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spk02: Good morning, ladies and gentlemen, and welcome to the Slate Office REIT First Quarter 2023 Financial Results Conference Call. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Tuesday, May 2, 2023. I would now like to turn the conference over to Paul Wolanski.
spk11: Please go ahead.
spk05: I'm joined this morning by Steve Hodson, outgoing chief executive officer, Brady Welch, incoming interim chief executive officer, and Charles Peach, chief financial officer. Before getting started, I would like to remind participants that our discussion today may contain forward-looking statements, and therefore we ask you to review the disclaimers regarding forward-looking statements as well as non-IFRS measures, both of which can be found in management's discussion and analysis. You can visit Slate Office REIT's website to access all of the REIT's financial disclosure, including our Q1 2023 investor update, which is now available. I will now hand over the call to Steve Hodgson for opening remarks.
spk07: Thank you, Paul. This quarter, we continue to focus our efforts on strengthening the REITs balance sheet and liquidity position to preserve value for unit holders during a challenging operating environment. We believe the value preservation plan announced following the board's comprehensive review of strategic alternatives will provide the flexibility and capital to continue strengthening the REITs core business. We're also pleased to have added to our board two experienced independent trustees to provide further expertise and stability. We continue to have conviction in the value and resilience of our office assets, and we believe that by shoring up the REIT's capital and balance sheet, we can emerge from this economic cycle in a stronger position. Our long-term focus, which will remain unchanged under Brady's leadership, remains on repositioning our portfolio to align with markets, assets, and tenants that are driving growth and long-term performance. We believe well-located high quality and modern office buildings with growing strong credit tenants will continue to outperform and we will continue to position our portfolio to focus on opportunities that align with this demand. We are confident that our value preservation plan, operational excellence and experienced management team will greatly benefit unit holders and position the REIT for long-term success. I will now hand it over to Charles for some additional highlights.
spk00: Thank you, Steve. As Steve mentioned, in 2023, our focus has been on our existing portfolio and balance sheet. The Board unanimously agreed to amend the monthly distribution to one cent in April, allowing the REIT to continue to improve its assets and repay debt where possible. Increasingly expensive and selective credit markets have made dispositions and acquisitions more challenging. However, the 5.8% weighted average discount to market rent of our portfolio at quarter end means we can work to expand the revenues from our existing tenants. The refocus on operational performance continued in the first quarter, with 120,000 square feet of total leasing at a weighted average rental rate spread of 5.8% above in-place and expiring rents. Net operating income fell slightly over the past quarter and increased borrowing costs and the cost of the special committee of the board review reduced FFO to six cents per unit for the quarter. The NOI is supported by an average weighted lease term of 5.4 years and government or high quality tenants making up 67.9% of the portfolio. While we do have some vacancy, This, along with our weighted average 5.8% discount to market rent, gives the opportunity to improve NOI further on our existing assets. In an increasingly expensive financing market, we've had the benefit of our debt being over 90% hedged for the first quarter. As we have a number of maturities this year, we're working with our universe of lenders to refinance these and continue to strengthen our balance sheet. I will now hand over for questions.
spk02: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone tone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your request, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys.
spk11: One moment, please, for your first question. Your first question comes from Jake Spivaletti with CIBC. Please go ahead. Good morning. Good morning, Jake.
spk12: So given the price tag, is there anything further coming from the strategic review other than a distribution cut?
spk07: I think the focus for the board out of the strategic review after reviewing the you know, all the assets in great detail and all the different alternatives that we had was, you know, a strong belief by the board that there's a lot of inherent value in the assets and that, you know, trying to sell, for example, into this market would be more destructive to value, whereas, you know, preserving cash is an excellent way to preserve the value of the company. You know, as management team and board, We look at ways to unlock value on an ongoing basis outside of the scope of the strategic review as well, and we'll continue to do so.
spk12: Okay. How are the tenant incentives for Q1 compared to 2022? It looks like straight line rents increased a bit.
