Q4 2024 Allied Properties Real Estate Investment Trust Earnings Call
Hello, and thank you for standing by my name is Bella and I will be a conference operator today at this time I would like to welcome everyone to our Allied properties.
The fourth quarter 'twenty 'twenty four earnings conference call 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 this time simply press Star then the number one on your telephone keypad to withdraw your question Press Star one again.
Speaker Change: I would now like to trying to convince everybody just to Cecelia. Please go ahead.
Speaker Change: Thanks, Bill and good morning, and welcome to our conference call.
Speaker Change: I'll summarize what we achieved in 2024 and what we're focused on in 2025.
Dan: Dan will do the same from a financial perspective.
Speaker Change: J P will outline the leasing momentum by urban market and strong results from our third party user engagement survey.
Dan: We're pleased to answer questions.
Dan: We may in the course of this conference call make forward looking statements about future events or future performance.
Dan: By their nature. These statements are subject to risks and uncertainties that may cause actual events or results to differ materially.
Dan: Including those described under the heading risks and uncertainties in our 'twenty 'twenty four annual report.
Dan: Material assumptions underpinning any forward looking statements. We make include those described under forward looking statements in our 'twenty 'twenty four annual report.
Dan: First leasing we outperformed the urban centers in which we operate were occupied area was higher than each of the markets. The only exception was Vancouver, where we acquired vacancy that will address by year end.
Dan: Our national Portfolio's leased area remained steady over the year and with challenges starting to ease we're focused on improving both occupied and leased areas to at least 90% by the end of 2020 five.
Another positive metric in 'twenty 'twenty, four with our improved retention rate to 69% up from 61% in 2023, we.
Dan: We expect retention to continue improving in 2025 getting closer to our historical rate of 75%.
Dan: Do you continue to take longer due to the availability of options in both the sublease market and indirect vacancy.
Dan: And sublease space is absorbed and direct vacancy falls I expect those timelines to shorten.
Dan: It's helpful that Theres no new supply beyond this year with the last delivery to the urban office market in Canada being the second tower of CIBC square.
Dan: Also helpful. Our 'twenty 'twenty four user engagement survey results. They were very strong with a net promoter score of 150% above the index average.
Dan: And a 30% increase year over year.
Dan: This is a testament to the strength of our operating platform, which will also support leasing activity.
Dan: We made progress on our development and upgrade activity as well.
Dan: First from the development to the rental portfolio in 2025 are expected to total 340000 square feet of completed urban workspace and 218 rental residential units in 2025 alone will add $13 million to our annual EBITDA run rate from development completions.
Dan: Yes.
Dan: We're focused on completing all development and upgrade projects currently underway by the end of next year.
Dan: Last but certainly not least the balance sheet, we flex it in 'twenty 'twenty, four and will strengthen it in 2020 five.
Dan: We completed dispositions of noncore assets at or above I first value totaling $229 million in 2024 above our target of $200 million.
Dan: All proceeds were allocated to debt repayment.
Dan: We also opportunistically acquired $677 million of strategic asset in 2020 for converting noncash interest income into our growing operating cash revenue stream, while upgrading the quality of our portfolio.
Dan: While the timing was not optimal as it resulted in a temporary increase to our debt to EBITDA metric and added short term vacancy we're focused on our path to get under 10 times by the end of 2020 five.
Dan: Part of that involves increasing our targeted dispositions in 2020 five to at least $300 million and then Mt were confident in our ability to achieve based on the success of our disposition program last year.
Dan: Dan will now elaborate on our balance sheet.
Dan: Thank you Cecilia good morning, everyone. We are pleased with our performance in the fourth quarter I'll provide a brief overview of what we achieved in 2024, and we will speak to 2025. This quarter, we achieved a six 5% increase in net operating income compared to Q4 2020.
Dan: Three we also saw an increase of five 4%, while our average in place net rent per occupied square foot from $24.10 to $25 41 says.
Dan: Additionally, same after the NOI of the total portfolio increased by two 2% for the year.
Dan: Develop and completions added approximately 26 million to our 2020 for EBITDA.
Dan: <unk> operating performance the corresponding impact ethical net of the capitalization of interest was $14 million. This is consistent with our expectation that approximately 50% of incremental EBITDA converts to effort both due to the capitalization over the course of 'twenty 'twenty four we.
