Allied Properties Real Estate Investment Trust

Good morning and welcome to the Allied Properties REIT fourth quarter and year-end 2022 financial results conference call. All participants are now listen-only mode. After the speaker's presentation, we'll conduct a question and answer session. To ask a question, you will need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Michael Emery, Chief Executive Officer. Thank you. Please go ahead, Mr. Emery.

Thank you, Operator, and I'm delighted to be starting this conference call on time, unlike the last conference call. So good morning, everyone, and welcome to our timely conference call. Tom, Cecilia, and Hugh are here with me to discuss Allied's results for the fourth quarter and year-ended December 31, 2022. Nanthony, our incoming CFO, is also with us today 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 most recently filed annual information form and in our most recent quarterly report. Material assumptions that underpin any forward-looking statements we make include those assumptions described under forward-looking disclaimer in our most recent quarterly report. Allied's operating performance in 2022 was strong. Our AFFO per unit was up 4% from the prior year, underpinning our 11th consecutive annual distribution increase and providing a takeoff point for our 2023 outlook of low to mid single digit growth in same asset NOI, FFO per unit and AFFO per unit. Cecilia will summarize our financial results. Tom will follow with an overview of leasing and operations. Hugh will provide a development update. And I'll finish with our current thinking about Allied's future. So now over to Cecilia.

Good morning. I'll highlight key operating metrics, our financial position, and progress on ESG. Our operating metrics remain healthy. In our workspace portfolio, we had increasing average in-place net rent per occupied square foot of $23.10, up from Q3 2022 and up 5% from $21.98 a year ago. We also continued to see strong rent growth on renewing space in the quarter, which was 6.1% on an ending to starting basis and 15.6% on an average to average basis. The seemingly contradicting data around leasing activity that we mentioned last quarter materialized more positively than could have been expected. Tom will provide details on that. We're pleased with our financial position. We allocated $264 million of capital in the quarter to revenue enhancing activity and development completions, which is what we'll continue focusing on for the foreseeable future. Assuming we're successful in selling the UDC portfolio, we will allocate a majority of the proceeds to pay off debt, pushing our debt metrics back within our targeted ranges. We do not intend to allocate any capital to discretionary activities, including acquisitions, in the coming year. On to ESG. We're committed to the continuous advancement of our ESG program in 2023. This year, we're continuing to evaluate our possible pathways to net zero carbon and are in the process of finalizing an internal shadow price of carbon. We're also implementing a new process to review the environmental performance of our portfolio on a quarterly basis to more proactively address potential performance deficiency issues of our assets. And we're advancing our physical climate risk assessment framework to include site-specific climate risks and adoption opportunities, progressively expanding this evaluation across our portfolio. We'll continue to disclose our climate-related risks and opportunities against the Task Force on Climate-Related Financial Disclosures, or TCFD, recommendations in our ESG report, which is expected to be released by July of this year. We'll also continue to work to support allied users in achieving our shared ESG goals. We recognize the tremendous potential of our community to advance ESG by learning and working in partnership. Across the country, we're focused on serving our users and completing upgrade and development work to propel operating capabilities. Our team and our operating platform has never been stronger. With that, I'll pass the call to Tom.

