Good afternoon, ladies and gentlemen, and welcome to the Morguard REIT 2024 second quarter results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for a question. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn the conference over to Andrew Tamlin. Please go ahead.
Thank you, and good afternoon, everyone. My name is Andrew Tamlin, Chief Financial Officer of Morguard REIT. Welcome to the Morguard REIT second quarter 2024 earnings conference call. I am joined this afternoon by John Ginis, Assistant Vice President of Retail Asset Management, Tom Johnston, Senior VP of Western Asset Management, Todd Febbo, VP of Eastern Office Management, along with Rai Sahi, CEO and Chairman of the Board. Thank you all for taking the time to join the call. Before we jump into the call, I would like to point out that our comments will mostly refer to the second quarter 2024 MD&A and financial statements, which have been posted to our website. I'd refer you specifically to the cautionary language at the front of the MD&A, which would also apply to any comments that we make on the call.
Overall, we are again pleased with the second quarter results, which saw strong increases in same-store net operating income growth across all asset classes, which is consistent with the levels of leasing momentum we are seeing. Net operating income for the quarter was up almost 5% at CAD 31.8 million, as compared to CAD 30.5 million in 2023, due primarily to improved results at the REIT's enclosed malls. Same asset net operating income for the second quarter increased a healthy 3.9% due to increases in all three asset classes. Same asset net operating income for the six-month period was up 4.6%. Retail results continue to grow as both traffic and sales in our enclosed malls continue to improve as we move past the pandemic.
Office results for the six-month period saw a 2.5% increase in same asset net operating income due to increased leasing activity in the Trust's Alberta assets. Interest expense increased 15% for the quarter to CAD 17.2 million on a year-over-year basis. Higher interest costs on rollovers of mortgages in the last year have been a key reason for this increase. The Trust is approximately 20% of its debt is variable at June 30, 2024, which is expected to decline in the third quarter. The Trust continues to focus on paying down its debt, which is now CAD 90 million less than three years ago at this time. FFO for the quarter decreased 6% at CAD 14.1 million in 2024, as compared to CAD 15 million a year ago, due to the higher interest expense.
Our enclosed malls continue to perform and do well. We are seeing increases in sales per square feet on a year-over-year basis and a quarter-over-quarter basis. For example, our sales per square foot has increased 4% for the quarter on a year-over-year basis. This has led to positive rental growth upon renewals for rent for tenants that are enclosed mall assets, and a continued positive trajectory of a bounce back of the performance of these assets. During the quarter, we had a CAD 16 million fair value loss on our real estate properties. These adjustments were focused around expanded cap rates for some of the REIT's office assets, primarily in Toronto and Vancouver markets. REIT's PCME, or operating and leasing capital reserve, was established to be CAD 25 million for the year or CAD 12.5 million for the six months. Actual spending was CAD 15.3 million.
We are expecting elevated capital needs above the reserve amounts as we move further into 2024 and beyond, due to increased leasing capital needed, particularly for office deals, and in general, higher costs to move ahead and complete capital projects. Our overall occupancy level at 90.8% at June 30, 2024, is 110 basis points higher than a year ago. Retail occupancy is up 60 basis points, and office occupancy is up more than 100 basis points. The increase in office occupancy is driven by increased leasing activity at our Alberta assets, in particular, our suburban Calgary assets. And now for an update on our leasing efforts.
In 2024, there is approximately 107,000 sq ft in retail GLA, GLA coming due, along with 79,000 sq ft in office and 43,000 in industrial GLA coming due over the last half of this year. We expect that every tenant larger than 5,000 sq ft to renew their space and are positive about the remaining leasing activity necessary for this time frame. Looking ahead to 2025, I note that we have approximately 500,000 sq ft in space at Penn West Plaza coming due. As we previously mentioned, we are actively working with these tenants to determine their needs beyond this date. Presently, we have renewal commitments for approximately 70% of the building and are having good conversations with certain other tenants. This will become a multi-tenant building at that point.
