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Good morning, ladies and gentlemen, and welcome to the Slate Office REIT Third Quarter 2023 Financial Results Conference Call. [Operator Instructions]. This call is being recorded on Wednesday, November 15, 2023. I would now like to turn the conference over to Paul Wolanski, Senior Vice President, National Sales and Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to the Q3 2023 Conference Call for Slate Office REIT. I'm joined this morning by Brady Welch, Interim Chief Executive Officer; Robert Armstrong, Interim Chief Financial Officer; Evan Meister, Managing Director; Sarah Jane O'Shea, Vice President; Andrew Broad, Vice President and Jeremy Kaupp, Vice President.
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 disclosures, including our Q3 2023 investor update which is now available. I will now hand over the call to Brady Welch for opening remarks.
Thank you, Paul, and hello, everyone. First, I'd like to start by recognizing and thanking our team for all their efforts over the quarter. We accomplished a lot. We're operating in a challenging macroeconomic environment. Interest rates remain elevated. We're dealing with tighter credit conditions in different regions and subsectors of office, real estate are recovering at varying rates from the impacts of the lockdowns.
Through all of this, our team has been working diligently to position our business for strength and stability. The team and the Board are focused on improving the REIT's liquidity and strengthening our balance sheet. We have made positive strides towards that objective in the last few months. We refinanced or amended over $577 million of debt, which is nearly half of the REIT's total debt stack. We are currently have only one remaining maturity in the balance of 2023, a $34 million loan that we expect to refinance in Q4. We also announced yesterday the Board's decision to suspend the REIT's monthly cash distribution. The Board believes this decision will enable the REIT to: 1, further preserve capital; 2, reduce leverage; and 3, ensure the REIT will be in a stronger financial position when we emerge from this economic cycle. On the operational side, we continue to actively lease vacancies in all markets and are maintaining a stable portfolio occupancy. We completed over 277,000 square feet of total leasing in the quarter at improved rental rates, strong leasing spreads and longer lease terms. Looking ahead, less than 1% of the portfolio's GLA remained to be renewed in Q4.
Finally, we are introducing a portfolio realignment plan to reposition the REIT for the long term. This plan will see the REIT divest noncore assets in certain Canadian markets that are not strategic for the REIT in the long term. Proceeds from the sale of these assets will go towards repayment of the debt and general liquidity of the REIT's business operations. Looking ahead, we want to own high-quality assets with strong occupancies, tenants and cash flow in markets with economic tailwinds and stable office demand. We believe the portfolio realignment plan, we are introducing will not only improve the REIT's balance sheet and liquidity, but enhance our portfolio composition, resulting in a more focused and resilient REIT. We continue to have conviction in the value of our office real estate, and we are encouraged to see global organization launching return to office mandates and employees spending more time in the office.
On behalf of the Slate Office REIT team and the Board, I'd like to thank the investor community for their continued support. And I will now hand it over for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Jonathan Kelcher with TD Cowen.
First question on the sales that you guys are -- actually a couple of questions on the sales you guys are planning to undertake. So it's 40% of GLA, what would that roughly be in terms of Q3 fair value? .
Yes. I will get back to you on the exact IFRS component of that. I don't have that on the top. I don't know, Bob if you do?
Yes, Jonathan. It's Bob answering here. It's pretty close to around 40% of the total plus/minus a few percentage points. The reason we haven't gone out and provided a specific dollar number is because we're in the market. I think we're trying to ascertain as we go and test the market where we can get liquidity for assets and where we can get the best price per pound for the portfolio. So overall, it's been more about how do we approach and delever as opposed to specific assets, it's going to be really kind of working through the next year or two to be able to accomplish that. So we want to provide a target as far as portfolio size as opposed to a specific dollar figure.
It's more strategic, Jonathan.
Okay. And would you guys have -- like your goal is obviously to reduce leverage, but do you have a target that you're willing to put out there of where you want to get to either on debt to EBITDA or gross book value?
