Q4 2020 Dream Office Real Estate Investment Trust Earnings Call
Okay.
[music].
Good morning, ladies.
Gentlemen, and welcome to the Dream Office, REIT, you're and conference call for a Friday February 19th of 'twenty 'twenty. One during this call management of Dream Office REIT may make statements containing forward looking information within the meaning of the applicable securities legislation for.
Forward looking information.
And just based on a number of assumptions and is subject to a number of risks and uncertainties. Many of which are beyond dream office Reits control that could cause actual results to differ materially from those that are disclosed and or implied by such forward looking information additional information about these assumptions and risks and uncertain.
And he is contained and Dream office Reits filings with securities regulators, including its latest annual information form and M. D. N. A these filings are also available on Dream office Reits website at Www Dot Dream office REIT Dot C. A later in the presentation, we will have.
A question and ask the recession to queue up for a question. Please press star one on your telephone keypad. Your host for today will be Mr. Michael Cooper Chair and CEO of Dream Office REIT. Mr. Cooper. Please go ahead.
Thank you operator, and good morning to everybody.
The.
The Ford Wadley, the Chief operating officer of Dream Office, and gauging, the Chief Financial Officer.
It's been a challenging time to run the business and running a office buildings. In this environment has been really familiar we're coming up to 12 months with a very few people working on of offices and.
And.
The tremendous amount of discussions over how people work and the future.
We will not answer of that today today will kind of focus on the assets of the meal and a what we're doing with them.
I would say the following we.
We spent five years repositioning the portfolio, so that would be 85 from <unk> assets and balance.
And on Toronto, we're strong believers on the future of the city of Toronto the.
The city of Toronto was doing better than it ever did the day before the pandemic hit.
And we believe the Toronto will continue to do well after the pandemic is manageable.
With regards to the buildings that we own a buildings of this quarter.
Quality and a location over the last 150 years or so I've done exceedingly well and we expect that they will do very well and the future.
Dream offers or the 85% downtown Toronto office buildings and for.
15% outside of downtown Toronto outside of downtown Toronto.
<unk> got the center.
Center, which is a great building thats been doing very well and 2200 Atkinson, which.
It is adjacent to a new a L. A R. T subway stop that will be opening later this year.
We're getting that building the land Rezoned. It's 15 acres, we think we'll end up with maybe two and a half a million square feet of extra.
And at $70, a flip that's about $175 million, which would be about $4 a share of additional value.
We're also of the owner of Dream of industrial stock, which is worth about $340 million, which is another six so we're currently trading at below $20 and we a $10 a share and our dream of industrial.
And so the REIT stock.
And on likely we'll achieve that increment value of this year, our 2200 Atkinson.
That remains the <unk>.
$10 a share on a all of our office buildings and.
We're very excited at the spring soon to be able to announce that we've completed our normal course issuer.
And January and are looking forward will be a.
Using our capital to improve our buildings and buy back stock I'd like to turn it over to Gordon to provide and update on the operations after that Jay will speak about the the.
On the financials and then we'd be happy to answer your questions.
Good.
Well, thanks, Michael and good morning for.
First and foremost I hope everyone and your families are all staying well, it's great to get a chance to connect with you on today.
Ultimately priority pandemic the channel leasing market was a very favorable arena for not just our company, but all landlords and general.
And can see was up 2% and rents were at record highs.
On both new leases and renewals.
Demand for office space from the tax finance and professional services sector provide a tremendous tailwind for commercial owners and downtown Toronto.
And Dennis has resulted and office vacancy for Toronto to increased over seven 5% downtown a level not seen since the great financial.
Hi.
New leasing has slowed a bit but this is a direct result of the various states of emergency being mandated and largely as a result of these actions. Many tenants are understandably delaying decisions on their future real estate strategy.
Despite all of this and further despite what you're reading the news.
Create a social media hotcakes. It was enacted a year of leasing for a dream office and of equal importance of rents held up very well on the over 500000 square feet of deals. We completed in 2020, and we continue to see real positive momentum and some increasing activity as we get to the spring.
During the pandemic.
And for those 2020, we completed approximately 65 deals for over $500.
For some additional context, we did three transactions of over 25000 feet and one of the approximately 190000 square feet. So from our perspective deals of scale are getting done and companies are making commitments.
A rates have been very.
A resilient and it's a testament to the quality and location of the buildings, we own the efforts of our operating team and ultimately staying true to our asset the capital strategy net.
Net rents have continued to be strong and in line with the business plan of pre pandemic levels. We've also seen steady growth and the NAR performance of deals being completed.
Where on average were 21% over budget on an aggregate basis.
Like most of our peers, we have some construction delays and challenges that were managing through on a phase III collection and these are due solely to the mandated shutdowns on interior construction and we're targeting substantial completion by the end of this summer the feedback.
