Thank you for standing by. My name is Jael and I will be your conference operator today. At this time, I would like to welcome everyone to the Allied Properties REIT Second Quarter 2025 Earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Cecilia Williams, President and CEO. You may begin.
Thanks, Jael, and good morning, everyone. Welcome to our conference call. I'll highlight our progress towards 2025 goals and what we're focusing on for the remainder of the year. Nan will do the same from a financial perspective. J.P. will outline the positive leasing momentum by urban markets. We're then safe to answer any questions. We may, in the course of this conference call, make forward-looking statements about future events or future performance. By their nature, these statements are subject to risk and uncertainty that may cause actual events or results to differ materially, including those described under the heading Risk and Uncertainty in our 2024 Annual Report. Material assumptions underpinning any forward-looking statements we make include those described under Forward Looking Statements in our most recent quarterly report. We're focused on delivering long-term value. This includes driving leasing and operational results, development completion, and strengthening the balance sheet.
The quarter-end results reflect the resilience of our operating platform, and we're also making progress in executing our long-term strategy of portfolio optimization. First, leasing and operational results. Our portfolio continues to demonstrate strength despite headwinds. J.P. and Nan will expand on the highlights, which include improved lease area, positive same-asset NOI, and the successful implementation of our rental residential platform. While the lease deals continue to take longer to complete due to the availability of options and ongoing macroeconomic disruptions, we continue to experience a shift towards improving fundamentals in urban centers. With space mandates from organizations across industries, including significant bank mandates in the Toronto market, we expect leasing momentum to accelerate over the next few quarters. Second, we made progress on our development and upgrade activities.
At M4 Vancouver, which is currently 77% leased to three users, fixturing has commenced, and we're negotiating leases on the remaining space. This includes a current user that's already looking to expand. We also agreed to acquire the remaining 50% interest, which will close on September 30 . There will be no cash exchange as part of this transaction. We're pleased to be 100% owners of this fund. It aligns perfectly with our operating focus and expands our urban office platform into vibrant Mount Pleasant Bank in your neighborhood, enabling us to better serve knowledge-based organizations. At Toronto House, our in-house rental residential operating platform has achieved a 48% lease-up, meeting our ambitious target to date. At King Toronto, we're heading towards successful completion alongside Westbank. Securing the international retailer that anchors the commercial component is facilitating the lease-up of the remaining space.
We're currently in various stages of negotiation with seven retailers. Glazing is taking place on the fourth level, and we're pleased with the progress. As construction continues, we've been able to remove some of the hoarding, providing the public with a better sense of the street-level experience. It's truly a distinctive project that will elevate the entire King West Village neighborhood on completion next year. All the development and upgrade projects currently underway will be completed by the end of 2026. Last but certainly not least, our balance sheet. We're focused on strengthening it, keeping ample liquidity, and improving our debt metrics. Nan will outline our plans to address debt coming due early next year, and we're confident in our ability to do so optimally, given the success we've had this year in addressing maturity with minimal impact on interest expense. Our disposition program of non-core assets continues.
Private market valuations remain robust as our bias-first values continue to be validated. We currently have nine assets under sale contracts, totaling CAD 200 million of gross debt. All gross debt will be allocated to debt reduction as part of our path to achieving a net debt to EBITDA ratio of under 10 times by the end of 2025 and under nine times by the end of 2026. Nan will now elaborate on our financial results and balance sheet measurements.
Thank you, Cecilia. Good morning, everyone. We're pleased with our performance this quarter and encouraged by the emerging positive market fundamentals, which are reinforcing our strategic direction and operational resilience. I'll provide an overview of a few highlights from the quarter. Asset NOI of the rental portfolio grew by 1.1%, driven in part by the successful transition of our development completion into the rental portfolio and their continued stabilization. Our average in-place net rent for occupied sq ft increased by 1% compared to the same period last year, ending the quarter at CAD 25.32. We saw strong leasing activity again this quarter. We leased over 588,000 sq ft , including 75,000 sq feet of expansion from existing users. Our lease area is now at 87.2%, and our EOTA retention ratio sits at 69%, modestly below our historical average.
We're also seeing a shift in user behavior with larger lending in place and longer lease terms on new leases and renewals. Background of commitment reflects growing confidence in the market and in our portfolio. J.P. will expand further on this later. While we have seen short-term pressure on FFO and AFFO per unit, mainly due to higher interest costs from the 2024 acquisition, we are pleased to have solid leasing progress in these properties that will meaningfully contribute to our growth in the future. We're finalizing the lease out of full foreclosure at 400 West Georgia, which will be 100% leased, a significant milestone. Leasing at Toronto House is gaining strong traction with 222 residential units leased. These results reaffirm the quality of our assets and the strength of demand in our key urban market. Our development projects are making excellent progress, with only three ground-up projects remaining.