spk07: Yeah, the What you'll find is that in the leasing that we did in the quarter, we did a fair amount of new leasing, of which the weighted average lease term on that new leasing was about 9.1 years. So that comes with slightly higher inducements to incent people to do longer-term deals. One particular larger lease that we did at 2599 Speakman, which was a building that was 50% occupied and is now 70% occupied. There was additional landlord's work that was required to accommodate that life science tenant. So really strong covenant, really strong rents, but slightly higher cost to execute that deal. I wouldn't say it's a trend. I'd say it's a more deal-specific one-off. Okay, so it's a little lumpy.
spk12: On that 15.4% spread on the new leases, were those spread across the portfolio or more weighted to a certain region?
spk07: Yeah, I would say on the renewal side, it was heavily weighted to Atlantic Canada. And then on the new leasing side, it was Ontario, which was primarily that deal at $25.99 Speakman.
spk11: Okay, thanks, guys. I'll turn it back. Thank you. And next question comes from Brad Sturges with Raymond James. Please go ahead.
spk09: Hi there. Maybe just sticking on the leasing front, you know, given the REITs, I guess, lease rollover exposures a little bit more limited over the remainder of this year and even in the next, I guess, where do you see occupancy trending over the next few quarters, do you think you'll start to make back some ground from where you are today?
spk07: Yeah, I think so, Brad. It's a difficult environment to have a firm view because we are starting to see more traction on the new leasing side, but renewals and maintaining tenants at their existing square footage is also a challenge. But to your point, we have pretty good visibility on the balance of this year now on the renewals. And I would say that our goal is to at least maintain occupancy, but incrementally improve it by the end of the year.
spk09: And just with Atlantic Canada, I think you dipped a little bit in terms of occupancy. Can you comment more specifically on that region in terms of the leasing and touring activity you're seeing and what would your outlook be for occupancy within your Atlantic Canada portfolio?
spk07: Yeah, St. John's, Newfoundland, for example, had a pretty strong recovery of about 500 basis points, so 5% increase in overall occupancy in the downtown market in St. John's. So we're continuing to see some traction there. We were a big part of that improvement in the market. You know, we had some turnover in our Fredericton building with one of our large financial institutions giving back a floor, but maintaining and doing a longer-term deal on the floor that they retained. So, you know, we're still having some turnover, but I would say the sentiment continues to be strong there. And the utilization rates are much higher than we're seeing in Toronto. And, you know, Jeremy and the asset management team are doing a great job continuing to lease up Maritime Center now that the redevelopment is complete. And there's some exciting kind of things happening in New Brunswick, particularly in St. John as well around the energy market and just some renewed activity there.
spk09: In terms of your, just to go back to your comment around asset sales not being really prudent at this point, just given the limited transactional activity, I guess When we do start to get more of an opportunity through higher transactions and you're seeing better pricing discovery, I guess I'm curious to know what the strategy would be if you're contemplating asset sales. Would that be more potentially opportunistic by asset or could it be more targeted by region?
spk07: Yeah, I think it's more by asset. I think we would like to see eventually, as we've messaged before, our weighting to Atlantic Canada reduce. That can happen through growth or through dispositions. But in this environment, it's probably through dispositions. But I think it's more asset-specific. And what we're trying to focus the read on is assets that are high cash yield, low capital requirements, newer buildings, credit tenants, tenants that are life science or other industries that are growing and in strong markets. And to the extent assets don't align with that and we can get a fair value for them, we'll look to execute. And I think being able to deleverage the balance sheet will be a great opportunity for us too, given where the cost of debt is right now. and it just set us up in a good position for coming out of this economic cycle.
spk01: Hi, it's Brady. I would add, since 2019, Slate Office Reits sold 280 million of properties We are buyers and sellers, and when we stabilize an asset and we figure it's the right time to execute, we will sell. I think what Steve's point is, is that today, office is under different pressures besides rising interest rates and inflation. it's human behavior and we will look to sell assets where we feel that we've done our job and it's the right time to sell an asset. So we always continually do that at Slate and that's our job. And I think we are pretty good when it comes to like operating real estate and figuring out what needs to be done and sell the assets. So we'll always look for those things, opportunities.
spk09: And last question for me, just a more modeling question. I guess G&A has been elevated partly due to the strategic review. How should we think about the run rate, I guess, into Q2 and the rest of the year?
