect to just about everything relating to development. So it.

Which probably more speculative.

Previously and I think.

He would be reluctant to do anything other than give that theory general orders of magnitude.

The future if we do it all I think the more important.

There is there's.

Sure.

Exists savings and Testification potential how valuable that will be and how much value fries to that.

Five to 10 years old I don't think is worth speculating about at this juncture.

Oh, Yeah, sorry, Michael I think so my question was more so on the on the N Y. That's currently in place on those assets. That's the piece that was no longer disclose is that what you were referred to her.

I I don't have that number handy telling me that you can probably get the sandwich.

I'll tell you why Katherine and apply it to.

I don't have that number annually.

This call is it because we don't think it's useful information.

Okay.

I will not I'll turn it back thanks very much.

Your next question comes from the line of Dean Wilkinson with C. I B C. Your line is open.

Thanks morning, everyone quick question Cecilia on the new leases are you utilizing more third party brokerage just noticed a big uptick in the leasing commissions, there and and just wondering if if that's coming from external or internal sources.

We are using some maybe some situations.

Right yes.

And then from the landlords work perspective would that just be taking like some older space similar to the improvements you had to do for <unk> for the renewals like site specific or was that and also an indication of some general requirements in the market.

No.

Specific.

Great that's it thanks.

Thank you.

Your next question comes from the line of Jenny MA BMO capital markets. Your line is open.

Hi, good morning, everyone.

Hi, Penny.

Just fine to go back on the something space with Shopify when it comes to.

Space of this magnitude like how is shopify involved.

The process like is it everyone has representative and your brain you know the three parties at the table and discussions and is it possible that if you do find a user not to take up the whole space and at some point shop, if I can exit out of the hole, Lisa and no longer be involved going forward.

It is variably involves.

Will the three parties to identify they may or may not be representative, but they usually are.

And yes at the end of the day is the transaction works O as best serves the interests of all at all.

The original appointment is.

Off the hook and it has that obligation behind.

Obviously, the owner is only prepared to do that when it gets an equivalent covenant.

Alright.

We've done that as many many instances, where it's worked out really well for us this over.

Really well for the original 10 minutes for you Sir.

<unk> allowed to if you will get off the hook because the only way that.

A party can enter into direct activity a contract with the odor is if.

The original tenants is effective the relief that is.

Obviously, there's economics involved in all of that.

A theory workable arrangement.

It's area. Please give me interest all concerned the original tenant gets rid of essentials.

Real.

And contingent obligation the new tennis is very happy to commit to the space with the owner and the owner is very happy with the government.

So that is how it will evolve.

Yes to answer your question at the end of the day Shopify will be able to put this behind it.

E N at least as good a physician.

As it was in with the original.

Right. So the ability of that first off the side of her kids really at your discretion then right to your satisfaction. However, the discussions play out.

Absolutely we have no obligation to enter into direct contract with a new tenants.

We will do that in an effort to help our existing tenants and to enter into a relationship with a new one but.

But it's entirely within our discretion, which is why we've always said.

When <unk> when we're in a situation where good spaces on the sublease market.

Without b.

Self satisfied arrogance or overbearing, we are in control.

Okay, Great I have a housekeeping question related to the G. N. A it looks like in this quarter. There was some capitalized related to the sale of that UDC portfolio. So I'm just wondering.

The Delta the difference from two two to Q1, the peace related to you D. C and is there gonna be any more of that coming through for Q3.

<unk>.

No amount.

You too.

Okay. So it's the most expensive in this quarter then.

Yes.

Okay perfect.

Thank you very much that's it for me.

Jenny.

As a reminder, if you would like to ask a question. Please <unk> followed by the number one on your telephone keypad.

For just a moment to gather any remaining questions.

Mmm.

There are no further questions I'd like to turn the call back to fulfill your Williams for closing remarks.

Thanks for joining a conference call will keep you updated on my progress going forward.

This concludes today's conference. Thank you for joining you may now disconnect.

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