We don't have a specific target other than to say it's lessened as now. We'd love to get down to where the 60% level would be in the current market. I think the challenge is that we don't necessarily control what the B component of that element is. What we want to get down is to have a reasonable approach with our lenders where we continue to have support. They're continuing to provide ample liquidity to get into our operations. But that's really been the goal.
Okay. And then you didn't talk about share repurchases with some of the liquidity you're going to generate. But what about -- what are your thoughts on buying back parts of your 9% convert?
Yes. I think everything is on the table. We take a look at all those things in terms of allocating the REIT's capital. We discussed all those options with the Board. And it is an allocation of capital, what we feel is the best use of that capital. Right now, our focus, as I said, is to reduce leverage and create liquidity for the REIT.
Yes. And I would just add, I think on a buyback program, we did talk about that internally. The sole and primary goal is the reduction of leverage and increasing liquidity for the REIT. I think the math pencils out very well from a repurchase program of units. The convertible debentures is not something we're looking at right now. But on the unit piece, it's just not something we're interested in at this point in time.
Your next question comes from Sairam Srinivas with Cormark Securities.
Just going with the dispositions you guys have been working on so far, the discussions you've been holding so far, can you give us some color on the kind of buyers you're seeing out there for these assets?
Yes. I mean, in today's market, as you know, I think it's no surprise. The constraints of debt financing for office is real. And the interest is really coming from private locals, people that can close on a bite-size deal. As you can see in the broader global market, the larger transactions are far and few between because of the lack of debt capital out there, but the smaller bite-size deals and the local privates are the ones that are buying right now.
That makes sense. Probably, just revisiting what's happened to the year in -- G2S2 et cetera. Has there been a broader discussion from their perspective in terms of their interest in the portfolio. Has there been any discussions on that side?
Could you repeat the question? Are you talking about G2S2s interest...
Yes, I mean, just going back, like when G2S2 was prior to being on the board, they were -- they ran an activist mandate. And looking at it from that perspective, have they probably come around with -- I know at that point time they had expressed some interest in some of the assets in the portfolio, but is that an option that could be on the table perhaps?
Yes. I mean, I can't answer for G2S2. And we are going through a process. Obviously, G2S2 has representative on the Board and is fully aware of our strategy and is aware of what the Board is approving and direction, but properties are out that we're going to go, and we're going to get the best and highest price that we can from the market. And if they are interested, then they will go into that analysis.
Fair point. And my last question is around the change in terms of the credit facility or essentially the amendment of term there. I know the covenant has been brought down to -- I mean, the debt cap has been lifted to 70% until March '24 and 65% after that. Can you run us through the thought process behind over there as to -- like is the aim to kind of get it -- get the debt rapidly down through dispositions over the next two quarters essentially like through Q4 and Q1 next year?
We would hope so. The thought process to answer your question specifically was, obviously, given where we've repriced our portfolio this quarter, the loan to value is over that threshold. So we're appreciative of our banking syndicate working with us very constructively to move forward on that point. But what we have communicated broadly to them and what we're communicating to the market is that we want to -- our first goal is to execute on our disposition and portfolio realignment plan for the purpose of raising capital to repay debt, and we're hoping that, that reduces leverage to a more appropriate level, that's acceptable and continues to have the support of our banking partners. But that would be our goal to try to get to that point by that date at Q2.
[Operator Instructions] Your next question comes from Gaurav Mathur with Laurentian Bank.
Just first question on the fact that around this time last year, you had initiated a strategic review. And now we're talking about disposition program or portfolio realignment program. Could you talk us through the line of thinking about what's really changed from then versus now?
Yes. I mean I'll start out. Listen, the world has changed immensely over the last 12 months. So I think anyone who's in this space that you need to adapt to the market; yes, there was a strategic review that the independent trustees of the Board engaged and hired Bank of Montreal to do that. But then as the world has experienced elevated and I'd say rapidly increasing; I mean, it's still low on a historic level, don't get me wrong on interest rates, but it's moved quickly. You need to adapt your business model and plan accordingly. So I think that's what's happening here. It's the Board considering what's going on in the market and what the best thing is for the REIT and for the unitholders.