spk00: I think what you should be doing is you should be – the first quarter has the impact of the special review particularly. My suggestion would be on the G&A side is to look more towards where we were in the fourth quarter of last year. as more along the run rate you should be using going forward.
spk11: Okay, that's helpful. Thanks a lot. Thanks, Brad.
spk02: Thank you. Next question comes from the line of Gaurav Martur with IA Securities. Please go ahead.
spk03: Thank you, and good morning, everyone. Just to your prepared remarks, are you envisioning any change in the tenant mix as you go through the repositioning strategy?
spk07: Well, yeah, for sure. And that's more of a long-term view on strategy. But I think, you know, the message that we put out there and continue to reinforce is that, you know, the environment's changed. And as Brady mentioned, it's been a human behavior type issue. Every market's a bit different, but every tenant is different. And We're trying to align the portfolio. We're still very bullish on office and think that employers are going to continue to strive to get people back into the offices because of all the benefits of culture and collaboration, et cetera. But we know that every tenant and industry will operate differently, and we're trying to align ourselves with the tenants that will be the biggest utilizers of office space and markets that are proponents of having people back in the office. So, you know, the deal we did in Ireland is exemplatory of that, as is the deal with the Pfizer building in Chicago. And then, you know, we've been the 280 million of assets that we've sold since 2019. You know, those came with leasing risk, capital risk, a lot of below the line costs, older buildings, you know tenants are there is a the flight to quality is real it doesn't mean that tenants are lining up trying to go into triple-a buildings necessarily but there's a lot of B and C buildings in the suburbs that we've had success taking tenants from in our class a suburban office so that's sort of we're just we're just aligning our portfolio with where we see the demand right and that's a great segue into my next question
spk03: Because as you're looking at the tenants filtering through the door, can you maybe perhaps discuss, you know, the level of tenant incentives that are now required to attract tenants and how that's probably changed since the beginning of the pandemic?
spk07: Yeah, I'd say it's changed since the beginning of the pandemic. Well, I mean, the beginning of the pandemic, there wasn't really leasing activity to speak of, right? the incentives were actually quite low because tenants were just looking to kick the can down the road and do short-term renewals in their existing space until they figured out what their workplace strategy was going to be. I think what we're seeing now is that bigger tenants are making moves and they're committing to space long-term. It may be slightly less square footage. It might be more square footage. And tenants continue to evaluate that. To get tenants to move to a new building, there's certainly increased inducements. Those can be in the form of out-of-term free rent. They can be in the form of a TI package. But face rates have, as we've demonstrated in our portfolio with the growth that we've had in rates, face rates is not the issue. Tenants are motivated by being in the building that works for their employees, that's higher quality, has the right location and a landlord and operator that can service them properly. So they're still willing to pay for that. But yeah, inducements are slightly higher because it's competitive to get new leases right now.
spk03: Okay, great. And just my last question, when you're looking at fair value adjustments, what seems to be the toughest part for you to estimate in the current environment?
spk07: Yeah, I can address that. There's still very few comparable transactions in all of our markets. We had some appraisals done at the end of last year, which indicated some movement in the cap rates and discount rates, which we applied across our whole portfolio. we took a write-down on our book values. This quarter, we've remained relatively flat. We always have some fluctuations with currency, et cetera, but because any of the transaction comps that we see in today's market, we knew about last quarter, and we haven't seen any further evidence of movements. Looking at our peers, the views of our auditors, the views of our appraisers, we seem to triangulate where we think is an appropriate number in the range of value.
spk00: I think one thing that I could add to that is that while there's been a lack of transactional evidence, and the transactional evidence is relatively idiosyncratic between particular buyers and sellers, one thing that we have noticed, given that we have refinancing on at the moment, is that those appraisals which match those values that we have are exactly those which are being used to provide financing to us, showing belief in those, not only from ourselves, but also from those others who are willing to provide us financing.
spk11: Yeah. Thank you for the call, gentlemen. I'll turn it back to the operator. Thank you.
spk02: Thank you. The next question comes from Matt Cornett with National Bank Financial. Please go ahead.