And from tenants and brokers and like has been tremendous.
We really look forward to a mailing and all to you all soon and hopefully we'll get a chance to walk you through a person.
The optimism on a base street offering is further supported by the 12 deals that we did and that specific project, a strong rents and any arris, 30% higher than budgeted.
These are a new class of boutique assets that don't compete with large towers, they're low rise lockable, both small private floor place all net.
He is building systems and showcase the level of luxury finishes that are unique to the market.
And the current pipeline and we're actively negotiating and trading paper on 20 deals.
And totaling over 215000 feet for.
A lot of press and focus around shadow vacancy and the state of the submarine market and trial. This has not been an issue where something we're seeing and the REIT.
Currently and our portfolio of Theres, only a 103000 square feet and a sublet space available for put differently, that's less than one 8% of our portfolio and nationally.
And other market, Saskatchewan, and Calgary occupancy is down a bit due in large part to a few known vacates and one and solvency restructure tours and activities and these markets. However picked up and thats due in large parts of their phase of the reopening.
We very recently received and a responding to three rfps totaling 55000 feet.
And also the note we've completed a few key deals that haven't taken off occupancy of the Saskatchewan, One day and a major national bank for 15000 feet and a large tech firms who are expanding significantly.
Our current and committed occupancy is 94, 5% and Toronto and approximately 72% and other markets.
Actions continue.
And to be strong at 97% for the year with average wallets and the portfolio of almost five five years.
Early in the pandemic, we dedicated team members reallocated resources and set our goals to ensure we stay and constant.
Immunization with our tenants this was really to be a resource a sounding board and ultimately.
Be a partner to help facilitate the Rockies decisions.
We've had some great success with this approach on direct renewals renewals without a broker. This also helps us provide guidance on government subsidies and most importantly, and turn the inactive and empathetic partner on making a payment arrangement, which support our collection ratios.
And operationally and a great importance I also want a touch briefly on some of our ESG initiatives here a dream.
While the dream has always been and organization Thats emphasize the importance of being a good corporate citizen, we're making it and absolute priority to increase transparency on ESG.
More than ever investors want to know how businesses are incorporating these principles.
Their operations.
Our team recently published 2019 sustainability report.
And if we highlight some of our accomplishments which include a reduction in energy and Wizard and water consumption greenhouse gas emissions as well as a number of highlights on employee development and the overall diversity of our workforce.
We also discuss.
Our five year plan and targets for sustainability, which we think are a bit ambitious but achievable.
I would encourage everyone who is listening or who is interested to go CRE ESG program and a sustainability report on our website every time, you go and click and open and we make a donation to a worthy charity.
However, a work.
Work doesn't stop there were and the process of implementing many initiatives across the business, we built ESG into our corporate goals for the years ahead and <unk>.
We remain very accountable to the execution and ultimately that a progressive measurable.
Our primary goal this year is to submit for the grant the assessment, the leading sustainability benchmark and the real estate industry.
We think this will be a valuable communication tool for our investors.
We are also continuing to work towards additional green building certifications, well health and safety certifications and achieving bone, the best and lead and a number of our buildings.
Internally, we established a diversity inclusion and advancement team to ensure that our entire workforce.
And as equal opportunities to succeed and also that our trades contractors and service and service providers align and share their inclusive of the policies. This is to ensure everyone. We deal with is doing their part to be leaders and inclusion.
We also just kicked off for sustainability working groups internally, which will focus on green property operations.
Operations sustainability reporting communications, and both employee and tenant engagement.
Overall, our goal is to be recognized as one of the top sustainable reach and Canada, and we look forward to sharing our progress over the coming quarters.
Ultimately and feel good about a portfolio the quality of improvements we've made to our assets and both the.
Sitting in aesthetic level put us in a very strong position as we come through Covid.
But bricks and mortar aside I couldnt be more pleased with how the team has responded this past year their efforts and dedication to not only our company, but to a court clients is what I'm most proud of.
At the end of the day, it's the combination of having.
The operational assets, coupled with the quality high character team of people, we have operating and leasing those assets that gives me the greatest confidence going forward into 2021. Thank.
And thank you, everyone and I'll turn it over to Jay.
Thank you for.
We're pleased to report our fourth quarter and year end results for 2020.
A replay of materials are a fairly comprehensive so we will try to avoid repeating the contents of the press release our MD&A.
And instead, I will speak to our financial position and capital allocation and our internal budget for 2021.
Or is that I'm happy to answer any questions on the materials afterwards.
Despite being in a year and on public health crisis.
We are pleased with the resiliency of our business has shown and allowing us to support our tenants employees through COVID-19.
We entered the pandemic, having substantially completed a strategic plan for the transform the business into a pure play of downtown Toronto Office REIT.
