2023-05-02 12:18:03 ET
Slate Office REIT (SLTTF)
Q1 2023 Earnings Conference Call
May 2, 2023, 9:00 AM ET
Company Participants
Paul Wolanski - Senior Vice President, National Sales and Investor Relations
Steve Hodgson - Outgoing Chief Executive Officer
Charles Peach - Chief Financial Officer
Brady Welch - Incoming Interim Chief Executive Officer
Conference Call Participants
Jake Stovalti - CIBC
Brad Sturges - Raymond James
Gaurav Mathur - IA Securities
Matt Kornack - National Bank Financial
Sairam Srinivas - Cormark Securities
Jonathan Kelcher - TD Securities
Presentation
Operator
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 a listen-only mode. Following the presentation, we’ll conduct a question-and-answer session [Operator Instructions] This call is being recorded on Tuesday, May 2, 2023.
I would now like to turn the conference over to Paul Wolanski. Please go ahead.
Paul Wolanski
[Technical difficulty] for Slate Office REIT. I'm joined this morning by outgoing Steve Hodgson, 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.
Steve Hodgson
Thank you, Paul. This quarter we continue to focus our efforts on strengthening the REIT's balance sheet and liquidity position to preserve value for unitholders 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 REIT's 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 unitholders and position the REIT for long-term success.
I will now hand it over to Charles for some additional highlights.
Charles Peach
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 $0.01 in April, allowing the REIT to continue to improve its assets and repaid debt where possible. Increasing 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 revenue 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 in 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 the FFO to $0.06 per unit for the quarter.
The NOI is supported by an average weighted lease term 5.4 years in 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 benefits 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.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]
Your first question comes from Jake Stovalti with CIBC. Please go ahead.
Jake Stovalti
Good morning.
Steve Hodgson
Morning, Jake.
Jake Stovalti
So, given the price tag, is there any further -- anything further coming from the strategic review other than the distribution cut?
Steve Hodgson
I think the focus for the Board out of the strategic review after reviewing all the assets in great detail and all the different alternatives that we had, was a strong belief by the Board that there's a lot of inherent value in the assets and that trying to sell, for example, into this market would be more destructive to value. Whereas preserving cash is an excellent way to preserve the value of the company. 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.
Jake Stovalti
Okay. How are the tenant incentives for Q1 compared to 2022? It looks like straight line rents increased a bit.
Steve Hodgson
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 required -- that was required to accommodate that life science tenant. So, really strong covenant, really strong rents, but slightly higher cost to execute that deal. So, I wouldn't say it's a trend, I'd say it's a more deal specific one-off.
Jake Stovalti
Okay. So, it's a little lumpy. On that 15.4% spread on the new leases, were those spread across the portfolio or more weighted to a certain region?
Steve Hodgson
Yeah. I would say it was -- 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 2599 Speakman.
Jake Stovalti
Okay. Thanks guys. I'll turn it back.
Operator
Thank you. And next question comes from Brad Sturges with Raymond James. Please go ahead.
Brad Sturges
Hi, there. Maybe just sticking on the leasing front, given the REIT's, I guess, lease rollover exposures a little bit more limited over the next -- the remainder of this year, and then 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?
Steve Hodgson
Yeah. I think so, Brad, like, 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 with -- 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.
Brad Sturges
And just with the Atlantic Canada, I think you dipped a little bit in terms of occupancy. Just 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?
Steve Hodgson
Yeah. I -- like we -- 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. 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, 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 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.
Brad Sturges
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 a 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?
Steve Hodgson
Yeah. I think it's more by asset. I think we would like to see eventually the -- as we've messaged before, our waiting 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 like 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.
Brady Welch
Yeah. Hi, it's Brady. I would add, like, since 2019, Slate Office REIT resold $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'll 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 -- we are pretty good when it comes to like operating real estate and figuring out what needs to be done, sell the assets. So, we'll always look for those things -- opportunities.
Brad Sturges
And last question for me, just 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?
Charles Peach
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.
Brad Sturges
Okay. That's helpful. Thanks a lot.
Steve Hodgson
Thanks Brad.