Thank you, Cecilia. We had a good Q4, leasing 520,000 square feet of space and totaling 1.9 million square feet of space leased in our rental portfolio in 2022. We leased another 210,000 square feet over the course of the year in our properties under development. Average rents achieved in the quarter on renewals were 15.6% higher than average rents in the expiring term and 13.2% higher over 2022. Average in-place rents in the rental portfolio have increased every quarter for 13 consecutive quarters. Activity is good in each of our markets, particularly in units under 10,000 square feet, which have been built out. We have created separate leasing strategies for every building in the portfolio, and we have just the right brokerage team for each of our buildings listed. and a very motivated in-house leasing team heading into 2023. I will now provide an update on leasing activity and our 2023 leasing priorities for our major markets, Montreal, Toronto, Calgary, and Vancouver. I will also provide an update on some retail leasing initiatives. Montreal continues to be our most active market with the team completing 42 transactions in Q4. Our focus in 2023 will be leasing 111 Robert Barasa, 1001 Robert Barasa, as well as Place Garviger. We expect to finalize a 60,000 square foot deal at Place Garviger in the next few days, getting the year off to a good start. In Toronto, we complete 32 transactions totaling 214,000 square feet over the quarter. Upgrade work at 185 Spadina and 468 King is nearing completion, and now underway at 135 Liberty. Leasing these three properties are a high priority for the Toronto team this year. Planning work to reposition 175 Bloor and 110 Young is progressing nicely. In Calgary, the team has done an excellent job maintaining an 88.2% leased area, which relative to the market is solid. Our focus for this year will be to lease the Lougheed building and to complete the leasing at Telesky. As for Vancouver, we are 94% leased with only 62,000 square feet available for lease, comprised entirely of small units. Our focus for 2023 will be leasing the Landing, Sun Tower, and 1040 Hamilton. Turning to retail, I thought it would be useful to highlight some recent initiatives. Amenities can make the difference in an office user's decision to lease space, and we've always made an effort to provide unique offerings in the retail portion of our portfolio. In Montreal, we are finalizing a deal with a global food and beverage company who are trying something different. 26,000 square feet of space at CCMM will be transformed into multiple independent chef-operated food special units, together with an event venue utilizing a large portion of the common area of the building. This will become a great amenity to our building and the neighborhood, but it will also become a destination for tourists and downtown residents. Projected opening is spring 2025. Also in Montreal, we are planning the re-merchandising of the retail offering at 1001 Robert Barassa to include food, fitness and upgrade service uses. Projected completion fall 2025. In Toronto, we continue to upgrade the amenity offerings on King West and King Toronto Retail will be a huge addition to the neighbourhood. We are negotiating a 40,000 square foot food and beverage restaurant, entertainment and event venue. a unique offering in Canada and sure to become an anchor for this neighborhood. The balance of the 120,000 square feet of retail space will be leased to upscale retail, restaurant and service amenities. Interest in this project, not surprisingly, is very high. Projected opening is Q2 2025. While these uses are not imminent, the leasing and planning will all happen this year. We'll keep you apprised of our progress. I will now turn the call over to Hugh. Thanks, Tom.

This quarter, we have been able to make progress on both current construction projects as well as our planning for future projects. I will begin by giving an overview of our major projects, and then we'll follow that with an update on work we have done in our development pipeline. Beginning in Montreal, the team has been able to advance the rehabilitation work at both 3575 Saint-Laurent and the RCA building, and the transformation of 1001 Robert Brewer SAC. With a close on 700 Saint Hubert, part of the Gare Vigee complex, we've begun the landlord's work component of the work. This work will further distinguish the space available in the building. We hope to have the work complete in Q2 of this year. In Toronto, we have made progress on all of our active construction projects. We were able to achieve a significant milestone at both our Adelaide and Duncan and expansion of Curacy West projects. In December, We achieved the first phase of occupancy for the office tower at Adelaide and Duncan. The second phase should occur in Q2 of this year, and the phased residential occupancies will occur in late 2023 and early 2024. At QRC West, just subsequent to year end, we poured the last floor. Glazing and masonry work has begun to enclose the building. The team is gaining momentum on the project and should be able to turn the space over to our tenant in Q3 of this year. We continue to make progress at The Well and King Toronto. At King Toronto, we have poured up to the fourth floor. With progress on site, we're beginning to have discussions with potential tenants for some of the commercial spaces, as Tom just alluded to. In Vancouver, our joint venture partner, West Bank, continues to advance work at Main Alley. we are climbing out of the hole and anticipate reaching grade early in Q2 and topping off by the end of the year. This quarter, the team has been focused on execution of active development and redevelopment projects and work on our vacant suite upgrade program. Overall, the team has made solid progress across all of our development activity. The team has taken advantage of the work done in previous quarters on our new development approvals to focus advancing work on the vacant suite upgrades, redevelopment projects, and major development projects. I will now turn the call back to Michael. Thank you.