Our purchase global value is down to 6.8% compared to 11.4% last year. The remaining cost to complete is CAD 119 million, with the majority of this to be invested by the end of 2026. As of December 31, 2023, we had ground-up and redevelopment projects that were expected to contribute CAD 9 million to CAD 103 million in stabilized NOIs on completion. As of June 30th, 2025, completed projects have contributed CAD 60 million based on this quarter's annualized NOI. With the lease-up of Toronto House and rental methods M4 Vancouver, there will be incremental annualized NOI of CAD 3 million in the second half of 2025, and another CAD 10 million expected in 2026. We will achieve stabilized NOI on these projects throughout 2027 and 2028, subject to successful lease-up of any vacancy. The decapitalization impact on NOI is approximately 50% on stabilized projects.
Capitalized interest is expected to reduce by 20% in Q1 2026 compared to this quarter. Our balance sheet and deleveraging efforts are of top priority. We are firmly committed to reducing our net debt to EBITDA to below 10 times by year-end and below 9 times by the end of 2026. This will be driven by three key initiatives. First, focusing on operations by leasing our organic portfolio, stabilizing our 2024 acquisitions, and completing our development projects. Second, our disposition program. We remain on track to target approximately CAD 300 million in non-core asset sales this year. As of today, we have CAD 200 million under contract, and these transactions will close in the second half of 2025. Third, the monetization of our loan receivables at 400 West Georgia. This process is underway with 14 prospective groups evaluating the opportunity. We're still targeting a December 2025 close.
As quarter ends, our liquidity remains strong, with CAD 635 million available on our unsecured credit facilities. We issued CAD 850 million in unsecured debentures in 2025 and used these proceeds to proactively address upcoming debt maturities. We effectively refinanced 20% of our organic debt, still only a marginal increase in our interest expense of approximately CAD 1 million on an annualized basis related to this refinancing. Through this, we also saw Moody's withdraw their unsolicited ratings and our spreads tighten in the secondary market. Looking ahead, we have CAD 850 million of debt maturing in early 2026. A portion of this will be repaid as part of our deleveraging plan, with approximately half expected to be refinanced. We have optionality in addressing the refinancing, including both secured and unsecured financing. All, though, our preference is to continue our unsecured debenture program.
We've made significant progress in the first half of the year, despite macroeconomic and geopolitical uncertainty. We still have more work to do, but we remain confident in our strategy, in our platforms, and in our ability to deliver long-term values. Thank you for your time today. I'll now pass it over to J.P.
Thanks, Nan. In Q2, the quarter experienced strong conversion rates, robust expansion activity, and a shift towards larger space requirements among the prospective users, despite the uncertain macroeconomic environment. Following the close of the quarter, we've observed a noticeable increase in our leasing pipeline as more and more organizations reaffirm that the office is the principal venue for creativity and connectivity. In Q2, our lease area remains stable and outperforms each of the urban submarkets in which we operate, except for Vancouver, where we are making great progress in addressing acquired vacancies. We remain extremely encouraged by the number of existing users in our portfolio that continue to require more space. In Q2, 75,000 sq ft of new leasing activity represented expansions, a 50% increase compared to the previous quarter.
We are also encouraged by our improving retention rate, which year-to-date is 69%, closer to our historical average of 70%- 75%. The average rental rate in the same period was up 3.1% when comparing the ending to starting base rent, and up 13.2% when comparing average to average. The observed moderation in rental rate growth upon renewal is in line with our expectations and reflects the anticipated impact of increased supply, a message we have been communicating for several years. Tour activity continues to be strong. Tour activity in our rental portfolio was up 13% from the prior quarter and up 21% from the prior year. Industries represented by touring organizations continue to be technology, media, professional services, education, and medical uses.
At the end of last quarter, we reported we had 1.3 million sq ft of leasing activity under negotiation or at the prospect stage, including 684,000 sq ft of new leasing activity. In Q2, we completed 588,000 sq ft of leasing activity, including 407,000 sq ft of new leasing, resulting in a 60% conversion rate. At the end of this quarter, we had 1.2 million sq ft of leasing activity under negotiation or at the prospect stage, of which 60% represents new leasing opportunities and 40% represent renewals. I'll now provide a brief overview of each market. In Montreal, we continue to observe strong demand from users with larger space requirements. There are currently 10 existing groups with mandates greater than 50,000 sq ft considering space in our portfolio, including two groups representing a total of 150,000 sq ft with which we are in advanced discussions.
