Q2 2024 Allied Properties Real Estate Investment Trust Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the ally properties right.
Speaker Change: Second quarter 2024 earnings conference call all lines have been placed on mute to prevent any background noise.
Speaker Change: The speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time press star followed by the number one on your telephone keypad.
Cecilia Catalina Williams: As a reminder, today's call is being recorded I would now hand today's call over to say, you'll Williams President and CEO. Please go ahead.
Cecilia Catalina Williams: Thanks to Mika good morning, everyone and welcome to our conference call I'll provide an update on our three areas of focus this year NAND will then highlight our Q2 results and our strong financial position.
Cecilia Catalina Williams: J P will then outline our solid leasing activity and provide a summary by urban markets. Then we're pleased to answer your questions.
Speaker Change: We may in the course of this conference call make forward looking statements about future events or future performance by their nature. These statements are subject to risks and uncertainties that may cause actual events or results to differ materially.
Cecilia Catalina Williams: Including those described under the heading risks and uncertainties in our 2023 annual report and our most recent quarterly report.
Cecilia Catalina Williams: Material assumptions underpinning any forward looking statements. We make include those described under forward looking statements and our most recent quarterly report.
Cecilia Catalina Williams: Now an update on our priorities for the year.
Cecilia Catalina Williams: We're focused on running the business for the long term to us that means three things in today's environment number one an unwavering commitment to the balance sheet.
Cecilia Catalina Williams: Number two leasing up vacant space and.
Cecilia Catalina Williams: And three completing development and upgrade activity underway.
Cecilia Catalina Williams: First our balance sheet.
Cecilia Catalina Williams: Our unwavering commitment to the balance sheet governs our actions across the business, we're proactively managing our 2025 and 2026 debt maturities to reach our targeted debt to EBITDA in the eight times range and ensure maximum liquidity.
Cecilia Catalina Williams: This involves selling non core assets and proactive debt refinancings.
Cecilia Catalina Williams: The noncore asset sales are going well with pricing from unsolicited bids coming in at or above by a threat value.
Cecilia Catalina Williams: There are currently seven pending sales.
Cecilia Catalina Williams: All of the properties are smaller and none are part of an existing concentration.
Cecilia Catalina Williams: The combined proceeds of these seven assets sales and the Telus Guy transaction will approach $200 million target established earlier, this year and be applied toward debt reduction.
Cecilia Catalina Williams: Because these proceeds are from the sale of lower yielding assets paying off higher cost that is accretive to S. F. O N E. S. S O per unit.
Cecilia Catalina Williams: The success of our disposition program. This year has led us to identify another set of noncore properties for disposition at or above I am fresh value that would generate another approximate $200 million of proceeds to also be allocated towards debt reduction NAND will elaborate on this short.
Cecilia Catalina Williams: Lee.
Speaker Change: Second leasing.
Speaker Change: Our results this quarter evidenced the competitive advantage of our differentiated operating platform. It consistently outperformed the broader market because of the elevated the quality of the portfolio and user experience.
Speaker Change: Our occupancy stabilize this quarter and we're focused on improving it we've demonstrated that our distinctive urban workspaces come it can accommodate many business needs.
Speaker Change: The heritage component is the premium brick and beam space. We're most known for restored and updated to meet today's knowledge workers needs. We have this space across the country here, we will invest in it for a long term lease.
Speaker Change: The modern component is workspace, that's been developed or Redeveloped in the last 10 years. So by definition, it's numerous space concentrated in Toronto, Montreal and Vancouver.
Speaker Change: It has all the attributes of brick and beam space that people love good column spacing natural light and high ceilings, but with modern materiality and finishes here. We'll also invest in this space for a long term lease.
Speaker Change: The flex component at work space in buildings or underutilized land that will be redeveloped.
Cecilia Catalina Williams: Cause if it's short term in nature, we're not investing in this space, but the adjustable lease terms and flexible pricing provide an entry point into certain neighborhoods that were less accessible in the past.
Cecilia Catalina Williams: We've also strategically invested in suite upgrades, which will drive leasing activity.
Cecilia Catalina Williams: Defining our space offering in terms relating to the nature of the physical environment and our corresponding appetite to invest capital allows us to have maximum impact through our leasing efforts with the appropriate sensitivity to our balance sheet optimization efforts.
Cecilia Catalina Williams: Onto development and upgrade activity underway.
Cecilia Catalina Williams: The current projects will be completed by 2026, and we will be focusing on on boarding those projects with no plans to start new ones in the near term development risk continues to subside.
Cecilia Catalina Williams: I'll now pass the call to Dan.
Cecilia Catalina Williams: Oh yeah.
Speaker Change: Good morning, everyone a.
Dan: A few highlights before I provide more detail on our commitment to the balance sheet.
Dan: Our financial performance in the quarter was in line with our expectations with operating income of $82 million of 525% increase from the quarter comparable quarter.
Dan: Total portfolio same asset NOI grew by one 7% for the quarter.
Dan: Average in place net rent per occupied square foot continued its upward trend reaching $25.08.
