Thank you, Operator, and good morning, everyone. Welcome to the Q4 2021 conference call for Slate Office REIT.

I am joined this morning by Steve Hodgson, Chief Executive Officer; Lindsay Stiles, Chief Operating 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 Q4 2021 Investor Update, which is available now. I will now hand over the call to Steve for opening remarks.

Thank you, Braden. Before I pass it to Charles, I’d first like to comment on our recent acquisition of you Yew Grove REIT plc in Ireland, and why that transaction aligns with our strategic direction.

We have a strong conviction in the office sector and believe that physical workspace is an essential enabler of collaboration, culture and innovation. We also believe there’s an opportunity to align our portfolio with tenants and industries that continue to drive demand for office space.

The Yew Grove acquisition exemplifies this. We have purchased a portfolio of high-quality well-located assets with government technology and life science tenants.

This portfolio increases our exposure to credit quality income, enhances our occupancy and weighted average lease term, and is overall additive to the durability of our cash flow. We have also onboarded a team in Ireland with a strong track record and a pipeline of additional acquisition opportunities, which positions the REIT well for continued growth in the region.

I will now hand it over to Charles for his comments and our year-end results.

Thank you, Steve. In 2021, the REIT had an industry-leading distribution yield of 8%, which is well covered with an FFO payout ratio of 76%.

From a balance sheet perspective, we extended our revolving credit facility and refinance certain mortgage debt to increase liquidity and reduce interest costs, while raising acquisition capital through the issuance of subscription receipts and convertible debentures. The REIT delivered a total unitholder return of approximately 31% in 2021, which was higher than our Canadian office REITs peer group.

Going forward, the Irish portfolio is expected to be accretive to AFFO per unit and contribute to stable organic income growth. In 2021, our leasing volumes were approximately 12.2% and 7.4% higher than 2020 and 2019, respectively, and our rental rate spreads were positive at 6.5%.

When you include the Irish portfolio, the weighted average lease term in our portfolio is 5.7 years and 66.3% of our tenants are government or high quality credit tenants. Stable and growing cash flow is a key focus for the REIT and the recent acquisition is an example of both of this.

Slate Office REITs continues to offer investors a durable cash flow and distribution, a trading discount to a well supported net asset value and a scalable platform that is positioned for growth. I’ll now hand over for questions.

Thank you. Good morning, everyone, and welcome, Charles.

Good morning.

On the dispositions, I think, you guys said, you’re talking about $100 million. How’s that progressing?

What sort of geographies are you targeting and what you expect the cadence of the dispositions to be?

Yeah. It still is progressing well.

It’s still about $100 million of asset dispositions that we’ve earmarked for the next -- probably the next quarter or two, and primarily, Greater Toronto Area.

And is that sort of the focus on the GTA a function of kind of what the pricing is in that market versus other markets or how did you kind of hold it on that geography?

No. It’s more specific.

In one case, there’s some expected rollover in a building where the buyer has a solution for that. In another case, it’s a building we don’t think fits the strategic direction of higher quality core plus credit quality tenants.

The types of tenants and industries that we’re targeting, that we think will continue to grow in a post-pandemic environment. So it’s sort of a -- it’s a repositioning of the portfolio.

That again, as we mentioned in the opening remarks, is really exemplified by the type of product that we’re buying in Ireland.

So, sort of an addition by subtraction?

Yeah. Yes.

And we can…

Okay.

But the dynamic in Toronto creates an environment where we can sell at a very compelling valuation and lower cap rate than we can buy elsewhere where we think it’s a lot -- where we can buy assets that better fit our long-term strategy.

Okay. And then maybe just last one for me, I believe you mentioned, you guys have a pretty decent pipeline of European acquisitions now with the acquisition of Yew Grove?

Would you guys look to dispose of additional assets to find that and sort of how do you see the geographic breakdown of the portfolio evolving over the next couple of years?

Yeah. For sure.

I mean, so the question really is, we’ve been vocal that there’s a significant pipeline of opportunities in Ireland and in other markets. We’re still looking in Canada and the U.S.

to be very clear. But there is an immediate pipeline in Ireland that’s actionable.

We could probably do $200 million to $300 million of transactions there and -- in the near-term, and we have the team and the relationships to do that on the ground. So that’s very exciting.

