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Material assumptions underpinning any forward looking statements we make include those described under forward looking statements in our most recent quarterly report. We remain focused on what we can control to create long term value. That includes three things: number one, leasing and operational results two, completing development and upgrade projects and three, strengthening the balance sheet. The quarter end results reflect the resilience of our portfolio and operating operating platform as we've made progress in these three areas despite the headwinds. First, on leasing and operational results. Highlights include positive same asset NOI, improved retention to 75%, and a stable leased area supported by encouraging levels of tour activity. JP will elaborate on that by city. While it's unclear what the short term impact of the economic uncertainty will be on the demand for urban office [indiscernible] we're confident in our position to benefit from the long term positive impact on Canadian cities. Second, we made progress on our development and upgrade At M4 in Vancouver, users are fixturing their space. At Toronto House, we've successfully launched our in house rental residential operating platform. At King Toronto, the glazing is progressing, highlighting the distinctiveness of the project. There, we've secured a long term lease with a global retailer that will enrich the user experience across King West Village.
18m 15s
All the development and upgrade projects currently underway will be completed by the end of next year. Last, but certainly not least, our balance sheet. We're focused on strengthening it, keeping ample liquidity and improving our debt metrics. We're pleased with our progress so far this year with $850,000,000 of refinancing resulting in negligible impact on our annual interest expense. Our disposition program of non core assets is progressing well, as private market valuations remain robust and our IFRS values continue to be validated. We closed on one asset yesterday and have two more under contract. All proceeds will be allocated to debt reduction as part of our path to get under 10 times net debt to EBITDA by the end of the year. We've also improved our debt profile. Taking short term variable rate debt and replacing it with longer term fixed rate debt. Nan will now elaborate on our financial results. Thank you, Cecilia. Good morning, everyone. We are pleased with our performance this quarter. I'll highlight some of the key metrics. Compared to the first quarter of twenty twenty four, our operating income grew by 3.5% and same asset NOI increased by 1.5%, Average in place net rent per occupied square foot for the first quarter ended at $25.3 up 5% from the end of the comparable quarter.
19m 49s
These metrics highlight the strength and resilience of our portfolio and the continued demand for our urban workspace. Our retention rate for the quarter increased to our historical level of 75%. Our occupied and leased area remained stable, These metrics reflect an encouraging start to the year. JP will elaborate more on these shortly. We made great progress on our financing initiatives. Having issued $850,000,000 in unsecured debentures bringing our total issuance in the last six months to 1,100,000,000.0 Moody's withdrew the unsolicited rating of our debentures after our third issuance. Consequently, the spreads on our bonds in the secondary market tightened by 10 to 15 basis points, Additionally, we'll see an immediate 25 basis point savings on our unsecured facility. We use these proceeds to proactively address our upcoming maturities. We repaid the construction facility on 19 Duncan which was maturing in August the $200,000,000 Series C debentures which was maturing in April, the $400,000,000 term loan, which was coming due in October. These transactions improved our unencumbered properties from 82.7% to 87.7%. And allowed us to take advantage of opportunities in the market to address near term maturities. In our view, this is a prudent cost of action given the current macroeconomic volatility.
21m 27s
Our timing of these issuance could not have been better Subsequent to the last issuance, the cost of floating rate debenture increased by 35 basis points while a fixed rate debenture increased by 30 basis points. Ultimately, we refinanced approximately 20% of our outstanding debt, And so only a marginal increase in our annual interest expense of approximately 1,000,000 We continue to proactively address our remaining maturities. And have completed the refinancing of the construction facility at 20 Bright Up. With our partner. We are currently reviewing our options for the construction facility on N4 in Vancouver which matures in December of this year. Our liquidity position remains strong over $700,000,000 available on our unsecured facility. Our disposition program continues as expected and we will utilize the proceeds to repay debt. We have three assets currently under contract for 50,000,000 and expect these to close over the course of the second quarter. Strengthening our balance sheet and deleveraging is an important object for us, and we're fully committed to achieving this. As iterated during our fourth quarter conference call, we anticipated a temporary increase in our net debt to EBITDA in Q1 However, we're targeting to bring our leverage ratio to below the 10 times range by the end of twenty twenty five.
22m 59s
We'll achieve this through organic growth in the rental portfolio from leasing activity rent commencement in our development portfolio stabilization of our 2024 acquisitions and retiring debt with proceeds from the sale of non core assets. We are mindful of the current macroeconomic uncertainties However, we remain confident that we will achieve these targets Thank you, everyone. Over to you, JP. Thanks, Nan.
