Allied Properties Real Estate Investment Trust

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. Emery.

Thank you, Jess. Good morning, everyone, and welcome to our conference call. Tom, Cecilia, and Hugh are here with me to discuss Allied's results for the fourth quarter and year-ended December 31st 2021. We may in the course of this conference call make forward-looking statements about future events or future performance. These statements by their nature are subject to risks and uncertainties that may cause actual events or results to differ materially, including those risks described under the heading risks and uncertainties in our most recently filed 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. 40.5 cents and AFFO 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 finishing at $24.64 in the fourth quarter compared to $23.88 in the comparable quarter last year. Cecilia 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. Q will provide a development update, and I'll finish with our current thinking about the future. So now over to Cecilia.

Good morning. I'll touch on our balance sheet, internal forecast, and ESG. First, our balance sheet. As you know, we flexed 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 EBITDA 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 ran it in Q4. raising $30 million of equity at a weighted average price of $44.05. 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 program will effectively allow us to more actively manage towards our targeted debt metrics. On to our internal forecast. We expect low to mid single digit growth in each of FFO per unit, AFFO per unit, and SAMASA NOI in 2022. Consistent with previous internal forecasts, we've assumed no new acquisitions and using debt to finance all activity, both of which are highly unlikely. Growth in FFO and AFFO per unit will be the result of development completion, 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 decapitalization of costs, resulting in the full impact not being realized for 12 to 24 months. Development completions are expected to contribute an incremental $0.06 to FFO per unit in 2022, net of $1 million less in capitalization of costs. This is primarily from economic occupancy commencing at the well, Duncan and Adelaide, and Bright Hop 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 line rent on the total portfolio is expected to almost triple in 2022 from 2021 levels 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 completions are expected to contribute an incremental $0.14 of FFO per unit, net of $16 million less in capitalized costs. This would be primarily from the Well, Duncan and Adelaide, Bright Hub Phase 3, and QRC Phase 2. Combined with a full year of the acquisitions expected to close in Q3 of 2022 and economic occupancy from leasing activity completed in the rental portfolio, in the latter half of 2022 our current internal estimates are for growth in the mid to high range of ffo per unit affo per unit and say massa noi in 2023 now to esg we continue to advance our esg program in 2022 last year we set an inaugural greenhouse gas intensity target and a long-term goal of achieving net zero for all new developments or major redevelopments. This year, we will be evaluating our possible pathways to net zero and preparing our team members and relevant partners for implementation of our decarbonization roadmap. We are committed to evaluating climate risk across the business and 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 Disclosures, or TCFD, recommendation. I'll now pass it to Tom for a discussion of our operating and leasing results.

Thank you, Cecilia. 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 by 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 a 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 were 20.6% higher than average rents in the expiring term. Some leasing highlights in 2021 include 100% pre-leasing of our QRC West Phase 2 project now under construction at 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 Barassa in Montreal. We actually increased our leased area in Calgary and improved the leased area in our UDC portfolio. We also completed a number of significant expansions for major tenants across the portfolio, including publicists almost doubling their space requirements. As predicted, the amount of space available for sublease in our portfolio declined 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 at RCA and El Pro buildings in St. Henry. Following on the heels of a 30,000 square foot deal with Molson Coors at 111 Robert Barasa, we have recently completed a deal for 40,000 square feet, and we are currently negotiating with two companies for a total of 70,000 square feet in that same building. Moving to Toronto, we learned Monday of this week that Shopify elected not to exercise a right to expand by 90,000 square feet at the well. 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 340,000 square feet. Strong demand for this project continues as we completed five transactions totaling 135,000 square feet over the past three months. Indeed, the marketplace was waiting to learn about the availability of the 90,000 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 tenant at 111 Queen Street East, growing from 68,000 to 120,000 square feet. That deal has been fully executed. We also completed two deals for 22,000 square feet at 312 Adelaide, just subsequent to the quarter, and are working with an existing tenant at King and Spadina to move them from 25,000 square feet to 55,000 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 20,000 square foot deal for vacant space in Vintage 1. Most of the activity in this market is for deals of 5,000 square feet and less, with tenants seeking built-out space. We have upgraded the number of suites in order to attract these small users. At Telesky, we built out 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 30,000 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. The three-year restoration project at Sun Tower 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 improve leasing, which had been difficult during the restoration. The Vancouver portfolio is 91% leased. Our urban data centers in Toronto are 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 has seen advancements on both our planning activity as well as our construction activity fronts. I will 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. Beginning in Montreal, work continues on the upgrade work at 1001 Bourassa NRCA. We have completed the majority of the base building work at 400 Atlantic. the leasing team is now actively marking the 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. At 19 Duncan, we were able to hand over the first floors to Thomson Reuters for their fit-out work. We anticipate achieving occupancy of the office component in late Q2 or early Q3. In Kitchener, work is being completed on the base building of the third phase of BrightHop development, and we anticipate handing 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 RealCams. The building achieved occupancy and 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. Subsequent to quarter end, we were approved for the first phase of expansion of Le Nord de Lac. We intend to bring this to market in the spring. and would commence construction once we had achieved the pre-leasing requirement. The goal of this project is to both better serve our knowledge-based 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, King & Spadina, and Railtown. We are targeting approval for the Bathurst Assembly in the fall of 2022. This quarter has seen progress made across all of our development and work. Despite industry-wide disruptions to the supply chain and manpower, the team remains focused on maintaining momentum on all active developments and 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 31st this year, 87% of the users in our portfolio, 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 in our portfolio continues across the country. As the global pandemic appears to be coming to an end, I'm 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. Two, humanistic operation. And three, stress-tested leadership. As I pointed out then, I can't prove the thesis. Only human behavior over time will do that. or not. What I can say at this point in time is that human behavior as allied experienced it 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 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is star 1 to ask a question. We'll go first to Jonathan Kelcher at TD Security. Your line is open. Please go ahead.