Allied has proven from its inception to be resilient, and we have every reason to be confident that this will continue. In the past three years, we deepened, strengthened, and integrated the numerous and diverse members of the Allied team across the country. We continued the renewal and diversification of our board of trustees. We implemented a longstanding succession plan for senior leaders. We made significant and measurable strides in improving our ESG practices. And we took decisive steps toward reaffirming our mission and maintaining our commitment to the balance sheet. These elements of resilience signal our strategic and tactical direction going forward and establish a solid foundation for our future. The last element of resilience that I mentioned involves the sale of our UDC portfolio. I believe we've done a good job of explaining our reasons for making this decision. The comprehensive sale process is being launched today and will extend over three to four months. We will not be able to comment further on the process until it's complete, but we'll obviously advise you as soon as the outcome is known. Now, many of you on the call know that I can easily be enticed into talking too much about allied affairs. What I would ask you in this instance with respect to our UDC portfolio is that you not ask me or any other member of the allied team about the progress we're making until we have a concrete result to report on. I would really appreciate that. And I will not be enticed into speaking too much in this circumstance. I hope this has been a useful and comprehensive update for you. We'd now be pleased to answer any questions you may have.

As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. Our first question comes from Jonathan Kelcher from TD Securities. Please go ahead. Your line is open.

Thanks. Good morning and congrats, Cecilia and Tom.

Thanks, John.

Thank you. First question, just on the leasing done in the quarter, and you guys haven't given this data for a long time, but the average term of maturity of three and a half years on new leases and two and a half years on renewals is the lowest since you guys started reporting that and seems a little low to me. Can you maybe give a little bit of color on that

It's probably some short term deals done to facilitate longer term leasing. You know, we've done a lot of shorter term deals in the Montreal portfolio to facilitate longer terms, longer planning at El Pro, at RCA, at 3575. There's a number of buildings where we've done these shorter term deals to plan for our future.

Okay, so it's not a function of tenants kind of just sort of kicking any space decisions down the road in a softer market?

It is not. Okay.

And then secondly, just on the well, a couple questions there. First, maybe can you give an update on retail leasing?

We will leave it to RioCan to do that, Jonathan, in its upcoming conference call, which I'm sure they will do. Good progress continues to be made, but RioCan is leading that effort. We're very pleased with the progress, but I think it's best that they report to the market on that specifically.

Okay. Figured as much, but thought I'd try. And then just on the Shopify sublease space, how do you see that playing out? And do you think that's something that sort of comes to fruition at some point in 2023?

We have long experience dealing with good customers who need or want for various reasons to sublease their space. And we've worked collaboratively and successfully with almost all of our customers in that regard. We consider Shopify to be a valued long-term customer of Allied. And we will work with Shopify in its effort to sublease its space at the well. It's highly probable. that anyone subleasing for a very long term will want direct privity of contract with the owner. And again, we have in many instances been able to accommodate our users in that regard, and we fully expect to be able to do that here, although we've got to address it on a case by case basis. But we are committed to work with Shopify in achieving its goals. They have a real advantage, in my opinion, because of the very low lease rate they have the benefit of, which was established in 2018 as part of a lead tenancy. That, I think, is going to assist them in their efforts greatly. And as I say, we will collaborate fully in an effort to help them get out from under this particular obligation. I don't want to predict, Jonathan, whether it'll get done this year, next year, or the year after, because there's nothing but downside for me in making that prediction. Fortunately for us, there is no economic implication to the timing. You know, if I had to guess, I think what Shopify has to offer is very desirable to a significant number of potential users, and I would expect them to be successful. But I certainly don't want to predict a timeframe, especially in this uncertain environment.