spk06: Good morning, guys. Just to follow up on value, have you guys done any exercise, maybe particularly around the GTA portfolio, trying to get at alternative uses for potential density on sites? Is there anything there with regards to zoning, et cetera, that potentially would add value just given the land that you own?
spk07: Yeah, I mean, we have the benefit with Slate Asset Management of having a full development team internally, and we've been exploring this. There's five assets in our portfolio. Just for competitive reasons, I won't mention them, but there's five assets in our portfolio where we're actively looking at a change of use or a mixed use component. And there's certainly some opportunities out there. I'm not sure the It doesn't work in every market. The math doesn't work in every market. And outside of SOT, Slate's very active in other markets where this is being reviewed, for example, in Calgary. So our team's very well versed in running these models and understanding the economics. So I'm not sure we're in the early stages of that, Matt. But we'll provide an update to the extent there's anything to update on.
spk01: Hey, Matt, it's a great question. And we look at all of our assets, particularly the GTA or even other markets where we feel like what's the highest and best use? Can we extract more value from the asset? Absolutely, we look at that stuff. Yeah, thanks.
spk06: And then I guess when you think of, I don't know if we quite know yet what the new kind of normal would be in terms of per capita square footage of office, and it's probably going to change, but Canada's seen some of the best population growth in years. I mean, is there any discussion now with your tenants that, hey, look, we're hiring more people? We may not need as much space per person, but employment growth has been pretty good. Or is it still too early? I mean, there's also recessionary fears, so we're in a weird position at this point, but just any color there.
spk07: Yeah, listen, there's a number of tenants in our portfolio that we speak to that say if everyone were to return to the office, they wouldn't have enough space, right? So they're managing the hybrid workforce kind of strategically, but I think they're also saying that they want people back to the office. The employers are telling us that, and that's why I get such a strong conviction that eventually, over time, it's taking a long time in Canada relative to other markets, but over time, we're going to land. It may not be five days a week, but I see it at least being four, and that's what our tenants are telling us, and that's what we're hearing on the street.
spk01: And I would say, you know, like, listen, there's 40 million people that live in Canada. There's 8 billion people that live on the planet. If you go to other markets, like if you went to Asia, they have 90% utilization of office space. And so you need to really think long-term. Humans are social creatures, and if you want to develop a business, you need to be together as a team. And we're big believers in office because that's what you need to do. Canada is a little isolated. It's on its own. Yeah, it's got positive migration, but it's different behavior in different markets. There are markets where office rents are hitting all-time high. It's just a very specific thing here, and you've got to think long-term. And I think we have great assets with great – credit tenants, and it's for the long game. It's not for the short game. And I think that's what we believe in. And I think that Canada is a great place, and it's just a matter of time. Sure.
spk06: I hope that's the case. And then just switching gears a bit, there was some subsequent events disclosure around kind of the financing side. Can you give us an update as to where things stand on that front, or at least the approach? Looks like some of them were a bit shorter-term renewals, but do you have a sense? Do you go five-year fixed at this point, or do you remain kind of give yourself a bit of leeway in terms of where bond yields may go?
spk00: Absolutely happy to give a direction there. Given that some of those we are in negotiation at the moment, I won't go into full details on those because that is commercially sensitive. So what we have had is we have had the opportunity to refinance one of those that you'll notice there on Commerce West with incremental proceeds, which we were pleased to be able to get. On the others that we have, they're in a mix at the moment of certain ones where we are very close in the legal process, in the refinancing that we have there. I think for the majority of those, we'll be looking at something relatively shorter, something along the two years. I think we have a couple of reasons there. The first of which is we want to ensure that as a portfolio that we have a reasonable debt ladder of maturities. ensuring that they're fairly well spread out over time. The second of which is, while interest rates have gone up, at the same time, the margin that's been required by lenders has, in a number of instances, gone up, not always, in a number of instances. And as such, as opposed to locking that relatively high margin now, there could be an opportunity, if one's slightly shorter, let's say in the two years, somewhere slightly north of that, to be able to only pay that for a relatively short period of time before we come to refinance out as well.