23m 27s
In Q1, we continued to observe strong conversion rates robust expansion activity, and a shift towards larger space requirements among prospective users despite the ongoing disruption in global trade. Our occupied and leased area remained stable and outperformed each of the urban submarkets in which we operate except for Vancouver, where we are working to address vacancy that was acquired last year. We remain extremely encouraged the number of existing users in our portfolio that continue to require more space. In Q1, 50,000 square feet of new leasing activity represented expansions. In line with the previous quarter. We are also encouraged by our improving retention rate, which was back in line with our historical level of 75%. In Q1, the average rental rate was stable when comparing the ending to starting base rent and up 6.3% comparing average to average The observed moderation in rental rate growth upon renewal is in line with our expectations reflects the anticipated impact of increased supply. A message we have been communicating for several years. Tour activity continues to be strong, Tour activity in our rental portfolio was up 10% from the prior quarter. Industries represented by touring organizations continue to be technology, media, professional services, education and medical uses.
25m
At the end of last quarter, we reported we had 933,000 square feet of leasing activity under negotiation or at the prospect stage. Including 570,000 square feet of new leasing activity. In Q1, we completed 507,000 square feet of leasing activity including 246,000 square feet of new leasing resulting in a 43% conversion rate. As of today, we have 1,300,000 square feet of leasing activity under negotiation or at the prospect stage, split evenly between new leasing and renewals. Representing a 39% increase in activity compared to the end of last quarter. I'll now provide a brief overview of each market. In Montreal, we continue to observe strong demand from users with larger mandates. There are currently seven prospective groups with mandates greater than 50,000 square feet considering space in our portfolio. Technology and professional services firms are the two most active sectors and we're seeing an increase in demand from technology users headquartered in France as evidenced through recent leasing activity. Most of our vacancy in Montreal is located at La Pique, a portfolio of assets located between Old Montreal and Griffintown, comprising eight buildings totaling more than 1,100,000 square feet. La Cite offers Allied Modern and Allied Heritage workspace solutions.
26m 33s
As well as an enhanced amenity experience for users, and an improved necessity based retail and service component. Consistent with amenity rich urban neighborhoods. There are currently eight prospective groups with mandates between 170,000 square feet considering lease options at La Cite, These prospects represent the technology, professional services medical sectors, In Toronto and Kitchener, we continue to see an increase in demand from prospective users with larger space requirements. There are presently 31 users with mandates in excess of 10,000 square feet touring our portfolio, and we are currently in discussion discussions with seven existing users looking to expand representing 50,000 square feet of new leasing opportunity. In Q1, we experienced an increase in demand from AI based technology users, and life science users. In Calgary, we are seeing an increase in the size of mandates in the market as there are currently 11 prospective organizations with requirements in excess of 10,000 square feet evaluating options in our portfolio. We are also engaged in discussions with 12 existing users looking to expand. Representing 40,000 square feet of new leasing opportunity. Lastly, we continue to observe an increase in near term demand from users and buildings slated for conversion. Vancouver remains the strongest leasing market in Canada.
27m 56s
There are presently 10 users with mandates between 60,000 square feet evaluating space in our portfolio. We are also engaged in discussions with four existing users looking to expand, representing 30,000 square feet of leasing activity. While the ongoing disruption in global trade may impact leasing activity in the near term, we remain confident in our ability to outperform the market in each city due to our concentration of distinctive urban workspace and amenity rich urban environments the strength of our operating platform. As validated by our Net Promoter Score, which increased 30% year over year and is 150% higher than our peer average. I will now turn the call back to Cecilia.
28m 38s
Thanks, JP. Before we turn to questions, I want to reiterate my confidence in our ability to weather the current economic uncertainty and create long term value. First, we own and operate an irreplaceable distinctive urban portfolio. Second, we have a strong integrated team running that portfolio. Third, we're successfully selling noncore assets which sharpened our operating focus strengthened our balance sheet and enhances portfolio quality. This is all in the context of strong Canadian cities, They matter more than ever as hubs of education, innovation, culture, and opportunity. And urban workspace matters more than ever as well. As knowledge based organizations increasingly value the attraction and retention of talent. And the importance of having their team physically together an environment that facilitates collaboration and culture. For all of these reasons, our team is focused, patient and confident that in time, our fundamentals will be recognized. We'd now be pleased to answer any questions. At this time, I would like to remind everyone, in order to ask a question, press star. Then the number one on your telephone keypad. Your first question comes from Jonathan Kelcher with TD Cowen.
