Allied Properties Real Estate Investment Trust

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Allied Properties' fourth 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, then the number one on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Cecilia. Please go ahead.

Thanks, Bella. Good morning and welcome to our conference call. I'll summarize what we achieved in 2024 and what we're focused on in 2025. NAN will do the same from a financial perspective. JP will outline the leasing momentum by urban market and strong results from our third-party user engagement survey. 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 2024 Annual Report. Material assumptions underpinning any forward-looking statements we make include those described under forward-looking statements in our 2024 annual report. First, leasing. We outperformed the urban centers in which we operate, where our occupied area was higher than each of the markets. The only exception was Vancouver, where we acquired vacancy that we'll address by year end. 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 2025. Another positive metric in 2024 was our improved retention rate to 69%, up from 61% in 2023. We expect retention to continue improving in 2025, getting closer to our historical rate of 75%. Deals continue to take longer due to the availability of options in both the sublease market and in direct vacancy. As sublease space is absorbed and direct vacancy falls, I expect those timelines to shorten. It's helpful that there's no new supply beyond this year. with the last delivery to the urban office market in Canada being the second tower of CIBC Square. Also helpful are 2024 user engagement survey results. They were very strong, with a net promoter score of 150% above the index average and a 30% increase year over year. This is a testament to the strength of our operating platform, which will also support leasing activity. We made progress on our development and upgrade activity as well. Transfers from the development to the rental portfolio in 2025 are expected to total 340,000 square feet of completed urban workspace and 218 rental residential units. In 2025 alone, we'll add $13 million to our annual EBITDA run rate from development completions. We're focused on completing all development and upgrade projects currently underway by the end of next year. Last but certainly not least, the balance sheet. We flexed it in 2024 and will strengthen it in 2025. We completed dispositions of non-core assets at or above IFRS value, totaling $229 million in 2024, above our target of $200 million. All proceeds were allocated to debt repayment. We also opportunistically acquired $677 million of strategic assets in 2024, converting non-cash interest income into a growing operating cash revenue stream while upgrading the quality of our portfolio. 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 2025. Part of that involves increasing our targeted dispositions in 2025 to at least $300 million, an amount we're confident in our ability to achieve based on the success of our disposition program last year. Nan will now elaborate on our balance sheet. Thank you, Cecilia.

Good morning, everyone. We're pleased with our performance in the fourth quarter. I'll provide a brief overview of what we achieved in 2024 and we'll speak to 2025. This quarter, we achieved a 6.5% increase in net operating income compared to Q4 2023. We also saw an increase of 5.4% to our average in-place net rent per occupied square foot from $24.10 to $25.41. Additionally, same asset NOI of the total portfolio increased by 2.2% for the year. Our development completions added approximately $26 million to our 2024 EBITDA, enhancing operating performance. The corresponding impact to FFO net of decapitalization of interest was $14 million. This is consistent with our expectation that approximately 50% of incremental EBITDA converts to FFO due to decapitalization. Over the course of 2024, we fixed $818 million of variable rate debt, improving our maturity ladder and addressing refinancing risk. We ended the year with our unsecured facility fully available and liquidity of $863 million. Our investment properties are 83% unencumbered. Moving to 2025, we have 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. Net interest expense is expected to increase in 2025 as a result of the 2024 acquisitions and lower capitalized interest as we continue transferring properties to the rental portfolio. Capitalized interest in 2025 is expected to come down to the low $60 million range. 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. Same as with 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 development completions. Same as with NOI for the total portfolio will increase by approximately 4.8%. We expect our development completions to contribute to this growth by generating 13 million of incremental EBITDA and 6.5 million of FFO. Approximately half of this is contractual. While this demonstrates improving market fundamentals and the operating performance of our portfolio, we may see a contraction of approximately 4% on FFO and ASFO. This is largely driven by lower interest income and higher interest expense. While the timing of the 2024 acquisitions resulted in short-term downward pressure on our debt metrics, They will contribute positively to our earnings as they stabilize. Our operating goals are to achieve our leasing objectives, complete our development projects, meet our disposition target, and advance our deleveraging plan. Our confidence is underpinned by the stabilization of our leased area for the third consecutive quarter and the strong leasing activity which JP will now speak about. Over to you, JP.