We also continue to see strong demand from existing users with large mandates to expand because of increasing utilization. Most of our vacancy in Montreal is concentrated at La Cité, a portfolio of assets located between Old Montreal and Griffith Town, comprising eight buildings totaling more than 1.2 million sq ft. There are currently five prospective groups with mandates between 12,000 and 100,000 sq ft considering these options at La Cité. These prospects represent the technology, professional services, and medical sectors. In Toronto and Kitchener, we continue to see an increase in demand from prospective users with larger space requirements. There are presently 34 users with mandates greater than 10,000 sq ft touring our portfolio, including nine groups representing a total of 130,000 sq ft with which we are in advanced discussions. Last quarter, we reported we were in discussions with seven existing users looking to expand.
We are pleased to report that we completed five of those expansions and are currently in discussions with 12 other users looking to increase their equivalence, representing 70,000 sq ft of new leasing activity. Of the 12 users looking to expand, 11 are technology firms. At Toronto House, we are very pleased with our residential leasing efforts as we are almost 50% leased. In Kitchener, we observed an increase in leasing activity. Three existing users recently expanded, and we are in active discussions with a tech user looking to lease upwards of 50,000 sq ft. We are also in advanced stages of a renewal with a large tech firm that represents the largest maturity in 2026 across our national portfolio.
In Calgary, we continue to see an increase in the size of mandates in the market as there are currently six prospective organizations with requirements in excess of 10,000 sq ft evaluating options in our portfolio, including three groups representing a total of 30,000 sq ft with which we are in advanced discussions. At Vintage Towers, we experienced a large known non-renewal totaling 45,000 sq ft in Q2 that we have been communicating for several quarters. We're pleased to report that we have backfilled two-thirds of the space and continue to see strong tour activity on the remaining availability. Vancouver remains the strongest leasing market in Canada. There are presently eight users with mandates between 10,000 and 50,000 sq ft evaluating space in our portfolio, including three groups representing a total of 130,000 sq ft with which we are in advanced discussions.
We are also engaged in discussions with four existing users looking to expand, representing 40,000 sq ft of leasing activity. At 400 West Georgia, we are now finalizing an agreement with an education user for the remaining vacant space totaling 54,000 sq ft. We expect possession in September 2025. While the uncertain macroeconomics may impact leasing activity in the near term, we remain confident in our ability to outperform the market in each city due to our concentration of distinctive urban workspace in many rich urban environments and the strength of our operating platform, as validated by our Net Promoter Score, which is 150% higher than our peer average. I will now turn the call back to Cecilia.
Thanks, J.P. Before we jump to questions, I want to reiterate my confidence in our portfolio and our team. Our urban portfolio is not only unique but strategically positioned for the future. I say this as Canadian cities are increasingly concentrating into centers of creativity, innovation, and opportunity. An urban workspace plays a critical role in that, making Allied well-positioned to meet the growing demand. Our team is focused, patient, and confident that our fundamentals will ultimately be recognized. We'd now be pleased to answer any questions.
Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question. Your first question comes from the line of Jonathan Kelcher of TD Cowen. Your line is open.
Thanks. Good morning.
Morning.
First question just on the outlook for 2025. I guess your target is for FFO to be down 4% from last year. Just based on the first half of this year, that would imply a pretty good step up in FFO over the back half of 2025. How did the first half track internally versus that expectation? What are you seeing that gives you confidence to sort of maintain that target?
Sure. Yeah. The first half of the year tracked exactly as we expected, Jonathan. What gives us confidence, and I'll ask Nan to outline the path forward, is the momentum that we and J.P. just outlined in the market. Nan, why don't you just go through the pathway?
Yeah, Jonathan. Some of the key drivers that we're going to have in the second half of the year listed up are stabilized lease from Toronto House and 400 West Georgia. This decision proceeds to pay down debt to reduce interest expense. We do have an excellent revenue that's going to be in the second half that we're going to discuss. Commencement of lease area that's currently in our lease of 87.2% that will be productive in the second half and organic growth.
Okay. That's helpful. I guess a lot of the organic growth sounds like the thing that is not guaranteed and that everything else sounds like pretty sure. Is that how to think about it?