Dan: Additionally, we successfully closed on a 400 west, Georgia, and 19, Dunkin' transactions, which although extruded short term pressure on our earnings and debt metrics are expected to yield significant strategic benefits. These transactions will enhance our urban workspace portfolio and.
Speaker Change: Expand our urban rental residential platform.
Speaker Change: Has a testament to our unwavering commitment to maintaining a healthy balance sheet. We're actively implementing our plan to mitigate the short term impact of these recent transactions and return to our targeted debt metrics.
Speaker Change: There are three ways that we're doing.
Speaker Change: Firstly, we have made rapid and material progress in selling low yielding noncore properties at or above I as far as value and will utilize the proceeds to retire higher cost debt. The total proceeds from asset sales of up to 400 million over 2020 full and.
Speaker Change: 2025 are expected.
Speaker Change: The 234 million assets held for sale on our balance sheet is on an equity accounted basis, including Taos Sky. The total assets held for sale is 286 million. This represents a portion of the 400 million in proceeds were targeting by the end of 'twenty 'twenty four.
Speaker Change: Right.
Speaker Change: Under Ifr is we can only include what we expect to close within the next 12 months, so youll see assets being transferred into this category over the balance of the year.
Speaker Change: Secondly, we have considerable optionality to refinance our 2025 and 2026 debt maturities, including utilizing the proceeds a secured financing on the residential component of Telus Sky, which we currently do not have financing on <unk>.
Speaker Change: Secured financing on select unencumbered properties, well, ensuring that our personal taste of unencumbered properties remains high.
Speaker Change: Accessing the bond market to refinance upcoming debentures based on single cell the Citic rating from Morningstar D. B R F.
Speaker Change: Additionally, we're currently in constructive negotiations to extend the 400 million unsecured term loan which is due in late 2025.
Speaker Change: Further our $250 million term loan currently matures in 2026 is subject to five one year extension options. We anticipate exercising these options to extend the maturity to 2031 to align with the existing fixed rate swap, which we have in place.
Speaker Change: This will maintain the existing underlying interest rates until 2031.
Speaker Change: We're addressing three up all variable rate construction loans with the intention of converting them into fixed rate mortgages, including a lower cost C. M. A C mortgage on 19 Dunkin'.
Speaker Change: As I've outlined we have significant optionality in addressing our upcoming maturities and maintaining liquidity is a priority.
Speaker Change: Finally, we'll progress towards achieving our targeted debt metrics through organic growth by leasing space across our portfolio.
Speaker Change: We value the strength of our balance sheet and we are on a path to our targeted debt to EBITDA ratio in the eight times range within the next 24 months.
Speaker Change: Continued contribution of our debit been completions, which are expected to contribute over $85 million in annual EBITDA by 2026 will support the growth of our organic portfolio.
Speaker Change: J P will now speak about our leasing momentum that we see thanks, Dan we remain encouraged by the level of utilization and leasing activity across our portfolio.
J P: In Q2 occupied and leased area held steady for the first time in six quarters, which gives us confidence that we are nearing an inflection point.
Speaker Change: This quarter the number of total leasing transactions was in line with Q1 and up 25% compared to the prior year year to date total leasing transactions were up 29% compared to the prior year and new leasing active new leasing transactions were up 45%.
Speaker Change: We continue to be encouraged by the number of existing users in our portfolio requiring more space, 18% of new leasing activity in the quarter represented expansions year to date the amount of expansion space leased is up more than 300% compared to the prior year.
Speaker Change: Our improving retention rate, which was nearly 60% in Q2 is a positive sign and closer to our historical level of 75%.
Speaker Change: Even more encouraging are the rents achieved on renewal in the quarter. The average rental rate saw a healthy increase up 10% when comparing the ending to starting base rent and up 16% when comparing average to average this demonstrates our ability to secure favorable deals surpassing those completed five years ago.
Speaker Change: Height of the market.
Speaker Change: Our strong tour activity continues to be a positive indicator tours in Q2 were in line with our quarterly average and tours were up 5% year to date compared to the prior year.
Speaker Change: Industries represented by touring organizations continue to be technology professional services education and medical uses.
Speaker Change: Last quarter, we reported 1.05 million square feet of leasing activity under negotiation or at the prospect stage in.
Speaker Change: In Q2, we completed more than 400000 square feet of leasing activity as of today, we have 900000 square feet of leasing activity under negotiation or at the prospect stage of which 40% represents new leasing requirements and 60% represents renewals.
Speaker Change: The strong demand observed across our portfolio is supported by higher utilization rates among our existing users in each city as more organizations revert to an office centric model. This trend is evident in our portfolio and confirmed in numerous third party reports.
Speaker Change: I'll now provide a brief overview of each market.
Speaker Change: In Montreal, we continue to see increased demand from technology users and greater diversification among industries represented by touring organizations as more employers recognize the importance of offering great workplace experiences to attract motivate and retain top talent.
Speaker Change: Activity in Q2 was in line with our quarter.
Speaker Change: Quarterly average.
Speaker Change: We continue progressing with the transformation of 1001 Boulevard, Robert Bourassa, attracting a diverse user base, 90% of the transformation that grade was recently completed and open to the public the balance of the entire lobby and exterior work will be completed this summer.
