Q4 2023 Allied Properties Real Estate Investment Trust Earnings Call

Ladies and gentlemen, good morning, My name is Abby and I will be your conference operator today.

At this time I would like to welcome everyone to the Allied properties REIT fourth quarter 2023 earnings conference call.

Today's conference is being recorded and all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question during that time simply press the star key followed by the number one on your telephone keypad.

If you would like to withdraw your question Press Star one a second time.

Thank you and I will now turn the conference over to Cecilia Williams, President and CEO you may begin.

Thanks, Avi and good morning, everyone. Welcome to our Q4 conference call Nandan J P are with me today will each make brief comments and then answer any questions you may have.

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 uncertain.

Ts in our 2023 annual report and our most recent quarterly report.

Material assumptions underpinning any forward looking statements. We make include those described under forward looking statements and our most recent quarterly report.

I'll start by describing sustained leasing activity, we're encouraged by the sustained leasing activity, which continued through the fourth quarter. The productivity of our portfolio also increased for the 18th consecutive quarter and renewals were at healthy spreads to in place rents can.

Deterring that these spreads are on rates established in stronger markets, we're especially pleased with the results.

We believe we're at an inflection point and that leasing momentum, which accelerated in the last quarter of 2023 will continue through the coming year.

Our concentrated portfolio of urban Workspaces and mixed use amenity rich neighborhoods continues to appeal to knowledge workers.

Onto user experience, we focused intently on what we can control that includes the quality of the user experience, we provide which we know from long experience is as important as the physical environments. We create we've been submitting ourselves to third party scrutiny with respect.

The user experience for years to ensure that we're continuously improving.

J P will elaborate on the specifics, which we're pleased with.

Comprehensive team development.

The Allied team continue to evolve in 'twenty to 'twenty three we continued our board renewal process and we implemented a succession plan in powering the next generation of leadership at Allied.

Perhaps most importantly, we continued our ongoing successful efforts to liberate talent and foster teamwork across the country.

With strong integrated team members, everyone contributes to the business and meaningful and measurable ways.

We're increasingly organizing ourselves around assets rather than areas of specialization with city teams managing our urban portfolio was across the country.

This gives us the benefit of expertise from multiple disciplines and optimizing our portfolio more.

More importantly, it creates various avenues for our talented team members professional development by enabling them to contribute beyond their functional areas.

Implementation of our five year capital allocation plan, placing minimal reliance on the capital markets.

With the sale of the U D C portfolio, we strengthened the balance sheet and reaffirmed our commitment to distinctive urban workspace, we believe in Canada's future and much of the economic and cultural future is concentrated in our cities well far from perfect. Our cities continue to thrive and demonstrate.

You can see we're confident they'll continue to attract a disproportionate share of global talent, which drives economic and cultural growth and evolution.

The year ahead.

Heading into 'twenty 'twenty, four with a lower level of economic occupancy than we've ever had well confident that our leasing activity will translate into improved economic occupancy over the course of 'twenty 'twenty four the tiny it's difficult to predict the one thing I'm certain of is that the entire allied team across the.

Tree is dedicated to improving economic occupancy and is entirely confident of the outcome. Despite the uncertainty as to timing.

In summary, our portfolio will not only hold up well in this economic environment as it has during past downturns, it will ultimately emerge stronger than ever because of our integrated team our operating platform, our solid financial position and our unique and concentrate.

Urban properties with that I'll pass it to NAND for a financial overview.

Thank you Cecilia and good morning, everyone I'll provide a brief overview of our financial highlights.

The fourth quarter was a strong quarter for allied and the first quarter, reflecting the full impact of the disposition of our U D C portfolio.

Financial results in the quarter was solid and reflect our unwavering commitment to the balance sheet.

Therefore per unit was $61.04 to 7% higher than it was in the third quarter.

Similarly.

Yes, that's all per unit for the quarter was $56.02, reflecting a three 1% increase compared to the third quarter.

These metrics illustrate the contribution to income from a P D portfolio How's.

How's the existing projects continue to reach completion milestones this will enable us to generate material amounts of EBITDA going forward.

This was further enhanced by lower interest expense due to the repayment of our unsecured facility with the proceeds from the U D C portfolio.

Oh weighted average in place net rent per occupied square foot was $24.10 in the fourth quarter, a full 20% increase from Q4, 2022, which reflects the increasing economic productivity of our space.