Dan: Fixed 818 million of variable rate debt, improving our maturity ladder and addressing refinancing risk.
Dan: We ended the year with our unsecured facility fully available and liquidity of $863 million.
Dan: Our investment properties are 83% unencumbered.
Dan: Moving to 2025.
Dan: We have constructed considerable optionality in addressing the 985 million of debt maturity. In 2025. This includes proceeds from our dispositions our unsecured facility and the unsecured debenture market, which is becoming increasingly attractive.
Dan: Net interest expense is expected to increase in 2025 has a result of the 'twenty 'twenty four acquisitions and lower capitalized interest has continued transferring properties to the rental portfolio capitalized interests in 2020 five is expected to come down to the low 60 million.
Dan: <unk>.
Dan: By the end of 2025, we're targeting net debt to EBITDA to be below 10 times. Despite a temporary increase anticipated in the first quarter of 2025.
Dan: Same as an NOI of the rental portfolio will increase by approximately 2% Montreal and Toronto will contribute meaningfully to this increase due to organic growth and cash NOI commencement from Depomed completions.
Dan: Same asset NOI for the total portfolio will increase by approximately four 8%, we expect our debit mid completions to contribute to this growth by generating $13 million of incremental EBITDA and $6 5 million of ethical approximately half of this is contractual.
Dan: While this demonstrates improving improving market fundamentals and the operating performance of our portfolio. We may see a contraction of approximately 4% on ethical and <unk>. This is largely driven by lower interest income and higher interest expense, while the timing of the 'twenty 'twenty four.
Dan: Acquisitions resulted in short term downward pressure on our debt metrics. They will contribute positively to our earnings has to be stabilized.
Dan: Operating goals are to achieve our leasing objectives complete our development projects meet our disposition target and advance our deleveraging plan.
Speaker Change: Our confidence is underpinned by the stabilized Asian of all leased area for the third consecutive quarter and the strong leasing activity, which J P will now speak about over to you J P.
Dan: Dan we continue to observe improved utilization across our portfolio as more and more organizations recognize the many advantages of an office centric model driving a resurgence in demand for our workspace. This is demonstrated by three notable trends emerging.
Speaker Change: Across our national portfolio.
Speaker Change: Leasing activity is accelerating.
Speaker Change: Our conversion rate for new leasing activity in the second half of 2024 was 55%.
Speaker Change: Significant increase from 38% in the first half of the year.
Speaker Change: Second expansion activity is increasing across all markets and sectors, which is primarily driven by higher utilization rates.
Speaker Change: In 2020 for the amount of square feet leased for expansion purposes.
Speaker Change: Represented a 77% increase compared to the prior year and we are currently engaged in discussions with 29 existing users that are exploring expansion options, representing approximately 150 to 200000 square feet of net new leasing in aggregate.
Speaker Change: Third.
Speaker Change: We are observing a shift towards larger space requirements. Among prospective users a trend I will speak to in greater detail as I provide an update on each market.
Speaker Change: As a result of these three trends, we entered 2025 with a high degree of optimism in.
Speaker Change: In Q4 or at least area held steady for the third consecutive quarter and the number of transactions completed was up 23% compared to the previous quarter in.
Speaker Change: In 2024 total leasing activity represented a 14% increase in the amount of square feet lease compared to the prior year and new leasing activity was up 41%.
Speaker Change: We remain extremely encouraged by the number of existing users in our portfolio that continue to require more space in Q4, 56000 square feet of new leasing activity in the quarter represented expansions.
Speaker Change: We are also encouraged by our improving retention rate, which was 69% in both Q4 and 2024 closer to our historical level of 75%.
Speaker Change: In Q4, the average rental rate was up 2% when comparing the ending to starting base rent and up five 9% when comparing average to average.
Speaker Change: The observed moderation in rental rate growth upon renewal is in line with our expectations and reflects the anticipated impact of increased supply a message we have been communicating for several years.
Speaker Change: Tour activity continues to be strong total tour activity in Q4 was in line with the prior quarter, which is encouraging considering seasonality and total tour activity for 2000, 2024 was up 6% compared to the prior year industries represented by Turing organizations continue to be technology Midi.