Speaker Change: We also recently unveiled a new vision for Cta to multimedia a portfolio of assets between old Montreal, and Griffin town, comprising eight buildings totaling more than one 1 million square feet.
Speaker Change: She tells you the multimedia has been rebranded last detail and will offered allied modern and Allied heritage Workspace solutions as well as an enhanced amenity experience for users and an improved necessity based retail and service component consistent with amenity rich urban neighborhoods most of our vacancy in Montreal is concentrated within.
Speaker Change: <unk> and this new vision will drive leasing activities.
Speaker Change: In Toronto in Kitchener, we are seeing an increase in demand from prospective users with larger space requirements that are greater than 10000 square feet to activity in Q2 was in line with our quarterly average.
Speaker Change: We recently unveiled an enhanced division for a concentration of assets within the Kinion benign and neighborhood now known as King West village King.
Speaker Change: King West village is an amenity rich urban neighborhood unrivaled by any other it offers allied modern I'll, let heritage and Allied flex worse workspace solutions across 57 buildings totaling more than $2 6 million square feet at our interest and it includes a new amenity offering exclusive to allied users at $4 60.
Speaker Change: King branded block by Allied this enhanced vision for King West village will drive leasing activity.
Speaker Change: In Calgary, there is renewed activity from the oil and gas industry and education sector. In Q2, we leased the entire odd fellows building to cornerstone college totaling 33000 square feet. This transaction illustrates an increasing trend across the country of post secondary institutions, establishing operations in Canadian cities to active.
Speaker Change: In Q2 was in line with our quarterly average.
Speaker Change: In Vancouver, there has been an influx of new entrants to the market, particularly among technology users in professional services Vancouver remains the strongest leasing market in Canada and two activity in Q2 was in line with our quarterly average.
Speaker Change: To support our leasing efforts, we continue to actively engage our partners in the brokerage community in Q2, we held broker assemblies in Montreal, and Toronto, where we shared allied's vision for the future of Canadian cities and introduced the three formats that make up our urban workspace portfolio Allied heritage I like modern and Allied flux, we look forward to engaging with the broker.
Speaker Change: Each community in Vancouver, and Calgary This fall.
Speaker Change: In closing the increase in office utilization and demand across our portfolio, coupled with the strength of our operating platform and team as validated by our net promoter score, which in 2023 was 250% higher than our peers gives us tremendous confidence in the continued demand for allied distinctive workspace across Canada.
Speaker Change: I will now turn the call back to Cecilia.
Cecilia: Thanks J P.
Cecilia: Before we turn to questions I want to reiterate my confidence that our portfolio will not only hold up well in this economic environment as it has during past downturns, but will ultimately emerge in a stronger position for the following reasons.
Cecilia: The first being our differentiated operating platform. This is the combination of our one of a kind concentration of urban properties, we own and the strong team that operates it and to the intensification potential inherent in our portfolio, which represents day decades of continued growth.
Speaker Change: And I say all of this in the context of our thriving cities, which continue to attract global talent.
Speaker Change: Montreal, Toronto, Calgary, and Vancouver continued to rank high as cities with top Tech talent in North America, with Montreal, Toronto, and Vancouver ranking in the top 12.
Speaker Change: Montreal, Toronto, Calgary, and Vancouver are also in demand and continue to grow they each had population growth and net new jobs in 2023 and have forecasted real GDP growth through 2028.
Speaker Change: They also all have growth in public transit commuting and investments in public transit infrastructure, which happened to be in close proximity to our city portfolios.
Speaker Change: All of this growth leads to demand that we're well positioned to satisfy and to surf.
Speaker Change: We'd now be pleased to answer any questions.
Speaker Change: At this time, if you'd like to ask a question press star one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue Press Star one.
Jonathan <unk>: Your first question is from the line of Jonathan <unk> with TD at Cowen.
Jonathan <unk>: Thanks, Good morning.
Jonathan <unk>: Good morning.
Jonathan <unk>: First the first question just on the leverage it was up quite a bit in Q2 over Q1 was that was that in line with your expectations.
Speaker Change: Yes, It was Jonathan with the acquisition are 400, West, Georgia, and 19, Dunkin', we anticipated the leverage to go up.
Speaker Change: Okay, but like from nine forwarded to Turner.
Speaker Change: It's temporary a temporary downward pressure on our debt metrics due to the stabilization of 19 Dunkin' in particular with the rental residential.
Speaker Change: Lease up that that is what will bring the EBITA and later this year and early 2025. So we always knew there would be that temporary downward pressure on our debt metrics. We do expect the debt metrics to improve over the balance of the year, though Jonathan that's correct that was my my neck. So Q2 should be the top in terms of debt.
Jonathan <unk>: The EBITDA.
Speaker Change: Yes, correct.
Speaker Change: Okay.
Jonathan <unk>: Then I guess just switching gears to leasing.
Jonathan <unk>: For the balance of this year and into next can you talk about.
Jonathan <unk>: And the larger blocks that you know that youll be getting back and where you stand in terms of.