Yeah. I mean, nothing's guaranteed, but we see a path to achieving our targets at the end of 2025, and that's what we remain focused on.
Okay. J.P., you gave a whole bunch of stats, which is very helpful. At the beginning, I guess you said the, and we've seen articles on this, that there's been a pickup in demand more recently. Are the stats you gave as of the end of June, or are they current? I guess that's my first question, and I have a follow-up on that.
At the end of Q2, Jonathan, we were working on 1.2 million sq ft of leasing activity, of which 60% represented new leasing activity. Subsequent to the quarter end, we've seen that number increase by a couple hundred thousand.
Okay. That's helpful. Is that, I guess everybody's seen the articles with financial firms. Are you seeing more of an increase from other sectors? Maybe are there any geographic markets that are seeing more versus others?
We're seeing an increase in demand across all sectors and all markets, Jonathan. That's a function of more and more organizations reverting back to an office-centric model, which is increasing utilization and internal demand. The availability of high-quality space is declining with no new supply coming online after 2026, subsequently falling in line with near historic lows. As such, organizations recognize that the window is narrowing to secure the space.
Okay, thanks. I'll turn it back.
Your next question comes from the line of Lorne Kalmar of Desjardins. Your line is open.
Thanks. Good morning, everybody. Maybe just sticking with the target. Obviously, you guys kept your 90% in-place occupancy target, and you mentioned the lease up of 400 West Georgia and some positive momentum on the leasing front. Could you maybe give us a bit of a bridge as to how you kind of get from that 85% to 90% in the next couple of quarters?
It would be through continued lease-up and pushing the occupancy accordingly.
Are there any, I guess, known outside of, you know, the Westbank, or sorry, 400 West Georgia isn't necessarily 100% known, but outside of that, is there any other kind of known occupancy catalyst that you're expecting over the back half of the year, or is it really just relying on the leasing momentum and whatever leasing activity gets done in the back half?
Lorne, we continue to see positive momentum in all markets across all sectors. In my remarks earlier, I touched on each city and made reference to the total square footage with which we're in advanced discussions. The ever-increasing leasing pipeline that I made reference to in responding to Jonathan gives us confidence that we'll continue to see positive momentum.
Okay. Fair enough. Just flipping to the acquisition of the remaining 50% from Westbank for the Vancouver office development, you guys have now done, I think, three of the four projects you had. You've bought them out of King Toronto I've asked about before. I'm just wondering, is there any change in your outlook as to whether or not you'd have to take that in as well?
No. We fully intend to continue working alongside Westbank at King Toronto as they complete the project alongside Westbank.
Okay. Just the last one, I know you guys talked year-to-date retention. Q1 was obviously pretty solid. Q2 came down a bit. Can you maybe give us some color on what happened there and how you expect that to trend over the balance of the year?
Lorne, for the balance of the year, there's 800,000 sq ft maturing. We're in advanced stages of renewal discussions on 400,000. We expect 200,000 to come back, and we're very pleased with our ongoing efforts to backfill those known non-renewals. The balance of the maturities we continue to work on.
Fair enough. Thank you very much for the call. I'll turn it back.
Thank you.
Your next question comes from the line of Brad Sturges of Raymond James. Your line is open.
Hey, good morning. Just following on the same line of questioning around leasing and potential upside or recovery on occupancy, just in terms of the commentary, obviously, there is some potential demand improvement through the return-to-office mandates. I guess one of the headwinds you guys have seen of latest timelines to complete deals have been long. Do you think with the new mandates you'll start to see timelines starting to shorten up, or what would be the catalyst to normalize on the negotiation front?
I think we see opportunities to shorten some of those timelines. I think the user that we're finalizing negotiations with at 400 West Georgia is a great example. They need to be in this space by September. We'll be finalizing that paper over the next couple of weeks. That's one example where we're able to capitalize on the need for certain organizations to have urgency, and we have space that we can provide for them to occupy sooner rather than later. We see the opportunity for more situations like that. We'll see how Q3 plays out, and we remain cautiously optimistic.
At this point, it's probably wait and see until how the fall kind of starts to trend, but potentially, we could start to see those timelines start to narrow a bit.
Exactly.
Okay. In terms of 400 West Georgia, I guess occupancy potentially could be in September. When would the rent commence? How should we think about the term and the associated leasing costs with that lease?
Rent commencement would be January 2027. The terms are reflective of the market.
I mean more like in terms of the length of term of that lease. Just to clarify, the leasing costs would be more in line with market levels at this point?
Yes, 10-year leasing costs in line with market.