Yes. And the only color I would add to that, I think Brady is spot on that the capital markets and the investment interest around office has obviously changed. I think it's important to note what hasn't changed and what continues to be the same is that the underlying portfolio we've actually been very, very pleased with the performance of that in this market. Obviously, there's a lot of negativity around office. But what we're seeing for our portfolio is -- we've got occupancy stabilized. We've got a great pipeline of upcoming potential new tenants, which is fantastic. What continues to be a little bit of a headwind is the interest rate environment at its current elevated levels and the general investment market. But underlying portfolio at least for the properties we have, and I think downtown real estate in the large main -- or centers are a little bit different, but we continue to be holding fairly well, and we're quite pleased with the underlying operations of the real estate itself.
Yes. So just to go on because I think Bobby raised a very good point. From an operational point of view, the themes we're seeing is that there are more people coming back to the office that businesses are starting to plan now for the future and commit to space across all the regions that we own and operate real estate. And our real estate is very stable. We don't have a lot of turnover over the next 12 months, and we're starting to see more activity. So from things that we can control we're very focused on. We can't control interest rates, and then we can't control the ability -- our availability of debt capital that's out there in the markets.
Okay, great. And that does segue into my next question. Now given, as you said, the operational stability is still there in the portfolio. Could you maybe talk us through how you're thinking about core was the noncore assets?
Yes. I think at a high level, the way we look at that, which markets do we want to own real estate in, which markets do we believe in the economic drivers where there's strong GDP growth, there's strong demand from office users, those are the markets we want to be in. In the long term, I think we also want to look at assets -- I believe Slate has done a great job over the past 10 years being able to buy properties, put modest capital in there, fix them up and sell them and make profits. Today, with the world where there's a little less liquidity, we're focusing on cash flow and assets with high occupancy, with strong covenant tenants. That's in markets that we believe in. That's at a high level. And if those assets will fit into that in our opinion, those are the assets we'll look to dispose of.
Okay. Great. And I guess my last question, and just switching gears to the balance sheet here. Your debt to gross book value is about 65%. From a lender's perspective, I wonder how they're thinking about covenants going forward, given that there is a disposition program in place, but these things take time. I'm just wondering if you could provide some color on what the lender thought process here would be.
It's a great question. I think it's relevant. I think the world has changed for what the lenders are looking for. We've been very fortunate to have great support from our lenders across the board. And I think you've seen that with -- we've refinanced over the last quarter $0.5 billion worth of debt, which in this market, I'm quite proud of what the team has accomplished. But as far as specific covenants and how the world has changed, I think the debt to gross book value is probably relevant, but less relevant than it has been in the past, just given where the investment market has gone.
I think the lenders are more concerned about the ability to be repaid as well as how their debt continue to be serviced. As well as having a partner that they believe in to execute on the plan. I think those are the most important things from their perspective at this point in time. I think all banks and lenders are probably looking to reduce office exposure as a whole, but that just means that they need to be selective on where they're putting on capital, and who they're choosing their partners to be, and we've been fortunate over the last quarter that we've made great progress in that respect.
Next question comes from Sumayya Syed with CIBC.
Most of my questions have been answered. I just want to see if you have the loan-to-value handy for the -- for sale assets and if that's in line with the rest of your portfolio?
Sorry, Sumayya, can you repeat that again, the long-term value?
The loan-to-value on the -- for sale assets.
Yes, it's in around the 60%, 65% range. It's generally -- and I think that makes sense because the 40% target that we've highlighted you start to take out the highs and lows. A number of those assets are on our revolving credit facility which is in around that range as well. So the 60%, 65% is a good range.
Yes. It's reflective of the overall portfolio LTV.
There are no further questions at this time. I will now turn the call over to Paul Wolanski for closing remarks.
Thank you, everyone, for joining the Q3 2023 conference call for Slate Office REIT. Have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.