spk06: Okay, no, appreciate that, Culler. And then one very last, sorry, one last question that's very small, but just the hotel, year over year, I don't know whether Q1 of 2022 there was something there or if it was a margin issue, but it was a drag on NOI this quarter. I know it's a seasonally weak quarter, but is there anything one time in there or is that kind of just people weren't going to Brunswick in the winter?
spk07: Yeah, it's just seasonality. The hotel is performing very well. You know, we still expect this year to be – add or better what we achieved in 2019 and and so we're very pleased with the return of you know group business in in the hotel sector is taking longer to recover in the in the major city centers but these sort of regional smaller Association groups are back and the cruise business is back in st. John's and and and the leisure travelers. New Brunswick continues to have an incentive similar to what we have here in Ontario for staycation tax credits. So the hotel is doing well.
spk11: Okay, great. Thanks, guys.
spk02: Thank you. The next question comes from Sairam Srinivas with Cormart Securities. Please go ahead.
spk10: Thank you, Alberto. Good morning, guys.
spk02: Good morning.
spk10: Steve, just going back to your comment on incentives, I know this might be difficult, but is it possible to kind of tentatively see what the delta looks like or quantify the delta between cash rents and in-place rents?
spk07: Between cash rents and incentives?
spk10: And in-place rents.
spk07: Oh, and in-place rents? Yeah, like our portfolio is still Market rents still, what is it, 5.5% above the in-place rents. So we continue to see that. There has been some incremental cost as of late to secure new leasing. Renewal leasing, we're still seeing incentives on par with prior history. I'm not sure if that covers the question you're asking, Cy.
spk10: I was just trying to see if you have a broader number to it, but I do understand it might be difficult to kind of put a number to it specifically. If you do, that's great. If not, that's fine too.
spk07: It's hard to put an average. It depends on the deal, the market, because we have a diverse portfolio across different markets, different types of properties. It's hard to put a number on it because if you extrapolate that, it may not be the right weighted average for what we have renewing over time. coming online in the next 12 months, right? That makes sense.
spk10: Guys, just looking at Ireland, I know it's been one year now since you have had these assets. Can you just talk a bit about the fundamental thing in that market there and Europe in general and the opportunities out there?
spk00: I think one of the things that we can hark back to is what Brady said earlier about the fact that we have different markets and some markets are doing relatively better at the moment. Given there's a lower transactional volume, the area in Ireland which there is more transactional volume is in central Dublin itself. And what we see there is we see rates, rental rates there at levels which are the highest that they have had. We're looking at 65 to 70 euros per square foot, which is higher than they have had before. So that shows that we have had, that there are some markets out there which have the ability to attract tenants, and they have good quality tenants there, and those tenants are willing to pay for that space too. So Ireland has, from transactional volume, particularly on the leasing side, shown that it has the ability to improve its rental rates there. The occupancy of our portfolio there sits at 92.5%, which is pretty good in comparison with the remainder of our portfolio. Where we have vacancy, we've shown we've had the ability to fill that vacancy. But I think one of the things about those tenants we have in Ireland is the majority of those tenants are FDI. They've come into the country for a specific reason. They've found one place where they have the ability to attract employees, and they're relatively sticky once they're in place. So as such, a lot of the work that we have there, as opposed to looking for future tenants, is looking to capture... that increase to market rent that we can within that portfolio. So from a performance perspective, it's doing what we would have expected. And the market seems to be supportive of that too.
spk01: Yeah, I would just add, Ireland is part of the EU. It attracts a lot of foreign direct investment from North America. I think we want to put the REIT in a position where we can invest in assets where we see rental growth. strong covenant tenants and it's a great place and that portfolio is performing extremely well with high occupancy right with growing rents and in today's world with rising interest rates and everything else inflation you want to be in a place where you can have an investment with economic drivers and Ireland's a great place to be and that's why we made that investment and it's been performing very well
spk10: Thanks for this call, Brady and Charles. Just maybe shifting gears to Canada and just looking at what's been happening over the last couple of months, the strike action. I know there's been a bit of a resolution in terms of federal workers working from office or working from home, etc. But do you see any of that flow through to your discussions with your federal tenants?