30m 14s
Thanks. Good morning. First question, just on the touring and I get Q1 was a pretty good quarter. I'm assuming that slowed down the first week of of April. How has it trended the last couple of weeks? And and how does it it look going forward into into May? Jonathan, it hasn't slowed. In fact, April tour activity was in line with March and on trend to outpace Q1. Okay. And I guess that that's the same going forward into into May? [indiscernible] expect it to hold. Yes.
30m 58s
Okay. And then secondly, just on the outlook, you did maintain the 4% decline in FFO, which is about $2.09 a share. You also noted a slowdown in decision making How much how much of a risk does that slowdown pose to you guys making your making that number? Do you have enough of a buffer built in there?
31m 23s
For the the slowdown in decision making, we've only observed that in very limited instances, Jonathan, so it's hard to tell now you know, balancing the visibility that we have in terms of what we have in the leasing pipeline, which is up, I think, almost 40% from what JP said. We have 1,400,000 square feet. With balancing that with really the uncertainty on the short term impact on demand for urban office space, we didn't feel that we needed to change our outlook. We're still targeting all of the metrics that we stated a few months ago for the end of the year. Okay. And I guess you're a little bit ahead on interest costs just given the rates you guys got on your financing?
32m 5s
We're very happy with the rates we achieved on the financing.
32m 9s
Okay. And then just lastly on the renewal rate. 75%, obviously very good start to the year. But you do have at least one decent sized nonrenewal in think, q two, maybe q three. But how how does the balance of the year look like? Do think you're gonna hit the the 70 to 75% historical number?
32m 33s
Our objective is to achieve a retention rate in line with our historical levels Jonathan.
32m 38s
So yes.
32m 40s
Okay. Thanks. I'll turn it back.
32m 45s
Your next question comes from Lornae Colmar with Desjardins.
32m 51s
Thanks. Good morning. Hi. Maybe just good morning. Maybe just going back to the kind of, I guess, maybe a caveat around the Outlook or the targets. What in your view has to happen to kinda give you full confidence that that you guys can meet these twenty twenty five targets.
33m 10s
So, Lauren, it's not really a caveat. We wanted to acknowledge the environment that we're operating in. We're still targeting to hit what we set out to achieve earlier this year by the end of the year. So we're not changing what we expect to achieve by the end of the year. We just wanted to recognize the economic environment we're operating in.
33m 31s
Is is there anything that you think you know, realistically, as we sit here today that that you know, that keeps you up at night, that really gives you concern you wouldn't be able to get to your targets.
33m 42s
No. We're focusing on what we can control. Thing is out of our control. We can't do much about, so we're not expending energy on that.
33m 51s
I, I actually like that approach. Okay. And then maybe just one quick question on the leasing activity this quarter. It looked like on the renewal side, the Walt fairly short about two point five years. Could you guys maybe provide some color on that?
34m 8s
Lauren, it's just a function of a higher percentage of renewals in our flex portfolio where we will offer shorter terms. Fair enough. Okay. Thank you very much. I'll turn it back.
34m 21s
Thanks.
34m 33s
Your next question comes from Mario Saric with Scotiabank.
34m 40s
Hi. Good morning. Good morning. Just coming back to kind of the observation of limited or very limited tenant discussions being extended, Can you maybe just help us kind of quantify how like, limited that is? Like, is it, like, one out of every five leases or discussions, one out of every 10? Are there any specific geographies or tenant types, that are comprising that limited [indiscernible] In q one, we had one, maybe two. Mario, of the I don't know, several dozen leases that we nailed down. So it is limited extremely limited at this stage. Got it. Okay. And then for the remainder of the year, in terms of known tenant vacancies, can you just remind us of what the the total square footage maybe that was or wasn't included in your 90% plus target occupancy by the end of the year.
35m 40s
I think it's in our end sorry. I'm We have it in the MD and A. In the mature the maturity table would capture what we have coming up It's about a million square feet. For the remainder of the year, Mara.
35m 52s
But specifically in terms of known tenant vacancy, like, the tenants that you know are leaving, No. I think this year.
35m 59s
Well, you can apply our historical renewal rate we still expect to achieve you know, in the mid 70%. So you can apply that to the million square feet that remain. That's what we're targeting to get to by the end of the year. So I mean, it might be chunky quarter over quarter, but that would be a full year estimate.