Thanks. Good morning. Morning. First question, just on the same property NOI, it was a little negative in Toronto and Kitchener in the quarter.

Can you maybe give us a little bit of color on that?

Hi, Jonathan.

It would be relating to parking and turnover vacancy.

Okay, so that should flip this year? Yes.

Okay.

And then on the development side, on the well, you notice the costs for the project were up about 5% versus Q3. Can you maybe give us a little bit of color on that?

For sure. They're related to two things. one is the uh extension of the construction schedule um and and two is uh activities that's happening on site in order to deal with the impacts of covid okay so so just sort of timing and supply chain exactly exactly

Okay, fair enough. And then for this year, what's the expected spend on development for 2022?

It'll be about $200 million, and 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 to Mario Sarek at Scotiabank. Please go ahead.

Hi, good morning.

Morning. Just one quick question on the cap allocation for the year. I think the MD&A and the letter to unit holders highlighted the expectation to allocate a large amount of capital in 22, which is consistent with prior years. I think in 21 you completed about $360 million of acquisitions. Is kind of $300 to $500 million a reasonable range in terms of targeted acquisitions this year? And if so, how do you think about funding any expected activity given the current price and balance sheet?

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 Cecilia 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 NAD 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 and 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.

Okay. And I don't know if you can answer this given your comment just now, but are JVs something that Allied would increasingly consider? It's not something that you've historically done, but is that an option you're looking at, not necessarily for specific assets, but just in general, the philosophy of JVs, or is that changing over time?

That is definitely one option that has been 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 207 West Hastings. It was in November of last year, but just Can you remind us of what the plans are there for that asset?

It is a spectacular heritage asset, probably along with our Sun Tower, which, by the way, is featured on the cover of our annual report post-restoration. Along with the Sun Tower, it is arguably the finest heritage structure in the city of Vancouver. It 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, there are 140 tenants there, or there were at least on 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 relocates some of them to other buildings we have with a more allied-like leasing structure. So that will... be a gentle rolling upgrade, for lack of a better term. The Dominion Building is very close to Sun Tower. And actually, it, Sun Tower, and the landing are almost optimally located in relation to one another. And so at the landing, we can accommodate 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 to accommodate the broad range of creative businesses in our economy today.

Okay. Maybe two more really quick ones on my end. The first relates to your UDC cap rates. They're a flat quarter of a quarter at 5.3%, including 151 front, which is 100% occupied. At a five cap, I think we've seen a lot of transactions in the North American markets. pretty healthy valuations. I would suggest 151 front in particular is well below a five cap rate asset. So I guess the question is, what do you think are the catalysts to recognize the inherent value at 151 in particular in terms of the cap rate and valuation and more broadly across the UDC portfolio, which stands valued at $1.1 billion today?