We built a well capitalized balance sheet, which has a resulted in a much safer and less volatile.
Our business we.
We feel the strategy of works out well when times are good or bad debt.
We reported a net asset value per unit of $28.69, which implies the annualized total return of 11% including distributions over 2020.
We stated since February of 2016 and.
With our focus on Vectra.
And that has now increased for 15 quarters and a role.
Our year and that includes independent appraisals for $778 million of properties or a 31% of our portfolio of preparedness here.
Our units reached a high of $36 last March and dropped the $15 within the month.
The average unit price was about 20.
The dollars from March the year end or roughly a 30% discount between the trading price and where we think is an intrinsic value.
Our IRR of carrying value of applies a 4.8% cap rate or implies a $600 per square foot for downtown Toronto and.
And therefore less of a few hundred dollars per square foot for the rest of the portfolio.
We have the monitoring private market transactions since COVID-19, which all of volume between 650 to a 1000 per square foot and and almost all of instances, we like the quality and the location of our portfolio of better.
So as this morning's trading price of roughly $19 30 based on the four 8% cap.
For a downtown Toronto.
We noted above we feel comfortable with based on the private market comps the market of distributing either a stabilized net rents and the low twenty's net or.
Or a structural vacancy and the low eighty's.
Please note on and are in place rents are currently about $25 and as a board noted we did already exist during COVID-19.
All of it at 38 net so.
So we feel there is a good margin of safety.
Based on a replacement cost of developed today net rents need to be and between 40 to 50 net and we believe there will be long term demand for commercial and residential space and the downtown for sure.
Toronto, a is well positioned to continue to thrive on the economic center.
Center, and Canada supported by a strong immigration forecast and continuing expansion of multinational organizations.
Now obviously COVID-19 has been a real a distraction currently real estate is very thematic and the narrative and the unfavorable for office Reits with lots of opinions about work from home versus return to the office.
We feel that while it is too early to tell all tenants will behave post pandemic businesses will continue to need space to collaborate and clients drive sales and provide a separation between the work and the home.
As a city opens back up and everything which makes Toronto a world class City return the people will fall for many businesses providing.
Adding a desirable workplace will be critical and talent recruitment and retention.
So with all of that and consideration we believe repurchasing our own units represent the best long term of investment for every dollar. So we had and maximize our normal course issuer bid program and repurchased $5 8 million units of our nine 4% of our own company and the average price.
It's a $19 eight.
After the buybacks our balance sheet remains and very good shape, we are at 41% debt to gross book value of approximately a $150 million of liquidity and the unencumbered asset pool of $250 million with no covenant restrictions.
Over the next few years, we do not have a lot of capital commitments and so.
Our balance sheet remains flexible.
Approximately a $110 million of debt to refinance and 2021 with a weighted average expired a rate of 488%.
We think we will be able to obtain higher net the refinancing proceeds and lowered the interest rate by about a 150 basis points of unsecured financing based on today's rates.
We are also continuing to move forward with applications for our three major mixed use development projects two of <unk> done that 200, Eglinton and 212 of $2 18.
And 2020, we receive council zoning approval ex of <unk> done that for which we got on appraisal and then recognize a $43 million of fair value gain.
The quarter.
All of the projects are still on pre development for 2021, So we anticipate approximately $12 million of soft cost to be spec.
We think the capital is a great return on investment without adding a lot of risk as we continue to elevate the highest and best use of each site.
Or has already talked about our commitment to the dream.
And the first on phase III once the construction of a stoppage is lifted we will resume of artwork and anticipate substantial completion in 2021, we spent $20 million to date, which imply $30 million left to spend this year.
While we manage our business and financial planning with a very long term view, we acknowledged that everyone on this call on the annual guidance.
The collection of only one.
So we will share our internal budget.
I would not proceed with the obvious caveat that budgeting and a challenging as we still do not know the extent of our duration of the pandemic one of the economy will reopen and how it will reopen or how tenants will behave when that happens.
We anticipate the annual comparative of property NOI to be flat.
For 2000, and I'm slightly for 2021 at the in place of occupancy and will likely be lower and the first two quarters of 2021 as a result of the state of the emergency measures limiting physical tours and that leaves us of Syn <unk>.
Many of our perspective tenant type of identify the space for any of the wafers to finalize the decisions on their lease.
We believe many deals and our pipeline.
And will be signed by the second half of 2021 and in place and committed occupancy for the portfolio will trend up and and 2021 relatively in line with where we are at today This will position us well for 2022.
Our development obligation of $3 57 day and downtown Toronto was completed this quarter and we were commenced.
From payments in November.
We will realize the full year's rent in 2021.
In addition, we anticipate and 9800 Sherwood place and Regina to be completed on time and potentially exceeding our budget of 8.0% development yields by the second half of the year.