36m 18s
Got it. Okay. And that tenant renewal ratio was it similar in the non flex portfolio versus the flex portfolio during q one?
36m 31s
Sorry, can you repeat the question? We're having trouble sorry. It sounds kind of mumbly. We can't tell what you're asking exactly.
36m 40s
Okay. I'll try again. The the 75% renewal ratio in the quarter, was it similar in the flex portfolio versus the non flex portfolio?
36m 51s
Yes.
36m 53s
Okay. My, my last question, just in terms of the the dispositions, the $300,000,000 for the year, you expressed confidence in hitting that. Are there any factors that could come into play where you would look to perhaps exceed the 300,000,000?
37m 10s
It'll we're we're targeting 300,000,000, Mario, and and we'll we expect to hit that by the end of the year. That's all that we're going to be commenting on at this point.
37m 22s
Got it. And presumably, the 300,000,000 would exclude monetization of 150 Georgia, the receivable?
37m 29s
Absolutely. Yes.
37m 32s
Okay. Thank you. Your next question comes from Matt Cormack with National Bank Financial.
37m 42s
Good morning, guys. Just quickly with regards to some of the upgrade assets, particularly in Montreal, do you expect to make some progress on leasing at 1,001 Robert or maybe 3,575 or how should we think about the the view to getting to 90% by the end of the year on committed occupancy.
38m 5s
Will that come from the upgrade portfolio or from filling vacancy in the existing properties?
38m 11s
So we absolutely will be making progress on in renting out a thousand 1 and $3.05 $7.05. That won't impact our leased area as the lease up there is taking place in spaces that are currently in the PUE portfolio. So we'll make progress on those two assets, but we will be making progress towards the 90% in the rental portfolio separately from $3.05 $7.05 at a thousand one.
38m 40s
Okay.
38m 40s
And then with regard to the NOI contribution from development versus capitalized interest. Has anything changed on that front?
38m 51s
In terms of the cadence? Or how should we think about what we define the 2025 earnings impact? But I think there's more material impact in 2026 on some of those items.
39m 5s
Nothing has changed. On that, Matt. The progress has as expected, and leasing away.
39m 12s
Okay.
39m 13s
Thanks, guys.
39m 14s
Thank you. Your next question comes from Brad Sturges with Raymond James.
39m 23s
Hey, good morning.
39m 25s
Appreciate all the commentary around leasing.
39m 29s
I guess given you're seeing an uptick in activity, and sort of limited impact, I guess, on the macro based on the macro environment, Would you expect any changes in the type of lease term that you're seeing your tenants pursue? Or are seeing more of a preference for shorter term deals? Or is it just really user specific? And then [indiscernible] would you be pursuing early renewal with any of your larger tenants if you're looking at towards 2026?
40m 5s
Brad, we're seeing requests for longer terms amongst our new leasing pipeline. The average term for new leasing in the quarter was six point three years. When you remove new deals in our Flex portfolio, it was seven point nine years. That's a trend we expect to continue. And we are pleased by the ongoing discussions we're having with tenants that mature in 2026.
40m 32s
Okay.
40m 34s
My other question just saw the uptick in occupancy at Toronto House as your leasing up that asset. Just curious, guess, that be more like short term rentals how should we think about the NOI or the rental rate contribution?
40m 50s
From short term lease up short term rental lease up versus I guess at some point, you'll be focused more on the long term rental pool there?
40m 59s
Brad, it does not represent short term leasing opportunities. They are all long term lease transactions consistent with what you'd expect for the market. We're very pleased with the rental rates we're achieving. They're in line with our pro form a, and we expect our performance to continue in that way.
41m 16s
But there will be a, like, a short term rental pool. Guess, when would that program really start to commence?
41m 22s
There is not a short term rental pool, Brad. There are third party providers that offer that service that have entered into long term contracts with Allied to offer that type of duration of stay.
41m 36s
Got it. Okay.
41m 38s
It would be typically, a one year lease term for those type of providers? Those are typically longer than one year.
41m 45s
Okay. Great. I'll turn it back. Thank you. Thanks.
41m 50s
Your next question comes from Tami Beer with RBC Capital Markets.
41m 57s
Thanks. Good Just coming back to the disposition target, I guess we should see some pickup in Q2. Just any discussion anything you can share in terms of color on discussions maybe beyond the $50,000,000 And curious you're seeing any stronger interest in any particular markets or from you know, various types of buyers?