Lastly, we ended the year with an unsecured facility completely undrawn, resulting in 1.1 billion of liquidity.

We have the financial strength to continue operating and executing our strategy with minimal reliance on the public capital markets. Thank you and I'll pass the call to J P. Now thanks.

Thanks, Nan, while we continued to experience longer leasing timelines, we are encouraged by the level of activity across our portfolio.

Q4 was our most active quarter for leasing activity in 2023, the results of which are outlined in detail in our Q4 press release.

Tour activity continues to be strong we observed a 20% increase in tours in the quarter compared to the prior year.

In total tour activity was 12% higher in 2023 compared to 2022 with a noticeable noticeable acceleration of tours in the second half of the year.

Youth is represented by turning over to organizations continue to be technology education life Sciences and medicine.

As of today, we have more than one 1 million square feet of leasing activity under negotiation or at the prospect stage.

At the very core of our operating platform is an unrelenting commitment to user experience.

For the past four years, our lighthouse routine greenfield.

Greenfield easily surveys to assess user satisfaction within our portfolio the.

The results for 2023 were very encouraging.

100% of rating areas improved from the prior year. In addition, more than 80% of users, we're satisfied with Alex commitment to sustainability and more than 90%, we're satisfied with allied commitment to EI. Most importantly, I would like to net promoter score a leading indicator for tenant retention and leasing activity with <unk>.

250% higher than the industry average average.

The composition of our portfolio concentrated in mixed use amenity rich urban neighborhoods, coupled with the strength of our operating platform and team as validated by our user experience results gives us tremendous confidence in the continued demand for allied distinctive workspace across the country I will now turn the call back to Cecilia.

Thanks, J P. We'd now be pleased to answer any questions.

Thank you.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad and we will pause for just a moment to compile the Q&A roster.

We will take our first question from Lauren Kalmar with dish hurting your line is open.

Thank you and good morning, everybody.

Good morning, just maybe just first on the guidance.

It looks like the guidance range basketball was kind of flat to down 5%.

I just wanted to get an idea of what you think needs to happen to reach the high end and what is contemplated in the downside scenario is it really mostly occupancy driven or is there more at play there.

And just to be clear, we have not provided guidance. That's what we were trying to make very clear in our press release. We have provided is an indication of what we're striving for which has flattened metrics, while recognizing that there will be dependent on the timing of leasing them.

Realizing them, we have not provided guidance.

Okay apologies for the misunderstanding.

And then maybe just moving on to <unk>.

West, Georgia, I believe the property has been up and running for a little bit now.

When do you expect to take it and what kind of needs to happen to facilitate that.

It is 82% economically productive right now the development is completed and there will be incremental leasing accomplish them at which point the permanent financing will be put in place and according to the agreement that somebody would buy into that property. So there just needs to.

Some incremental leasing done and Theres. Some currently under negotiation right now.

Is there a particular threshold, but it does need to get to 90% as an example.

I think once it's over 90% that we can maximize the amount of permanent financing to put on the property, which would be ideal.

That makes sense fair enough and then maybe just lastly, it looks like capex on the rental properties jumped up quite a bit this quarter. I was wondering if you could maybe give a little bit of color, there and where you sort of see it trending over the next 12 months.

It it would be just normal course, Capex, then I would expect 'twenty 'twenty four to be similar to 2023.

Okay. Thank you very much I'll turn it back.

And we will take our next question from Jonathan Culture with PB Cowen Your line is open.

Thanks, Good morning.

Good morning.

So I guess I won't call it guidance, but on your the outlook that you put out in your press release I'm just trying to square your comments on <unk>.

Leasing and leasing activity seem fairly.

Constructive or positive.

And I'm, just trying to square with square that with the fact that you don't expect any occupancy gains in the.

In the first half of the year on your on your outlook.

It's really just a function of the extended lease up timeframes, Jonathan So there might there there'll be leasing accomplished but in terms of let's say cash generating leasing we're expecting that to to start in the second half of the year.

Okay.

And then you don't have a lot of rollovers. This year are there any.

Like larger nonrenewals that youre aware of in the 7% that you've got rolling up sure.

This year no no.

Okay. So it would be fair to say that you expect to end the year above 83.

7% occupancy.