To fund that, I think, it’ll be a mix of some balance sheet cash, to be a mix of recycling capital from asset dispositions. And then, for larger sort of portfolio transactions, we’d look to do something more creative and hope that our -- the continued strength in our AFFO growth per unit will help us get close that gap on NAV where we can continue to raise equity and grow our business.

Okay. And then just back to the last part of the question, how do you guys sort of see the portfolio geography evolving over the next couple years?

Yeah. I mean, I would shy away from that question, just because, we’ve always been somewhat market agnostic, I think, with the constraint being where we have, like, we’ll invest where we have presence or where Slate Asset Management has presence.

But beyond that, it’s really been more opportunity driven. So, I will say, like, could I see the portfolio being a third Europe, a third U.S.

and a third Canada. That’s certainly a scenario that could play out.

But it would be -- I wouldn’t want to be held to that, because it’ll be opportunity driven.

Well, and that, in that case, I will not hold you to that. Thanks very much.

Thank you.

I will turn it back.

No worries, Operator. Good morning, everybody.

Just a couple of questions, and probably, starting with some of Lorne’s questions. I’m going to piggyback on that.

Steve, in terms of, the dispositions you mentioned in the GTA, pro forma the dispositions, and just broadly speaking not particular numbers, how does the NOI contribution look like on that market, because right now as a theme is, it’s much more of a stabilized market, that’s kind of cash flow positive. How do you see that evolving?

How -- is the question, how do we feel about NOI, like removing the NOI contribution from the Greater Toronto Area and redeploying elsewhere?

Yes.

That’s a question. Yeah.

Like -- and so to be clear, like, we will continue to grow in the GTA as well and it’s identified as a target market for us. We’re here, we like it, we know it extremely well.

This is more about the tenants, right, and the quality of the buildings. What we’re seeing is that out of the pandemic, there’s going to be certain tenants and industries that are going to be bigger utilizers of office space than others and the demands of those tenants are shifting, and one of the key things is, a flight to quality.

So, well, we have older stock inventory or product that is still in high demand, because of the liquidity available in Toronto for commercial real estate and then we can go buy something in what we feel is that a market like in Ireland, with tailwinds behind it from a macroeconomic perspective, really great tenants, really long-term weighted average lease term, upside on rents and at a significant discount to replacement costs, we would make that trade all day. And I think, notwithstanding Toronto is known as a very stable and strong fundamental.

When you get down to the asset level, you have to make the next level of decision, right.

Yeah. That makes sense, Steve.

Thanks for the call. My second question is especially on the rent abatement we saw in the quarter.

Can you give some color on that and do we expect more of that coming into 2022?

Yeah. I can cover that.

I think the rent abatement was, we’ll try not to use that language again in our disclosure, because what this really was was a positive thing. We renewed a tenant in Chicago for 26,000 square feet.

And as part of that deal, which is custom in that market, they’re entitled to a free rent portion at the beginning of their term. So that’s what that is.

It’s not re-baiting any rent that they -- we were already contractually owed. This is a new term, an extension of existing tenant with a free rent package that’s built up front in their lease.

Makes sense. And finally, Steve, my last question is on leasing so far in Q1, can you give some color on what you’ve seen in the market and are you seeing some life in the market in terms of back office plans and are you seeing tenants coming?

Shall I try. We’ve seen positive activity, as we mentioned in the call, over 770,000 square feet of leasing completed last year, 20% -- 12% higher than 2020 and 7% higher than 2019, and that activity and momentum is certainly carried in Q1.

Specifically, on kind of the return to the office, certainly some of the larger companies who are planning to be backed by now, to leave things lightly due to Omicron, that’s really kind of coming to a close, all kinds of announcements coming out now. I would say, this is general sentiment at a high level is that people will be back anywhere between after March break and the end of Q2.

So there’s things has been pushed, perhaps, by a month. But the general sentiment is that people are coming back and excited to do so.

Utilization for us across the portfolio, I’d say is now as compared to the end of last year. We have probably seen an uptick of anywhere from 10% to 20%, depending on the market.

And we think outside of the GTA, which obviously is a little bit slower recovery, just due to restrictions being in place longer. We’re going to be in much better shape.

By the end of this year, we’ll be getting closer to pre-pandemic utilization rates. So we’re really encouraged by the conversations we’re having with existing tenants and then new potential tenants who want to tour our assets and talk about doing deals.