Both of these projects will contribute to net operating income but.
But not comparable properties NOI. So we anticipate total of properties NOI to be up in 'twenty and 'twenty one.
Using rounded numbers, we budget of approximately $12 million of general and administrative expenses relatively flat interest expense $2 $5 million increase and that's helpful from our share of dream of industrial units based on guidance.
Items of 5% SP NOI growth and over 10% per unit of <unk> growth that their management team provided on a Wednesday.
As a sign of based on current share price of our holdings and dream of industrial REIT or about a third of our market cap.
And our budget, we assume no acquisitions or dispositions and the base case however.
We will be marketing certain assets and western Canada, and our loan asset and overland Park the USA.
If we out of all of the assumptions I just spoke to on a leverage neutral basis, our <unk> per year of unit works out to roughly a $1 60 per unit for 'twenty and 'twenty, one or about a 4% increase.
As mentioned before and we manage our business with a longer term view, we look forward to business as usual and Dream office and we will update you all accordingly over the course of the year.
I'll now turn the call back for the moderator.
And thank you we will now begin our question and answer session.
If you have a question. Please press Star then one on your Touchtone phone, if you're using a speaker phone and you may need to pick up the handset first before pressing the numbers. Once again that is star then one with your question and I see we have our first question. It comes from Michael Rothschild with Canaccord. Please.
Go ahead Sir.
Thanks, Good morning, Mark.
Maybe just expanding on the conversation about the sublease market.
There's been definitely notably from brokerage reports that of a huge increase the amount of available sublease space.
It seems like.
No change really and its parts of your portfolio.
Can you give some additional information on the why do you think that is what you're seeing overall on the market and ultimately do you expect that to have an impact on rental rates.
Yeah, that's a great. It's a great question.
And our portfolio, we're not seeing much if any.
A sublease availability and the reason being is a lot of the sub leases youre hearing and reading and the obligations across the market are large users. So the large contiguous pockets of sublease availability, our average user sizes a lot smaller so if we have a company that sublease the space the impact of our portfolio.
Isn't that a parent to some of the other landlords.
We've got a lot of smaller users of that qualify for the government subsidies.
And we've made it a real point of contact and discussed with each one of our tenants.
What the occupancy plans are to get ahead of them rushing to make a sublease decision. So it's the combination of those factors.
<unk> and I, just think and in general given given the size of our average tenant base given the size of our buildings.
And we're just in a better position to weather the exposure of having large tenants sublease space and the market.
The answer Youre much else on units.
Yes. Thank you.
And 2022 months' of sold some units and a tube industrial and.
Clearly some of that money if not all of it went to.
Buyback units and Dream of office can you talk maybe more of <unk>.
Typically a how you view the dream of industrial position and is it something debt.
We would do from time to time, if you see better value and one versus the other.
Sure Mark I think that.
We're finding that the dream of industrial units are a very valuable and it's a real.
A great source of cash flow, it's free of Capex.
And we expect.
The industrial and we will continue to perform well so it's a great asset to own a we did sell some of them in the fall to buy back stock.
And as time goes by we'll probably sell some more from time to time, but nothing dramatic.
Okay, Great and then.
And just one last question for Jay and maybe my follow up after a privately at some of this for you on it but if you can just give.
Some additional detail on when some of the new leases that you spoke about and your disclosure out of the call will take effect.
And in particular, maybe I think all day.
And then back to square.
Sure No problem typically you see a lag of it.
And maybe just eight months of between when the leases signed at the one eight.
And on that for a lot of larger leases they might take a back longer than a year. So for the for your question on the other markets I would anticipate most of that did hit and.
The occupancy in the second half probably a lot of that and the third quarter keep in mind and Sherwood.
And that goes on line of third quarter as well, so you'll see the occupancy lift.
Okay, great. Thank you so much.
And thank you we have our next question from Sam Damiani with TD Securities.
Thanks, Good morning, everyone just on the the.
Welcome to the drop in.
And we played in place from a drop in Q4. It was a pretty significant drop was that was that fully expected or was there any.
Is there any surprises there.
A gourd.
And I can take that question good good questions and so so it was fully expect.
The.
We've had this asset strategy over the better part of the last 18 months, where we had a lot of small tenants on small floor plates.
Coming off really low expiring rents and Theres a lot more appeal, especially post COVID-19.
To have dedicated.
The small floors for.
For users. So we've been working through that strategy of strategic Vacates and getting full floor and what I would say too is a lot of the buildings, where you've seen a drop and the occupancy and these are small buildings or buildings that are 40000 square feet on the.
The average floor and played on some of these buildings of 3000 square feet. So.
Expect we do lose a half floor tenant it shows a drop and the occupancy but really its by design. So.
We're just trying to to.