Okay. Do you think having that space out there on the sublease market impacts any of your other leasing initiatives in the same area?

Not in the least.

Okay. And then just lastly, you have Shopify down as 1.1% of total revenue. Are you now counting the well as part of that?

Yes, they're paying rent there, so that would be part of the stat.

Okay. Thanks. I'll turn it back.

Our next question comes from Scott Frommsen from CIBC. Please go ahead, your line is open.

Thanks very much and congratulations, Cecilia and Hugh, as well as Michael for his new role. Though I'm not sure how new it will be on the strategic side. But anyway, just turning back to the well, you've done a good job on talking about the Shopify. Just wondering if besides Shopify and Torstar, are there any other users putting space back to the market?

The only possibility there, Scott, to my knowledge, would be that the index exchange. I think they may be. But again, it's kind of soft and it's kind of vague at the moment.

And Quadrangle have a very small piece that's available. Okay, thanks.

So including that other space available at the well, do you have a current figure for the percentage of the portfolio that is available for sublease?

I think we reported on Q4. I don't know if we'd have a current one.

I would estimate it's closer to 5%. We had 3.3. No, you know what? It'd probably be about 4% because our share of the space at the well is only 50%, Scott. So closer to 4 than closer to 3. Right. Okay. Thanks.

That's helpful, so it's not really that significant. And just on the debt refinancing, I mean, I suppose it really depends on what happens with the UDC sale, but in the absence of that being monetized within the calendar year, your availability on the unsecured facility is kind of running a bit low do you expect to refinance to uh up that or are there other plans for refinancing uh including the 200 million choice note we certainly will if we have to scott but we don't anticipate having to do that at all that's great i'll turn it back thank you

Our next question comes from Lauren Kalmar from Desjardins. Please go ahead. Your line is open.

Thanks. Good morning and congrats, everyone. I know Nan got left off, so I'll send a congratulations over there. Thank you. Maybe just maybe just sticking with the debt side of things. Are you guys able to prepay any unsecured debentures in the coming year?

There's a lot we can prepay without penalty, and we will. I don't think any of it is unsecured to venture finance.

Yeah, it would be more the unsecured term loans that we'd have our eye on.

Okay, great. That's very helpful. And then on 700, saying you bear, I think it was a 24% lease, and I believe that's sort of where it was when you guys made the announcement. What's sort of the outlook for getting that asset leased up?

The outlook is extremely positive. We are days away from 60,000 square feet being completed, and there's a 40,000 square foot tenant that we're negotiating with as well. So that building, we're hoping to get leased up before halfway through the year.

Oh, wow. Okay, great. And then maybe just flipping over, or I guess sticking with leasing, what sort of groups are you seeing demand from right now?

It's a mix.

We have tech tenants. We have academic institutions. We have gaming. We have media. We have advertising. We have professional services. It's a real mix.

Okay, so there's not really one segment of the market that's been stronger than others for you guys right now?

No, I would say not. And it all falls within what we consider to be knowledge-based organizations. That is our core constituency with respect to using urban workspace and continues to be. Of course.

And then maybe just last one from me. I know there's no expectation to undertake any significant acquisition activity. I'm assuming that doesn't include 400 West Georgia, correct?

Yes. I mean, that is simply completing a process that was started a long time ago and in all likelihood will represent a net return of capital to us as opposed to a net outflow. So yes, it does technically include 400 West Georgia. But as we say, we don't consider that a discretionary acquisition. We committed to that four years ago or so. But rest assured that we have no intention of making material acquisitions in 2023. And indeed, I think it's highly unlikely we'll make any of consequence at all. We're not even seeing the small infill acquisitions right now that we saw in such magnitude during the pandemic and which we took advantage of. But no, discretionary acquisitions are off the table for 2023.

That is one way to make it. Yeah, I think you made yourself extremely clear. Okay, thank you so much. I'll turn it back.

Our next question comes from Mario Sarek from Scotiabank. Please go ahead. Your line is open.

