Allied Properties Real Estate Investment Trust (APYRF) CEO Michael Emory on Q4 2021 Results – Earnings Call Transcript
Allied Properties Real Estate Investment Trust (APYRF) Q4 2021 Earnings Conference Call February 2, 2022 10:00 AM ET
Company Participants
Michael Emory – President and CEO
Cecilia Williams – VP and CFO
Tom Burns – EVP and COO
Hugh Clark – EVP of Development
Conference Call Participants
Jonathan Keicher – TD Securities
Mario Saric – Scotiabank
Mike Mercatus – Jarden Securities
Brad Sturges – Raymond James
Caitlin Burrows – Goldman
Matt Kornack – National Bank Finance
Pammi Bir – RBC Capital Markets
Scott Fromson – CIBC
Jenny Ma – RBC Capital Markets
Operator
Please standby, we’re about to begin. Good day and welcome to the Allied Properties, REIT Fourth Quarter 2021 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Emory, President and Chief Executive Officer. Please go ahead, Mr. Emory
Michael Emory
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. FFO per unit came in at $2.45 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. Hugh will provide a development update and I’ll finish with our current thinking about the future. So now over to Cecilia.
Cecilia Williams
Good morning. All types on our balance sheets, 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 [Indiscernible] 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 of the ATM program will effectively allow us to more actively managed towards our targeted debt metrics. Onto our internal forecast. We expect low-to-mid single-digit growth in each of FFO per units, AFFO per unit, and same as the NOI in 2022. Consistent with previous internal forecasts, we’ve assumed no new acquisitions and using debt to finance all activities, both of which are highly unlikely. Growth in FFO and AFFO per unit will be the result of development completion of 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 cents to FFO per units 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 cost.
This would be primarily from The Well, Duncan and Adelaide, Bright Hub Phase III and QRC Phase II, 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’s 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 same asset NOI in 2023. Now to ESG. We continue to advance our ESG program in 2022. Last year, we set an inaugural greenhouse gas intensity target and a long-term goal of achieving net 0 for all new developments or major redevelopments.
This year, we will be evaluating our possible pathways to net 0 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 we’ll be undertaking a climate scenario analysis in the first quarter. You can expect our third annual ESG reports to be released by July of this year, including disclosure of our performance against the task force on climate-related Financial Disclosures or TCFD recommendations. I’ll now pass it to Tom for a discussion of our operating and leasing results.
Tom Burns
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 bolster our leasing team by adding three leasing managers, bringing our in-house leasing and lease documentation team to 31 employees. The team conducted over 1,000 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 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 QRC West Phase 2 project now under construction, that Queen and Peter in Toronto. We substantially advanced pre -leasing of the office component at The Well, we made good progress in addressing a large non-renewal at 111 Robert Bourassa in Montreal. We actually increased our leased area in Calgary, and improved the least area in our UDC portfolio. We also completed a number of significant expansions for major tenants across the portfolio, including publishes, almost doubling their space requirement.
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 that RCA and El Pro buildings in St. Henry. Following on the heels of a 30,000 square foot deal with Molson Coors at Robert — 111 Robert Bourassa.
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 the 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 11:00 am yesterday.
Stay tuned on this one. Moving to our existing portfolio in Toronto, we mentioned on 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 subsequently for the quarter, and are working with an existing tenant at King Spadina to move them from 25,000 square feet to 55,0000 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 TELUS Sky, we built it with three models 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 expected 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 and Toronto were 95.2% leased overall with two small renewal transactions completed in Q4. I will now turn the call over to Hugh.
Hugh Clark
Thanks, Tom. This quarter has seen advancements on both our playing 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 a 1001 Robert Bourassa and RCA. We have completed the majority of the base building work at 400 Atlantic. The leasing team is now actively marketing 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’re 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 billion of the third phase of Breithaupt development, and we anticipate handing over this space to Google for their fitout in early Q2. We were able to achieve a significant milestone at our College Street JV project with RioCan.
The building achieve occupancy and has had its first resident start to occupy their suites. In Western Canada, we were able to achieve occupancy at 400 West Georgia, planning the activity. This quarter has seen progress made on a number of submissions for future intensification projects. Subsequent to quarter end, we were approved for this first phase of expansion of [Indiscernible]. We intend to bring this to market in the spring, and would commence construction once we achieved a pre -leasing requirements. The goal of this project is to both better serve our knowledge base workspace users, as well as to advance our ESG commitments.