Speaker Change: Activity on those.
J P: Yeah in terms of maturities J P can talk to the top two or three that we have coming back.
J P: So.
Jonathan <unk>: Jonathan in.
Jonathan <unk>: Montreal, we have later this year some space tend to ensure brook that is maturing that we expect to renew them. We have some space out of 1001 coming back and that we look to upgrade but no blocks of space that are.
Jonathan <unk>: Cereal and size the largest being roughly approximately 30000 square feet.
Speaker Change: Okay, and then what about next year I think you have some space at 134 Peter.
Speaker Change: Yes, so next year, you're referring to the space currently occupied by E. One, which totals approximately 90000 square feet of which approximately 20000 will be retain the balance of which <unk> is currently evaluating their real estate strategy followed.
J P: The.
Speaker Change: <unk> of their business by Lionsgate.
Speaker Change: Okay.
Speaker Change: I will leave it there thanks.
Lorne Kalmar: Your next question is from the line of ornate Kalmar, where they're starting.
Speaker Change: Thanks, Good morning, everybody.
Nathan: Morning, Nathan.
Nathan: Good morning, maybe on the disposition front.
Speaker Change: Great to see the progress you've made there already.
Speaker Change: I was wondering if you could give us a rough idea of the cap rates or even the target cap rates that you are looking to achieve on these dispositions.
Speaker Change: I would just say Laurie that they're on the they're lower yielding assets.
Speaker Change: And they're not all necessarily cap rate, driven and we will be using the proceeds to pay off higher cost debt. So it will be overall accretive.
Laurie: Are there assets in there where there is youre going to get credit from the buyers for development density.
Speaker Change: In sum yes.
Speaker Change: Okay.
Speaker Change: And then NAND I believe you said you wanted to get down to about eight times leverage by mid 2026, if I heard correctly.
Speaker Change: Correct that is correct.
Speaker Change: Could you maybe walk us through some of the key assumptions to getting there.
Speaker Change: Absolutely. So we have the contributions from our development pipeline, which if you look at the incremental contribution year over year and building up to that $85 million by mid 2026, that's one piece.
Speaker Change: And the 85 million comes from a ground up development. We also have an upgrade category, which is the <unk> category, which is not part of that $85 million.
Speaker Change: And that will also contribute to that growth.
Speaker Change: Obviously organic growth has Lucy has J P alluded earlier that leasing momentum is picking up so organic portfolio will contribute and some of the refinancing that we're currently working on lowering our interest.
Speaker Change: <unk> expense, including lowering.
Speaker Change: Overall debt through the disposal strategy that we have ongoing those are some of the ways that we're targeting to get to that eight times range. So we're targeting by mid 2026.
Speaker Change: Okay Perfect and then maybe just last one for me would you be able to give us an idea of the utilization rates in the portfolio currently and maybe how that kind of compare year over year.
Speaker Change: Yes, we are seeing ever increasing utilization rates across our portfolio observed through a number of data points and supported by third party reports reflective of utilization rates more broadly.
Speaker Change: The western Canadian cities, most notably Vancouver, and Calgary continued to lead eastern Canadian cities.
Speaker Change: In Vancouver, and Calgary were seeing utilization rates near what we would consider stabilized in line with pre pandemic levels.
Speaker Change: In Montreal, and Toronto are utilization rates are about 10% off what we would consider stabilized pre pandemic utilization rates, but more and more organizations are reverting to an office centric model and increasing their utilization rates as a result, which gives us confidence coupled with the strong leasing activity. This quarter that we're nearing an inflection.
Speaker Change: Point as we described earlier.
Speaker Change: I'm guessing.
Speaker Change: The construction of the tunnel also all things too.
Speaker Change: That would certainly help out.
Speaker Change: Alright, Thank you very much I'll turn it back.
Speaker Change: Thanks.
Bradley Sturges: Your next question is from the line of Brad search with Raymond James.
Bradley Sturges: Hey, good morning.
Bradley Sturges: Good morning.
Speaker Change: As part of the the.
Speaker Change: Refinancing plan, obviously, you've suggested to fill.
Bradley Sturges: Look to be active in the secured mortgage market I'm. Just curious if you can provide a little bit of color in terms of.
Bradley Sturges: The debt availability.
Speaker Change: And the appetite by lenders to provide new mortgages in the market today and what the indications of credit spreads would be in the secured market at the moment.
Speaker Change: Yeah absolutely.
Speaker Change: So currently if you're borrowing against the law.
Speaker Change: Cost of borrowing is like six 7% all in.
Speaker Change: On secured financing we have term sheets that range from five 2% to five five so youre looking anywhere from 100 to 150 bps based on the asset the quality of the asset the tenancies.
Speaker Change: Have a great tenant with a great covenant with great Walt.
Speaker Change:
Speaker Change: Looking at LTV of 65% on loan.
Bradley Sturges: Value and we've had quite a few assets that we've identified obviously, we still want to keep our unencumbered properties in the you know after the 80% range, but we'll.
Bradley Sturges: Definitely use that source of funding right now because of secured.
Bradley Sturges: Is definitely a lot cheaper than using a lock and we have the flexibility because right now we sit with 87% of our assets unencumbered.