We're not giving any sort of indication to that metric, but you can you can read between the lines. As we've described the first half of the year versus the second half of the year.

And then the $1 1 billion square feet of are there other degree negotiation or or perspective, like how does how's the balance on that is it sort of 60 40 under negotiation versus prospects or.

How should we think about that.

That's correct, Jonathan Jonathan that's an appropriate breakdown.

Okay and then just lastly on your development program. It looks like you have roughly $200 million too.

The program and the total NOI from that.

I guess youre estimating $91 million to $103 million, how much of that 91 to 103 was was in Q4 results and how much of that NOI is still needs to.

So there's going to be coming out in the next year and a half or so.

So just.

Just to give you some context on that Jonathan there was about 39 million in the 2023 results I don't have the exact quantification of how much that was in the Q4 results itself, but I can get that to you later.

Okay.

I'll turn it back thanks.

Okay.

We will take our next question from Mario <unk> with Scotiabank. Your line is open.

Hi, good morning, and thank you for taking the questions.

The first one just sticking to development.

I know you highlighted in the press release and your expected EBITDA.

Come in in 'twenty, four and then the kind of run rate EBITDA from developments starting in 2006 I think it was.

2040 $1 million respectively.

We bought the book.

Essentially providing something that's helpful discussion on what as a whole the developments could bring about is that something that you are open to doing today or is that still a work in progress.

That's not something that we're open to doing this at this stage Mario.

Got it Okay, and then coming back to the outlook striving for slot.

Actually up to 5% erosion.

Just to clarify your response on the initial question the Delta between the two is primarily related to timing in leasing as opposed to anything to do with kind of your JV completions.

Yes, Sir.

No that's absolutely correct. It is.

It is entirely based on on timing of economic occupancy, yes, nothing to do with our joint ventures Yep.

And when a when you talk about potentially 5% erosion year over year does opportunity to each of the local communities, who pre unit and same store NOI.

Ask the question because.

Look at what you're talking about from the occupancy standpoint.

In terms of moving.

Going higher.

In 'twenty four and then if you look at the Mark to market that you've disclosed.

In the.

The MD&A it looks like the expiring rent was 7% below our estimate of market rent for 2004.

Do you think about potentially higher occupancy and saw a pretty decent mark to market just trying to reconcile that to how our same store NOI.

At up to 4%.

Yeah that that that contraction of up to 5% is really zero to 5% is it covers all three of the metrics being <unk> per unit <unk> unit and same as Illinois.

Okay. So it doesn't necessarily mean that it could be up to 5% for each individual one.

Exactly.

Got it.

Okay and then just my last question.

Capitalized interest was down $1 3 million.

Q3, but the capitalized G&A went up 0.4 million versus Q3 can you kind of explain the variance between the direction in Houston.

So in terms of direction.

The capitalized interest.

This quarter is mainly because they've been transferred intellectual portfolio. So certain properties that moved out of the beauty category.

Oreo and Thats why there is a little bit of a reduction there.

On the G&A is pretty much.

In line with previous quarters.

Okay.

So the G&A.

G&A capitalization amount went up a bit quarter over quarter.

Almost all of these are coming online it doesn't.

Necessarily.

The G&A capitalization stands at just six months.

Exactly because we did have some transaction costs related capitalization to the UTC portfolio and that's probably why you're seeing the gap's got it okay great.

Thank you.

Okay.

We will take our next question from Pamela beer with RBC. Your line is open.

Thanks, Good morning.

Just wanted to clarify the comments around occupancy, particularly with respect to the first half.

You mentioned, you expect no economic occupancy gains in the first half but to clarify are you see like are you seeing there is potential for occupancy to actually drop through the first half and then.

Your comments are clear on the second half that you expect it to rise, but I just wanted to clarify the first half commentary.

We're not going to be getting that granular at this stage pardon me.

Okay.

Okay and I think.

Maybe looking a little further out too.

<unk> 2025.

Not necessarily guidance or anything, but I think you had talked about.

Any sort of target or expectation that you could get to 94%, 95% by the end of next year.

Just curious how you feel about that at this point.

Yeah.

Okay.

I'm still feeling very confident that we will get back to a stabilized portfolio, which is in like 94% to 95% range, but.

But I'm not and I'm not going to be commenting on the exact timing of that.

Okay fair enough.