Operator
Thank you. Next question comes from the line of Gaurav Mathur with IA Securities. Please go ahead.
Gaurav Mathur
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?
Steve Hodgson
Well, yeah, for sure. And that's more of a long-term view on strategy. But I think the message that we put out there and continue to reinforce is that 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, the deal we did in Ireland is exploratory of that, as is the deal with the Pfizer building in Chicago. And then, we've been -- the $280 million of assets that we've sold since 2019, those came with leasing risk, capital risk, a lot of below the line cost, older buildings. Tenants are -- there is a -- the flight to quality is real. It doesn't mean that tenants are lining up trying to go into AAA 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 aligning our portfolio with where we see the demand.
Gaurav Mathur
Right. And that's a great segue into my next question, because as you're looking at the tenants filtering through the door, can you maybe perhaps discuss the level of tenant incentives that are now required to attract tenants, and how that's probably changed since the beginning of the pandemic?
Steve Hodgson
Yeah. I'd say it's changed since the beginning of the pan -- well, I mean, the beginning of the pandemic, there wasn't really leasing activity to speak of. 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 work -- play 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. Like, tenants are motivated by being in the building that works for their employees, that's higher quality, has the right location and a landlord, an operator that can service them properly. So, they're still willing to pay for that. But yeah, inducements are slightly higher because it's still competitive to get new leases right now.
Gaurav Mathur
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?
Steve Hodgson
Yeah. I can address that. The -- 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. So, in Q4, 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. And looking at our peers, our audit, like 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.
Charles Peach
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.
Steve Hodgson
Yeah.
Gaurav Mathur
Thank you for the color, gentlemen. I'll dial it back to the operator.
Steve Hodgson
Thank you.
Operator
Thank you. The next question comes from Matt Kornack with National Bank Financial. Please go ahead.
Matt Kornack
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?
Steve Hodgson
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, but -- 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.
Brady Welch
Yeah. Hey, Matt, it's a great question. And we look at all of our assets, particular 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'll look at that stuff.
Steve Hodgson
Yeah.
Matt Kornack
Okay. Makes sense.
Brady Welch
Yeah. Thanks.
Matt Kornack
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, the square footage of office. And it's probably going to change, but Canada's seen some of the best population growth in years. So, 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.
Steve Hodgson
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 so -- 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 it 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, right?
Brady Welch
And I would say, 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 like, it's different behavior in different markets. Like there are markets where office rents are hitting all time high. It's just a very specific thing here, and you 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's a great place and it's just a matter of time.
Matt Kornack
Sure. Yeah. No. I hope that's the case. And then, just switching gears a bit, there was some subsequent event 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 yeah, 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?
Charles Peach
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 legals -- 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 their 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.
Matt Kornack
Okay. Nope, appreciate that color. 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 week quarter. But is there anything one-time in there, or is that kind of just people weren't do Brunswick in the winter?
Steve Hodgson
Yeah. It's just seasonality. The hotel's performing very well. We still expect this year to be at or better what we achieved in 2019. And so, we're very pleased with the return of -- group business in the hotel sector is taking longer to recover 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 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's doing well.
Matt Kornack
Okay. Great. Thanks guys.
Operator
Thank you. And next question comes from Sairam Srinivas with Cormark Securities. Please go ahead.
Sairam Srinivas
Thank you, operator. Good morning, guys.
Steve Hodgson
Good morning.
Sairam Srinivas
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?
Steve Hodgson
Between cash rents and incentives?
Charles Peach
Yeah.
Sairam Srinivas
And in place rents?
Steve Hodgson
And in place rents? Yeah. Like our portfolio's still -- market rents still, what is it, 5.5% above ish 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 today.
Sairam Srinivas
It slightly, Steve. I was just trying to see if you have a broader number to it, but I do understand it's might be difficult to kind of put a number towards specifically. If you do, that's great. If not, that's fine too.
Steve Hodgson
It's hard to put an average, like there -- it depends on the deal to 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, or coming online in the next 12 months, right?
Sairam Srinivas
That makes sense. 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?