We believe we can do this through the exploration of building our first net 0 carbon building. The team has also advanced the work on the approval of [Indiscernible] Assembly, the Castle, King and Spadina, and Real Town. We’re targeting approval for the [Indiscernible] 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.
Michael Emory
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 becoming 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. 1. Urban intensification, 2. Humanistic operation, and 3. 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.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, for any questions or comments, [Operator Instructions] Kelcher at TD Securities. Your line is open please go ahead.
Jonathan Kelcher
Thanks. Good morning.
Michael Emory
Good morning.
Jonathan Kelcher
First question 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?
Cecilia Williams
Hi, Jonathan, it would be relating to parking and turnover of vacancy.
Jonathan Kelcher
Okay. So that should flip this year?
Cecilia Williams
Yes.
Jonathan Kelcher
Okay.
Cecilia Williams
Yes. We’re —
Jonathan Kelcher
Okay. And then on the development side, on the well, I noticed the costs were — the costs for the project were up about 5% versus Q3. Can you maybe give us a little bit of color on that?
Hugh Clark
For sure. They’re related to two things. One is the extension of the construction schedule, and two is activities that happened on site in order to deal with the impact of COVID.
Jonathan Kelcher
Okay. So just sort of timing in supply chain type issues?
Hugh Clark
Exactly.
Jonathan Kelcher
Okay. Fair enough and then for this year, what’s your expected spend on development for 2022?
Cecilia Williams
It would be about $200 million and it will drop in 2023 to under a $100 million.
Jonathan Kelcher
Okay. That’s it for me. Thanks. I’ll turn it back.
Michael Emory
Thank you.
Operator
We’ll go next to Mario Saric of Scotiabank. Please go ahead.
Mario Saric
Hi. Good morning.
Michael Emory
Morning.
Mario Saric
Just one quick question on capital allocation for the year. If 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 2021, you completed both $360 million of acquisitions. Is 300 to 500 million a reasonable range in terms of targeted acquisitions this year, and if so, how do you think about funding and the expected activity given the current unit price in balance sheet?
Michael Emory
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 NAV per unit.
That could ultimately delay or constrain our ability to take advantage of opportunities that we expect to become available to us. But we have explored 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: 1, we will not flex our balance sheet any further. Number 2, we will not raise substantial amounts of equity below NAV per unit.
Mario Saric
Okay. And I don’t know if you can answer this, given your department just now, but — or JV something that Allied would increasingly consider it. It’s not something you’ve historically done, but is that an option you are looking at? Not necessarily for specific assets, but just in general, the philosophy of JV s are changing overtime?
Michael Emory
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 2 propositions, I articulated with respect to capital allocation, yes. But it’s only one. There are others.
Mario Saric
Okay. Just maybe a bit more color on your acquisition at Twin and Seven West Hastings. It was in November of last year, but just — can you remind us of what the plans are there for that asset?
Michael Emory
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, they’re a 140 tenants there or there were at least on acquisition, we want to work with all of them to find a way to transformed 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 SunPower, 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, excuse me, larger single floor users. At Dominion we can accommodate mid-sized single floor users. And at the Dominion building, we can accommodate a large number of smaller users, and we want to continue to accommodate all such users because we want an ecosystem in our portfolio, in Vancouver, and elsewhere as you know, that allows us to accommodate the broad range of creative businesses in our economy today.
Mario Saric
Okay. Maybe [Indiscernible] really quick on the — my end. The first relates to your UDC cap rates. They are flat quarter-over-quarter of 5.3%, including 151 front, which is a 100% occupied at a 5 cap. I think we’ve seen a lot of transactions in the North American market. Pretty healthy evaluations that would suggest 151 front in particular, is well below a 5-cap rate asset. So I guess the question is, what do you think are the catalysts to recognize the inherent value, 151 in particular, in terms of the cap rate evaluation, and more broadly across the UDC portfolio, which stands valued at $1.1 billion today?
Michael Emory
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.