Just on the on the developments for this year can you.

I am not sure if I missed it maybe in the MD&A, but what was the what's really the outlook for spending this year.

We have it in the cost of complete right what do you have any.

It's on page 71 Pan plenty on the MD&A, we do.

Show the estimated cost to complete.

By project.

Okay.

Okay.

Harvest is nearing completion.

Okay, Yeah, all of our development will be done by the end of next year. So we're really at the tail end of the investment and development.

Okay, all right last one for me.

Terms of any sort of residential intensification in the portfolio.

Can you maybe just share.

In terms of any maybe opportunities that you've looked at it to maybe monetize value and is this something that youre looking at maybe doing more work on or have you been approached by BARDA parties to perhaps explore some of that.

We're looking at that really on the periphery, we do see the opportunity to intensify on sites that we already own them.

With a residential component really to build out what we think is the best way to be a community builders, which is with mixed use sites that being said, it's not our area of focus right now right now where we're focused on leasing up and optimizing our urban office.

<unk> portfolios.

Thanks, very much I'll turn it back.

Thanks.

And as a reminder, it is star one if you would like to ask a question and we will take our next question from Gaurav Malhotra with Laurentian Bank Securities. Your line is open.

Thank you and good morning, everyone.

I'm just focusing on the debt ladder, yeah, no that isn't a significant amount of refinancing in 2020 full but for 25, you do have the 200 million senior unsecured debenture and the 400 million unsecured term loan.

Could you, perhaps discuss where refinancing rates would be on both.

Refinancing rate today, if we were to do a 10 year bond what is it like six 8% coupon.

Yes.

Okay, and just lastly from a macro perspective given.

Given the broad decrease in office valuations on both sides of the border.

Could you, perhaps speak to the Canadian lenders appetite for financing office assets in this environment.

I mean, I think the higher quality assets.

Perhaps are still able to find the financing that they need and have been exploring as much on the secured side of debts financing, but we haven't I mean, we don't other than the unsecured debenture market, which we haven't tapped in a couple of years I think with.

This relationships the financing tends to come.

Come easier and certainly with a higher quality portfolio I don't anticipate us having.

Any trouble I think it's the lower quality office assets that that struggle.

That's struggled Loren I think you know quality is always it's always are the driving force behind the ability to get financing, so and I think having a strong balance sheet is also helpful. Just in general.

Great. Thank you for the color Cecilia Alcon back to the operator.

And as a reminder, it is star one if you would like to ask a question and we will take our next question from Sumit Siad with CIBC. Your line is open.

Yeah.

Thanks, Good morning, just firstly to follow up on your comments around our lease up and the Timeframes and just maybe a question for J P. So so what our more recent typically seeing timeframes looking like and your I guess ongoing conversations on how do they compare to.

The more normalized timeframe as you've seen previously.

Right now we're seeing as we've said longer lead times on average anywhere from 12 to 18 months compared to pre pandemic levels, which could have ranged between three to six maybe even nine months at the high end.

Okay.

And then if you could just speak to the drivers for some of the non renewals in the quarter.

Led street lights for Dino and any known vacancy that could be on your radar.

Sorry, I'm I'm not sure what was the last part of your question.

Just the first part of the reason for non renewals, which certainly we can speak to but I didn't understand after that.

Yeah, if there's any sort of known upcoming vacancies that are on your radar.

Oh I see in terms of non renewals, it's really related to just the economic environment and companies have a harder time, making long term commitments with the uncertainty in the economy, particularly interest rate, so and stability returns and.

Certainty returns, we do expect our level of renewal activity to improve them.

In terms of large maturities in the year Thankfully, we don't have any significant ones in 2024.

Okay, Great and just lastly, just on the leasing side of things, where do you expect your tenant incentives to track for the year, maybe compared to what you saw in 2023.

It's always deal specific we have seen leasing costs stabilize.

And 2023, our <unk> were 10% higher than our <unk> in 2022, but again they are very much deal in unit specific but generally speaking, we're seeing leasing cost stabilized across the portfolio.

Okay. Thank you I'll turn it back.

Yeah.

And we have no further questions at this time I will now turn the call back to MS. Cecilia Williams for closing remarks.

Thanks, Abbe and thank you everyone for joining our conference call. We will keep you updated on our progress going forward.

Yeah.

And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.

[music].

