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00:47 Thank you and good afternoon, everyone. My name is Andrew Tamlin, CFO of Morguard REIT.

Welcome to the Morguard REIT’s fourth quarter 2021 earnings conference call. I’m joined this afternoon by John Ginis, Assistant Vice President of Retail Asset Management; Tom Johnston, VP of Western Asset Management; Tullio Capulli, VP of Eastern Asset Management; along with Rai Sahi, CEO and Chairman of the Board.

Thank you all for taking the time to join the call. 01:20 Before we jump into the call, I would like to point out that our comments will mostly refer to the fourth quarter or 2021 year-end MD&A and financial statements, which have been posted to our website.

I refer you specifically to the cautionary language at the front of the MD&A, which would also apply to any comments that we make on this call. 01:43 Overall, we are pleased with the fourth quarter results, which show improved same asset metrics over the last year, improvements on receivable collections and progress on some significant financing activities.

Net operating income for the year declined slightly to 122 million in 2021 from 123.8 million in 2020, while FFO increased slightly to 69 million in 2021 from 67 million in 2020. 02:14 NOI for the fourth quarter was down as compared to 2020, due to higher bad debt provisions from the uncertainty around the Omicron wave and the sale of Wonderland Corners in the third quarter of 2021.

Same asset net operating income for the fourth quarter improved in all asset classes from a year ago with the exception of multi-tenant office asset class, which declined slightly due to higher vacancy cost. This represents the third quarter in a row where we have seen improvements in the same asset metrics.

02:49 We have seen continued declines in interest expense, which declined another $400,000 this quarter. On a year-over-year basis, interest expense has declined $3 million or almost $5 million over a two-year period.

These declines are due to the lowering of the weighted average interest rate on our mortgage portfolio from 3.8% last year to 3.6% this year. This lower interest rate was a result of the large amount of refinancings in both the latter half of 2020 and in 2021 all at lower rates.

Total debt is $53 million lower at the end of this year as compared to last year as well. 03:33 Notwithstanding the improved results there are still challenges, particularly in our enclosed mall portfolio.

Our two Ontario enclosed malls, St. Laurent and Cambridge, were closed for portions of 2021 due to Ontario lockdowns and are still subject to COVID restrictions such as mask mandates.

03:52 We are hopeful that the strong – with the strong rollout and take up of vaccines by both Canadians and Ontarians that we will soon see the end of lockdowns and related COVID restrictions. 04:04 Rent collections have been strong, particularly in the office, community strip and industrial asset classes, which are functioning normally.

Rent collections for enclosed regional centers range from 90% to 100% depending on the asset and the location of that asset. 04:23 While we are still working on rent solutions for certain retail tenants, the majority of the remaining retail rent arrears represents Ontario tenants.

From an industry perspective, we are seeing most of the uncollected rents coming from tenants that have been most severely impacted by lockdowns such as gym operators, beauty services, and food service tenants being at the top of this list. 04:48 As these tenants have reopened across Canada and restrictions have eased, we are optimistic that we will see continued improvements in our cash collections as we move forward and to 2022.

05:01 The rent arrears and deferrals at December 31, 2021 totaled $9 million, which is from 12 million at the third quarter and 20 million if you go back to the first quarter. The allowance for doubtful accounts assigned to these arrears totaled $5 million or approximately 60% excluding sales taxes.

05:22 Our bad debt reserves were higher at the end of the year due to the Omicron wave that was happening at the time and the related restrictions that went along with it. While collections did take a bit of a dip due to Omicron, they are now back to levels we saw on the fall before the Omicron wave.

05:40 More than half the arrears outstanding are from the two malls in Ontario, which has seen the most lockdowns under COVID. We are still working on rent solutions for these arrears and we expect these balances to continue to decline over the next quarter or two as these solutions are put in place and documented.

06:01 Turning to FFO, the improvement in FFO for the year is due to an extra 2.8 million in lease cancellation fees and the improvement in interest expense. The REITs PCME or operating capital reserve was established to be $4.6 million per quarter for the year, which is approximately 75% of normal levels.

We spent approximately $15.5 million of the $18.5 million annual 2021 reserve. 06:34 Our retail occupancy levels at December 31 were in-line with a year ago at 94%.

Our office occupancy levels have slipped to 87% from 89% a year ago. As we have seen some tenants look for other solutions upon their lease exploration.

06:51 Our current occupancy level for all asset classes of 91% is only slightly changed from the start of the pandemic, which was 93%. This speaks to the fact that in most cases, we've been able to keep tenancy at our assets.

07:09 We are still seeing declines in traffic patterns across most of our enclosed malls from pre-pandemic levels. However, this has not always meant declines in sales.

Instead of folks coming to malls to window shop or lounge at the food court, we are seeing much more targeted traffic, whereby folks are coming and going in an efficient manner. 07:31 Looking at financings, there was a mortgage at financing renewal completed during the fourth quarter, the security was in office building in Vancouver and brought an additional $35 million in up financing proceeds at an interest rate of 3.1% for a 10-year time frame.