Speaker Change: Professional services education and medical uses.
Speaker Change: At the end of last quarter, we reported we had 960000 square feet of leasing activity under negotiation or the prospect stage, including 423000 square feet of new leasing activity in.
Speaker Change: In Q4, we completed 528000 square feet of leasing activity, including 188000 square feet of new leasing, resulting in a 44% conversion rate compared to 24% in the prior year.
Speaker Change: As of today, we have 933000 square feet of leasing activity under negotiation or at the prospect stage of which 61% represents new leasing requirements and 39% represents renewals.
Speaker Change: I'll now provide a brief overview of each market.
Speaker Change: In Montreal, we're seeing an increase in demand from prospective users, including technology users for larger space requirements that are greater than 50000 square feet.
There are currently eight groups in the market with mandates between 50000 and 200000 square feet that are considering space in allys portfolio.
Speaker Change: Last quarter, we reported robust expansion activity, including a large renewal.
Speaker Change: And expansion in Montreal, we are now able to disclose that the user was <unk> a large technology user at $54 45 to gas day in Montreal as Marlins neighborhood that extended its term and expanded 49000 square feet.
Speaker Change: <unk> expansion is an example of an emerging trend in Montreal and across our national portfolio of existing users pursuing expansion opportunities.
Speaker Change: Most of our vacancy in Montreal is located at <unk>, a portfolio of assets located between Montreal, and Griffin town, comprising eight buildings totaling more than $1 1 billion square feet.
Speaker Change: Lastly, today offers allied modern and I'll, let heritage workspace solutions as well as an enhanced amenity experience for users and an improved necessity based retail and service component.
Speaker Change: Distant with amenity rich urban neighborhoods.
Speaker Change: We are extremely pleased with the progress of the transformation of the retail offering as we have completed or are finalizing leases for the entirety of the retail space at 111 Boulevard, Robert Roosa totaling 21000 square feet, including a lease with a national grocer that will anchor the retail component.
Speaker Change: We are also very pleased to report that we recently renewed Morgan Stanley the anchor office user within last year.
Speaker Change: In Toronto in Kitchener, we continue to see an increase in demand from prospective users with larger space requirements that are greater than 10000 square feet.
Speaker Change: There are presently 23 users with mandates in excess of 10000 square feet that are evaluating space in our portfolio split evenly between the technology and professional services sectors.
Speaker Change: We continue to make great progress with the leasing of the retail component at King Toronto, We are finalizing lease terms with an ideal anchor user that will occupy most of the space and the lower level and look forward to sharing more in subsequent quarters. We believe the retail offering a king Charles will propel the continued transformation of King West village.
Speaker Change: And drive office leasing activity.
Speaker Change: At 19, Dunkin' West Bank at least 20% of the residential units.
Speaker Change: Leasing progress in Q4 was impacted by an insurable event during construction affecting select suites and the buildings vertical transportation.
Speaker Change: We're also working to complete three levels amenities, which will be delivered in phases in the second half of 2025 as a result, we anticipate we will achieve stabilized lease up in the first half of 2026.
In Calgary based two of the downtown development incentive program was introduced to support office conversions and the eligible catchment area was expanded to include the beltline.
Speaker Change: While we have no intention of pursuing residential convergence, we started to observe an increase in near term demand from users in building slated for conversion as evidenced by recent groups that have toured our portfolio.
Speaker Change: We are also seeing an increase in the size of mandates in the market. As there are currently 12 perspective users with mandates ranging between 10050 thousand square feet evaluating options in our portfolio.
Speaker Change: In Vancouver, there has been an influx of new entrants to the market and increased demand for urban workspace. Among organizations currently located in suburban environments in.
Speaker Change: In addition, we are starting to see an increase in demand from prospective users with larger space requirements that are greater than 10000 square feet.
Speaker Change: There are presently eight users with mandates in excess of 10000 square feet evaluating space in our portfolio.
Speaker Change: Vancouver remains the strongest leasing market in Canada.
Speaker Change: 400, West Georgia is currently 82% leased there are four floors totaling 64000 square feet that remain available there are presently for prospective organizations, representing the technology and professional services sectors with requirements ranging from 1% to four floors currently touring the property as.