Okay.

Uh huh.

Operator: Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allied Properties REIT Fourth Quarter 2023 Earnings Conference Call. Today's conference is being recorded, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad.

Yeah.

Okay.

Yes.

[music].

Operator: If you would like to withdraw your question, press star 1 a second time. Thank you, and I will now turn the conference over to Cecilia Williams, President and CEO. You may begin. Thanks, Abby. And good morning, everyone. Welcome to our Q4 conference call. Nan and JP are with me today.

Cecilia Williams: We'll each make brief comments and then answer any questions you may have. 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 2023 Annual Report and our most recent quarterly report. Material assumptions underpinning any forward-looking statements we make include those described under forward-looking statements in our most recent quarterly report. I'll start by describing sustained leasing activity. We're encouraged by the sustained leasing activity, which continued through the fourth quarter. The productivity of our portfolio also increased for the 18th consecutive quarter, and renewals were at healthy spreads to in-place rents. Considering that these spreads are on rates established in stronger markets, we're especially pleased with the results. We believe we're at an inflection point and that leasing momentum, which accelerated in the last quarter of 2023, will continue through the coming year. Our concentrated portfolio of urban workspaces and mixed-use, amenity-rich neighborhoods continues to appeal to knowledge workers.

Cecilia Williams: On to user experience, we focus intently on what we can control. That includes the quality of the user experience we provide, which we know from long experience is as important as the physical environment we create. We've been submitting ourselves to third-party scrutiny with respect to user experience for years to ensure that we're continuously improving. J.P. will elaborate on the specifics, which we're pleased with. Team development

Cecilia Williams: The Allied team continued to evolve in 2023. We continued our board renewal process, and we implemented a succession plan empowering the next generation of leadership at Allied. Perhaps most importantly, we continued our ongoing successful efforts to liberate talent and foster teamwork across the country. With strong, integrated team members, everyone contributes to the business in meaningful and measurable ways.

Cecilia Williams: We're increasingly organizing ourselves around assets rather than areas of specialization, with city teams managing our urban portfolios across the country. This gives us the benefit of expertise from multiple disciplines in optimizing our portfolio. More importantly, it creates various avenues for our talented team members' professional development by enabling them to contribute beyond their functional areas.

Cecilia Williams: With the sale of the UDC portfolio, we strengthened the balance sheet and reaffirmed our commitment to distinctive urban workspaces. We believe in Canada's future, and much of the economic and cultural future is concentrated in our city. While far from perfect, our cities continue to thrive and demonstrate resilience. We're confident they'll continue to attract a disproportionate share of global talent, which drives economic and cultural growth and evolution.

Cecilia Williams: The year ahead. We're heading into 2024 with a lower level of economic occupancy than we've ever had. While I'm confident that our leasing activity will translate into improved economic occupancy over the course of 2024, the timing is difficult to predict. The one thing I'm certain of is that the entire Allied team across the country is dedicated to improving economic occupancy and is entirely confident of the outcome, despite the uncertainty as to timing. In summary, our portfolio will not only hold up well in this economic environment, as it has during past downturns, but it will ultimately emerge stronger than ever because of our integrated clean, our operating platform, our solid financial position, and our unique and concentrated urban properties. With that, I'll pass it to Nan for a financial overview. Thank you, Cecilia. Good morning, everyone.

Nan: I'll provide a brief overview of our financial highlights. The fourth quarter was a strong quarter for Allied and the first quarter to reflect the full impact of the disposition of our UDC portfolio. Our financial results in the quarter were solid and reflect our unwavering commitment to the balance. Our SFO subunit was 61.4 cents, 2.7% higher than it was in the third quarter. Similarly, our AFSO Hoard unit for the quarter was $0.562, reflecting a 3.1% increase compared to the third quarter.

Nan: These metrics illustrate the contributions to income from our PUD portfolio, as our existing projects continue to reach completion milestones, which will enable us to generate material amounts of EBITDA going forward. This was further enhanced by lower interest expense due to the repayment of our unsecured facility with the proceeds from the UBC portfolio.

Nan: A weighted average in-place net rent per occupied square foot was $24.10 in the fourth quarter, a 4.3% increase from Q4 2022, which reflects the increasing economic productivity of our space. Lastly, we're ending the year with our unsecured facility completely unrolled, resulting in $1.1 billion of liquidity. We have the financial strength to continue operating and executing our strategy with minimal reliance on the public capital market. Thank you, and I'll pass the call to JT now. Thanks, Nan.