Speaker Change: Great and I guess part of that.
Speaker Change: Go ahead sorry.
Speaker Change: Alright, I also wanted to mention the CMA sea financing the Sanish and financing on 19 Dunkin'.
Speaker Change: If you take the Canada mortgage bond today.
Adam: And Adam the spread.
Adam: Three point I want to say in the high threes three.
Adam: It's a three 8% compared to the current construction loan which is at an open variable loan right. So that's where you're going to see that refinancing on interest expense thats going to.
Adam: Add to our results in the second half of 2024.
Speaker Change: When would you be in the market for the Siemens clients would that be after the lease up or can.
Speaker Change: Can you we've already.
Bradley Sturges: Proceeds.
Speaker Change: Got it.
Bradley Sturges: Sorry.
Speaker Change: I'm jumping ahead of the questions.
Bradley Sturges: We've already.
Bradley Sturges: Actually applied for the <unk>.
Bradley Sturges: The deadline for the MSI Select program was June 18th So we got the application and before that we actually had our application has been accepted so now we're in the process of finalizing things.
Speaker Change: Do you have an idea of what the rough proceeds would be in terms of.
Speaker Change: That specific opportunities on the <unk> side.
Speaker Change: Anywhere from $320 million to $240 million.
Bradley Sturges: Okay.
Bradley Sturges: And just just.
Bradley Sturges: Maybe more generally with Adelaide Duncan can you comment or give an update in terms of how the lease up of the residential is going in.
Speaker Change: How rents are coming in versus your pro forma expectations.
Speaker Change: We've just started our leasing program, we're really pleased thus far with these take up of the product recognizing that the amenities are still to be delivered which will help propel our leasing activity. When they're delivered later this year, thus far the rents we're achieving are in line with our pro forma.
Speaker Change: Model.
Speaker Change: Okay I'll turn it back thank you.
Mario Saric: Your next question is from Mario <unk> with Scotiabank.
Mario Saric: Thank you and good morning.
Speaker Change: Just coming back to 19, DUC and then 400 was towards the transactions.
Speaker Change: I appreciate the disclosure that you provided indicating that did impact it has a floor by floor.
Speaker Change: In this quarter.
Speaker Change: With kind of the.
Speaker Change: Puts and takes in terms of the CMC financing of 19 Bell, Canada, and we pay minimal construction facility going forward.
Speaker Change: How should we think about an improvement in the <unk> dilution on a quarterly basis over the next 12 months or is it something that becomes Tucson next quarter too.
Speaker Change: Quarter.
Speaker Change: Maybe just talk about.
Speaker Change: The pace anticipated.
Mario: I'm Mario so youll see that gradually come down so a couple of things 19, Dunkin' residential in particular, we kicked off the leasing on that like J P. Just talk to that asset should start.
Speaker Change: Seeing a lot of EBITDA coming in in Q3 building up into Q4, when stabilizing by Q1 2025, that's how we're modeling that particular asset.
Speaker Change: Florida, West, Georgia, the remaining space that needs to be leased.
Mario: Model that into Q3 Q4 of 2025 lease up time, but.
Speaker Change: <unk>.
Speaker Change: The interest expense you should see the interest expense of 19 Dunkin' come down by.
Speaker Change: Six from the $6 seven currently too I would see modeled at 3.8 <unk>.
Speaker Change: Percent.
Speaker Change: I'm coming down in Q4, so a full quarter of Q4.
Speaker Change: Perfect Okay.
Speaker Change: And then just shifting to the occupants inflection point.
Speaker Change: When you <unk>, how would you characterize.
Speaker Change #105: Timing of that inflection point in relation to expectations at the start of the year.
Speaker Change: Have there been any delays based on our recent discussion that you had and what are some of the factors.
Speaker Change: Transpired with me.
Mario Saric: Hi, Mario.
Mario Saric: Yeah, I'm going to take that we're still expecting today, what we were expecting earlier. This year. So we were always thinking that in the first half of the year would be softer with improvements in the second half of the year and we are still confident that that's how things will play out.
Speaker Change: Got it okay.
Speaker Change #106: On the disposition of 400 million you call entered into 25, what are some factors that may have been considering doing a more meaningful amount.
Speaker Change: But going beyond that.
Speaker Change: More than $400 million.
Speaker Change: Yes.
Speaker Change: Well, we'll work through the $400 million and and then we'll take stock at during that process and will provide an update on our thoughts around that on the next call.
Speaker Change: Okay.
Speaker Change #107: The question differently when I look at the types of assets.
Speaker Change: So youre willing to sell some of which are residential density that you mentioned.
Speaker Change: Part of larger contiguous blocks as.
Speaker Change: As well like when you look at the overall portfolio today, how would you characterize the percentage of the portfolio of those types of assets represented.
Speaker Change: Okay.
Speaker Change #100: I would say that it could be more than 400, but it wouldnt be as high as lets say $1 billion to use it to use in upper end, we're not launching a 1 billion dollar disposition program, but we do have the ability to access more than $400 million too.