Speaker Change: As previously communicated we anticipate the remaining vacancy will be leased with users in possession in the second half of 2025.
Speaker Change: At the very core of our operating platform is an unrelenting commitment to user experience for the past five years Allied has retained greenfield Kingsley surveys to assess user satisfaction within our portfolio.
Speaker Change: The results for 2024, we're very encouraging.
Speaker Change: All performance indicators improved or maintained parity with the previous year. In addition, 85% of users were satisfied with allied's commitment to sustainability and 93% were satisfied with allies commitment to Edr. Most importantly highlights net promoter score a leading indicator for tenant retention and leasing activity.
Speaker Change: Increased 30% and exceeded the industry average by 150%.
Speaker Change: These exceptional results are a direct reflection of the unwavering commitment and hard work of the entire allied team to provide our users with great workplace experiences. We expect these strong results will support our leasing efforts in 2025 to achieve at least 90% occupied and leased area by year end.
Speaker Change: Now I'll turn the call back to facilities.
Speaker Change: Thanks J P.
Speaker Change: We continue to monitor international trade and the effect of potential tariffs on review of our development supply chain, we don't have meaningful exposure as we're at the end of our projects.
Speaker Change: On the demand for workspace, it's too early to tell whether there will be an impact.
Speaker Change: Before we turn to questions I want to reiterate my confidence that our portfolio will continue to hold up well in this economic environment, Yes, we're aware of the headwinds, but we see more upside and are optimistic because of the strength of our operating platform. We recently updated our website to.
Speaker Change: Reflect our expanded offering.
Speaker Change: In addition to the Allied heritage modern and flex spaces. It now includes the rental residential units in Toronto, and Calgary as well as extensive amenities.
Speaker Change: This one of a kind urban properties, we own combined with the services provided by our team that gives us confidence in 2025 and beyond.
Speaker Change: We'd now be pleased to answer any questions.
Speaker Change: Okay.
Speaker Change: 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.
Speaker Change: We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Lauren Kumar with.
Speaker Change: <unk>. Please go ahead. Your line is now open.
Speaker Change: Thanks, Good morning, everybody.
Speaker Change: Just firstly on the occupancy outlook I was just wondering when you're looking at that 90% is that on a same asset base that you're kind of on the $14 3 million square feet or is there.
Speaker Change: Some other adjustments that are going to be made as part of that.
Speaker Change: No no adjustments it would be just 90% at least 90% on the total portfolio.
Speaker Change: Okay perfect. Thank you for that.
Speaker Change: And then on the 150 West Georgia disposition, obviously your priority for you guys. This year.
Speaker Change: I was wondering if you had any visibility in terms of the timing as to when that might come to fruition. When you guys can repatriate the capital from that.
Speaker Change: We're expecting repayment by the end of the year.
Speaker Change: Okay fair enough.
Speaker Change: <unk>.
Speaker Change: And then lastly knee.
Speaker Change: On 19 Dunkin'.
Speaker Change: Just wondering if there was any update to the timing of the receipt of.
Speaker Change: CMA Sea financing.
Speaker Change: No we're going to be addressing all of our options given the change in the underlying mortgage bond rate.
Speaker Change: We may have more attractive options.
Speaker Change: Okay, but is it fair to say that this would not be a first quarter event.
Speaker Change: Not sure not committing to that but we have the availability to access <unk> seen over the course of 2025.
Speaker Change: And we will do so based on what makes the most sense for our business.
Speaker Change: Okay that seems reasonable and then sorry, just one last one from me.
Speaker Change: Just JP had mentioned you be soft we had seen some headlines there and talks about a potential buyout I was just wondering if thats something that was on your Guy's radar and if there was any potential implications to their office space usage as a result of that.
Speaker Change: No theyre renewal and expansion reflects business growth and a continued flight to quality and experience as part of their broader workplace strategy.
Speaker Change: Okay Fabulous. Thank you so much I will turn it back.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Jonathan Culture with TD Cowen. Please go ahead.
Jonathan Culture: Thanks, Good morning.
Speaker Change: First question just on the 4%.
Jonathan Culture: The decline in coal.
Jonathan Culture: Call it.
Jonathan Culture: <unk>.
Jonathan Culture: A little surprising is that it does.