JP: While we continue to experience longer leasing timelines, we are encouraged by the level of activity across our portfolio. Q4 was our most active quarter for leasing activity in 2023, the results of which are outlined in detail in our Q4 press release. Tour activity continues to be strong. We observed a 20% increase in tours in the quarter compared to the prior year. In total, tour activity was 12% higher in 2023 compared to 2022, with a noticeable acceleration of tours in the second half of the year. Uses represented by touring organizations continue to be technology, education, life sciences, and medicine.

JP: As of today, we have more than 1.1 million square feet of leasing activity under negotiation or at the prospect stage. At the very core of our operating platform is an unrelenting commitment to user experience. For the past four years, Ally has conducted a great many painstaking surveys to assess user satisfaction within our portfolio. The results for 2023 were very encouraging. 100% of rating areas improved from the prior year.

JP: In addition, more than 80% of users were satisfied with Ally's commitment to sustainability, and more than 90% were satisfied with Ally's commitment to EDI. Most importantly, Ally's NEPRA motor score, a leading indicator for tenant retention and leasing activity, was 250% higher than the industry average. The composition of our portfolio, concentrated in mixed-use, amenity-rich urban neighborhoods, coupled with the strength of our operating platform and team, as validated by our user experience results, gives us tremendous confidence in the continued demand for Allied's distinctive workplaces across the country. I will now turn the call back to Cecilia. Thanks, JP. We'd be pleased to answer any questions now. Bye. Thank you. At this time, I would like to remind everyone, in order to ask a question, press the star and then the number one on your telephone keypad, and we will pause for just a moment to compile the Q&A roster.

Operator: Bye. We'll take our first question from Lauren Calmar with Desjardins. Your line is open. Thank you, and good morning, everybody.

Lauren Calmar: Morning. Maybe just first on the guidance, it looks like the guidance for Expo is kind of flat, so down 5%. I just wanted to get an idea of what you think needs to happen to reach the high end and what is contemplated in the downside scenario. Is it really mostly occupancy-driven, or is there more at play there?

Cecilia Williams: Just to be clear, we have not provided guidance. That's what we were trying to make very clear in our press release. What we have provided is an indication of what we're striving for, which is flat metrics while recognizing that there will be dependence on the timing of leasing materializing.

Cecilia Williams: Okay, apologies for the misunderstanding, and then maybe just moving on to West Georgia. I believe the property's been up and running for a little bit now. When do you expect to take it in, and what kind of needs to happen to facilitate that? It is 82% economically productive right now. The development is completed.

Cecilia Williams: And there will be incremental leasing accomplished, at which point the permanent financing will be put in place. And according to the agreement, that's when we would buy into that property. So there just needs to be some incremental leasing done. And there's some currently under negotiation right now.

Cecilia Williams: I think once it's over 90%, then we can maximize the amount of permanent financing to put on the property, which would be ideal. That makes sense, fair enough. And then maybe just lastly, it looked like CapEx on the rental properties jumped up quite a bit this quarter. I was wondering if you could maybe give a little bit of color there and where you sort of see it trending over the next 12 months. It would be just a normal course, CapEx, and I would expect 2024 to be similar to 2023. Okay, thank you very much.

Cecilia Williams: I'll turn it back. Bye. We'll take our next question from Jonathan Kelcher with TD Towering. Your line is open. Thanks. Good morning.

Jonathan Kelcher: Morning. I guess I won't call it guidance, but on the outlook that you put out in your press release, I'm just trying to square your comments on leasing and leasing activities being fairly constructive or positive, and I'm just trying to square that with the fact that you don't expect any austerity gains in leasing activities in the first half of the year in your outlook. It's really just a function of the extended lease-up timeframes, Jonathan. So there will be leasing, but in terms of, let's say, cash-generating leasing, we're expecting that to start in the second half of the year. Okay, so you don't have a lot of rollovers this year, are there any... like larger non-renewals that you're aware of in the 7% HDI role this year? This year, no, no.