The work through some of those lower expiring rents and set ourselves up for success having.
And these smaller a full for a full floor for floor plates.
To take out to the market.
Thank you the that's helpful and just bigger picture looking at the the occupancy dropped during the year last year.
How much of that would've been unexpected versus just a slower demand and maybe the physical difficulty and.
Longer time to get deals done during the economic.
Walked out I'm, just trying to figure out.
What is going on and.
And if things aren't going to change from the pandemic and the near term should we expect some continued erosion and occupancy as of the.
Gotcha.
Yes, so maybe I'll jump in here from a budgeting perspective, that's a.
Retention and.
Economic rates are fairly strong and so I would say that is generally in line with the budget.
It's really hard on this.
And the state of emergency that were enacted and that sort of a really hurt the new leasing momentum in terms of the physical tours and the ability for tenants of signed leases and the what happens is you just have a bigger a pipeline.
And so I'd say that probably without COVID-19. It for hitting our budgets are in place occupancy would still be on and a high 90 and.
And when you really see the lag and the churn, but nevertheless, I mean that gives us the opportunity as Gordon mentioned and some of the smaller buildings to take back contiguous floors, the turn into turnkey space.
And we did a couple of test cases as early as 2019, where we took the ramped up from 18 19, and all the way into the 40, so and we're still seeing strong revenue and good demand for the space. It just takes longer.
Okay and just finally on.
On the base Street properties I think there is.
For a handful of maybe half a dozen buildings where.
And the World has gone under two five years and some of them of a walk drop vacancy by over 500 basis points in the fourth quarter of God, you kind of talked about this in terms of some of this being by design strategic Vacates and whatnot.
The 2021 progresses and.
And you've reached completion on this these redevelopments how should we look at for how should we expect those buildings to I guess perform in terms of reported occupancy and.
Over the course of the year.
Yeah, Great Great question, and so we have.
On occupancy where a rapidly negotiating on.
On that on a number of deals on Bay Street collection, and we've got occupancy rising towards the end of this year.
Probably one of the biggest outliers on that building, where you've seen the biggest drop in quarter over quarter occupancy has been $3 66 day and that's a building and we're taking the same approach is $3 57.
There is tremendous.
Potential for this building is a small building that we currently have measured and about 38000 square feet.
And if that's a building we go to substantially Remediated like we've done with 357 day.
And we take the rentable area up by about 5000 square feet.
We've got the small turnkey floors.
And we Theres some users and the market that are in that 30% to 45000 square foot plate.
That would get their own Standalone building on Bay Street. So we've got a whole holistic building management plan. We're looking at for $3 66, and we think if we can take the rents up by $10 over expiring and Thats an extra 450.
$1000 and NOI per annum, and we think it's a really attractive building. So we see our occupancy going on towards the end of the year and and we've got a and asset class for each one.
Thank you I'll turn it back.
Thank you Sir our next question is from Mario <unk> with Scotiabank.
Hi, good morning, Thank you.
The first question for Jay the from the 'twenty one guidance.
And the $1 60 aircraft for per unit or the expectation from the lease termination fees for.
For the year number one and the number two because of the <unk>.
Inherently.
I assume that the government.
Subsidy programs.
Are going to expire in June of 'twenty one.
Hi, Mario first question no we do not forecast lease termination income, we do not anticipate there being a material termination and is currently set.
Second question on.
On the wage subsidy, it's formulaic and.
And then it's a.
Right now, we expect nominal amounts and the first quarter and therefore on the guidance for the Formula of Hasnt really been.
The brought out yet for the Q2 and beyond so it's a very nominal on a budget I think the 8000 and then there. So we do not rely on the subsidy.
Okay.
In addition to the way you talk to the local kind of both the service program for just for a government of cooking programs for carbon.
Yes, I mean under the old program a secret.
You sort of have to try to forecast the provision of the measure for getting 25% of the rent under the new program the <unk>.
And are eligible for a higher percentage. So why we would do is maybe a forecast a little bit of a provision in the Eric but our expectations are that the program will continue to support our tenants ability of the pay our rent collections are a continued to be and the high ninety's and by really the stack and the third quarter of the year were going on.
And start to see a recovery.
And both of the tenants coming back businesses to reopen and our parking garages, which actually is a.
It's a pretty material a figure and our NOI to gradually recover as well.
Got it so the the parking revenue as you mentioned the.
Clearly meaningful is the expectation of apparel.
And will fully recover by the end of the year and 2019 levels.
Yeah, I would say that is really like a <unk> curve you had low.
Parking and Q1, and 2020 and and a drop and the summer and came back a little bit but by here now and it's really hard as day, one we're going to come back. So I think by the summer we gradually build the curve back up and by.
And of the year work on that expect that most of our parking garages will be well utilized.