spk07: Yeah, you talked, sorry, Sai, you said the strikes that went on with the government workers and the related settlements. Yeah. Yeah, like, you know, we are not currently exposed to any near-term maturities with significant government tenants, but I think we're all, you know, disappointed in the result of that and the lack of leadership from the governments. It's a disappointing result. It's interesting. I think it's 12% over three years, which might be suggestive of where they think inflation is going to be and certainly might set a precedent for other negotiations in the future too. you know but more importantly to our business and I think just that overiveness of Canada on a global scale it's concerning that you know people only need to be in the office a couple days a week and and somehow are going to be able to provide a public service to taxpayers that's as efficient and and as it used to be right so I You know, we're concerned about that, I think, as to direct impacts on our portfolio to be determined. But we certainly are less exposed to that particular segment than than others. Yeah.
spk01: Yeah, I mean, luckily, we don't have any exposure in Ottawa. Yeah. You know, in our portfolio. So those federal tenants, we have provincial tenants, but we don't have a lot of federal tenants. So, yeah. It's a concern. It's a concern, I think, not for Slate Office REIT, but for the country, right? Like, yeah.
spk10: Awesome, guys. Thanks for the call.
spk11: I'll turn it back. Thank you.
spk02: Next question, we have Jonathan Kelscher with DDE Cohen. Please go ahead.
spk08: Thanks. Just a couple questions. Brady, you talked about utilization rates being higher a lot higher than Canada in different parts of the world. Could you maybe walk through your portfolio and what you're seeing in your different regions?
spk01: Yeah, I mean, I can give you my opinion. You know, I think what Slate Asset Management can bring is a global perspective. I mean, we invest in Europe, we invest in Canada, we invest in the U.S., and it is different. Like, if you were to go in the southern part of the U.S., the utilization, say, in Dallas and Florida, would be much different than you see in the northern cities of the U.S. or even in Canada or, say, San Francisco and Seattle. So it's behavior and it's leadership, as Steve said, both politically and from the private sector, And so, for example, in the west end of London, they're hitting all-time high rents. You know, they used to be 80, 85 pounds per square foot. They're hitting 145. So people are back to work and they're working there. But big users of space, which we don't have, like I would have concern being in office in downtown cores in markets where where occupiers aren't having people come back to the office. Like, I would be concerned with that. But we're not there. So, for example, in the GTA, we're actually getting activity because we're not downtown. And people are actually wanting to be in suburbia and close to the offices. And so we're seeing a difference. We're seeing rents that actually are holding up. So it is very spotty. And it's all to do with human behavior and leadership in those communities. And it is what it is, and that's my opinion. And I think it's going to change, and you have to adapt. But, like, I do have concerns about big cities who have big financial institutions that aren't working with local political. Like, I'd be concerned, like, for example, if I was the mayor of Toronto, like, Who pays for the firemen? Who pays for the policemen? Who pays for all those things? It's not about an office building. It's about a community and getting people back to work. And it's an ecosystem, right? And so those cities need to give a really hard think about it's just not an office building. It's about what's going on in the community so we can pay for all the services that people want. And I think that's why Ireland's performing very, very well. And the office assets we have in GTA, they're performing well. So it is specific and you got to give a think about that, right? Like where you want to be. And that's why we want to be in a place where there's economic engines and people want to actually be there and they want to occupy space and they want to grow their businesses, right? Those are the assets we want to own.
spk08: Okay. And what about, how are your Chicago assets doing?
spk01: Yeah, I mean, like, I mean, Steve, you can, you can probably like, I would say, you know, those, those assets, um, there is a big, uh, re-gentrification going on, um, in the, in the nodes. Well, we're downtown where Google is, is, is made a big play to occupy and employ a lot of people. We're pretty excited about what can happen in, in the node we're in, in the West loop. So, um, you know, but it's a challenging office market. But I think we're well-positioned with those assets.
