Ladies and gentlemen, thank you for standing by, and welcome to the Allied Properties REIT's Second Quarter 2023 Earnings Conference Call. 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 this time, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. I would now like to turn the call over to Cecilia Williams, President and CEO. You may begin your conference. Thanks, Josh. Good morning, welcome to our conference call. I'll be presenting briefly on the second quarter, and I'm joined by Nan and JP to answer questions. Michael is also here with us. 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 2022 annual report and our most recent quarterly report. Material assumptions that underpin any forward-looking statements we make include those assumptions described under Forward-Looking Statements in our most recent quarterly report. Our second quarter was positive operationally. Demand for our space remains strong, as indicated by tour activity. We also leased significantly more space than last quarter, and net rent per occupied sq ft continues to increase, up from last quarter to CAD 23.51. Higher interest expense and longer lease-up time frames resulted in lower than budgeted Same-Asset and NOI, FFO, and AFFO per unit in the first half of the year. Although temporary, as interest expense will materially decrease going forward with the pay down of CAD 1 billion of debt, our results for the year have been impacted, moderating our outlook. The good news is that we continue to see demand for our space products, with tour activity continuing to increase. Closing of the UDC transaction will be liberating in many ways. Operationally, the entire team will now be focused on running the Workspace portfolio. Financially, we'll be able to meet obligations while barely using our lines through 2027. Our debt metrics will also continue to improve as our development completions turn economically productive. Our Fourth Annual ESG Report was released on June 26th. I'm pleased with the progress on our plan to net zero carbon, including establishing an internal cost of carbon to support internal decision making and forecasting. More details on our progress will be disclosed in next year's report. My confidence in our long-term outlook remains strong. Our portfolio has performed well over the last three and a half years of upheaval, and will continue to do so through the current headwinds, because ultimately, we have the space that people want. More importantly, our team has never been stronger, more focused, or better integrated. I hope that was a helpful update. We now be pleased to answer any questions. At this time, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. Your first question comes from the line of Jonathan Kelcher with TD Cowen. Your line is open. Thanks, good morning. Good morning. First, I guess just on the tours, Cecilia, you talked about them being up year-over-year and quarter-over-quarter. On the quarterly change, how much of that, if any, is seasonality Q2 versus Q1? It's hard to tell because, we had actually a pretty strong Q1. I'm not sure. There doesn't seem to necessarily be a huge seasonal impact to be honest, Jonathan, that we've picked up on from a tours perspective. Okay. Then year-over-year, like, how would that, the number of tours, how would that compare to, like a stronger office market that we saw pre-COVID? I think this quarter is representative of what we would have seen in a stronger office market. The average tour that we had over the last three and a half years, about 219 per quarter. This quarter, we had 292. The tours were up in each, so above the quarterly average in Toronto, in Vancouver, and in Calgary, with Montreal being at the quarterly average. Okay, that's helpful. Just switching to, you called out the Castle as a non-renewal there for the bump in vacancy this quarter. I think that is an intensification property over time. Can you maybe give us a little bit more color on that? Were you hoping to get this vacancy, or will you be looking to put in a short-term tenant? How should we think about that playing out? We would've, you know, if we had an opportunity immediately, we would have filled it. It's not a, it's not a current day, intensification, but something that would be in the medium to longer term. Okay. You'll look to fill that with a short-term tenant, I guess? That's fair. Yep. Okay, I will turn it back. Thanks. Thank you. Your next question comes from the line of Lorne Kalmar with Desjardins. Your line is open. Thanks. Good morning. Good morning. On the guidance, you referenced a couple of things that drove the revision and guidance. Was there anything different that's changed in your outlook from when you initially issued the guidance to present day? Just when we originally issued the guidance at the end of January, it was based on a different interest expense or cost of debt outlook than what materialized in the first half of the quarter. That'll be addressed in the second half as we pay off CAD 1 billion of debt. That would be the