Got it okay, maybe shifting to capital allocation and the young CIB can you remind us for when you can launch.
The new M CIB and I think Michael you mentioned that the appetite is still there at the buyback.
And given where the stock is trading and how would you characterize that appetite today relative to August of 2020.
Given the balance sheet leverage has picked up a little bit and then.
On the while there aren't.
The North Park and many dollars can be a crimp on development and redevelopment in 2021, and thank you mentioned $12 million.
Back to you and a presumably 2022 onwards it'll be a.
And the increasing use of capital. So how do you how do you think about a the unit buyback a with all of the bottom line.
So I would say that the.
The N T I D.
We'll get a new one mid August.
And I.
Okay, well on what we see now.
If the stock is where it is we'll use it all up and it's nice to because between now and August we will get some sort of answers on all the questions that have been raised today and if we can see that the company is producing higher rents higher occupancy getting approvals.
<unk>, we'd be happy to use up the entire a normal course issuer bid.
And we will fund it either through a.
Increased mortgages I think we're getting a bunch of them.
Gains in our book value, so that that debt.
The offsets the.
Capital structure and it's.
It's not that much money. So I think we'll continue to buy back stock as much as a kid.
And I mean, one of the Covid, we had a 114 million shares of the peak of downward of about $54 million. So we've reduced them by more than 50 million shares it's kind of like a habit I got a work on a break.
Yeah.
Fair enough, Okay, and then just from a from a deep from a dream of industrial perspective.
And possible no country and doing a bit more.
Charlie so on.
And from a tax perspective is there anything that.
Preventing you from a more materially coming down on your stake and.
And then redeploying into either a redevelopment or the <unk> or your units.
And from an efficiency perspective.
And so it was a question whether the thing.
For a number of prevents us from doing that.
Yeah from a supply.
The tax on that is talk the inefficiency and the obstacle.
And doing that if you're still on quantity so.
And then our view has been and we'd be like dream of industrial and didn't want to get some liquidity we would do it.
Jay do you on a go through any numbers on that.
Sure Islands to answer a question on a high level I would say in the consideration not an obstacle and.
2000, and point, we sold a little bit I didn't really have a material impact.
For our sort of tax basis, combined with a set of rules and the liquidity and currently so we anticipate and the sources of capital.
<unk> for the NCI and <unk>.
And we'll be achievable within the cost structure.
Got it Okay. My last question just pertains to leasing you know of a of the 450000 square feet of at least during the Covid crisis, and I think you've already taking care of 420000 square.
And of your 'twenty, one lease expiry for your well along the way there have you seen any tangible data points pertaining to tenants either a shrinking their respective footprints due to work from home strategies going forward or Conversely, increasing footprints do the new social distancing requirement for good is there anything and the.
The data there.
And I would suggest tenants are altering their behavior at all.
That's a really good question is Gordon.
And we see we see a couple of different data points, there and as early as of yesterday and we.
We had a tenant discussion with a large tenant and that.
That was asking for the availability of contiguous space.
So that they can grow their footprint to make it a little bit more space.
We haven't seen a.
Let me rephrase that so.
A few and far between I've been the tenants that are downsizing.
As a result, and we're starting as we come through this to speak to more and more.
For tenants.
And about potentially growing their footprint and our client services team.
The self perform on construction and project management on our side as well too. So we've been using that as an opportunity to talk to our tenants and health plan and their space with them and so we've had a lot of these conversations and I would.
Say, it's marginally more skewed towards people, taking more space and it is the opposite and taken a less.
So it's really interesting okay.
Thanks for your.
Youre welcome. Thank you.
And thank you. Our next question is from Matt <unk> with National Bank.
For net job.
Yeah, a quick follow up on a that line of questioning with regards to discussions with your tenants just wondering in terms of some of the vacancy that you've had where those tenants that ultimately had a financial strains related to Covid and then maybe in addition to that if you could discuss kind of your.
You're a toll.
So the government because you've got them and there you've got some financial services tenants.
And then maybe of what some of the smaller tenants are thinking with regards to space as well.
Sure Thanks, Matt and it's court again.
Just on unpack. Your first question. So when we were speaking to some of the tenants and unfortunately that.
Weather.
Covid as well.
And at the state, notably the majority of the more where people that were traditionally are issues prior to the pandemic. So I think this is just kind of wasn't a inflection point for a number of those tenants that were already struggling a little bit when COVID-19 happened.
For.
Having a part of our collections have been tremendous and and the high Ninety's. So the bulk of the tenants that we're dealing with are.
Our committed to trying to make their business work and we're doing whatever we can to help them on the occupancy side and.
We made a really good point and not a lot of people are asking about the government and large users, but our position and working with the.