Speaker Change: Two dispositions if we wanted to.
Speaker Change #110: Perfect. Okay, and then just.
Speaker Change: The rebranding of velocity.
Speaker Change #108: In Montreal can you talk about potential capex requirement.
Speaker Change: Targeted returns on that topic.
Meera: Meera theres minimal capex required most of the upgrades to the common elements and the amenities have been completed the balance of the work would be associated with the re imagination of the retail component and those costs would be attributed to specific leasing transactions.
Speaker Change: Okay.
J P: Perfect. Okay, and then maybe last one from me J P. You mentioned.
Speaker Change #103: Alright, and a 10% increase on the expiring versus year one rent.
Speaker Change #118: It looks like on that basis.
J P: Net effective basis as we reported earlier in the year, our net effective rents in 2023 were up 10% or 13% I should say Mario compared to 2022, and thus far we're seeing net effective rents hold relative to last year, both for new leasing activity as well for renewals.
Mario Saric: Okay. Okay. That's it for me thank you.
Speaker Change: Yeah.
Speaker Change: Your next question is from the line of Matt Cornick, when National Bank financial.
Matt Kornack: Hi, everyone. Most of my question has been answered.
Matt Kornack: At this point.
Matt Kornack: But just going back to the disposition program.
Speaker Change #111: You mentioned it likely wouldn't be in excess of $1 billion disposition program.
Speaker Change #117: There's been a bit of change in terms of the size and quality and the types of analysis do you like how will you address that over a period of time, let's say if operations. So turnaround as quickly as you hope to do with what you.
Matt Kornack: Look to maybe dispose more outlets.
Speaker Change #101: $402 billion.
Speaker Change #101: If we had to Matt I mean at this stage and it'll be something that we're just regularly assessing as things progress.
Matt Kornack: Okay.
Matt Kornack: We will always keep you updated on that.
Speaker Change #129: And then if I, if I look at kind of I see this.
Matt Kornack: <unk> program is the way you kind of get it accrue.
Matt Kornack: Accretive growth.
Speaker Change #132: And it could get you on side from a distribution payout standpoint, because it seems like you really don't want to cut the distribution.
Speaker Change: So how should we think of just the sustainability of the distribution as well going forward.
Speaker Change: Under the current scenario it sounds like you've got to a point, where you're pretty confident on paying that amount.
Speaker Change #109: We're very we're very confident in our distribution it's sustainable.
Speaker Change #134: And so it's not something that we're discussing in terms of changing it. It's it will be supported by our are growing.
Speaker Change #109: And improving operating metrics and its something that we intend on maintaining.
Speaker Change #114: Okay makes sense and then maybe lastly, you mentioned.
Speaker Change #114: The NOI contribution from the development side as well as redevelopment.
Speaker Change #137: If you look at the table it looks like a big component of that would be the world but that.
Speaker Change #125: Most of that's already in your numbers at this point.
Speaker Change:
Speaker Change #126: How should we think about is there something outside of that bucket.
Speaker Change #126: Turning to what's disclosed in terms of the the NOI upside there.
Speaker Change #112: I think the big one is QR see phase II, which will start contributing in Q3 on that's the big one that is parked.
Speaker Change #112: Aside from the well.
Speaker Change #112: Also have 19 Dunkin' residential those are the big ones I would say in the ground up that is going to start contributing in the near term.
Speaker Change #115: And then you've got <unk>, which.
Speaker Change: Sorry, Jonathan I'm, sorry I'm.
Jonathan <unk>: I'm, sorry, I was just going to USD, you've removed from your development because I guess, it's been transferred.
Jonathan <unk>: From put into IBP, but you didn't have any NOI contribution from acting exactly okay. Yeah. Okay.
Jonathan <unk>: Okay. So that one plus 19 Duncan on the lease up.
Speaker Change #121: And then the redevelopment portfolio I mean, we're just kind of taking a stab at how that comes in but does it come in kind of equally over a number of quarters or is that weighted.
Speaker Change #112: To a certain.
Speaker Change #112: Year timeframe.
Speaker Change #122: It's weighted as well so it would contribute from 11% to $20 million over the next.
Speaker Change #130: Yes, so 2020 full on to 2026, it builds up to $20 million in.
Speaker Change #112: An additional EBITDA from that category the redevelopment.
Speaker Change #116: Okay. That's very helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question is from the line of Tammy Bear with RBC capital markets.
Tammy Bear: Thanks, Good morning.
Tammy Bear: Just coming back to the to the dispositions can you just maybe expand on the types of buyers that you are actually getting interest from on an unsolicited basis, and then is there any anticipation of providing any BTB financing.
Speaker Change #102: Sure. So the types of buyers are.
Speaker Change #102: There, there's private smaller family buyers, our north American and European.
Speaker Change #102: It's funny Theres, a lot of capital from outside of Canada looking to invest in Canada.
Speaker Change #102: And in terms of our our appetite to provide <unk> zero.
Speaker Change #128: There will be no V Tvs.
Speaker Change #102: Okay.
Speaker Change #120: And then just on the coming back to NAND at eight times debt to EBITDA target I'm not sure. If this was answered previously but what are you assuming I think you said by mid 2026, but what are you assuming in terms of dispositions.