So it’s a positive all around.

Thanks for the color, Lindsay. I will turn back.

Thanks and good morning.

Good morning.

Congratulations on the close of the Yew Grove deal and welcome to Charles. I want to go back to the discussion about potential dispositions.

I’m sure you can’t specific -- specify which GTA assets you’re looking at. But I know there’s a portfolio that is partially held by your partner, Wafra.

So could you just remind us what the terms are there, whether or not you comment, whether -- if they would be a potential buyer, and if there was a sale, are there other typical ropers going both ways. How does that all play out?

Yeah. Well, I’ll answer your question to say, first of all, that this does not, the plan dispositions or the dispositions that, quite frankly, are underway already.

Do not have anything to do with that portfolio that we call them with Wafra.

Okay.

And then, within the Wafra JV agreement, just for interest, they’re -- they bought it through a somewhat of a closed end fund. Their investment horizon was probably to sell in the next few years.

But they’re open to extending that longer if needed to make sure we -- like their ultimate objective is to maximize the value of the assets. I don’t think they’ll be the buyer of our interest.

We could potentially be the buyer of theirs. But we’re still working through that.

Okay. So if the time comes for them to liquidate then, is it put to you first, and if you refuse, does it have to go-to-market, like, how does that play out?

That’s correct. Yeah.

Okay. Okay.

Yeah.

Okay. And turning to the Yew Grove portfolio, is there anything within that portfolio that you might deem as non-core and potentially for sale?

I think -- it’s Charles here. I think within that portfolio, there is one asset that has a retail component to it.

It’s one of the smaller assets…

Okay.

… that’s been in the portfolio ever since IPO three and a half years ago and we’re in the process of selling that at the moment. And that is the one thing that I would see in there as a non-core asset, which we’re looking to sell at the moment.

If I look at the rest of the portfolios, the rest of the portfolio has many of the key characteristics that Slate portfolio has. It has assets which are below in general, below market rents.

They are below replacement cost. And we’ve shown the ability in the team that’s come over to be able to source further assets at the same rates and levels over the last three years.

And we look forward to continuing to do that to provide Slate Office REIT the opportunity to deploy capital where it believes best, be it in Ireland or elsewhere.

Okay. Great.

Thank you for that. And then maybe as a bit of a lesson for all of us sitting in Canada, could you do a compare and contrast of the office experience and the outlook post-Omicron in Canada versus Ireland, I think we’re well versed in terms of what’s happening in Canada, particularly in Toronto.

But how would Ireland compare as far as where they are in terms of occupancy, reopening and a return to normal or return to office?

I think it’s fairly similar. If I look across the Irish experience, if I do a comparison, actually within Europe itself, Ireland had a relatively harsh lockdown and it is coming out of that at the moment.

I think if I look at our portfolio, we have to be specific to the sort of assets we see within that. And the portfolio has not only office assets, but at the same time, it has some life science tenants as well, which has been a focus on us really for the last three years.

And it’s an area which we’ve grown and which we continue to grow, an example of that being a development that we have in the Midlands for life science tenant. The benefit, particularly, of having those tenants in the portfolio and having advanced manufacturing is they continue to have very high occupancy throughout the pandemic.

And at the same time that showed that while occupancy fell elsewhere, there were certain types of assets, which became increasingly attractive, both from a use perspective and also in the mind of investors too when they look at those types of assets as well. So I think that’s an example of the abilities that we have in Ireland and in other places as well, to look across a broad universe of assets, specifically for those that fit the sort of credit quality tenants, occupancy and returns we’re looking to achieve.

Okay. So if we look at the path to the return to office, well, for the office specific assets anyway, it would be more or less similar to Canada based on what we know now.

Relatively.

… at that moment. Relatively.

Okay. Okay.

Well, I look forward to a property tour for the Irish portfolio down the road. Thank you and I’ll turn it back.

Absolutely. Thanks.

Just wanted to pick up on that theme of life sciences and the lab space and get a sense, you did mention you’re looking for more of that type product in Ireland, but do you see kind of a refocusing of maybe the Canadian and U.S. portfolios in that vein as well or is that going to be particularly Irish in nature?

I think it’s -- there’s an opportunity that we’re looking at in the U.S. right now, actually, that is in that space and seems very, like, a very compelling deal.