Cecilia Williams: Okay, so it would be fair to say that you expect to end the year above 83. 0.7% off. We're not giving any sort of indication to that metric, but you can read between the lines as we've described the first half of the year versus the second half of the year. Okay, and then the 1.1 million square feet under negotiation or perspective, like how's the balance on that? Is it sort of 60-40 under negotiation versus prospects, or how should we think about that?

Cecilia Williams: That's correct Jonathan, that's an appropriate breakdown. Okay, and then just lastly on your development program, it looks like you have roughly $200 million to complete the program, and the total NOI from that, I guess you're estimating 91 to 103 million. How much of that 91 to 103 was in Q4 results and how much of that NLI still needs to be implemented? So it's going to be coming on in the next year and a half or so.

Nan: So, just to give you some context on that, Jonathan, there were about 39 million in the 2022 results. I don't have the exact quantification of how much that was in the Q4 results itself, but I can get that to you later. Okay, that's it from me; I'll turn it back. Bye. We will take our next question from Mario Zarek with Scotiabank. Your line is open. Hi, good morning, and thank you for taking the question. The first one: just stick to development.

Mario Zarek: I know you highlighted in the press release the expected EBITDA to come in in 2024, and then the run rate EBITDA from development, starting 26, I think it was 20, 21 million dollars respectively. I think in the past, we've talked about potentially providing some FFO discussions on what FFO developments could bring about. Is that something that you're open to doing today, or is that still too compromised? That's not something that we're open to doing at this stage, Mariel.

Cecilia Williams: Okay. And then coming back to the outlook, striving for flat and then potentially up to 5% erosion. Just to clarify your response to the initial question, the delta between the two is primarily related to timing in leasing as opposed to anything to do with kind of your JV completion and how those are accountable. Is that fair?

Cecilia Williams: No, that's absolutely correct. It is entirely based on timing of economic occupancy, yes. Nothing to do with our joint ventures, yes. And when you talk about potentially 5% erosion year-over-year, does that pertain to each of the ethical pre-units, the ethical pre-unit 10, 8, 12, and the line? I ask the question because it's...

Cecilia Williams: If you look at what you're talking about from an occupancy standpoint, in terms of moving higher in 24, and then if you look at the mark-to-market that you've disclosed, in the MUNA, it looks like the expiring rent is about 7% below the estimated market rent for 2024. So, when I think about the higher occupancy and still a pretty decent market to market, trying to reconcile that to how, you know, things turned out, I could have, you know, just like. Yeah, that contraction of up to 5% is really 0 to 5% as it covers all three of the metrics being FFO per unit, AFFO per unit, and same-asset MRO.

Cecilia Williams: Okay, so then this is, it could be up to 5% for each individual. Exactly. Okay, and then just my last question, the capitalized interest was down $1.3 million versus Q3, but the capitalized G&A went up $0.4 million versus Q3. Can you kind of explain the variance between the direction of these?

Nan: So in terms of direction, the capitalized interest this quarter is mainly because they've seen transfers into rental portfolios, so certain properties have moved out of the PVD category, and that's why there is a little bit of a reduction there. The G&A is pretty much in line with previous quarters. OK. For GMA, the capitalization amount went up a bit, quarter to quarter, so the properties are coming online. It doesn't necessarily impact the G&E capitalization, and it's a little bit interesting.

Nan: Exactly, because we did have some transaction cost related capitalization in the UDC portfolio, and that's probably where you're seeing the gap. So, thank you. Bye. We will take our next question from Tammy Beer with RBC. Your line is open. Thanks, good morning.

Tammy Beer: I just wanted to clarify the comments around occupancy, particularly with respect to the first half. You mentioned you expect no economic occupancy gains in the first half, but to clarify, are you seeing this potential for occupancy to actually drop in the first half? And then your comments are clear on the second half that you expect it to rise, but I just wanted to clarify the first half commentary. We're not going to be getting that granular at this stage, Tommy.

Cecilia Williams: Okay, um, Okay, and I think maybe looking a little further out to 2025, not necessarily guidance or anything, but I think you had talked about a sort of target or expectation that you could get to 94% to 95% by the end of next year. I'm just curious how you feel about that at this point. I'm still feeling very confident that we will get back to a stabilized portfolio in that 94% to 95% range, but I'm not going to be commenting on the exact timing of that. Okay, fair enough.

Cecilia Williams: Okay, just on the developments for this year, I'm not sure if I missed it, maybe in the MD&A, but what was the outlook for spending this year? We have it in the cost to complete, right? We do. It's on page 71.