Speaker Change #102: Net.
Speaker Change #102: To get there.
Speaker Change #123: Currently just the $400 million that we have targeted.
Speaker Change #102: Okay.
Speaker Change #155: At 400, West, Georgia, what can you share in terms of the interest that you've received on the remaining space to lease up there and then just a 19 Dunkin' what was sort of the what's the rent that you are targeting per square foot.
Ami: So Ami at 400 West, Georgia as you know there are four floors totaling 60000 square feet. There is interest on all of the floors.
Speaker Change #139: <unk> eight perspective users of which one is an existing tenant looking to expand some are looking at the entirety of the space and some are looking at.
Speaker Change #148: A portion of the space and with respect to your question relating to 19 Dunkin' the residential rates that we're targeting average in the mid fives on a per square foot basis mid to high fives.
Speaker Change #139: Okay, I'm, sorry on 400 West Georgia.
Speaker Change #135: Correct me, if I'm wrong, but I think you said you expect that to get to.
Speaker Change #133: We expect the balance to get leased up by Q3 Q4 of next year 25, Yeah Middle Middle of 2025, Tommy would be the outside date.
Speaker Change #133: And income producing at that point.
Speaker Change #102: Our cash flow producing.
Speaker Change #124: That would be what we would want yes, yes, okay.
Speaker Change #124: Okay.
Speaker Change #156: And then just lastly, a king Toronto the condos there could you maybe just have.
Speaker Change #102: Have you had any.
Speaker Change #158: Are there any buyers on the 90% or 91% that had been sold to date.
Speaker Change #136: Has there been any anyone reaching out to get out of any of these transactions or what can you share in terms of maybe even or even just selling the remaining.
Speaker Change #102: <unk>, 9%.
Speaker Change #127: Surprisingly <unk> no. One has indicated that they are walking away from the projects.
Speaker Change #102: Cause it.
Speaker Change #102: In good standing.
Speaker Change #102: The percentage of foreign buyers is really low surprisingly less than 7%.
Speaker Change #102: So so far I mean, most of these purchases at all high net worth individuals and we have not had any indication of anyone actually walking away.
Speaker Change #102: Okay. So not necessarily these are the end users as opposed to investors for the most part given the pricing on these.
Speaker Change #102: Yes.
Speaker Change #102: Okay.
Speaker Change #165: Thanks, very much I'll turn it back.
Speaker Change #102: Your next question is from the line of Mark Rothschild Mechanical Ward.
Mark Rothschild: Thanks, Good morning.
Mark Rothschild: You commented that you want to keep the unencumbered pool as large as possible, which I understand yet.
Speaker Change #141: Of that on <unk>.
Speaker Change #154: Cured properties.
Speaker Change #144: Let's speak decent amount lower how are you thinking about that going forward.
Speaker Change #138: In regards to your interest expense would you.
Speaker Change #102: Be willing to lever up on a bunch of properties too.
Speaker Change #159: Take advantage of the strength that you have with those unencumbered assets in regards to your interest expense.
Speaker Change #142: We will always want to remain at least at 80%. So right now we're sitting at 87% unencumbered.
Speaker Change #102: Assets, and we will still want to remain at least 80% we would not have well always have a component of <unk>.
Speaker Change #145: On secured.
Speaker Change #145: Financing in place, we'll go back to the bond market. We can still go back to the bond market. So we will access unsecured and secured will well balance.
Speaker Change #145: And interest rates are on a downward trend and we will do what's necessary, but right now.
Speaker Change #145: Certain construction loans that are on our variable rate at six 7% and we want to tackle those high interest rate debt right now and a lot of these debt for debt whether assets already secured but we'll look at putting on some incremental secured financing just take advantage of that rate reduction today.
Speaker Change #150: Okay, Great and then maybe in regards to the asset sales.
Speaker Change #157: Are you looking at any specific markets that you'd maybe you want to reduce exposure to or is it really just assets that you can get really good prices for that or just non core to the overall.
Speaker Change #175: Main parts of what you would call that a lot of portfolio.
Speaker Change #161: The assets that we've identified are tend to be in Montreal, and Toronto and obviously those are the largest parts of our portfolio.
Speaker Change #161: Less so in Calgary and Vancouver.
Speaker Change #163: Okay, and then maybe just lastly for me would.
Speaker Change #152: Would you consider residential.
Speaker Change #160: Still something that would be core that you'd want to have exposure towards that area that you might look at it as an area to reduce exposure to is part of it.
Speaker Change #145: <unk> program.
Speaker Change #164: No some of the residential sites or sites that we want to keep within our portfolio and then some we consider non core.
Speaker Change #177: Okay, great. Thank you so much.
Speaker Change #151: No problem.
Speaker Change #151: Your next question is from the line of Sheila Garb Liberty's investment research.
Speaker Change #151: Sure Bob Your line is open.
Speaker Change #149: Please check your line to make sure you get that Youre not mute it.
Speaker Change #149: Hello.
Sheila Garb: Hi, good morning.