Thank you, and good morning, Emma. I wanted to initially focus on the occupancy. It was flat quarter-by-quarter, but if we back out the UDC reclass, it was up 30 to 40 basis points quarter-by-quarter in Q4. So based on some of the recent discussions, Tom, that you referenced in terms of how diverse it is, Do you internally feel comfortable labeling Q3 2022 occupancy as a trough in this cycle?

Hope so.

We've got lots on the go. We do have some non-renewals that we're facing. We know about them. We're aggressively addressing them. But I hope that Q3 2022 was the bottom.

Okay. And then, Tommy, your comment on that 60,000 square foot deal at Garviger in Montreal, is that just to clarify, is that net new 60,000 square feet?

Yes, it is. Okay.

And then when I look at the guidance for 23, what's kind of the embedded occupancy range in that low to mid single digit growth guidance?

Mario, we are not going there again. I did that in 2022 and I lived to regret it, but we're not going there again. We stand by our forecast of low to mid single-digit growth, but we're not going to extract and isolate other metrics that are embedded in that forecast. because the metrics will change over the course of the year. Some will get better, some will get worse, but we're confident of our ability to deliver within those parameters. And I would add one more thing. I think the market's obsession with occupancy and or vacancy, depending on how you want to express it, misses the point radically. But I do understand it is a concrete number to which people can attach their view. But it's only minimally reflective of the underlying reality of our business. But having said that, I think most importantly, we are just not prepared to establish a target for occupancy gain in 2023. But we stand firmly behind our outlook with respect to same asset NOI, AFFO per unit and FFO per unit. Got it.

Okay. Just out of curiosity, just coming back to that comment, Michael, if you think that or if you feel that the markets are overly obsessing with occupancy metrics, what do you think the market is underappreciating in terms of internal key performance metrics today?

Well, really, the market doesn't understand and can't, frankly, appreciate the reality of operating a portfolio like ours. It can only be understood at the ground level. It can only be understood in relation to the demand. It can only be understood in the context of our continuously upgrading our asset base. And frankly, it can only be understood in the context of us being in a preferred or advantageous position relative to whatever is occurring in the office market. As you know, I have a very clear view that nothing secular has changed with respect to the use of urban workspace. Others disagree, and that's perfectly fine. But thinking that a number like vacancy expressed numerically tells a story in and of itself is just wrong. I noticed, for example, that people talk about they can see across the country. Well, that's almost comical because it doesn't segment the different markets within the urban environments and just isn't in and of itself indicative. You really have to look at downtown West in Toronto, downtown East in Toronto. You've got to look at Mile End in Montreal. You've got to look at Old Montreal and so on and so on and so forth. Those are numbers that tell more and more accurately reflect what's actually happening in our portfolio because we're dominant in all of those sub-markets, if you will. So generalized vacancy numbers. I mean, they can't be ignored. They are indicative of something, but they certainly are nowhere near sufficient in understanding what's going on in our portfolio. And frankly, in fairness to the market, and I'm not trying to be critical, I'm really not, but you've got to live and breathe this on a daily basis to understand what's happening. And that's our job. And we're doing it to the best of our ability. And based on that, we have continued confidence in the viability of the kind of office space we provide to the market. And we know from the experience we're dealing with on a daily basis that our buildings not only are viable going forward, but indeed may be more differentiated and more preferred going forward, even than they were pre-pandemic. And they very definitely were pre-pandemic. So, again, I mean no criticism or give no offense, but a vacancy stat is an empty number out of context.

Okay. No, thanks, Michael, for the open answer. Just two more really quick ones on my end, maybe one for Cecilia, and then just a clarification on the Shopify. Just within the guidance, in terms of expected capitalized interest in G&A for 23, is there a range that you can provide for each, or is that something that maybe we take offline with some additional details pending?

Okay.

The interest will be impacted by the timing of the UDC sale, so I can't totally comment on that. And on GNA, there would be a modest increase in GNA from 2022 to 2023. Okay, so a modest increase in the GNA as opposed to a modest increase in the capitalized GNA.