Jonathan Culture: Specific.
Jonathan Culture: What gives you confidence.
Jonathan Culture: Right at around 209.
Jonathan Culture: Hey, guys.
Jonathan Culture: What would need to happen for you to either be a little bit above that or or a little bit below that.
Jonathan Culture: Well.
Jonathan Culture: It would depend on the timing of our leasing assumptions.
Jonathan Culture: And it would also depend on.
Jonathan Culture: Different debt rates than what we've assumed for 2025.
Jonathan Culture: And the timing of debt repayment as well so those would be the puts and the takes.
Jonathan Culture: Okay. That's.
Jonathan Culture: Fair enough and then on the on the 2% NOI growth.
Jonathan Culture: Yes.
Jonathan Culture: That assumes youre, reaching 90% occupancy and based on Jp's comments is helping you guys have a lot of confidence in that.
Jonathan Culture: What sort of your your expectation in terms of the cadence of the gains it's sort of equally weighted or more front half weighted.
Jonathan Culture: Weighted this year.
Jonathan Culture: No they are backend weighted Jonathan.
Speaker Change: Okay. So a slow start to then ramp up into 2026.
Speaker Change: Correct, a ramp up to the end of 2025.
Speaker Change: Okay.
Speaker Change: I'll turn it back thanks.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Brad Sturges with Raymond James. Please go ahead.
Brad Sturges: Hey, good morning.
Brad Sturges: To circle back on 150, West, Georgia, just to be clear I guess the two.
Brad Sturges: Timing or the success on a transaction that is still tied to west banks ability to sell air rights, particularly for the data center it rates or how are you thinking about the.
Brad Sturges: What will drive that.
Brad Sturges: Ability to get repaid on that loan.
Brad Sturges: No that's right it's based on the data Center Air rights Okay.
Brad Sturges: And.
Brad Sturges: With.
Brad Sturges: The disposition outlook I think $300 million this year.
Brad Sturges: How would you compare.
Speaker Change: I guess the potential types or pool of buyers for the second tranche for this year compared to last year. It would be kind of a similar sort of size and mix of potential buyers in terms of the interest youre seeing in the assets youre looking potentially to sell.
Brad Sturges: Yes.
Brad Sturges: Okay.
Brad Sturges: And what was driving the increase I think the guidance before was for less amounts of what's driving the increase to get to $300 million. This year to strengthen to strengthen the balance sheet and have proceeds to pay down debt.
Brad Sturges: Is it more just on.
Brad Sturges: More unsolicited interest or you just.
Brad Sturges: Have gone through more of a comprehensive process to determine this is to.
Brad Sturges: The right amount to be selling this year.
Speaker Change: No it's still based on unsolicited interest.
Brad Sturges: Okay. Thank you.
Yep.
Speaker Change: Comes from the line of Milo Sarah <unk> Bank. Please go ahead.
Brad Sturges: Okay.
Speaker Change: Thank you for taking the questions.
Brad Sturges: Coming back to the occupancy gains turn.
Brad Sturges: Occupancy gains of 100 basis points at least.
Brad Sturges: Within that expectation and what is your expectation for the broader outlet.
Brad Sturges: Allied market.
Brad Sturges: I guess, what I'm trying to get is how much over 400 basis points or so what do you think is allied specific versus a broader strengthening in the broader competitive landscape as well.
Brad Sturges: Well, we expect to continue outperforming the market and the bulk of the occupancy gains will come from Montreal, and Toronto. So we're feeling pretty confident about our ability to do that.
Speaker Change: Okay, and then just to clarify comments you made earlier.
Brad Sturges: Got it.
Brad Sturges: On your on page 15.
Brad Sturges: <unk> hundred 65000 square feet.
Brad Sturges: Where the rent commencement.
Brad Sturges: 25 that will be booked 400000 square feet.
Brad Sturges: To go.
Based on each one of these points Mark Gibson Your comment was that you expected in Q4 coincides the vast majority of it is about.
Brad Sturges: The 2% same store NOI expectation for the year fair to say two four it's very little.
Brad Sturges: The 400 basis point expected increase.
Brad Sturges: Sorry.
Brad Sturges: I can confirm that our our leasing assumptions are backend weighted I don't know if I understood. The last part of your question.