Aside from that, we’ll continue to look at these opportunities in the U.S. and Canada.

There’s not a lot as you may know of life science. I think, Toronto, in particular is trying to figure that out right now and I do see that as a growing emerging industry.

But there’s a lot of pension fund capital and Canada chasing that as well. So I’m not sure if we’ll be there from a pricing perspective.

But, again, this sort of one off opportunities in the U.S., we’re seeing them and then in Ireland, of course, there’s a significant pipeline that we’ve identified.

And then, I guess, in Canada, you have some SNC exposure, some of that is related to space that I think needs to be used in training, et cetera. But has that generally been a focus of your portfolio composition or is that just something that has come out of particular opportunities in particular markets?

Yeah. I think like -- I think the -- there’s two reasons to be attracted to life sciences.

One is, it’s been highlighted through the pandemic that it’s a growing emerging industry and essential business. And then the other is from a landlord’s perspective, generally the tenants are investing a lot into their space.

And when they do that, they become very sticky tenants, right? And so there’s a parallel there to the SNC deal that you’re mentioning, which I think you’re talking about the -- their nuclear division that we have with them in the Sheridan Business Park, where they’ve made a significant investment in that space, and they also own a research and development facility immediately adjacent to the building’s they leased from us.

So, yes, it’s always been a focus in that sense and that identifying a sticky tenant is a great way to create value in real estate.

Okay. Fair enough.

And then on the free rent front, is it possible, like, does that follow a, or I guess, what’s the term of the free rent period and when would we expect cash rent to start on that lease?

All right. It will kick-in in Q2.

Okay. And then on spreads, it sounds like, and not surprisingly, that in filling some of the vacancy in St.

John’s, you’re seeing a bit lower rents, but can you kind of bifurcate that and then speak to the opportunity, maybe this year on spreads and then kind of drive that with thoughts on occupancy and the trajectory and occupancy for this year and maybe you want to go into next for sure?

Sure. So, Matt, I’d say, our rental rates at present little over 6.5% last year overall.

Our rates are currently at a discount to market of about 8.5%. So we see continued opportunity to adjust to market and drive income growth to work.

We’re confident based on volume and the ability to adjust upward and that would include the Ireland portfolio as well. So, from that side of things, continues to feel really good on an occupancy side of things.

So adding the Ireland portfolio, we’re at 85% today and which with the volume we saw, again, last year being higher than the two years prior with markets reopening and having all these conversations about tenants wanting to be back in the market, and as Steve noted, really aligning ourselves with those larger utilizers of office space. We think we have a really great opportunity to get closer to the 90% stabilization and things continue as they’ve been going.

Okay. And I guess, with office things take a while in terms of texturing, et cetera.

So for this year, if we were to model, I mean, should we assume just the modest pickup and then for that 8.5%, is there some lumpiness in terms of the lease maturity profile there or is it fairly safe to kind of take an 8.5% and apply it to maturity adjusting for some retention ratio?

So let me address the maturity profile. We do expect some vacancy this year.

The SNC-Lavalin the tenant you brought up, Matt, they have two locations with us. One was in the Sheridan Business Park where it’s their nuclear division and they made all that investments, very profitable division.

Those buildings are highly utilized even through the pandemic. And then they had their location at The West Mall, which is along the 427, where they have 190,000 square feet.

We’ll see a significant downsides from them. We’re looking and trying to finalize a deal to retain them for 10 years.

But it’ll be at a significant downsize. 195 The West Mall is the building they primarily occupy.

That building is very strategically situated. It’s a very nice build out.

It’s a very nice building. It will be in high demand by both tenants and potential users.

And we’ve been in discussions with a number of groups and hope to have some updates in the next time we speak. And so that’s really the -- that’s primarily from, Lindsay and the team’s perspective.

One of the bigger challenges we have coming into the year. But even with that -- on a worst case scenario with that we anticipate maintaining or slightly growing our overall occupancy by the end of the year.

And sorry, on the in-place rents for SNC there, would they be consistent with that sort of 8.5% below market or is it more meaningful or less meaning?

Yeah. Yeah.

Market rents are about $19 and they’re paying about $16.550.

Okay. Perfect.

Thanks, guys.

Thank you, everyone, for joining the Q4 2021 conference call for Slate Office REIT. Have a great day.