main difference. Okay, yeah, the pay off CAD 1 billion of debt will definitely help. I believe last quarter you mentioned the goal of trying to get to around 90% committed occupancy by year-end. Do you think that's still achievable? We're targeting to finish the year with a higher lease area than what we started. That's always been the goal. We're still targeting that. Okay, fair enough there. One other kind of ticky-tacky one. I noticed the Telus Sky loan was extended for a year. Could you maybe give some color of what was behind that? It's just finishing up the, the upgrade, or sorry, the development and the, the residential component. Yeah. Actually, it is a loan to our partner. It is not a loan to us. Yeah So our partner has extended its facility. Allied has no debt in relation to Telus Sky, nor does Telus itself have any debt in relation to Telus Sky. It relates solely to our development partner, Westbank. It's not indicative of anything, maybe, broader issues at Westbank. It's, it's site-specific. No, it is not. Oh, okay, great. Thank you so much for the color. Your next question comes from the line of Matt Kornack with National Bank Financial. Your line is open. Hey, guys. Just quickly going back to the occupancy side of things. You in the press release provided a fairly sizable list of leasing velocity that you've done, and Montreal seems to figure pretty prominently. I know there was some vacancy there, but is that a market where you're still expecting kind of to pick up some incremental occupancy? With regards to maybe the Tannery, is there any news on that space? Yes, on Montreal, absolutely expecting to pick up occupancy there. Tannery, we are currently in negotiation with the user, looking to take a significant amount of space. Okay. Thank you. On leasing costs, TIs and leasing costs, particularly, and it looks like renewal space, more so than new leasing, has ticked up a bit over the last couple of quarters. Is there anything to that, or is it just specific to the space that's being leased at this point? It's specific to the space, Matt. If it's a space where the user has been in place for some time, it's time for more work to be done, so to speak, so it is very much space-specific. Okay. A last one for me. I noticed in your commentary, you highlighted something that I think most of us know, but that you own one of the largest urban land banks. It's economically productive, but you mentioned mixed use density potential. If you could kind of give us a sense as to whether your thought has changed on the office versus residential component of that mixed use density potential, and then maybe on the potential to monetize any of that in the near to medium term, or if you plan on building it out yourself. Matt, it's Michael. No, we have not shifted or altered our focus on distinctive urban workspace, with respect to our intensification potential. As you know, we have always been prepared, and we have always believed that mixed-use intensification of very expensive land in the inner city is the best way to realize value. The Well being probably the most spectacular example of that in our history. Going forward, we see the same thing. We will not develop condominium residential space on our land going forward as we did in King-Toronto. That was an exception, not the norm, but we're very prepared to have mixed use, retail, office, and rental residential on appropriate sites in the inner city, and no one owns more appropriate sites for that in the inner city than Allied. It doesn't reflect a shift in our emphasis. It will always be on distinctive urban workspace. We have always recognized, going as far back as about 2012, that the best way to intensify high-value urban land in Toronto and elsewhere is with a mixed-use format. We will get more support from the municipal authorities, we'll get more support from the market, and we'll be able to create something that is more durable over time, which is why we want it to be rental residential to the extent there is a residential. Just with regards to the residential rental, is that something, again, this is probably not imminent, but something that you would own yourselves and manage, or would you like to have a partner, on that? No, we would. We might have a partner to manage, but we would absolutely own our proportionate interest or entire interest in rental rents. We are very pleased with the rental component of Telus Sky, and we're happy to own that indefinitely. The rental component of 19 Duncan, which will start to fill up either late this year or early next year, will be an astounding asset. We'll own 50% of it for all time. I think it's a very good asset for us to own in a mixed use urban development. We won't go out, I can't imagine, and simply develop rental residential buildings. We're very happy to own rental residential components of mixed use urban development. Makes sense. Thanks, guys. Your next question comes from the line of Gaurav Mathur with iA Capital Markets. Your line is open. Thank you. Good morning, everyone. Just