42m 17s
Yes. It's consistent with what we disclosed in the press release, Bonnie, and it's all based on unsolicited inbounds for our assets. And private equity, the valuations remain robust. And we're pleased that our IFRS values are being validated.
42m 39s
Okay. So these aren't necessarily assets that you know, are are are going through sort of a listed process with the broker?
42m 46s
Absolutely not.
42m 49s
Okay. And just coming back to 150 West Georgia, any update there in terms of the process? What kind of interest maybe have been seen on that side?
42m 59s
Yeah. We will be going live, with that process later this month, and we're very pleased with the opportunities that we'll be able to explore there.
43m 11s
I I I guess in terms of it's going live, I guess, this month or or or soon, Is there the possibility that deal could be transacted within the second half of the year and ultimately, I guess, repayment? Like, closing and repayment for the loan? Or Yes. We're targeting by the end of twenty twenty five. That's right.
43m 34s
Okay. All right. I will turn it back. Thank you.
43m 37s
Thank you.
43m 39s
Your next question comes from Fred Blondeau with Green Street.
43m 45s
Thank you, and good morning. Sorry, I may have missed that. Just one question for me. What are the lease term being on lease being discussed with your prospective tenants at the moment. You mentioned the two point five years. I was wondering how is that expected to trend from here?
44m 7s
For new leasing, the average term achieved in the quarter was six point three years, when removing transactions in our flex portfolio it was seven point nine years, and we continue to yield more and more increase from prospective users looking for longer term durations than shorter term durations.
44m 29s
Okay. That's great. Thank you.
44m 32s
Thanks.
44m 34s
Again, if you would like to ask a question, press star then the number one on your telephone keypad. Your final question comes from Sumayya Syed with CIBC. Just to revisit the outlook briefly. So I think your lease up target and the 90% goal were weighted to the end of the year anyway. So things do meaningfully slow down, how do we think about that? Would that simply be that the 90% goal is deferred or in place occupancy goes down from where it is? Currently? No. You know, I mean, if things slow down, then we'll address them when they do. But right now, we're sticking with our target of 90% at least 90% by the end of the year. Okay. Then, JP, in your commentary, you mentioned about a a 43% conversion rate on new leases. So of the ones that don't convert, what are some of the main or recurring reasons that you hear, and how does that 40% conversion compare with historical rates?
45m 49s
So my 43% is in line with what we would have achieved in the first half of twenty twenty four. In many cases, transactions that we haven't yet converted are ongoing. And we as we've addressed in our remarks, we've seen a 39% increase in prospective leasing activity in our deal pipeline, is really encouraging. So our leasing team is very busy across the country. And we are very pleased with the amount of inbound, increase that we're fielding across all markets sectors.
46m 26s
K. Great. And just lastly, I think in the fair value discussion, there was some comment around there being cost increases in the development portfolio. Just any more color there if it's market or project specific?
46m 40s
No. That was just on the redev category. And that's the category where, you know, there was movement this quarter, where there was $6,000,000 6,000 square feet, sorry, that was transferred in. It's just related to that. Okay. Thanks. I'll turn it back.
47m 1s
That concludes our Q and A session. Will now turn the conference back over to Cecilia Williams for closing remarks. Thanks, everyone, for joining our conference call. We'll keep you updated on our progress going forward. This concludes today's conference call. You may now disconnect.
Key Insights
Operating income grew by 3.5% and same asset NOI increased by 1.5% compared to Q1 2024; average in-place net rent per occupied square foot rose 5% to $25.30.
Leasing activity remains robust with a 75% retention rate, stable occupied and leased area, and a 43% conversion rate on new leases; leasing pipeline increased 39% quarter-over-quarter to 1.3 million square feet.
All current development and upgrade projects are on track for completion by the end of next year; notable progress includes leasing at M4 in Vancouver, launch of a residential platform at Toronto House, and a long-term lease with a global retailer at King Toronto.
$850 million in refinancing completed with negligible impact on annual interest expense; disposition program progressing with $50 million in assets under contract and a target of $300 million in dispositions for the year, all proceeds to be used for debt reduction.
Management reaffirmed its outlook, maintaining targets including a sub-10x net debt to EBITDA by end of 2025 and at least 90% occupancy by year-end, despite acknowledging macroeconomic uncertainties; no change to the previously guided 4% decline in FFO (approx. $2.09/share).