Charles Peach
I think one of the things that we can harp 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 air in Ireland, which there is more transactional and 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 are looking at €65 to €70 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 had 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 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've expected. And the market seems to be supportive of that too.
Brady Welch
Yeah. I would just add, listen, 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 and 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.
Sairam Srinivas
Thanks for this color 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, et cetera, but like, do you see any of that flow through to your discussions with your federal tenants?
Steve Hodgson
Yeah. You talked -- sorry, Sai, you said the strikes that went on with the government workers and the related settle …
Sairam Srinivas
Yeah.
Steve Hodgson
Yeah. Like, we are not currently exposed to any near term maturities with significant government tenants, but I think we're all 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's going to be, and certainly might set a precedent for other negotiations in the future too. And -- but more importantly to our business. And I think just overall business of Canada on a global scale, it's concerning that, people only need to be in the office a couple days a week, and somehow are going to be able to provide a public service to taxpayers that's as efficient and as it used to be, right? So, 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 others. Yeah.
Brady Welch
Yeah. I mean, luckily like we don't have any exposure in Ottawa …
Steve Hodgson
Yeah.
Brady Welch
… like, 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.
Sairam Srinivas
Awesome guys, Thanks for the color. I will turn it back.
Operator
Thank you. Next question, we have Jonathan Kelcher with TD Cowen. Please go ahead.
Jonathan Kelcher
Thanks. Just a couple questions. Brady, you talked about utilization rates being 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?
Brady Welch
Yeah. I mean, I can give you my opinion. I think what Slate Asset Management can bring is a global perspective. I mean, we invest in Europe, we invest in Canada, and 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 -- and for example, in the west end of London, they're hitting all time high rents. That used to be £80, £85 per square foot. They're £135. 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 core in markets where we -- where occupiers aren't having people come back to the office like that 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 where -- 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 are 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 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 like that's why Ireland's performing very, very well. And the office assets we have in GTA, they're performing well. So, it's just -- 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 we -- 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? That's -- those are the assets we want to own.
Jonathan Kelcher
Okay. And what about -- how about -- how are your Chicago assets doing?
Brady Welch
Yeah. I mean, like -- I mean, Steve, you can probably like -- I would say, those assets, there is a big regenification going on in the nodes. Well, we're downtown where Google is has made a big play to occupy and employ a lot of people. We're pretty excited about what can happen in the no -- we're in the West loop. So -- but it's a challenging office market. But I think we're well positioned to those assets.
Steve Hodgson
Yeah. 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. It's a long-term. We like that. And 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 term 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. It -- we've had tenants vacate, but we've been as 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's like, there's not -- 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.
Jonathan Kelcher
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 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?
Charles Peach
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 debt, 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 would 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.
Jonathan Kelcher
Okay. Do you have a target debt to EBITDA though? I think you were 12.5 in the quarter.
Charles Peach
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 with targeting there though.
Jonathan Kelcher
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 guys a million bucks outta 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?
Charles Peach
I think that's one thing that 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 where had a significant amount of finance against it. And in order to improve the cost and availability of financing on that, we repaid US$20 million 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 asset -- our financing is on one asset as opposed to another one. So, we are 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 somewhere we paydown and somewhere we look to take more.
Steve Hodgson
Yeah.
Jonathan Kelcher
Okay. And overall, do you think that sort of nets out?
Charles Peach
I think we have to see where that goes. I'd like -- our aim is to look for things to net out at the moment. I mean, if we are 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.
Steve Hodgson
Yeah. And really like 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' point, there's somewhere well covered and there's somewhere we're closer to the margin of where the lenders are comfortable, and we just sort of need to reallocate our debt, so to speak, throughout the year.
Jonathan Kelcher
Okay. That's helpful. I'll turn it back. Thanks.
Operator
Thank you. There are no further questions at this time. I'll turn the call over to Paul for closing remark.
End of Q&A
Paul Wolanski
Thank you everyone for joining the Q1 2023 conference call for Slate Office REIT. Have a great day.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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Slate Office REIT (SLTTF) Q1 2023 Earnings Call Transcript