spk07: I think it's a challenging office market that long-term has some exciting things happening in the central loop, as Brady alluded to. There's a whole revitalization of LaSalle Street. There's some proposed tax incentives to convert some major-sized buildings into residential and make it more of a live-work-play environment. So long-term, we like that. While it's a tough environment right now there, our buildings are significantly outperforming the market because one is anchored by CIBC and the rest of the tenants have good weighted average income as well. And so we're isolated in that building. And the other building, it's more of a boutique offering, very well located, priced right in the market. We've had tenants vacate, but we've been successful in backfilling them, so we're doing a good job of maintaining occupancy. The cost-inducement costs are higher because of how competitive the market is right now, but I think that'll start to stabilize over time because Chicago, there's no new supply being built in any of these markets, and Chicago's still a very attractive place for employers to be. Great education force, young workforce, and a really strong tech community.
spk08: Okay. And then just switching over to the balance sheet, I guess one of the reasons you guys cut the distribution was to shore up the shore up the leverage. What would your goal be for debt to EBITDA and debt to gross book value, and how long do you think it'll take you to get there?
spk00: The REIT has and has had for some time a medium-term target of 55% when it comes to debt to gross book value. That recently has been driven, if anything, by changing in asset values themselves as opposed to a positive decision to move towards leverage where we are at the moment. With the increasing cost of debt, it is more attractive to be slightly less levered. However, any change to that is looked into the lights of what is the best use of capital. And I think coming out of the special review that we've had recently, That didn't just look at that on an asset perspective about how things, capital could be raised from and deployed on assets. It looked across all components of that about whether it might best be used in the repayment of debts, the repayment of which certain types of debt were there at the same time. And at the same time, given that we do have value in our assets, that we are looking to uncover what we could do by applying the capital towards those assets as well. So while we have a medium-term target of the 55%, I think it would require an element of a change in asset values to assist towards that direction. But along the way, we'll be driven by the board's desire to implement their special review and look across the many opportunities we have for capital in front of us at the moment.
spk08: Okay. Do you have a target debt to EBITDA, though? I think you were 12.5 in the quarter.
spk00: We don't have a target for that. To have it lower would obviously be beneficial for us as well. We do keep a very close eye on all of our debt metrics and our covenants at the moment. We don't have a specific target, but we're targeting there.
spk08: Okay. And I get that you're in negotiations with your lenders on the renewals this year, but how are lenders looking at loan-to-values right now? And do you think, and it was actually good to see you get a million bucks out of one of your renewals, but do you think there'll be any assets where you're doing renewals where you'll have to add some equity?
spk00: I think that's one thing. We've been thinking about that for some time, and I think a good example of that is what we did with 120 South LaSalle at the end of last year, where we had an asset that had a significant amount of finance against it, And in order to improve the cost and availability of financing on that, we repaid 20 million US dollars of that at the end of last year as well. So when it comes to it, it's relatively specific asset versus asset. And the majority of our financing is on one asset as opposed to another one. So we're not afraid of adjusting the leverage on one asset versus another, taking financing where we can and where we have to apply financing to apply capital to repay financing, happy to do that on others as well. So I think there will be some where we pay down and some where we look to take more. Yeah.
spk08: Okay. And overall, do you think that sort of nets out? Yeah.
spk00: I think we have to see where that goes. Our aim is to look for things to net out at the moment. I mean, if we're looking at assets and what we might do on assets at the same time too, we may take the opportunity to further pay things down if we could do so as well, given where we are from a leverage perspective.
spk07: Yeah, and really, the output is the loan-to-value. In today's market, lenders aren't lending off an LTV. They're lending off debt service coverage. And the pressure on debt service coverage is on the refinancing analysis that a lender will do on the back end in today's rate environment and inflation. So that's kind of putting, and then the loan to value is just the output from that. So to Charles's point, there's some where they're well covered and there's some where we're closer to the margin and where the lenders are comfortable and we just sort of need to reallocate our debt, so to speak, throughout the year.
spk08: Okay, that's helpful. I'll turn it back. Thanks.
spk02: Thank you. There are no further questions at this time. I'll turn the call over to Paul for closing remarks.
spk05: Thank you, everyone, for joining the Q1 2023 conference call for Slate Office REIT. Have a great day.
spk02: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.
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