Allied Properties Real Estate Investment Trust

Great Third Quarter 2024 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, simply press star followed by the number one on your telephone keypad. If you would like to return your question, press star one again. Thank you. I will now turn the call over to Cecilia Williams, President and CEO of Allied Properties Group. Cecilia, please go ahead.

Thanks, Mark. Good morning, everyone, and welcome to our conference call. I'll provide an update on our three areas of focus for the year. Nan will highlight our Q3 results and our strengthening financial position. JP will outline our solid leasing activity and provide a summary by urban market. Then we're pleased to answer questions. We may, in the course of this conference call, make forward-looking statements about future events or future performance. By their nature, these statements are subject to risks and uncertainties that may cause actual events or results to differ materially, including those described under the heading risks and uncertainties in our 2023 annual report and our most recent quarterly report. Material assumptions underpinning any forward-looking statements we make include those described under forward-looking statements in our most recent quarterly report. Now on an update of our priorities for the year, which are as follows. One, strengthen our balance sheet. Two, lease up vacant space. And three, complete development and upgrade activity underway. All of this will drive operating results and supports our ongoing commitment to our distribution. First, the balance sheet. Our commitment to the balance sheet governs our actions across the business. We're proactively managing our 2025 and 2026 debt maturities to reach our targeted debt to EBITDA in the mid eight times range and ensure maximum liquidity. As we explained last quarter, this involves selling non-core assets and proactive debt refinancing. The non-core asset sales are going well with pricing from unsolicited bids coming in at or above IFRS value. In the third quarter, we closed on three properties, and we currently have another five pending sale, all expected to close by December 31st. We haven't historically been sellers of our assets, but it's an opportune time given today's economic environment. The properties that we're disposing of are non-core assets in that they're smaller, low yielding, and not part of an existing concentration. The combined proceeds of these eight asset sales by the end of 2024 will be $193 million in line with the target established earlier this year. All proceeds will be applied toward debt reduction. Because these proceeds are from the sale of lower yielding assets, paying off higher cost debt is accretive to FFO and AFFO per unit. As we mentioned on our Q2 call, The success of our disposition program on the first $200 million of assets led us to identify another set of non-core properties for disposition that will generate an incremental $200 million of proceeds to also be allocated towards debt reduction. Most of these assets are now categorized as assets held for sale in our financial statement. Proactive debt refinancings have also gone well. We issued a $250 million bond with proceeds used to pay off variable rate debt. We also received commitments for secured financing at lower than in place variable rate debt. Nan will elaborate on this shortly. Second, leasing. Our results this quarter evidence the competitive advantage of our differentiated operating platform. It consistently outperforms the broader market because of the elevated quality of the portfolio and the user experience. The elevated user experience is evident from the results of the annual user engagement survey that is run by Kingsley. JP will elaborate on that shortly. Our annual GRES score, reflecting our progress on ESG initiatives, and our commitment to set near and long-term greenhouse gas emission reduction targets, are also important to our current and prospective users. JP will elaborate on that. Our leased and occupied area held steady this quarter, and the entire team is focused on improving it. We've been meeting with brokers across the country over the last few months, and they understand that while we may not be able to fulfill all of their clients' needs, we can meet many of them through our multiple offerings of allied heritage Allied Modern, and Allied Flex. Allied Heritage is a format created through the adaptive reuse of light industrial structures for office use above grade and retail use at grade. Nordelec in Montreal, 505.22 King West in Toronto, the Telephone Building in Calgary, and Sun Tower in Vancouver are perfect examples of this. Allied Modern is a format created specifically for office use. These buildings tend to be mid- to high-rise, clustered in the urban core, and are distinctive in their design, integration with heritage structure, and integration with the different elements of amenity-rich urban neighborhoods. 1001 Boulevard Robert Barassa in Montreal, 134 Peter in Toronto, and 400 West Georgia in Vancouver are great examples of this. Allied Flex is a limited format for buildings that we will redevelop completely within 10 years. Because of that near-term transformation, we can make that format available on more flexible terms. El Pro in Montreal and 420 Wellington in Toronto are examples of this. We've also strategically invested in suite upgrades, which will drive leasing activity. Defining our space offering in terms relating to the nature of the physical environment and our corresponding appetite to invest capital allows us to have maximum impact through our leasing efforts with the appropriate sensitivity to our balance sheet. On to development and upgrade activity underway. We transferred more GLA from the development portfolio to the rental portfolio this quarter, and this will continue until the projects are complete by mid-2026. Over the next 18 months, we'll focus on onboarding those into the rental portfolio with no plans to start new ones in the near term. Our development risk continues to decline. I'll now pass the call to Nan.

Thank you, Cecilia. Good morning, everyone. I'll speak briefly about our financial results, our ongoing commitment to deleveraging, and provide an update on our proactive financing. The third quarter was encouraging. Our operating income increased by 4.2% compared to Q2 2023. Our average in-place net rent per occupied square foot increased to an all-time high of $25.30. This reflects a 6.4% increase from $23.78 in the comparable quarter. Both metrics reflect the increasing productivity of our urban workspace portfolio and the resiliency of our business. As we continue to complete development projects and meet our lease-up objectives on the organic portfolio, we expect that these metrics will continue to grow. Last quarter, we completed the acquisition of a 90% interest in 400 West Georgia and an incremental 45% interest in 19D. While these transactions improved the quality of our portfolio, they resulted in temporary short-term pressure on our debt metrics. Our net debt to EBITDA went from 10.9 times in Q2 to 10.7 times for the three months ended September 30, 2024. This modest decrease in debt to EBITDA was the result of increased EBITDA from the development completions, mainly rent commencement from Northeastern University at QRC West phase two. Our net debt was also tempered by disposition of three non-co assets in Montreal during the quarter. Gross proceeds from these assets was 51 million. We are targeting to get to the mid eight times range by the end of 2026. We continue the progression towards completing our ongoing development projects. Compared to the same period last year, these have generated incremental EBITDA of 19 million for the nine months ended September 30th, 2024. The incremental FFO from these projects is approximately 9.4 million. This is consistent with our expectation that approximately 50% of incremental EBITDA converts to FFO due to decapitalization. We are also progressing well with our objective of selling non-co assets over the remainder of 2024 and into 2025. These are anticipated to generate approximately $342 million at or above IFRS value. Lastly, our proactive financing initiatives have advanced significantly well. During the quarter, we issued a $250 million senior unsecured debenture, which reflects the first time that we have utilized the debt capital markets since August 2021. We achieved a rate of 5.534% and used the proceeds to pay down higher variable rate debt. This offering was five times oversubscribed and illustrates our ability to access the unsecured debenture market on an accretive basis. In addition, we're working on putting in place permanent financing for QRC West Phase 2, 425BJ, 400 West Georgia, Taliskay Residential, and CMXC financing for 19 Duncans. These transactions are expected to materially reduce interest expense on higher variable rate debt and extend our overall debt maturity schedule. We have also started working on permanent financing for 20 bride up in Kitchener, which will replace the existing construction facility upon its maturity in early 2025. Overall, we are pleased with these results for the quarter. We'll continue to advance our development completions, our non-core asset dispositions, and our proactive financing. I'll now pass the call to JP, who'll talk about our leasing momentum.