We're very aware of the transactions you've adverted to. We have not reflected those transactions in our ifrs value at the end of q4 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 in terms of determining what impact those transactions have on our underlying urban data center values. The transactions aren't perfect comparables to our 151 front, but they're 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, I think in the last quarter, with respect to the RCA building, it was mentioned that there was one potential user for 50,000 square feet looking at the space. Is that potential user still there in terms of possibility or is that opportunity coming on?

That is for 30,000 square feet, Mario, and we're trading paper with that tenant.

I would translate that into yes. Save it except for the $50,000.

We'll move next to our question from Mike Markitis at Jardin Securities. Your line is open. Please go ahead.

Thank you. Good morning, everybody. Two quick ones on this. On my end, Celia, just to clarify, and thank you so much for the expected incremental contribution from developments. I think it's helpful for all of us. The $0.06 in 2022 is pretty clear. The $0.14 figure you referenced in 2023, is that relative to zero, or is that incremental to the $0.06 in 2022? It's incremental from 2022 to 2023.

It's another incremental $0.14 net of 16 million decapitalized. Both of those figures are incremental. Yeah.

So hypothetically, all else equal, if you did 241 today, then that's another 20 cents you'd expect. Sorry, 241 in 2021, that's another 20 cents in total you're expecting in 2023. Correct. Got it. Okay, that's helpful. Thank you. Maybe just refresh our memory team. I thought you owned air rights for Union Center, and I just noticed a $15 million transaction referencing air rights at Union Center. Could you maybe elaborate on what that reference to was about?

Sure. That is roughly 5.2 acres immediately to the south of the Union Center site above the rail lands where we closed the acquisition of air rights, I believe, in the fourth quarter. So it is literally 5.2 acres of land that really runs directly south of the Union Center site, I guess with the boundary on the east being York-York and the boundary on the west being Simcoe. 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 augment our ability to create value on that larger site.

Okay, that's great. And would that be followed by a resubmission of the proposal for Union Center as it currently stands?

Fortunately, 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 it's now at about 1.33 million square feet. We will clearly 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 3.0 is on okay last one for me before i turn it back to uh to my peers just um i think michael your commentary with respect to the opportunity set going to be on the acquisition

side seems to be, if not on par, but maybe more bullish, for lack of a better term, going forward. Dare I ask, is 250 front part of that opportunity set?

Well, let me respond to the general question first, and I should and will respond to the specific one second. I believe a lot of portfolio rebalancing is going to occur in 2022 and onward, which could, I'm 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 250 Front, the CBC 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 CBC building. That process was explicitly conducted with the knowledge that Allied has a right of first offer and that at the end of the process, the CBC would then deal with Allied in relation to its right of first offer. So 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 that's 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 I'm confident but not certain that we will end up in a position to buy the CBC 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 public information and is known to all in the industry.

No, I appreciate that. And 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 with an outline of that asset potential?

It is, I mean, the way to think about it, it is roughly a million square feet. Roughly half 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, 170,000 square feet or so of the remainder is already leased to 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 an aggregation of a very stable base, albeit not one that's likely to grow materially over time. And 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. That's how it was presented to the open market For bidding and there were bidders who stepped forward And that will then allow 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 Sturgis with Raymond James your line is open. Please go ahead Hi, good morning

Just on 400 West Georgia there, you highlighted the ramp up on occupancy starting now. Can you just give a timeline to the extent you can in terms of what the potential could be for the occupancy stabilization there at the project?

In terms of NOI, is that what you're saying? Occupancy stabilization. Oh, in terms of percentage?

When we'll get to where we... We hopefully will have that by Q3, which... Yeah, 95% is what we would consider stabilized occupancy, and Q3 would be when we close on that transaction. So it would coincide with when it comes on our books. That would be our expectation.

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 listed on the balance sheet at the end of the year. Would there be a scenario where you consider more 100% asset sales at this stage if the capital markets aren't 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 two 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, I'm not postulating large-scale asset sales on our part.

Okay. That 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. So I was wondering if you could give some detail on the cadence of that expected occupancy improvement and then just clarify if whether that's the total portfolio or the stabilized properties specifically.

Hi, Caitlin. 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, secondly, I don't think this one was talked about yet, and I know I'm going to say it wrong, but last July, You announced that Jesta Group was developing 700 Rue St. Hubert, which you would buy in the second half of 22 around the time of completion. So assuming that is still the plan, can you go through how we expect to fund that project in particular and to what extent that property may contribute to earnings in 22?