A government as they've been tremendous to work with throughout the pandemic. We've done a number of notable renewals with them were working on a couple of other deals with them and both the provincial and federal level keep in mind, we did a 190000 square feet with them at one of our buildings at the beginning of the year and the.
Did what they could to work with us to get the deal done.
The most broke COVID-19 and they were a great partner to deal with and Theyre looking at their occupancy strategy strategies as well too from.
From the vein of what their workplace is going to look like they've gone the workplace to point all of his previous year, they're looking at doing another kind of a hybrid where they provide a more space to their employees. So we're having these active.
And with them, but for the most part of the government has been and staying with us and potentially expanding and some spots.
A larger institutional users and.
And we haven't come to any real occupancy variances with them as of as of yet.
Okay Fair enough and then on the lease maturity profile.
<unk> of J, probably highlighted this on your guidance, but I think for other markets do you already anticipate you of commitments in excess of of your maturities.
But for the Toronto market I think it's about 60% of total what would you expect in terms of a retention ratio on maybe both markets, but what are the thoughts.
What's on retention at this point.
Sure.
And ratio and Toronto, it's been pretty steady and it hasnt really changed the Covid and we're seeing about 70 to 75 per cent.
I think the easier as a way to sort of explain downtown Toronto is we don't expect a lot of activity given that right now it's almost.
And I think a.
For the first few quarters, but a lot of the pipeline the <unk>.
Tenants aren't ready to sign and so we think that in Q3 Q4.
And we're budgeting about maybe a 303 hundred basis points of positive absorption and each of them.
And other markets as you said, if you look at the spread between the committed and.
A lot of that has already picked up.
A way share when it comes and all of the occupancy a otherwise they will commence and the sort of the second half of the year on retention ratio of just because of the portfolio was only 15% of the business and the buildings are unique to the geographies, it's hard to forecast of a retention ratio.
And it looks like it's block and tackle and I would generally say that.
We are we are and the business to to fill up the space and we're very open minded and we won't get the occupancy up because of that improves the liquidity from both of the financing or a private market perspective.
Sure.
And at this point it sounds like rents have held.
Fairly firm.
So that can change but definitely.
And definitely in Toronto, and sort of a fair characterization.
It is Matt Yeah, they've stayed very consistent of pre pandemic levels.
And maybe I had a this quarter of leasing costs were up.
A bit is that a function of the I think it may have just been $3 57 day.
Is there something else a.
To that in terms of the pandemic or a.
That was actually a unique because of the commencement of this quarter was a weighted and or skewed heavily towards the overland Park lease I took a occupancy I think at the end of the year.
Okay.
And last question for me you of some very pretty looking a renderings of some pretty impressive density that you can add on your sites do you foresee that being done within Dream office REIT a.
Or would it be sold to a new.
Another entity or what would be the timeline.
And there's going to be done within a dream office.
So in reverse order to 12, King and we have a partner there we started the zoning process that would likely take two years before.
We have the zoning let alone a site plan approval, so that's a pretty distant.
<unk> done that because of really.
And if at the building because it's got a lot of apartments and it's right in the hospital district, we could have started it sooner, but I think that with all the changes and health care.
We're looking at.
Opportunities to get high returns on that building line.
Working with the hospitals, so that's and it takes some time and they're really.
Interesting busy right now, but I think that we have for building from the health care District and.
And I think that they may surprise on the upside for what they're worth.
And then a wondering if you want a day.
And as I mentioned and the Golden mouth study area would make it a lot of progress that's probably the.
And hopefully a year away from the only two years away from site plan.
And what's really nice about that one is it's so much land and there's so much density that we can do it at the smaller chunks.
The 2200, and I think when you start that the minute. We can a 250 done basketball and what do you think if you're a to estimate of a start date, what would you do that.
About two years, Michael two and a half years.
You got two or three years I think and.
And as far as a whatever your partners are not the these projects will all be owned by Creme office going forward.
Could look at bringing in partners.
Not in 212 King.
But maybe a 'twenty 200 items.
Okay perfect I appreciate the color.
Okay.
Anything further sir.
No.
Yes.
Thank you so much as a reminder, with your question you can queue up by pressing Star then one and we have our next question from Jenny MA with BMO capital markets.
Thank you and good morning.
Wanted to talk a little bit about the I guess the investment markets because Jay you mentioned and the guidance that you haven't assumed any dispositions, but you also mentioned that youre marketing from Western Canada, and the Kansas asset. So I'm just wondering when youre thinking about that do you think right.
Okay.
The it's going to be a productive and managing it and when you're thinking about these call. It non core assets is the desire to maximize the value of these assets or really try to get them off the books and really sure after a toronto portfolio.
Okay.
Now the Oriental that.
Sure.
Yes, so there was the earlier remark.
A.