07:52 We are pleased with the completion of the renewal of our convertible debentures in December 31 – in December, given the impact that COVID has had on our office and enclosed mall asset classes. 08:04 There was a small pay down of $16 million for a new principal amount of 159 million.

The interest rate is now set at 5.25%. And now for an update on our leasing efforts, for 2022 there are 620,000 in retail GLA coming up for renewal.

More than half this base represents anchored tenants, which have already renewed or expected to renew. 08:32 In fact, there is no space greater than 10,000 square feet which is not expected to renew this year.

Further, almost half the 390,000 office GLA coming up for renewal in 2022 represents government tenants, which have already renewed. 08:50 Management has had continued ongoing discussions with the provincial government tenant at Petroleum Plaza in Edmonton, which came up for renewal on December 31, 2020, a year ago and is now an overhauled.

While they have verbally told us that they expect to renew they have unfortunately still been focus on their response to the pandemic, which has taken priority. At this point, we are still looking at later in 2022 in order to get this completed.

09:20 Turning to financing and liquidity, the Trust has 185 million in liquidity at the end of the fourth quarter, and 315 million in unencumbered assets. This liquidity position has increased from 142 million a year ago.

09:38 The Trust is continuing with the Save-on-Foods development job at Pine Centre, which entails the re-tenanting of the empty Lowe's premises into a new 38,850 square foot Save-on-Foods grocery store. Demolition of the existing former Lowe's premises is now complete and we are arranging for sub-trades in materials deliveries.

This is expected to be completed in the fourth quarter 2022. 10:05 The addition of grocery further complements the strong anchor tenant profile at this mall and has advanced leasing discussions with some discriminatory tenants looking to come into this marketplace.

10:19 Wrapping up while the economy and by extension some of the REITs assets are going through their challenges, we remain positive about a number of aspects of our business. There are absolutely some short-term challenges whether on closed malls, but most of them remain dominant in their geographical area and are strip malls, which are largely grocery anchored have shown resilience in collections.

10:41 Beyond our retail assets, we have high quality office billings in Canada's largest markets with a high degree of government office tenants. We continue to be positive about our business and the objective of building value for our unitholders.

We look forward to continue to execute our strategy, and thank you for your continued support. 11:03 We will now open the floor to questions.

11:40 Thanks. Good afternoon.

First question, just on the – I guess you had about 590,000 of lease termination income in the quarter, can you maybe give us a little bit of color on that? Was that just one lease or several leases?

11:58 It really was a bunch of smaller tenants. There wasn't anything in particular, Jonathan.

So, yeah, nothing specific to highlight on that.

12:10 Okay. Any lease termination income that you know about for Q1?

12:18 Yeah. No, there's nothing significant that we're aware of Jonathan.

12:24 Okay. And then on Petroleum Plaza, that's obviously is being held over now 13, 14 months, do you get the existing rent in place or if they renew is there any, sort of change on that?

12:44 So, it's in overhauled. And so as part of that we're collecting the old rent, but from an accounting standpoint, we're actually booking the rents that we believe will be negotiated at the end of the day.

So, it's a smaller amount, just because of the geography where the asset is. So, we've made our [best job] [ph] at what we believe that rent will be when it's all negotiated and said and done, but unfortunately, it still is dragging on, I guess, you would say, and we believe there's no real risk.

13:26 They're obviously still occupying the building. And they have really told us numerous times that they're going to get to it, but it just has not hit there to do this just yet.

13:40 Okay. Then I guess just lastly on the leases, I think we were 183,000 square feet of leases that you've done on government space, was that done at sort of expiring rents?

Did you get some uplifts or rolled down on any of that?

14:00 It's bit of a mixed bag. Some of those I would say, it’s a small uplift when you add them all up.

14:12 Okay, thanks. Then one last thing, what do you expect to be using for your CapEx reserve for 2022?

14:23 It'll be higher than 2021. We're just going to be going through that review to see whether it’s appropriate to go back to the full amount in 2022.

14:36 Okay. Thanks.

I’ll turn it back.

14:39 Thank you.

14:52 Thanks and hi everyone. Just on the retail leases that you mentioned, you've already addressed for 2022.

Again similar line of thinking with respect to Jonathan’s question on the spreads, but can you comment on how some of those renewal spreads have come in?

15:14 Well the anchored tenants themselves are really just the status quo from a rent perspective. So, there's not really any uptick on those.

John, do you want to maybe just want to comment on what you're seeing as far as the rest of the marketplace?

15:30 Yes thanks, Andrew. Hey, Pammi.

So Andrew is right. Usually with large format anchors and enclosed shopping centers or strips there – we almost invariably have options tied to the leases and where they come up renewal exercise options and notwithstanding some of these deals that might have them at fair market.

Andrew is right. 15:48 We try to hold the line because they're deemed anchor tenants, but with respect to the balance of smaller bay in-line CRU, look, it's still, we're still in a situation where we are transitioning through a pandemic.

So, it will be interesting to see how these negotiations go in 2022. 16:07 We've been hit pretty hard over the course of the last two years with respect to our income.

