Dream Office Real Estate Investment Trust

Good morning, ladies and gentlemen. Welcome to the Dream Office REIT Q4 2021 conference call for Friday, February 18, 2022. During this call, management of Dream Office REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Office REIT's control. That could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Office REITs filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Office REITs website at www.dreamofficereit.ca. Later in the presentation, we will have a question and answer session. To queue up for a question, press star 1 on your telephone keypad. Your host for today will be Mr. Michael Cooper, Chair and CEO of Dream Office REIT. Mr. Cooper, please go ahead.

Thank you, Operator, and good morning to everyone. Today I'm with Gord Wadley, the Chief Operating Officer. I'm Jay Jing, the Chief Financial Officer. I'm just going to make a few comments and turn it over to Gord. And then Jay, and when Jay's done, we'll be answering questions. Just as a point of view, you know, we own all these buildings that have been barely used for two years coming up on March 13th, and they're in tremendous shape. We continue to renew tenants. We're doing some new leasing projects. But we are losing some tenants, some are downsizing and there's some bankruptcies. But overall, to be at the level we're at where there's been hardly any use of our buildings for such a long period of time is remarkable. With Omicron, it delayed the reopening once again. It's been very, very frustrating. But I would say the surprise to me is how fast everything is opening right now. And it looks like we're starting to see banks planning on opening in March. And the City of Toronto called people back for Tuesday. So we're now going to start to get real information about what the future of office use is. But I would say that we've seen a lot of information where there's going to be a heavy reliance on office use as part of winning company strategies, and we're quite confident. With all of the Dream Groups, developments in Toronto, including 212 King, I've really been shocked by how many large tenants are looking for new space. And it's really surprising given all the new supply. So obviously, there continues to be a lot of demand for best-in-class space. And I think that's actually a pretty interesting sign, like all the new buildings are going to be full. and there's demand for more. So we think that's very encouraging. We have and we will continue to make our buildings exceptional boutique office buildings. And throughout the two years of the pandemic, we made tremendous progress. And I think that once the city opens up, people will be very surprised, happily surprised, with how much better their buildings are now, particularly on Bay Street and some of the other things we're doing. We're hoping that within the next month or so, we'll finalize the decarbonization program, which is going to be a real first in the country in many, many ways. In addition to decarbonizing, we're expecting to have best-in-class connectivity. We're going to have very healthy buildings, and we'll have ultra-low carbon emissions for existing buildings. We continue to make progress on our developments. At 250 Dundas, we're advancing the site plan. It's already zoned. And that's a building that will have 150,000 square feet of office and 350,000 square feet of residential. Right at the corner, I mean, one building in from the corner of Dundas and University, which is an incredible location for the hospitals, governments, schools, cultural, and we're very excited that that will be a successful building. 2200 Edmonton is progressing very well. We expect to be able to build 2,500 residential units in addition to the current office building. And we also expect to be able to report progress on where we are over the next quarter or two. And 212 King is making its way through the zoning process. We're clearing up some issues, narrowing the issues with the city. We are asking for 1.1 million square feet of office and residential for this superbly located project. So it's a very big project and it's a big deal for the city as well as for us. So that one's taking a little bit of time, but that's totally predictable. What I would say is that these developments provide our future growth of our portfolio. And what will be great about it is they will continue to increase the quality of our building from the very high level of the quality of our real estate from the already excellent quality that we have. And we'll be able to add a reasonable price. We continue to be laser focused on our exceptional Toronto portfolio. We continually improve it. And while we're doing that, we're reducing shares outstanding, which means that every shareholder owns more of the business than they used to. With that, I'll hand it over to Gordon.