Okay. Great. I'll turn it back. Thank you.
Your next question comes from the line of Matt Kornack of National Bank Financial. Your line is open.
Hey, guys. Just with regards to the leasing that you're seeing right now, it sounds like tour activity is up and people are considering your space. Would you say the bulk of that is tenants looking to relocate in the market, to relocate in your own buildings, or is that new kind of space to the market? I'm just trying to think, is somebody moving to your building from another building, or are they kind of new to the space and maybe they bring down the overall vacancy rate across the market?
It's a function of tenants seeking high-quality assets to offer great workplace experiences, requiring in many cases an increase in their footprint because of higher utilization. There are a couple of organizations with which we're working who have not maintained an office presence, and they are now wanting to introduce an office-centric model. Matt, it's a reflection of a number of different variables.
Okay. Makes sense. Nan, just on the accounting front, for a few quarters, you've kind of seen straight line rent grind down. Is there anything to that, or is that dynamics of leasing, maybe free rent periods? I'm not entirely sure.
Matt, the straight-line rent converted to cash rent, that's why St. Austin NOI is out this quarter, mostly from our development pipeline, in particular, properties like 20 right off and 7%.
Should we expect that, I mean, it's near zero at this point. Should we expect that it kind of flattens, or are you expecting to kind of rebuild straight line rent as you do some of these longer-term leases where, I mean, I think for the 400 West Georgia one, it sounds like they're going to be in place in September, but they won't be paying rent until January of 2027. Is that correct?
Correct. It'll start reclosing again. We're planning some fixturing starting in Q3.
Okay. As you do some of this lease up, we'll see it more in FFO than AFFO. Just quickly on the Vancouver purchase, did you guys, with your partner, look at taking that to the market, or was it just a logical purchase on your part to own the full 100%?
No, it was logical for us to take over the remaining interest back.
Okay. Thanks, guys.
Your next question comes from the line of Gaurav Mathur of Green Street. Your line is open.
Thank you. Thank you and good morning, everyone. On the CAD 300 million of non-core asset sales, what would the average occupancy of the assets be currently?
It's very low.
Would it be fair to say that the sale of these assets would potentially help in meeting the year-end occupancy goal?
They're not currently included in our lease area. It's an asset health sale, so it's not part of the occupancy or lease area calculation currently. No, it wouldn't have any impact on that.
Okay. Great. Just switching to 400 West Georgia, while there are multiple options for monetization there, would one of those options be an outright sale? If so, what would a potential buyer pool look like?
It is an outright sale. It is an outright 100% sale, and it's being marketed in a way that will get us the optimal outcome, which would be to have our loan being repaid in full by December 31, 2024.
Thank you for that. Could you provide any color on the potential buyer pool?
Not at this stage. It's well underway, and we're pleased with the progress. That's all I'm able to say right now.
Okay. Thank you for that. I'll turn it back to the operator.
Thanks.
Your next question comes from the line of Pammi Bir of RBC Capital Markets. Your line is open.
Thanks. Good morning. J.P., I think you know, you mentioned some comments around utilization. Can you maybe just talk about what trends you're seeing in your portfolio through Q2, and whether the utilization trends have actually continued or have they changed through July?
Yeah. Following, they continue to improve. As you know, Western Canada, Calgary, and Vancouver have led their eastern counterparts in utilization throughout the past number of years and continue to perform exceptionally well in that regard. We're now seeing Toronto and Montreal improve utilization at similar levels, and that's driving demand as we articulated earlier.
What would those levels be for Toronto and Montreal, like roughly, like a percentage range, or?
We're nearing 80%.
Okay. If you were to compare that to, again, going back to maybe 2019, how would that stack up?
It represents approximately three to four days a week in the office. As you know, Tommy, organizations including your own are increasing their mandates as there's widespread recognition that the office remains the principal venue for creativity and connectivity. We expect trends around utilization to continue to improve. In our view, there's really no longer a question around utilization. Organizations are returning, and that's driving demand and will continue to do so.
Got it. Just coming back to that 90% occupancy, I guess, expectation by year-end, how much of that is coming from some of the development leasing that starts to kick in in the second half of the year versus, say, you know, a soon lease-up of other vacant space?
The development lease-up wouldn't have a material impact, Tommy, because we would be adding the space to the numerator and the denominator. Mathematically, it just doesn't have that much impact. It's really the four things that Nan outlined.