Is that right?

Correct. Yes.

Okay.

And then just lastly, on the Shopify, I appreciate your comments in terms of how that may evolve. In the past with sublet space, I believe Allied mentioned that kind of any excess in kind of a chief rent in relation to the contractual rent would go to Allied. Is that the case here? Is that something you can comment on?

It is, but we don't expect to profit in that way in this instance. We think the smart move for Shopify, which we fully support, is to offer to the market the very favorable net rental rate they have the benefit of, and that will increase or optimize their ability to get out from under this obligation. So while we have in the past profited from rent escalation sooner than expected through subleasing, we don't expect that to happen here. And we're happy not to profit here. We want to help Shopify get its space out as efficiently as possible. And that means basically offering the face rate very favorable face rate to sub users or sub tenants if you will or or tenants that ultimately go into contract with us and we're not going to try and extract anything additional from those tenants we're going to be attentive to their covenant if they have a great covenant we will enter into a contract with them which will be helpful to shopify but we we don't expect to profit on the sublease of the Shopify space. Great. Okay.

That makes sense. And congratulations to everyone on this last night. Thanks.

Thanks. Thank you. Our next question comes from Matt Cornark from National Bank Financial. Please go ahead. Your line is open.

Hey, guys. Just quickly on the guidance. Did I hear correctly, I think, in your answer to one of Mario's questions? you indicated that it may contemplate the sale of the UDC portfolio in that FFO figure, or are you assuming that you hold the UDC portfolio for the entire time?

No, it does contemplate closing on that transaction in 2023. That doesn't affect the same asset NOI guidance because that doesn't include UDC, but it would impact the FFO and the AFFO per unit.

Right, because the UDC, there was a potential transitory vacancy, I guess, in that portfolio that would have impacted things. But will it impact things while you hold it and not thereafter? I guess it's a question of how you deploy the proceeds ultimately. But all of that is figured into your guidance at this point for the year for FFO?

Yes.

Okay.

Yes, correct.

Fair enough. And then on the interest income this quarter, the rate at least, based on what we imputed, has gone up. Is that because there's a variable component to that, or was there something new or additional in terms of interest income associated with those loan receivables?

Yeah, there was one loan receivable in particular that the maturity was extended, and based on the terms of the agreement, it was at a different rate than the original term.

Okay. And that would persist, I guess, through the balance of 2023? Correct. Okay. On 700 St. Hubert, for the 60,000 and 40,000 square feet that are in negotiations, are those similar sort of biopharma-type tenancies, or is there a broader appeal that you're getting for that new property?

One of them is a tech tenant. The other is more related to healthcare.

Okay. That's interesting. And then on 3575 Saint Laurent, we've discussed the asset in the past. I think there was a known vacancy and it was a project that you've slated to do some work at. Do you have a tenant at this point to take the new space or is this going to be sort of a spec repositioning?

We don't have a new tenant for that building yet.

And is the idea, is it going to be fully vacated or could you find a single tenant for the whole thing or is the idea to find some smaller individual tenants to take some of the space that's being repositioned?

It'll be multi-tenanted. Some of the space is coming back to us already and some of the space will be coming back while we do the work. but there will be tenants that will live through some of the upgrade.

Okay, perfect. Thanks, guys.

Our next question comes from Gaurav Mathur from IA Capital Markets. Please go ahead. Your line is open.

Thank you, and good morning, everyone. A couple of quick questions at my end. So, firstly, when you're looking at the sales cycle and leasing tours, Have you seen any change in sentiment from the last quarter as far as new potential tenants are concerned?

Actually, the tours have been pretty consistent of averaging around 250 tours a quarter. And it's been pretty consistent, and that seems to be taking place now in 2023 as well. There was a little bit of a lull at Christmas in the first week or two in January, but tour activity is pretty good.