on the leasing front, are there any non-renewal that you see coming up over the next few months across the portfolio? Nothing of significance, Gaurav. We're already in negotiations with the leases coming up in the next 18 months. Most of them will be renewing. Okay, great. Just as a follow-up to that, you know, on the positive renewals leasing spread this quarter, could you perhaps provide some color on what's driving that, and how do you see that trend over the future? We expect to continue having a higher level of renewals. As you know, we had a low level in 2022, primarily driven by the one non-renewal in Kitchener, but we expect to be closer to our historical rate of 75%-80% renewal rate this year. Okay, fantastic. Just lastly, this is a broader macro question on your guidance trim. As you trim your guidance, you know, how much did you factor in, you know, the stubborn work from home that you're seeing in the M-T-V cities versus being in a negative economic cycle? What we took into account, Gaurav, were two, I guess, opposing forces. One is the temporary impact of the higher interest rates in the first half of the year, which we will be more than offsetting in the second half when we pay off debt, combined with the lengthening lease-up time frames. That, parallel with our high level of tour activity, which we consider to be the leading metric, leading indicating metric, means we are still very confident that the lease deals will come. It's a matter of time. Nothing really from a work from home perspective, because what we're seeing is more and more, or what I should say, is increasing levels of physical reoccupation across our portfolio, across the country, and not just in our portfolio, but in all of the higher quality space across the country. Okay, great. Thank you for the color, Cecilia. I'll turn back to the operator. Your next question comes from the line of Pammi Bir with RBC Capital Markets. Your line is open. Thanks. Good morning. Maybe just building on the last question and the comments there, just again, just given the maybe the resilience that we have seen in the economy and labor markets, are you noticing any shift in the tone with your tenants, in terms of the leasing discussions? You know, is there perhaps any concern over a recession still weighing on space needs or maybe the timelines it's taken to commit to space? It's really more around the macroeconomic uncertainty causing, I guess, longer decision-making time frames, but no concern in terms of people believing that they no longer need office space. They still need it. It's more a question of whether it's the same amount or, you know, modestly more or modestly less. We're still seeing, you know, great demand from tech, from educational uses, and from medical services. Behavior that's consistent with being in this part of the cycle. Okay, just on the Shopify sublease space, any update there on, you know, where that stands or progress on releasing it from, by Shopify? I'll say, Tommy, that we're pleased with how things are progressing there, and I can't really comment any further at this point. If there was a tenant of, you know, significance, like a, you know, interest in, in a big chunk of the space, in that type of scenario, would you, you know, would you engage with that tenant directly, or is it too early to say at this stage? Tommy, not to interject unduly, but... We have found over a very long period of time that no large user will sublease space. They will always want to deal directly with the owner, and that will certainly be the case here. There is almost no possibility of a large user subleasing from Shopify. They will want to be in direct contract with the owner, and the owner will be quite prepared to enter into direct contract with good replacement users, and that would work to the benefit of both the owner and Shopify over time. That's how I think this will unfold. Almost certainly, that's how it almost invariably unfolds, especially with large space, which we've dealt with on many instances over the years. There's no question as to how this will unfold. It's just a question of when and with whom. We will work collaboratively with Shopify to achieve a result that is good for both the owner and the original tenant, and we will be successful in doing that. Got it. Just one last one for me. Looking at the intensification pipeline that you disclosed in your MD&A, I think it's on page 68. I think you've disclosed the value of roughly CAD 700 million. What sort of NOI are these properties generating? I believe at some point early last year, you stopped disclosing the sort of annualized NOI. I'm not sure if what maybe the reason was, but if you have any update on that, that'd be helpful. I think the reason we would have stopped then, Pammi, was because of the uncertainty in the market with respect to future demand for office space, with respect to construction costs, with respect to just about everything relating to development. It was probably more speculative than it had been previously. I think