Okay. There was the additional disclosure on the development NOI, that's helpful. You mentioned another CAD 10 million of contributions in 2026 for a couple of projects. I think that gets you to maybe CAD 70 million-ish next year. For the remaining CAD 30 million or so, or maybe CAD 20 to CAD 30 million relative to your total range, what are some of the largest spaces that relates to?
It's primarily in the redevelopment portfolio, Tommy. RCA in Montreal, 1001, and portions of CCMF in Montreal as well. Those would be the largest portions of buildings in redev.
With the expectation there, are you seeing any traction that maybe gives you some confidence that 2027 is a reasonable expectation for some of that space to get leased up, or does it shift more to 2028?
I think actually the 2027 timing is going to prove to be perfect the way that the market is moving.
Okay, I'll turn it back. Thanks so much.
Your next question comes from the line of Tal Woolley of CIBC Capital Markets . Your line is open.
Hi. Good morning, everybody.
Morning, John.
Just on the disposition pool, the CAD 300 million, do you have a rough estimate that we could use for the NOI yield, just so we've got an idea of what to take out for dispositions going forward?
Yeah. It's about 2, 2.5. It's very low because it's very low occupancy. Some of the buildings are actually empty, so pretty low yielding.
Great. Okay. On the 400 West Georgia loan balance, do you have a rough estimate of how much of that is accrued interest versus principal?
We can get you to that, Tal.
Okay. Perfect. Just a broader question, I guess, overall. Operationally, financially, it would seem to me like you're sort of trying to communicate this. This feels like we're sort of in the trough of this cycle. Is that a fair characterization of what you're trying to message to the market?
Absolutely.
Okay. That's great. Thanks very much, everybody.
Thanks, Al.
Your next question comes from the line of Mario Saric of Scotiabank. Your line is open.
Hi, good morning.
Morning.
Morning. I just have a two-part question on distribution sustainability. First part, internally, when you think about occupancy and the push to get to 90% plus, is there a specific occupancy internally that you have in mind that you need to hit in order for you to view a distribution as sustainable, given the expected leasing costs of the occupancy lease-up? Secondly, how much time would you give yourself or how much time would you give management before deciding on whether that occupancy is achievable before you reassess the distribution?
We're very comfortable with where we're sitting at relative to the distribution variable. Obviously, the payout is higher than what we would ultimately be targeting, but we see a path to having the payout ratio moderate and ultimately, in time, get closer to what our targeted levels would be. Both management and the Board see that path today and are comfortable with the sustainability of the distribution.
Is that path like a 2026 event, or is that a path that could take us into 2027?
Path to what? Sorry.
A path to a sustainable distribution at an occupancy level, whatever you think that occupancy level may be required to have a sustainable distribution. Is that a 2026 event, or?
We see that it's sustainable today, and we're not seeing occupancy improving. It only becomes more sustainable with the passage of time.
My second question, you highlighted rightfully the multiple articles looking at financial service tenants, asking people to come back to work more often. Typically, financial service isn't a big part of your portfolio, given the smaller kind of floorplate and out-of-space requirements. Can you maybe talk about the indirect impact of that to leasing demand for your portfolio and whether there actually may be some opportunities to expand your financial services kind of presence going forward?
Yeah, you're right. We haven't typically had financial institutions in our portfolio. What we see is that the options that are available to users in the market will be soaked up. Absorption will accelerate with these large space mandates from the banks, and that will have a trickle effect in terms of there being more urgency in the market for users to lock down space as space dries up.
Mario, it's representative of a broader theme that we're seeing across all sectors and markets in our portfolio.
Okay. With, and I think someone else kind of asked a similar question, with respect to the new tenant demand and your leasing discussion pipeline, how much of it may be coming from suburban markets today? Have we seen a shift back into demand for downtown space from the suburbs, or is that still something that you see?
We have seen demand from organizations located in suburban markets looking to urban centers. That continues to increase. The nature of demand is diverse and representative of a number of different themes that we've touched on during this call, Mario.
Okay, that's it for me. Thank you.
There are no further questions at this time. This concludes our Q and A session. I'll now turn the conference back over to Cecilia for closing remarks.
Thanks, Jael, and thanks, everyone, for attending our conference call. My final message is this. We recognize the uncertainties in the broader macroeconomic environment, but we're encouraged by the growing signs of momentum in the cities where we operate. Canada, Canadian cities, and Canadians will benefit in the long term from any short-term disruptions we may face. Canadian cities, in particular, will emerge stronger, and Allied is well-positioned to benefit as a result. We look forward to keeping you updated on our progress going forward.
This concludes today's conference call. You may now disconnect.