Again, we will fund it 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 to diminish that particular acquisition, but it's not particularly large. But as I say, we will not fund it with equity below NAV per unit, and we will not fund it by flexing our balance sheet further.

Okay, and then maybe two quicker ones. Just wondering if the internal assumptions that you outlined for 22 and even 23 assume any additional ATM usage, or if you were to use the 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 last, 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 managers. So is that related to that hiring and more of a permanent increase or was there something one time or a mix?

That would be the Q4 GNA uptick you would have seen was for the final bonus payouts 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 or some growth rate from that is reasonable to assume?

For 2022, you should assume GNA will be in line with 2021, but excluding the 1.2 or 1.3 million of severance expense that we had in 21. So almost flat from 21 to 22. Okay. Thanks. That's all.

We'll go next to Matt Kornick at National Bank Financial. Your line is open. Please go ahead.

Good morning, guys. Everybody's trying to figure out how you buy things without financing them. So just a quick question in terms of potential vendors in the market. Is there an appetite at this point for them to take back equity at NAV in Allied? Is that a potential kind of 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 on, nor is it how we approach vendors. So it is a theoretical possibility. I don't know if it's 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. Okay.

Okay, no, fair enough. And then on the, I guess, follow-up on CT Multimedia, it sounds like you have prospects there. They've been there for a while, but it's sitting, I guess, 111 Rubber Barissa is sitting at 49% occupied. 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, Matt. While some of those prospects have been sitting there, we're getting closer and closer. I think you're going to see some movement over the course of the next few months.

Okay. Then the 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 lent against that asset. And is that contemplated in guidance, that coming in or being purchased at completion?

Yes. So our outlook or our forecast, our 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, now that makes sense. And last one, 720BD 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 similar to the plan we executed 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 but 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 600,000 square feet, our share of 300. So it's not gigantic, but in the context of Vancouver, it is quite large. And the approach we've taken is to fund the subterranean structure back up to grade, and if necessary, stop once we get there if there's no pre-leasing in place. If our experience at the well is any indication, and our assessment of the strength of the Vancouver market accurate, we'll easily get to our pre-leasing threshold before we get back to grade there. So it's a timely question. It hasn't been a big drag on capital for us, and we're getting a very good return on what capital we advance. But that will accelerate a little in 2022, but under no circumstances are we building that on spec.

I appreciate that. And then, sorry, Celia, one last one on the guidance or 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 FFO pre-unit growth?

Oh, the mid to high? I would say if we were to err on one side, it would be on the side of conservatism, but I wouldn't say it's highly conservative.

Okay. Thanks, guys.

We'll go next to Pammy Burr at RBC Capital Markets. Your line is open. Please go ahead.

Thanks, and good morning. I believe 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, you know, I guess the expedition get to 94 by the end of this year.

I do believe, this is Michael Emmerich speaking, of course I believe it's upside. 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 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 over time, even I can't imagine there's 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 had more control, you know, 97 might have been Just a great, we've hit 95 before, but it didn't last long. 97 we have achieved, but it was a smaller portfolio, more discreet, not subject to geographic variation. So I don't think there'd be a lot, Tommy, but maybe some.

Got it. And maybe just maybe building on the commentary around leasing, I guess we haven't talked too much about it. I'm just curious, you know, what you could, share with us in terms of, you know, has there been a shift at all in any kind of sentiment? You know, maybe it's more specific to your user base, but has there been a shift in sentiment in terms of, you know, space needs at all, just given where we're sitting today, I guess, you know, hopefully through the latest wave and through Omicron. I'm just curious if you could provide some color there.

I don't discern a shift in sentiment among our customers. And I also don't discern a material shift in sentiment generally in the urban Canadian markets. I think there's perhaps a potential shift in sentiment among the accounting firms. There's 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 they'll be successful in doing it ultimately. But if there is a shift in sentiment or at least explicit vacillation, it's with the major accounting firms. A lot of their teams are hoping desperately to work from their cottage for as long as they can and as happily as they can. That might be a bit of an overstatement, but it's 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 their 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 sense 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 or 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. And again, the only sort of vocal vacillators are the major accounting firms. They just don't know which way is up. And they're hoping desperately that they can, I don't know, just take it a hell of a lot easier and not have to show up on site. But the lawyers learned very quickly that while they can function on an emergency basis in 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 for the color. I guess maybe just with respect to the well and the space not exercised by Shopify, what's your sense? You did mention, of course, some discussions that are underway with other tenants. What's your sense of the timing of when you may actually have some deal signed on that space?