Sheila Garb: So just a quick question on the tunnel projects.
Speaker Change #190: You have to go in bedroom in charge of around 6 million. This quarter. So can you provide some color on that and.
Speaker Change #176: Or do you expect or do you foresee further delays regarding this project.
Speaker Change #172: Yes, so the impairment this quarter was because of some cost overruns and mainly related to supply chain management related issues.
Sheila Garb: Okay.
Sheila Garb: Okay.
Sheila Garb: On the closing.
Speaker Change #171: Delayed by a couple of quarters do you foresee any further delays.
Speaker Change #171: No. We don't we expect to close by mid 2026.
Sheila Garb: And that would be the tail end of the condo closings. The condo closings will will begin in early and late 'twenty five early 'twenty six but they'll take about two quarters to complete.
Speaker Change #147: Okay. That's helpful and the rest of my questions were answered but previously.
Speaker Change #147: Previously.
Speaker Change #147: Okay awesome.
Speaker Change #166: As a reminder to ask a question press star one on your telephone keypad.
Speaker Change #181: Your next question is from the lineups and May Sayiid with CIBC.
Sumayya Syed Hussain: Thanks, Good morning.
Sumayya Syed Hussain: Good morning, Firstly on the leasing side of things if I just kind of look at the average term you're getting on your renewals. It's around three years I guess a bit below the typical five year term.
Speaker Change #168: How do we interpret that as that kind of fair to say that that's just tenants seeking.
Speaker Change #153: Speaking more flexibility or what are you hearing from that side.
Speaker Change #153: Yes.
Speaker Change #162: I would suggest looking.
Speaker Change #170: In isolation, it probably doesn't represent a meaningful sample or provide sufficient visibility to tenant intentions broadly across our portfolio.
Speaker Change #178: Our vault in Q2 was five eight years interestingly there is no change in our Walt compared to Q2 2020. So the average term length across our portfolio remains unchanged over the past number of years.
Speaker Change #178: And then new leasing activity.
Speaker Change #178: In the quarter was six five years. So generally speaking we havent seen observed any discernible trend over an extended period, which would suggest that tenants are looking for shorter term durations than historically.
Speaker Change #146: Okay, and Andrew P. Also referenced seeing expansions at several assets that are specific.
Speaker Change #189: User type or one off for any.
Andrew P.: Trends that you can point to there.
Speaker Change #169: No I think the one overarching trend is the fact that more and more organizations are increasing their utilization across our portfolio as they revert to an office centric model and that is requiring.
Speaker Change #169: Our requiring them to reevaluate their real estate needs and consequently, a number of them are looking to expand in our portfolio. The expansion activity year to date is not representative of one tenant.
Speaker Change #169: Or a small subset of tenants, nor a particular industry, it's broad based.
Speaker Change #169: <unk> multi user type multi geography and gives us confidence among the other data points that we're nearing an inflection point.
Speaker Change #169: Okay.
Speaker Change #146: Okay.
Speaker Change #146: It looks like there was.
Peter: A small non renewal at 82, Peter would I see that that's an asset that also has resulting in place, but I guess, what your intense Dolby to lease it up I did not expecting to commence construction anytime soon.
Speaker Change #146: 82, Peter sorry that was the asset you're referring to yes.
Speaker Change #184: Yes that asset is part of our Allied Flex program, which is where we have identified opportunities for future intensification, we're not as a result investing meaningful capital in the interim and therefore, we're able to offer users more flexible terms without compromising on our rates in a manner that we otherwise.
Speaker Change #146: Wouldn't have historically, so that represents the nature of that transaction and that type of transaction would be consistent with what you might see across our allies flex portfolio nationally.
Speaker Change #146: Yeah.
Speaker Change #146: Okay and lastly.
Speaker Change #188: Lastly from me looking at the capitalized interest it increased sequentially by about $1 6 million.
Speaker Change #179: Is that okay to use as a run rate for the balance of the year.
Speaker Change #183: Semi at good to use for the next two quarters, but has the devilment pipeline keeps coming not down typically we say half of the EBITDA contribution is decaf.
Speaker Change #182: Is impacted by D. Capitalization. So you should keep that in mind as EBITDA comes on board, you're going to see some of that come down.
Speaker Change #185: Okay perfect. Thank you.
Speaker Change #146: Yes.
Speaker Change #146: Yes.
Speaker Change #173: At this time there are no further questions I will now hand todays call back over to presenters for any closing remarks.
Speaker Change #173: Okay.
Speaker Change #180: Thanks to Mika and thanks, everyone for joining our conference call. We will keep you updated on our progress going forward.
Speaker Change #186: This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change #173: Okay.
Speaker Change #173: [music].
Speaker Change #146: Yeah.
Speaker Change #146: Okay.
Speaker Change #146: Okay.
Speaker Change #146: [music].
Speaker Change #146: Okay.
Speaker Change #146: Yeah.
Speaker Change #146: Yes.
Speaker Change #146: Thank you.
Speaker Change #146: [music].
Speaker Change #146: Okay.
Speaker Change #146: [music].
Speaker Change #146: Yeah.
Speaker Change #146: Yeah.