Mario Saric
Okay. My last question, just in terms of Montreal I thinking the last quarter with respect to the RCA building, it was mentioned that there is one potential user for 50,000 square feet working out with space. Is that potential user still there in terms of possibility or that opportunity coming down?
Tom Burns
That is for 30,000 square feet Mario and we’re trading paper with that tenant.
Michael Emory
I would translate that into yes.
Tom Burns
Saving acceptance 50,000.
Operator
We’ll move next to our question from Mike Mercatus (ph.) at Jarden Securities. Your line is open, please go ahead.
Q –Mike Mercatus
Thank you. Good morning, everybody. Three quick ones on my end. Cecilia needs to clarify the — and thank you so much for the expected incremental contribution from development. So I think it’s helpful for all of us. The $0.06 in 2022 is, pretty clear, $0.14 figure you’ve referenced in 2022; is that relative to 0 or is that incremental to the $0.06 in 2022?
Cecilia Williams
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,
Mike Mercatus
So hypothetically, all else equal to the 241 [Indiscernible] and that’s enough $0.20 you would expect. So 241 in 2021 it’s another 20 in total, you’re expecting in 2023.
Cecilia Williams
Correct.
Mike Mercatus
Got it. Okay. That’s okay. Thank you. Maybe just refresh our memory, team, I thought you owned the air rights for Union Center and I just noticed the $50 million transaction referencing the air rights at Union Center. Could you maybe elaborate on what the difference is about?
Michael Emory
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 their 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 North [Indiscernible] and the boundary on the West being Simco. And it basically goes to the far side of the rail lands and that 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.
Mike Mercatus
Okay, that’s great. Would that be followed by a resubmission of the proposal for Union Center as it currently stands?
Michael Emory
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.
Mike Mercatus
Okay. Last one from me before I turn back to my peers. Just, I think Michael, your commentary with respect to the opportunity set, [Indiscernible] on the acquisition side seems to be not on-par, but maybe more bullish for lack of a better term, going forward, daily analysis is 250 front, part of that opportunity set?
Michael Emory
We’ll 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 re-balancing 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 CDC 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 that everything I have said is a matter of public records 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.
Mike Mercatus
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.
Michael Emory
It is — I mean, the way to think about it, it is roughly a million square feet. Roughly half will be will be leased to the CBC long-term. Won’t be a lot of growth in the lease, but it will 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 sq. ft. 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-year or 42 year term.
So what we would have really is an 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.
Mike Mercatus
Michael, I appreciate your transparency and that’s excellent color. Thank you. I’ll turn it back.
Michael Emory
Okay
Operator
Moving next to Brad Sturges with Raymond James. Your line is open, please go ahead.
Brad Sturges
Hi, Good morning, just on 400 West Georgia it’s highlighted the ramp up on occupancy starting now, can you just give a timeline on to the extent you can in terms of the — what the potential could be for the occupancy stabilization there at the project.
Michael Emory
In terms of NOI, is that what you are saying?
Brad Sturges
Occupancy stabilization.
Michael Emory
In terms of percentage?
Brad Sturges
Yeah. When we will get to where?
Michael Emory
We hopefully will have that by Q3, which —
Cecilia Williams
Yes, 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.
Brad Sturges
And then, I guess just one other question. In terms of funding some of your growth initiatives, you have still some assets for sale on the balance to — listed on the balance sheet at the end of the year, would there be a scenario where you consider more a 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?
Michael Emory
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. About when I say there are options available to us, I’m not postulating large-scale asset sales on our part.
Brad Sturges
Okay. That makes sense. I’ll turn it back. Thank you.
Operator
We’ll go next to Caitlin Burrows with Goldman Sachs.
Caitlin Burrows
Hi, good morning. In the prepared remarks, I think you guys mentioned reaching 94% occupancy later this year. I was wondering if you could give some detail on the cadence of that expected occupancy improvement. And then just clarify whether that’s the total portfolio or the stabilized properties that typically.
Cecilia Williams
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.
Caitlin Burrows
And then separately, 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 [Indiscernible] 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?
Michael Emory
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 NAB per unit. And we will not — we will not fund it by flexing our balance sheet further.
Caitlin Burrows
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 like an incremental update?
Cecilia Williams
No, we don’t assume any ATM usage. We assume everything is funded with debt. So that would be an incremental usage.