I would say we're going to start dialogue on the space, serious dialogue, with a number of parties right away. and expect that within the next two or three months we'll have deals completed.

Okay.

And just coming back to maybe the ATM, Cecilia, I think you mentioned that the guidance assumes no further equity issuance or no equity issuance, but yet the ATM is still in use. So I'm just curious, how should we think about the use of the ATM for the year ahead?

You know the ATM is a tool in our toolbox and it will be one of many ways that we will be funding our activity. I don't you know we're not going to be raising a significant amount of equity through the ATM. It'll be a small amount you know 150 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, and the one thing I'd add to that, Pani, is 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 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 by our trading price relative to our nav per unit and You know the faster our trading price approaches the nav per unit in all likelihood the more we'll use it And as I say on an ongoing basis when we get to what I'll call a fully stabilized Trading value what whatever that proves to be I see us using that as very significantly on an annual basis because the cost of equity is so much lower and because 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 4405 on average, in a very volatile market. This was almost as Omicron hit and introduced an extreme amount of volatility into, well, 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 VWAPs. 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.

Thank you. Just one last one for me. I know we've hit the 60-minute mark. Just on the same property in NYU Outlook, the low to mid-single-digit guidance for the year, I guess, overall, just curious, how does that roughly break out across your core markets? You know, 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.

Yeah, it would be, you know, well into that range in Central and UDC. And then offset by continuing softness in Calgary. And then in Montreal, as we lease up the turnover vacancy range, 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 Frommsen at 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 TIs trending with respect to average lease term?

TIs haven't changed a great deal over the course of our leasing program. What's happened most recently, I would say, that's helping us achieve really good rents is we can physically take people into the building up to the floors, and they can see what they're going to be occupying. And that makes a big difference for companies. Rather than leasing from a plan and leasing from renderings, they can physically see what they're going to be sitting in. And I think that's helped us achieve higher rents.

And what about other markets? Say Vancouver, especially 400 West Georgia.

No change in TIs in Vancouver. TIs and a little bit of free rent is the order of the day in Calgary. And there's been no change in Montreal.

Okay. Just one last question. Are you seeing any backfill vacancy on new developments coming on the market in your existing portfolio, say some of your 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 into a property with the possible exception of Conrad at King and Spadina and they'll be moving out of one of our best brick and beam buildings in the country into the well and backfilling that space is the easiest thing in the world for us to do. We're actually looking forward to that.

I did mention in my speaking notes that there was a 25,000 square foot user at King and Spadina moving to 55,000 square feet. We're getting close to that deal. But they're moving to a brick and beam building that's being refurbished today on Spadina. So if that was what prompted the question, that's not the case. And by the way, we have users ready to take the 25,000 square feet once this tenant makes the move. Yeah, so as Michael said, there's nobody that's leaving the portfolio at our expense.

So that Spadina property would be the vacation of IBM? It would. Okay. That's great. That's very helpful. Thanks. I'll turn it over.

I'll take our final question from Jenny Ma at BMO Capital Markets. Your line is open. Please go ahead.

Thanks, and good morning. I appreciate the color that was provided on what goes into the guidance. Just wanted to touch on the debt to EBITDA. When we think about the pathway of what that might take, would it more or less resemble the occupancy moves that you're expecting? kind of trend, kind of steady where it's been at year end for the first half of this year and starting to trend down. And then the second part of my question is, when you're talking about a target, could we zone in on if you're targeting returning more to a 2020 level, sort of in that seven range or pre-pandemic six range?

I think the worst case scenario, if I can describe it that way, would see our return to target levels of net debt to EBITDA 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'll be in 2023 organically. And what gets us there organically, of course, is the introduction of roughly $80 million in EBITDA. Once 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 EBITDA back to our target, which is, let's call it sevens, by the end of 2022, unless our cost of equity improves materially and we over-equitize 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 late 23 to sort of get back to our target range or maybe even early 24.

Great. That's really helpful. Cecilia, you had mentioned the straight line rent is expected to triple this year. I think I heard it right. Could you give us a bit more detail on sort of the timing of how that flows through?

Yeah, that would basically be the result of the turnover vacancy from 2021 being addressed in 2022 in the latter half. So we'd have significant straight line rent coming online from that period.

Great. Second half. Okay. Great. That's all for me. Thank you.

Thank you.

With no other questions holding, I'll turn the conference back to management for any additional or closing comments.

All right. 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.