Well, thank you, Michael. I hope everyone's doing well, and I'm glad to have an opportunity to connect with you all today. Despite the impacts to the reopening efforts, caused by various public health shutdowns related to Omicron, the team navigated through the headwinds, and we saw some real positive momentum in a variety of key aspects of our business. Q4 2021 represented the first quarter of positive absorption since the pandemic began. We referenced on our last call that we felt optimistic we would close the year higher quarter over quarter on committed occupancy, and we did that by about 150 basis points, from 88.5 to close to 90%. We executed on a number of large deals, both new and renewal, and what also helped is that we've seen some material improvements to occupancy, tours, and deal velocity in Western Canada. Just for reference for everyone, at the beginning of 2021, our current and committed occupancy was under 70% for Western Canada, and through our leasing efforts, we were able to bring that up to approximately 78.6%, specific to our non-core markets. Regardless of Omicron, and despite what you read in the news and various social media hot takes, it was a very active year leasing for Toronto, and specifically Dream Office, with both direct and sublet space being absorbed market-wide. We did approximately 550,000 square feet of deals in 2021, but of equal importance, our rents held up very well across the board. Net rents have continued to be strong and in line with our business plan at pre-pandemic levels. We've also seen steady growth in NER performance and achieved net rents for deals being completed versus budget. On average, we're almost 5% over budget portfolio-wide on an NER basis and seen a positive spread of approximately 10% for net rents in our core portfolio, with rents now averaging over $35 a foot. For some additional context, we completed approximately 80 deals across the portfolio. We did one transaction over 80,000 feet, and we did three deals over 30,000 feet. These key indicators to us support our optimism that deals of scale are getting done and companies are making major commitments to their office accommodations. You couple this with the reality that our rates have been very resilient to our guidance, it's a testament to the quality and location of the buildings we own. It's also a testament to the efforts of our operating team and ultimately staying true to our asset and capital strategy, which I'll touch on a little bit more shortly. Like most of our peers, we've worked through supply challenges and construction delays and we've managed well and are poised to complete our final touches on the Bay Street collection early this year and we've completed 357 and on pace to complete 366 bay on time and on budget. The feedback from tenants and brokers alike on these projects has been tremendous. We really look forward to showing you the completed product and hopefully we'll get a chance to walk you through in person very soon. The optimism on our Bay Street offering is further supported by the 12 deals that we did specific to that project with some strong rents over $40 on average. I want everyone to keep in mind that we're replacing rents on Bay Street in the low 20s and high teens on new space. These are a new class of boutique assets that don't compete with large towers. They're low rise, they're walkable, they boast small private floor plates, all new base building systems, and showcase a level of luxury finishes that are very unique to our market. Our current pipeline, we're actively negotiating and trading paper on 29 deals over 250,000 square feet, which we hope to complete no later than Q2. There's a lot of press and focus around shadow vacancy in the state of the sublease market in Toronto. This has not been an issue or something we're seeing in the REIT. Currently in our portfolio, there's only about 100,000 square feet of sublet space available, totaling less than 2% of our portfolio nationally. Collections continue to be very strong for our team at just over 98% for the year, with our average vault in the portfolio at just over five years. Leasing and operating metrics aside, we made tremendous strides in the back half of 2021 pertaining to our ESG operating and sustainability strategy. We mentioned on our last call that we're working hard to secure a viable Gresby rating. We're pleased to report that in Q4, we had among the highest first-year Gresby score historically in Canada at 91. We also had the country's top sustainability score. And basically, sustainability is a rating, a global rating, It's a Morningstar company that rates the sustainability of listed companies based on their environmental, social, and corporate governance performance and applies a risk rating. To this regard, we're ranked in the top 10% globally. In addition, we are recognized by green lease leaders as platinum for our standard office lease. We were a lead signatory to UNPRI and also committed to net zero asset managers, which stem from COP26 and represents the largest organization of asset managers globally committing to net zero targets by 2050, or in our case, better. When we made our commitments and set our position among these global leaders in ESG, we also publicly made some of the industry's most aggressive commitments to being leaders in GHG reductions and decarbonization of our assets. As part of our net zero goals, Dream Office is committing to net zero scope one and two and select scope three GHG emissions by 2035. We believe sincerely that real estate can be developed and managed to make positive impacts and make our communities more fair. Real estate is responsible for about 40% of global greenhouse gas emissions, and our team sincerely believes and are working tirelessly toward reducing the growth of carbon emissions from our properties and reduce our overall emissions dramatically. It's never been more urgent to act to support a sustainable and climate resilient future. This initiative isn't something new for our team, and we've been working hard to be leaders in environmental stewardship for years. In that vein, we've always had a high confidence that there'd be accretive financing opportunities on the horizon. True to this expectation, we recently announced in Q4 that CID is partnering with our team to significantly and rapidly decarbonize at least 19 of our assets under management. We'll do so over the next five years. will use the low-interest, long-term facility to finance baseline, incremental, accelerated, and net new capital projects. These projects are projected to include chiller retrofits, installation of heat pumps, solar power, heat recovery ventilation systems, and numerous LED upgrades. The beneficial financing terms and rates help us afford the additional capital expenditure in such a short period of time. As part of the initiative, we'll be creating approximately 1,500 jobs during the life of the program in all phases of the project cycle. DREAM has already begun the process of decarbonizing and modernizing each building already. We estimate in the first year of the program, we'll reduce our carbon footprint, equivalent to removing over 600 cars from the road, mitigating 350 homes' energy use, or planting the equivalent of 46,000 trees annually. The aggregate scope of work for all these projects, although great for the assets and our clients, is also a major catalyst for us to roll out an additional new program, very important to our team and important to the community. Our social procurement initiative we announced late last year ensures we open our tendering process to include underrepresented, diverse, and equity-seeking groups by mandating contract awards, and our operating goals to support those in our community who may not typically have an opportunity or exposure to work at an institutional scale for large projects. For us, it's not only the right thing to do, but there's real value, as increased pool of proponents mitigates our supply chain risk, increases competitive pricing, and creates new business opportunities. Most importantly, it creates new business opportunities for groups who may not have had exposure to this scale of work in the past. The metrics we've identified create real impact in and around the communities we build and manage. The targets focus on how much money, which we would be spending anyways, is directed directly to capable and qualified companies that are often overlooked by large corporations. Additional targets ensure that we diversify our project teams at every level. Our initiatives establish the REIT as a clear leader in this area with deep and meaningful goals. As a result, it'll help us create a more diverse, and resilient supply chain for all our projects, and equally give meaningful, merit-based, and fair opportunities to those in the community we serve. We spent the better part of the last two years taking our incredible, well-located assets in downtown Toronto and transforming them into a new standard of boutique luxury. And this commitment to decarbonization and community stewardship takes our offering even further to ensure we'll exceed the highest levels of sustainability and responsible operating standards our clients and our stakeholders have come to expect and covet. Thank you, and I'll turn it over to Jay.