Brad Sturges: I'm, just trying to get a sense of.
Speaker Change: Like how much of the 400 basis points of expected occupancy gains within the 2% same store NOI number.
Speaker Change: For example, all of the gains were recorded at the start of the year with a 2% be closer to 45% kind of thing.
Speaker Change: Mario I can talk to that so part of that 2% growth is coming from the cash NOI commencement of Devlin completions that are currently in the rental portfolio that that don't that don't make the same asset NOI in 2024, and then the other part is coming from organic growth in Montreal, and Toronto of which.
Speaker Change: Part of it is already leased and the other half.
Speaker Change: Is based on leasing assumptions.
Speaker Change: Okay.
Speaker Change: Just on the.
Speaker Change: $200 million of potential dispositions.
Speaker Change: Target disposition cap rates similar to what you achieved in 'twenty four.
Speaker Change: It will continue to be lower yielding noncore assets, yes.
Speaker Change: Okay.
Speaker Change: Just two more meaningful global my and the total cost of PMD study listed on page 70 of them two to $1 9 billion.
Speaker Change: How much of that cost remains in <unk> today.
What is the target by year end.
Speaker Change: Tomorrow, there is a $138 million remaining cost to complete.
Speaker Change: That's on that page if that's what you're referencing that's 2025 in 2025, Yeah remaining has up Q4 cost to complete.
Speaker Change: Okay, but just in terms of.
Speaker Change: The question is more on the total cost in <unk>, because presumably someone what is on page 70 to transfer to IPP.
Speaker Change: Already like what is the total.
Speaker Change: Total cost.
Speaker Change: Pmt's today.
Speaker Change: I'll tell you about the actual food cost what's on the books.
Mario: Mario Let me call you on that I'm not quite understanding the question.
Speaker Change: Okay.
Speaker Change: And last one just for JP on the good to hear the Morgan Stanley renewal at La <unk> with wells or any change in there and what are the.
Speaker Change: Patients.
Speaker Change: On the renewal on your ability to release the remainder of the space, which you mentioned is a big part of your vacancy control.
Speaker Change: The Morgan Stanley's presence Mario at last <unk> represents their technology Center.
Speaker Change: A part of their business that has grown materially started with 170 employees in 2008 and now host more than 3000, so they remain committed to Montreal.
Speaker Change: And.
Speaker Change: We value that relationship and that gives us confidence in the balance of our leasing progress there in large part.
Speaker Change: Because of the success, we've had with the improved retail offering that we are now pursuing so.
Speaker Change: We remain confident in our ability to address the vacancy over the course of the year.
Speaker Change: Okay. So the third suitable for criminals rough winter.
Speaker Change: <unk>.
Speaker Change: Sorry was it fair to say.
Speaker Change: Morgan Stanley footprint was intact on the renewal there was there was there was no no change in footprint Apple.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of <unk> <unk> with RBC capital markets. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: Just wanted to clarify maybe one of the answers to the earlier questions, but how much of.
Speaker Change: If any of the occupancy improvement that you expect this year.
Speaker Change: Would come from maybe shifting any assets into developments or sections or portions of assets into development.
Speaker Change: And also.
Speaker Change: Are there any impact in that 90% target from from asset sales.
Speaker Change: The only shift between the rental and the development portfolio in 2025 will be from development to rental we're not expecting to shift anything from rental to development.
Speaker Change: And sorry.
Speaker Change: What was your second question.
Speaker Change: Yes, and is there any portion of the 90% occupancy target by year end being driven by sales of some of the dispositions this year.
Speaker Change: No that wouldn't have a material impact.
Speaker Change: Okay.
Speaker Change: And then just again to clarify that 90% target is committed or in place.
Speaker Change: Both occupied and leased area to be at least 90% by the end of 2025.
Speaker Change: Got it.
Speaker Change: And then on the <unk> outlook, just curious where does that sit maybe in terms of the range of outcomes that you sort of thought about when you put together your budget for 2025 is this.
Speaker Change: Conservative.
Speaker Change: Or kind of in the middle of <unk>.
Speaker Change: The expectation for the year.
Speaker Change: Well, it's the where it's where it lands based on reaching occupied and leased area of 90% by year end.