We do expect a decrease in net operating income of approximately CAD 14 million-CAD 15 million in 2025 due to lease-up and vacancy costs as the rents in this building get reset to market rates. However, we do expect an approximate CAD 5 million improvement in 2026 in future years as we move past the initial lease-up period. Leasing discussions for both office and retail opportunities have picked up in the last year or two, as both current and prospective tenants now have a better handle on what to expect going forward. This has led to numerous conversations about various opportunities at our properties across the country. Management has had continued ongoing discussions with the provincial government tenant of Petroleum Plaza in Edmonton, which came up for renewal on December 31, 2020, and is still in overhold.
We have recently had some better back and forth discussions, but this is going slow, and at this point, there is still no resolution to report. Turning to financing and liquidity, the Trust has CAD 98 million in liquidity at the end of the second quarter, which is down slightly from CAD 101 million at the end of 2023. During the quarter, the Trust executed on the sale of Heritage Towne Centre, which netted the Trust CAD 20 million in net proceeds after settlement of debt. These proceeds went to pay down balances on the line of credit. From a financing perspective, the Trust was able to renew its Pine Centre mortgage, bringing in CAD 10 million of up financing proceeds before quarter end. This was converted from a variable rate mortgage to a fixed rate mortgage, being 5.82%.
The fixing of this rate did not happen until the first week of July, and so it was presented as variable at quarter end. Looking at the rest of 2024, there'll be minimal opportunities to procure up financing for these renewals as we move to- as we move into the back half of 2024. Wrapping up, we are pleased with the resiliency of our assets and the improved occupancy and correlated results from all of our asset classes. We are especially pleased with the positive same asset results we've seen so far this year. We are looking forward to continued positive leasing conversations for all of our assets. Most of our enclosed malls remain dominant in their geographical area, and our strip malls, which are largely grocery anchored, have performed steady.
Beyond our retail assets, we have high quality office buildings in Canada's largest markets with a high degree of government office tenants. We continue to be positive about our business and the objective of building value for our unitholders. We look forward to continue to execute our strategy, and thank you for your continued support. We will now open the floor to questions.
Thank you. Ladies and gentlemen, we will now begin the question- and- answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Jonathan Kelcher from TD Cowen. Please ask your question.
Thanks. Good afternoon. First question, just on the elevated capital spend, and I think you said it's related to some leasing for some office deals. Is any of that related to Penn West?
Some of it is, Jonathan, yes. So we are working through those new deals, and just in general, leasing capital is for really any office deal is higher these days. And obviously, the cost of capital has gone up kind of across the board as well.
Okay. Then on, on the Penn West, it sounds like you've got over 70% done as part of a renewal. Like, is there any space that's being sublet in there, or are you dealing with any sublet tenants?
We have been working with the current subtenants to, you know, to get new deals going beyond 2025 and 2026. So that includes any deals on the subtenants.
Okay. And then I guess just switching gears, you guys, you did sell Heritage Towne Centre to recycle capital. Are you guys looking at any additional property sales this year?
There's nothing that is on the front burner, Jonathan. You know, we'll always look at opportunities buying or selling, but there's nothing, there's nothing on the front burner right now.
Okay. That's it for me. I'll turn it back. Thanks.
Okay. Thank you.
Thank you. Once again, please press star one should you wish to ask a question. Your next question is from Steve Mishan, from a private investor. Sorry. Please go ahead.
Hey there. Good afternoon. I just wanted to ask a little bit about the refinancing. I think you just mentioned there's not much opportunity for up financing with what you have remaining for the year. But I'm wondering if you can maybe talk about the rates you're looking at, the rates you're seeing, if there's gonna be a reduction in renewal rates relative to the expiring?
I don't think we'll be seeing a reduction in renewal rates compared to the expiring. Even though bond yields have come down in the last month or so, you know, we're historically higher than, you know, our average cost of debt, so I would expect those to be higher. Just in general.
You expect your rates to be higher in general?
Yeah.
Okay.
Yeah.
Okay. Thanks so much. Yeah.
Thank you. Once again, that is star one, should you wish to ask a question. There are no further questions at this time. Please proceed.
Thank you for attending our call, and, we'll look forward to talking to you next time. Have a good evening. Bye.
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.