So, our hope is that as negotiations proceed further balance of this year for the smaller bay stuff, there’s actually this time more rental uplift as part of renewals.

16:25 Okay. I guess, maybe just elaborating a bit.

You mentioned in your remarks, Andrew that you continue to work through some solutions with some of the retail tenants. Of course, I presume this year.

And then layering your comments on with respect to the anchor [renewals flag] [ph] and some of the work you're doing on the small bay space, the smaller CRU space, what does that sort of translate to in your mind of what the retail same property NOI may look like from a trends or directionally for this year?

17:03 I would expect it will be pretty similar to the past few quarters, Pammi. I mean, I think the strips have done reasonably well.

There's been growth there for quite some time. And with the malls there's been kind of smallish type growth, but it's there.

So, I would probably say, it's going to be pretty consistent to the past few quarters.

17:34 Got it. Last one for me, just done on the fair value markdowns in the quarter, again, in malls, we’re once again taking the brunt of it.

Does it feel like the write downs there are, kind of done at this point or is, again coming back to some of your commentary on the outlook for the year-end is there perhaps the possibility that you may have to take some additional charges there?

18:01 It's really tough to say Pammi. I don't think, we don't foresee any material changes from a fair value perspective.

There will always be tweaks, but it's really tough to, kind of forecast where that's going.

18:20 Appreciate that. I will end with that.

Thanks very much.

18:34 Thanks and good afternoon. Just to follow on Pammi’s line of questioning at the end there with the fair value write-down for the malls, what was the trigger for that?

Is it changes in your assumptions on occupancy, rental rate, is it a result of some rent collection data points that you've gotten or a bit of a combination of the above?

18:59 Hey, Jenny, it's John responding to your question. So, over the course of the [last eight quarters] [ph], we've obviously taken a scrub at our retail malls and there's been various parameters that we've adjusted to feed into fair value changes on our balance sheet.

For the last quarter, it's obviously smaller than what you’ve seen in past quarters, but that has more to do with adjustments to projected rents on in-line space than discount rates or cap rates etcetera.

19:27 Okay. Okay, great.

And then I’m just wondering with the rent collection at the two Ontario Malls, you cited, sort of Omicron impact of that on the rent collection, but the malls have been allowed to remain open through the last set of restrictions, if you will. So, is the rent collection issue confined to maybe some smaller tenants that might have had some revenue issues because of the reduced capacity or is it just a carryover from tenants who just haven't – that you've had trouble collecting from like, any color there in terms of what the actual impact was in the last lockdown or for the last bit of restrictions?

20:13 Probably a bit of both Jenny. Food court tenants are still struggling, so, I think that they're probably at the top of the list as far as tenants that we're monitoring and we're seeing issues with.

You still got some gym operators that have restrictions as well. 20:39 You've got some beauty salons, and personal service tenants as well.

So, I mean, those are the ones that we're monitoring and we're seeing issues from a rent collection standpoint, but they're not material at the end of the day. We're still in the 90% to 100% range at all of our malls.

So, I wouldn't say that it's anything to get too excited about.

21:07 Okay. I guess it was all too early to tell at this point, but with restrictions easing up then presumably, there'd be a correlation to your collections then going forward?

21:21 We would think so, yes.

21:22 Okay. And then lastly, with regards to the government tenant at petroleum place, do you know if the tenant is actually utilizing the phase, like are the employees actually going into work?

Do you have any color on that?

21:39 Tom, maybe you could deal that one if you could.

21:41 Sure. Hi, Jenny.

It's Tom Johnston in Vancouver. Generally, yes, there's two towers.

Basically, [not that the matter] [ph] is scheduled to detail, but the North Tower is fully occupied by energy and they have been generally busy, but again in the Province of Alberta, they've had health restrictions and protocols in place that have not allowed employees to go into the office. 22:07 So, it really – it depends on what the protocols are in place at the province.

So, they've definitely been impacted by that. And then they have the South Tower as well and there's been different ministries that have been in departments that have been moving-in and moving-out, but really not affecting occupancy levels.

22:23 So, again, I would just summarize it. It really depends on the health restrictions and now as you're aware of the Province of Alberta is lifting those.

So, we anticipate that there'll be staffing levels will increase at the asset.

22:38 Okay. I'm just trying to get a sense of whether or not work from home is something that's taken up at a pretty big level and what that ultimately means for actual physical office utilization as you renegotiate or continue discussions on the lease this year?

22:56 I mean, it's hard – like everyone it’s definitely, wait and see what happens with flexible work environments etcetera. It is a wait and see.

But as we anticipate that because those buildings are spoken for relative to the different departments that they will reoccupy.

23:17 Okay. And I appreciate that it's difficult to tell.

I think that's the answer we all want, but you're saying there are some people coming in and out depending on restricted levels?

23:26 Yes. And like I say, those are lifting, so we expect like in all of our properties in Alberta, we expect occupancy levels to start rising.

23:36 Okay, great. Thank you very much.

23:38 Yes.

24:03 Thank you. I would just like to thank everybody for joining the call and look forward to speaking with everybody next quarter.

Thank you.