Cecilia Williams: Currently, on the MD&A, we do show the estimated cost to complete. Great project. 10. Okay. Bye. Thank you. Now, all of our development will be done by the end of next year.

Cecilia Williams: So, we're really at the tail end of the investment in development. Okay. All right. Last one for me. In terms of any sort of residential intensification in the portfolio, can you maybe just share in terms of any of the opportunities that you have looked at to maybe monetize value, and is this something that you are looking at maybe doing more work on, or have you been approached by other parties to perhaps explore some of that? We're looking at that really on the periphery.

Cecilia Williams: We do see the opportunity to intensify on sites that we already own with a residential component, really building out what we think is the best way to be community builders, which is with mixed-use sites. That being said, it's not our area of focus right now. Right now, we're focused on leasing up and optimizing our urban office portfolio. Thank you very much. I'll turn it back. No.

Operator: Bye. And as a reminder, it is star number if you would like to ask a question. And we will take our next question from Gaurab Mathur with Laurentian Bank Securities. Your line is open. Thank you and good morning, everyone.

Gaurab Mathur: Just focusing on the debt ladder here, now there isn't a significant amount of refinancing in 2024, but for 2025, you do have the 200 million senior unsecured debenture and the 400 million unsecured term loan. Could you perhaps discuss where refinancing rates would be on that? Refinancing rates today, if we were to do a 10-year bond, what is it, Nan, like 6.8% coupon

Cecilia Williams: Okay. And, you know, just lastly, from a macro perspective, given the broad decrease in office valuations on both sides of the border, could you perhaps speak to Canadian lenders' appetite for financing office assets in this environment? I mean, I think the higher quality assets are still able to find the financing that they need. We haven't been exploring as much on the secured side of debt financing, but we haven't, I mean, we don't, other than the unsecured debenture market, which we haven't tapped in a couple of years. I think with established relationships, the financing tends to come easier, and certainly with a higher quality portfolio, I don't anticipate us having any trouble. I think it's the lower quality office assets that struggle more, and I think, you know, quality is always the driving force behind the ability to get financing. And I think having a strong balance sheet is also helpful, just in general.

Cecilia Williams: Great. Thank you for the call, Cecilia. I will turn it back to you. And as a reminder, it is Star 1 if you would like to ask a question.

Operator: And we will take our next question from Soumaya Syed with CIBC. Your line is open. Thanks. Good morning.

Soumaya Syed: Just firstly to follow up on your comments around lease-ups and the timeframes, and this may be a question for JP. So what are more recent typical leasing timeframes looking like in your, I guess, ongoing conversations, and how do they compare to lease-ups? A more normalized time frame, 15, 15. Right now, we're seeing, as we've said, longer leaf times on average, anywhere from 12 to 18 months compared to pre-pandemic levels, which could have ranged between three to six, maybe to nine months at the highest.

JP: And then if we could just speak to the drivers for some of the non-renewals in the corridor, Adelaide Street, 9-Ice, Vagina, and any non-vacancy that could be on your radar. Sorry, I'm not sure. What was the last part of your question? I answered the first part, the reason for the non-renewals, which certainly we can speak to, but I didn't understand after that. Yeah, if there's any sort of known upcoming vacancies that are on your radar. Oh, I see. In terms of non-renewals, it's really related to just this economic environment. Companies have a harder time making long-term commitments because of the uncertainty in the economy, particularly interest rates.

Cecilia Williams: So, as stability returns and certainty returns, we do expect our level of renewal activity to improve. In terms of large maturities in the year, thankfully, we don't have any significant ones in 2024. And just lastly, on the leasing side of things, where do you expect your tenant incentives to track for the year, maybe compared to what you saw in 2020? It's always deal-specific. However, we have seen leasing costs stabilize. In 2023, our NERs were 10% higher than our NERs in 2022, but again, they are very much deal- and unit-specific.

JP: But generally speaking, we're seeing leasing costs stabilize across the portfolio. Okay, thank you. And we have no further questions at this time. I will now turn the call back to Ms. Cecilia Williams for closing remarks. Thanks, Abby, and thank you, everyone, for joining our conference call. We'll keep you updated on our progress going forward.

Cecilia Williams: Bye. And, ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

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