Improving the occupancy of all of the buildings and the other markets will be beneficial for financing and debt. We don't side of it could probably get a pretty good LTV relative to the fair value of our carrying value.
And if we get the occupied the highest higher and also increases the desirability for the property to be sold.
And our budget, just because of uncertainty and it's really hard to forecast both the timing of the acquisition of disposition and if it happens and what the what the price would be so we tend to want.
And to avoid that and also for the purposes, we do not want to rely on your liquidity.
For for capital allocation purposes, a overland park is unique.
And the background that building was tied to building a industrial building.
And the dream of industrial REIT and the debt isn't it the MBS pool.
And in April of this year, we can pay off without a defeasance costs. So we will market and on building. Shortly it's got a great Covenant a U S Bank. We recently signed the five year deal that took occupancy of our it wasn't a renewal in December and.
And we're curious to see what that.
But it will come in but once again, we do don't rely on it.
And by generally I'd say that the other markets, where we're able to get the occupancy up.
And so we're by managing it and we think the value is a very reasonable on the bus.
But we're really happy to have sold the assets that we did over the past for a five.
Price and just focus on downtown Toronto, because we think that's where the future is.
Okay. So it sounds like a Kansas.
Kansas could be something that happened sort of second half of of this year and then maybe the other stuff is a little bit more uncertain that fair to say.
Hopefully I mean, the other stuff and it's really kind of a random because.
Five years.
We have marketed it over the past couple of years, we've rolled out a majority of it exclude.
Excluding 1900 share with which it feels just like a bond right now the other one building and I'd say right now from time to time, we get unsolicited interest and we would take a look at them seriously but a.
We're open.
The.
And definitely no like either on the markets and if theres a good interest we'll engage but we'll.
And we'll see.
Have you seen that interest.
The only.
I was asking you had have you seen the interest level of ships recently, especially on a on a call.
The people can base it alright.
Or is it really just a random tier tickers here and there that you've been dealing with for the past couple of years.
For most of these properties I would say it's been quite random.
And nothing really has changed.
But the.
And maybe financing of the consideration.
Goes back a much capital out there right now so.
We may be able to sell one or two buildings this year.
Okay.
Yeah.
And you can't find that.
Half of the other properties are burdened Thorpe and a.
22, one of the aggregate so the U.
But there's the overland.
Okay.
Okay.
Yeah.
Otherwise.
A lumpy, it's like 50 million and Saskatoon, maybe a button and Calgary.
<unk>.
Overland, we would say all of its non strategic the two Toronto assets, we really really like.
And we're sort.
And.
Could go either way on the other assets.
Okay, great and.
And then moving back to the sublet space and I know, it's very small, but and I apologize if I missed this but what is the distribution of that space is it fairly reflective of the portfolio or is it a more concentrated towards towards downtown Toronto.
The weighted average.
Sort of a bent on its 25 bucks so.
All of them a color on that would be great.
Yeah.
And it's spread out pretty much everywhere when the we've got some sublet space and.
Sussex.
We've got a couple of very small pockets on on.
And on a base.
Average for regimen, and then I believe there is another.
Sublet opportunity at Adelaide place, so it's distributed throughout our portfolio.
Okay great.
And you very much.
And thank you. Our next question is from Mike Marquez with Desjardin capital markets.
Hi, everyone quickly from me Mike Woods.
You picked my interest with talking about a.
Thanks for the a different use.
And we've done that site and I was wondering if you can elaborate on that a little bit and then secondly would that require.
Any more negotiation with the council in terms of the.
The zoning.
The Street.
No no I think what we're looking at is the hospitals are booming theyre going to need more space.
So we're looking to see if it makes sense to work with the hospitals to have more of.
To have them take space and are building, whether they need of the special requirements for it and.
We think that.
Good for the hospitals, a free up space within their buildings on the other thing and we could look at on the residential a making a range of a hospitals and make sure that they've got a combinations for.
The people to work at the hospital.
300 feet.
Okay.
And it could be I think I got you there. So instead of a conventional office, maybe maybe in the office and you sort of a lot of type space and then on the residential side and it's some sort of a.
Got it.
On a contract.
Yeah.
Yeah, it's well within the the shape of the building, we got approved and it shouldnt require anything to go.
Go back for the city for.
Okay, great. Thanks very much.
Thank you.
And thank you Sir and we have no further questions I will now turn the call back over to Mr. Michael Cooper for closing remarks.
Well I'd like to thank everybody for their continued interest and the company.
Please feel free to call gourd, J or myself, if you have any further questions.
We hope that over the next 90 days, we'll do a lot of at least I didn't get a lot of answers.
But in the meantime, thank you for again for spending your time with us I have a.
A great day Goodbye.
And thank you ladies and gentlemen, this concludes our conference.
Thank you for participating you may now disconnect speakers. Please standby.
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