we would be reluctant to do anything other than give that very general orders of magnitude in the future, if we do at all. I think the more important point being made there is there's extraordinary existing intensification potential. How valuable that will be and how much value we can drive into that, you know, five, 10 years out, I don't think is worth speculating about at this juncture. Oh, yeah. Sorry, Michael, I think... My question was more so on the, on the NOI, that's currently in place on those assets. That's the piece that was no longer disclosed. Is that what you were referring to, or? I don't have that number handy, Pammi. You can probably assume it's a similar kind of portfolio-wide cap rate and apply it to. I just, I don't have that number handy. We decided not to disclose it because we don't think it's useful information, so. Okay. I will, I'll turn it back. Thanks very much. Your next question comes from the line of Dean Wilkinson with CIBC. Your line is open. Thanks. Morning, everyone. Quick question, Cecilia. On the new leases, are you utilizing more third-party brokers? Just noticed a big uptick in the leasing commissions there, and just wondering if that's coming from external or internal sources. We are using, some, in some situations, more third-party brokers, yes. From the landlord's work perspective, would that just be taking like some older space similar to the improvements you had to do for the renewals, like site-specific? Or, was that also an indication of sort of general requirements in the market? No, absolutely site-specific. Great. That's it. Thanks. Thank you. Your next question comes from the line of Jenny Ma with BMO Capital Markets. Your line is open. Hi, good morning, everyone. Hi, Jenny. Just wanted to go back on the sublease space with Shopify. When it comes to space of this magnitude, like, how is Shopify involved in the process? Like, is it everyone has a representative and you bring every, you know, there's three parties at the table in discussions, and is it possible that if you do find a user that to take up the whole space, that at some point, Shopify can exit out of the whole lease and no longer be involved going forward? It invariably involves, if you will, the three parties you identify. They may or may not be represented, but they usually are. Yes, at the end of the day, if the transaction works out as best serves the interests of all involved, the original tenant is allowed off the hook, and has that obligation behind them. Obviously, the owner is only prepared to do that when it gets an equivalent covenant, or an equivalent quality covenant. We've done that in many, many instances where it's worked out really well for us as owner and really well for the original tenant or user, whom we've allowed to, if you will, get off the hook. That a party can enter into direct privity of contract with the owner is if the original tenant is effectively relieved of its responsibility. Obviously, there's economics involved in all of that. It's a very workable arrangement, and it's invariably in the interest of all concerned. The original tenant gets rid of a contingent, well, a very real and contingent obligation. The new tenant is very happy to commit to the space with the owner, and the owner is very happy with the covenant of the new tenant. That is how it will evolve. Yes, to answer your question, at the end of the day, Shopify will be able to put this behind it, and the owner will be in at least as good a position, as it was in with the original tenant. Right. The ability to have for Shopify to get off the hook is really at your discretion then, right? To your satisfaction, however, the discussions play out. Absolutely. We have no obligation to enter into direct contract with a new tenant. None. We will do that in an effort to help our existing tenants and to enter into a relationship with the new one. It's entirely within our discretion, which is why we've always said when we're in a situation where good space is on the sublease market, without being sort of self-satisfied, arrogant, or overbearing, we are in control. Okay, great. I have a housekeeping question related to, the G&A. It looks like in this quarter, there was some capitalized related to the sale of the urban-data-centre portfolio. I'm just wondering, is the delta the difference from Q2 to Q1, the piece related to urban-data-centre? Is there going to be any more of that coming through for Q3? The delta is, and there will be minimal amount, beyond Q2. Okay. It's mostly expensed in this quarter then? Yes. Okay, perfect. Thank you very much. That's it for me. Thanks, Jenny. As a reminder, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. We'll pause for just a moment to gather any remaining questions. If there are no further questions, I'd like to turn the call back to Cecilia Williams for closing remarks. Thanks for joining our conference call. We'll keep you updated on our progress going forward. This concludes today's conference. Thank you for joining. You may now disconnect.