Caitlin Burrows
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?
Cecilia Williams
That would be the Q4 G&A uptick you would’ve seen was for the final bonus payouts for the year. So it was a bit of a year-to-date catch-up on compensation.
Caitlin Burrows
So as we think about this year, would you say that, 2021 or some growth rate from that it’s reasonable to assume?
Cecilia Williams
For 2022, you should assume G&A will be in line with 2021, but excluding the $1.2 million or $1.3 million of severance expense that we had in ’21. So almost flat from ’21 to ’22.
Caitlin Burrows
Okay. Thanks. That’s all.
Operator
We’ll go next to Matt Kornack in National Bank Financial. Your line is open. Please go ahead.
Matt Kornack
Good morning. Everybody is 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?
Michael Emory
It is theoretical possibility, yes. It’s never one we’ve executed on, nor is it how we approach bend doors. So it is a theoretical possibility. I don’t know if it’s a real possibility.
Matt Kornack
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?
Cecilia Williams
No, it would mostly be driven by leasing up turnover vacancy, not so much on the development because on our larger developments we’re actually very highly leased. So.
Matt Kornack
Okay. Fair enough. And then on the follow-up on [Indiscernible] multimedia. It sounds like you have prospects there. That they’ve been there for a while, but it’s sitting, I guess, 111 Robert Bourassa, is sitting at 49% occupied. What — is that where we should expect some of that lease up in the second half of the year or should that come in the near term?
Tom Burns
I think we can expect some considerable lease up in that building that while some of that — those prospects have been sitting there, we’re getting closer and closer. So I think you’re going to see some movement over the course for the next few months.
Matt Kornack
Okay. And 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 lend against that asset. And is that contemplated in guidance that are coming in or being purchased at completion?
Cecilia Williams
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.
Matt Kornack
Okay. Now that makes sense. And the last one; 1720 BD, is that in process? I’m not sure exactly where it stands at this point or what the prospect would be for that to be completed and brought into three.
Michael Emory
It’s a timely question. The rate that we have advanced against that project slowed considerably in 2021. The plan we have there is not dissimilar to the plan we executed at The Well, we’re going to commit to the below grade construction pre -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 thousand square feet, our share 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 backup to grade. And if necessary, stop, once we get there, 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, will easily get to our pre-leasing threshold before we get back to grade there. But — 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 advanced. But that will accelerate a little in 2022, but under no circumstances are we building that on spec.
Matt Kornack
Okay, I appreciate that. And then sorry, Sealy. One last one on the guidance for the view on 2023. It sounds like, I mean, if you can go from 89.9% occupancy to 94% this year, I understand that some of the growth would be delayed into next year. But is there any sense of conservatism in your forecast there for sort of high single-digit same-property or not same-property FFO per unit growth?
Cecilia Williams
Mid-to-high, I would say, if we were to air on one side, it would be on the side of conservatism, but I wouldn’t say it’s highly conservative.
Operator
We’ll go next to Pammi Bir, RBC Capital Markets. Your line is open please go ahead.
Pammi Bir
Thanks and good morning. I believe last me — last quarter, you mentioned getting back to maybe 95% occupancy in 2023. I’m just curious as to perhaps, maybe upside to that target, just given, I guess the expedition get to 94% by the end of this year?
Michael Emory
I do bel — this is Michael Emory speaking. Of course, I believe there’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 an effort to boost our average in-place net rent per square foot overtime. 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, 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 would be a lot Pammi, but maybe some.
Pammi Bir
Got it and maybe building on the commentary around leasing. I guess we haven’t talked too much about it. I’m just curious what you could share with us in terms of; has there been a shift at all in any kind of sentiment? Maybe it’s more specific to your user base. But has it been a shift in sentiment in terms of space needs at all, just given wherever we’re sitting today, I guess, hopefully through the latest wave and through Omicron? I’m just curious if you could provide some color there.
Michael Emory
I don’t discern a shift in sentiment among our customers. And I also don’t discern a material shift in sentiments generally in the urban Toronto markets. Pardon me, the urban Canadian markets. I think there’s perhaps a potential shift in sentiment among the accounting firms. There’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 certainly have no inside knowledge or at least not much, but that’s what I sense. 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 will 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 learn 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 put the sublease space on the market really, really quickly in 2020 and they pulled it off the market almost as quickly.