Speaker Change: I'm not I'm not going to add labels to how we considered it whether it was aggressive or conservative that's what we're striving towards and that's what we expect to be able to achieve by the end of 2025.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Last one for me just again with the expectation for <unk> to contract this year and that 4% level can you talk about the rationale for holding the distribution at current levels, given where the payout ratio already is cut.
Speaker Change: It could certainly help with respect to achieving some of your.
Speaker Change: Your debt reduction targets.
Speaker Change: Our distribution is a commitment that we've made with our investors and we take it very seriously and we have a path to be able to strengthen the balance sheet without having to cut the distribution, which is why we're not cutting it.
Speaker Change: Okay I'll turn it back thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Matt <unk> with National Bank Financial. Please go ahead.
Matt: Good morning, guys.
Matt: Just wanted to quickly on the occupancy front do you have a view as.
Matt: We're in place occupancy will finish the year and then can you kind of speak to the time delay between signing leases today and getting to kind of economic occupancy where you'd actually getting cash rented.
Matt: Yes.
Matt: Alright, I thought we were pretty clear in the press release, maybe I'm not understanding the question, but we're targeting to have occupied.
Matt: Leased occupied and leased area.
Speaker Change: East, 90% by year end I don't know what you mean by in place like to me occupied.
Speaker Change: And so yes, I mean, you disclosed the 87, 2% and 85.9, so like the 87, two I understand is going to 90, plus but kind of the 85, 9%, which is I guess tenants in place today not the commitments for the future.
Speaker Change: Right.
Speaker Change: So yes.
Speaker Change: So where would be 85 nine.
Speaker Change: Percent figure trend two will go up by 300 basis points as well.
Speaker Change: Both of those.
Speaker Change: Both of those metrics being to at least 90% by December 31 2025.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Third question today's note.
Speaker Change: There's going to be no spread between the two at the end of the day.
Speaker Change: Well no I'm, just saying that we're targeting for them to both be at least 90%.
Speaker Change: There could be I would expect there to be some committed space that isn't occupied but is leased but we're not giving that kind of detailed disclosure okay.
Speaker Change: Okay.
Speaker Change: That's fair I understand what Youre, saying now on those two metrics, but I guess in terms of economic kind of.
Speaker Change: Excluding the impact of the.
Speaker Change: Straight line rent and whatever.
Speaker Change: Free rent or fixed during periods like how long should we expect for you kind of see the.
Speaker Change: The true cash impact of that move.
Speaker Change: That's something that we can give updates over the course of the year, but not in a position to comment on today.
Speaker Change: Okay.
And then also on 150 West Georgia.
Speaker Change: Put out a precise 4%.
Speaker Change: Number are you assuming mid year for that it's only because we were talking to an investor earlier today, and if I move to the timing of just the repayment of that loan.
Speaker Change: Anywhere from a 10.
Speaker Change: Q1 versus Q4, but.
Speaker Change: Did you just assume mid year and year, 4% figure for that repayment.
Speaker Change: We assume the end of the year.
Speaker Change: Okay.
Speaker Change: And then I guess the only other thing is.
Speaker Change: Maybe for Dan on the capitalized interest front are you assuming.
Speaker Change: Current interest rates.
Speaker Change: Or maybe when you wrote the MBNA interest rates.
Speaker Change: Are you assuming some decrease.
Speaker Change: The short end of the curve over the forecast period, when you come to the capitalized interest figure because.
Speaker Change: Arguably your interest expense will go up and down with where the short end of the curve does based on your construction facilities.
Speaker Change: Yeah, Matt we fixed a lot of our variable rate debt. So it's not really interest rate driven it's more around transfers on me.
Speaker Change: <unk>.
Speaker Change: The development project projects to rental portfolio, that's where the.
Speaker Change: <unk> capitalization impact not so much on the weighted average cost of debt for 2020.
Speaker Change: If I take your original comment it sounds like for every dollar of NOI kind of 50 cents.
Speaker Change: Capitalized interest so should we expect for that so you'd have $20 million of NOI contribution in $10 million of capitalized interest coming off and then I guess beyond that point, because you still have $60 million of capitalized interest how should we think of the trajectory maybe in 2026.
Speaker Change: That's a few years out, but it's within our forecast period.