Okay, fantastic. And then just lastly, last quarter you also discussed adding approximately $82 million to the EBITDA line over the next few years once the developments in the pipeline are completed. Now, do the proceeds from the proposed UDC sale potentially shorten that timeline?

No, because it's really based on the completion of the developments, that it wasn't dependent on us accessing capital. So no, that timing wouldn't be impacted.

Okay. Thank you for the call. I'll turn it back to the operator.

As a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from Pammy Burr from RBC Capital Markets. Please go ahead. Your line is open.

Thanks. Good morning. Just maybe on the back of the last question there on tours, I think last quarter you mentioned that leasing traction or, sorry, the lease commitments were taking longer. Just curious, you know, has that changed at all or are you seeing those timeframes kind of consistent or has it narrowed a bit as, you know, it does seem that traffic has picked up across markets in terms of actual foot traffic and return to the offices?

I think it's probably accelerated a little bit into 2023 only because, as it happened, there was a few deals that actually just got pushed into 2023. Coming close to the year end, okay, let's deal with this in January, February. So I think the cycle has been a little bit compressed early this year. But, you know, it's still – taking longer than we want to get deals done. We always want them to be done at top speed. The trick for us is to have lots going so that we get our share.

Got it.

Just maybe coming back to the same property and OI guidance, does the guidance incorporate any shifts at all in terms of the properties like that's income producing to developments? or anything of that nature? Or, you know, is this, you know, apples to apples, this portfolio that, you know, you close the year with, is really what is in the guidance outlook?

So, the guidance on same asset NOI is on the rental portfolio only. And even with things moving in and out of the rental portfolio between the development portfolio, because it wouldn't be a full year, it wouldn't impact the same asset NOI from a rental perspective. So, I think it's pretty apples to apples.

Okay. Got it. And then just, I guess, your comment there, Cecilia, just to clarify that the same property in a lot of guidance does not include the data centers in there.

Correct. That's right.

Got it. And then just in terms of the incentives and allowances, can you just talk about what you're seeing there and how maybe it's still a bit early in the year, but I'm just curious what your thoughts are in terms of how those will trend over the course of the next 12 months.

So how are inducements changing?

Yeah. I don't think they're going to be much different than they were last year. I think they're up a touch, but rents are also up.

And the R's are more or less the same.

Got it. And then just lastly, I don't know if this is going to fall into the spectrum of no-no questions, but in terms of the data center sale or the planned sale of the portfolio, are there any tax implications that a sale could trigger?

Sorry, are...

Well, we certainly have done our homework with respect to special distributions, and we're very conversant with structuring opportunities that exist in that regard. We can't make a definitive comment about it until we know exactly what kind of deal we're going to do, with whom, under what circumstances. But we feel very confident of our ability to manage that implication of selling the UDC portfolio in a way that will be at least neutral to our unit holders, including ourselves, all of whom are unit holders and very interested in that implication.

Got it. And then just last one for me, again, on the data centers. The messaging has been pretty clear that the proceeds will be directed toward reducing debt. I guess, is it fair to say that unit buybacks are at the lower end of the perhaps probable uses at this stage?

I don't want to curtail our flexibility with respect to that option at all. we used the words may elect very deliberately. And I can imagine a series of circumstances where we might be more inclined to elect to do that. And I can imagine a set of circumstances where we might be less inclined. But I can't predict now what the circumstances will be when we expect to close this transaction so i i wouldn't take it off the table and i wouldn't consider it a certainty it really will be something management and the board will decide upon depending on the state of circumstances once the outcome of the process is known to us got it thank you for uh for clarifying i will i'll turn it back

We have no further questions in queue. I would like to turn the call back over to Michael Emery for closing remarks.

Thank you, operator, and thanks to each of you for participating in our conference call. I hope this has been helpful, and we look forward to keeping you apprised of our progress on all fronts at appropriate points in time. Talk to you soon.

This concludes today's conference call. Thank you for your participation. You may now disconnect.