Pammi Bir
Got it. Thanks for the color. I guess, maybe just with respect to The Well and the space not exercise by Shopify. What your sense and 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?
Michael Emory
I would say we are going to start dialogue on the space, serious dialogue with a number of parties right away, and expect that it within the next 2 or 3 months, we’ll have deals completed.
Pammi Bir
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 its — it’s still in use. So I’m just curious, how should we think about the use of the ATM and for the year-end?
Cecilia Williams
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 — we’re not going to be raising a significant amount of equity through the ATM. It will be a small amount, $150 million to $250 million. I don’t know, it all depends on how our — what our cost of equity is. So I wouldn’t expect it to have a material impact on our forecast.
Michael Emory
No.
Pammi Bir
Okay.
Michael Emory
The one thing that I’d add to that Pammi 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, we’ll entirely be governed and or largely be governed by our trading price relative to our NAV per unit.
And 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, whatever that proves to be, I see us using that very significantly on an annual basis because of the cost of equity is so much lower, and because we can we can issue, if you will, into the market on an entirely discretionary and opportunistic basis. The trial run we did in the fourth quarter was extremely successful to my way of thinking.
We raised $30 million essentially, which is not a lot of equity at around 44.055 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 the walks. And we were able to do that without disrupting the market in any way, shape, or form. 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.
Pammi Bir
Thank you. Just one last one from me. I know where — we’ve hit the 60-minute mark. Just on the same property, NOI outlook, the low-to-mid single-digit guidance for the year, I guess overall, just curious how does that roughly breakout across your core markets? We had some pretty strong results in Montreal, Toronto slipped a little bit, and I guess Western Canada was down a bit, but just curious what you can share with us on that.
Cecilia Williams
It would be 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, that is a bit of softness in 2022 as it relates to same asset in NOI.
Pammi Bir
Thanks very much, I’ll turn it back.
Operator
I’ll take our next question from Scott Fromson at CIBC. Your line is open, please go ahead.
Scott Fromson
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 trend — how are TIs trending with respect to average lease term?
Michael Emory
This haven’t been — 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’s — 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.
Scott Fromson
And what about other markets? I’d say Vancouver, especially 400 West Georgia.
Tom Burns
No change in TIs in Vancouver. TIs in — a little bit of free rent is the order of the day in Calgary and there has been no change in Montreal.
Scott Fromson
Just one last question. Are you seeing any backfill vacancy on new developments coming on the market in your existing portfolio say from your older buildings?
Michael Emory
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 new property with the possible exception of Conrad at King and Spadina, and they’ll be moving out of one of our best brick and being buildings in the country into The Well. And actually that space is the easiest thing in the world for us to do. We’re actually looking forward to that.
Tom Burns
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 that is — they’re moving to a brick and bean 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. So as Michael said, there’s nobody that’s leaving the portfolio at our expense.
Scott Fromson
So that Spadina property would be that vacation of IBM?
Michael Emory
It would.
Scott Fromson
Okay. That’s great, that’s very helpful. Thanks. I’ll turn it over.
Operator
We’ll take our final question from Jenny Ma with RBC Capital Markets. Your line is open, please go ahead.
Jenny Ma
Good morning. I appreciate the color that was provided on what goes into the guidance. I just want 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, so 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 be a zone in on if you’re targeting returning more to a 2020 levels sort of in that seven range or pre -pandemic six range?
Michael Emory
I think the worst case scenario is if I can describe it that way, we see our return to target levels of net debt 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 7s, maybe even the high 6s. But I don’t think we get our debt to EBITDA back to our target, which is, let’s call it 7s 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 ’23 — late ’23 so as to get back to our target range or maybe even early ’24.
Jenny Ma
Great, that’s really helpful. Cecilia, you have 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?
Cecilia Williams
Yes, 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.
Jenny Ma
Great. Second half. Okay. Great. That’s all for me. Thank you.
Michael Emory
Thank you.
Operator
With no other questions holding, I’ll turn the conference back to management for any additional or closing comments.
Michael Emory
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.
Operator
Ladies and gentlemen that will conclude today’s call. We thank you for your participation. You may disconnect at this time.