Speaker Change: It just seems like there's still a lot to come from from that portfolio.
Speaker Change: Yes, there is the ins and outs because it's not just the develop ment portfolio. We've also got the upgrade portfolio, where these capitalization. So there is movement within that Matt why don't I call you, but it's $13 million of EBITDA in 2025, and $6 5 million of <unk>, approximately a $6 million impact too.
Speaker Change: The capitalization in 2025 from develop meant completions.
Speaker Change: Okay.
Speaker Change: And then I guess the same property one more thing on the same property NOI number that is inclusive of development correct thats not your kind of.
Just your rental portfolio same property NOI.
Speaker Change: Correct.
Speaker Change: So four 8% is the total portfolio, which includes transfers that have not moved into rental like for like year over year, but within the 2.2 there is.
Speaker Change: So as that happened in 2024 that will make it to that rental portfolio comparison, let's say an asset NOI purposes.
Speaker Change: Right the change in the portfolio. Okay. That's very helpful. Thanks, guys.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Robert <unk> with <unk> investments. Please go ahead.
Robert: Oh. Thank you. Good morning, I think my question might have already been answered, but I noticed in the press release, there was no mention of the distribution or safety of confidence and I guess my question, maybe it's already been answered is just a we could.
Robert: Could you provide any commentary on the safety of the distribution. Thank you.
Robert: Absolutely we held the distribution in December for the balance of 2025.
Robert: And we are you can expect to continue.
Robert: Eating the distribution at the current levels, we are not meeting to cut the distribution nor do we want to cut it. So you can consider it safe.
Robert: Thank you.
Robert: Thank you.
Speaker Change: Your next question comes from the line of is from ISC you with it.
Robert: <unk> markets Inc. Please go ahead.
Speaker Change: Thanks, Good morning, Firstly had a follow up question on the Capex spend.
Speaker Change: For 2025, so that you guys spent around 270 million plus another $80 million on laser cost far afford develop on specifically.
Speaker Change: And given that the cost of hard left to complete its around $140 million is that the right number to use as your development spend for 2025.
Speaker Change: Yes, that's correct.
Speaker Change: Okay great.
Speaker Change: And can you just talk to some of the fair value changes not a lot of movement on the cap rate side.
Speaker Change: So I guess moderating some some rent assumptions like how do we square that with your expectations of better organic growth on higher occupancy for the year.
The <unk> value changes were really just a reflection of of leasing activity. So as our as our leased and occupied area trim, you could expect that to reverse.
Speaker Change: Okay.
Speaker Change: And then just lastly wondering about the plan for the debentures are coming.
Speaker Change: Coming to you in April looks like you do have several options on the table and just wondering which one seems most feasible as of now.
Speaker Change: We're going to assess all of our options to <unk> NAND.
Speaker Change: <unk> outlined the many ways that we can address that but we.
Speaker Change: We will do what makes the most sense at any given time.
Okay and then just lastly on your occupancy call wanted to confirm that the 90% is that of the known move outs that were I think previously mentioned on on the last quarter call.
Speaker Change: Correct confirmed.
Speaker Change: Okay.
Speaker Change: Thank you I'll turn it back.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Charles <unk> with Mackenzie investments. Please go ahead.
Charles: Hi, and thanks for taking my question I appreciate it.
Speaker Change: Just wanted to ask a quick question more high level on the leasing front, obviously renewals are improving looks great.
Speaker Change: But can you give us some more color on generally where those tenants are going are they moving to other.
Speaker Change: Assets or are they giving back space entirely.
Speaker Change: And then if you can just comment as well on kind of your market share of leasing broadly.
Speaker Change: That'd be great. Thanks.
Speaker Change: We arent seeing any discernible trends.
Speaker Change: Among our non renewals some of our larger non renewals upcoming this year are a function of M&A activity, but beyond that no discernible trends.
Speaker Change: And we expect to continue to outperform the markets each of the markets in which we operate over 2025.
Speaker Change: Okay. Thanks.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
Speaker Change: That concludes our Q&A session I will now turn the conference back over to Cecilia for closing remarks.
Cecilia: Thanks, Bella and thank you everyone for joining our conference call. We will keep you updated on our progress going forward.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: [music].
Speaker Change: Yes.