Dream Office Real Estate Investment Trust ($DUN)

Good morning, ladies and gentlemen. Welcome to the Dream Office REIT Q1 2026 Conference Call for Friday, May 8, 2026. During this call, management of Dream Office REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Office REIT's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Office REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Office REIT's website at www.dreamofficereit.ca. [Operator Instructions] Your host for today will be Mr. Derrick Lau, Senior Vice President, Portfolio Management of Dream Office REIT. Mr. Lau, please go ahead.

Thank you, operator, and good morning, everyone. Joining me on today's call are Michael Cooper, CEO; Jay Jiang, CFO; and Kingsley Foris, Director, Asset Management. I'll provide an overview of the quarter before turning it over to the team. We continue to see good momentum in the Canadian office sector. Positive net absorption was experienced for a third straight quarter, with national vacancy decreasing by 130 basis points from Q2 2025 to 17.4%. Much of this activity is occurring in downtown Toronto, which has experienced positive net absorption of approximately 4.6 million square feet over this period with vacancy decreasing by over 400 basis points to 14.4%. Sublease space has decreased for an 11th consecutive quarter and is largely expected to return to pre-pandemic levels. With continued vacancy declines, including large block spaces, there has been increased competition for Class A space with resulting demand expected to spread to remaining office spaces. Dream Office had a strong leasing quarter. Across our portfolio, we completed 71,000 square feet of new leases and 45,000 square feet of renewals. Importantly, the majority of our new leasing was secured at 74 Victoria and 30 Adelaide to a government-affiliated tenant. Kingsley will provide additional color on this deal a little bit later. We ended the quarter with Toronto committed occupancy at 89.8% compared to 87.4% in Q4 2025. Of this increase, 180 basis points is from new leasing and 60 basis points is from the sale of 212 King. As previously announced in March, we entered into an agreement to sell 212 King Street West and the transaction is expected to close in Q2 2026. In-place occupancy increased by 150 basis points from Q4 2025 to 80.9%. Other markets committed occupancy ended the quarter at 71.5%, down 60 basis points from Q4 2025. Subsequent to quarter end, we completed 9,000 square feet of new leasing, which brings committed occupancy largely back to where we started the year. At 606 Fourth Street in Calgary, our conversion from office to residential is continuing to progress. The property is now fully vacated, demolition is continuing and construction has commenced. Project time lines and costs remain in line with expectation with over 80% of construction contracts awarded to date and first occupancy target for Q3 2027. In Q1 2026, comparative NOI increased by 4.7% year-over-year to $24.5 million. The increase was due largely to step-ups in rent and new leasing in downtown Toronto. This was slightly offset by reduced weighted average occupancy in our other markets. For Toronto, comparative NOI increased by 6.5% year-over-year to $19.9 million. Leasing in downtown Toronto is tracking well, and we are raising our committed occupancy target to 88% to 90% by year-end. We are also increasing our in-place occupancy range to be between 84% and 86%. Some of these deals are taking longer to commence than expected and the NOI impact will lag. As a result, we are holding our downtown Toronto comparative NOI growth target at 2% to 5% and our total portfolio comparative growth target at 1% to 3% for 2026. We are seeing ongoing signs of recovery in the downtown Toronto office market that is largely driven by increasing return to office mandates. We are building on the leasing momentum for 2025 and are encouraged by our progress to date. Other markets are experiencing varying levels of recovery, but we do expect them to remain largely stable over the remainder of the year. Overall, we believe that the REIT remains well positioned to continue to address vacancy through the balance of 2026. I will now turn the call over to Kingsley, who will provide additional color on our leasing progress, our leasing priorities and what we are seeing on the ground.

Thanks a lot, Derrick, and good morning, everyone. I hope you're all keeping well. As Derrick mentioned, Q1 was a strong leasing quarter for Dream Office, and we made meaningful progress addressing key vacancies across the portfolio. During the quarter, we completed 116,000 square feet of leasing. Toronto represented the majority of this activity with 106,000 square feet made up of 68,000 square feet of new leasing and 38,000 square feet of renewals. New leasing was driven by activity at 2 key assets, including 40,000 square feet at 30 Adelaide and 27,000 square feet at 74 Victoria. Both deals were completed with a government-affiliated tenant at net rents in the mid-30s. Rent commencement is staggered from June through December of 2026, which is a strong outcome given the longer fixturing periods the market is seeing on deals of this size. 74 Victoria and 30 Adelaide were key leasing priorities heading into the year, and we're pleased to have them done in Q1 with rent starting in 2026. As Derrick mentioned, committed occupancy in Toronto was 89.8% at quarter end, which is up 240 basis points from the start of the year. For some more color here, I want to highlight that the Toronto portfolio opened the year in 2025 at 83.8% committed occupancy. The region is up a full 600 basis points in just 15 months. From an economic standpoint, blended NERs across the Toronto portfolio averaged about $23. This is up about 15% versus the deals we completed in 2025. Coming into 2026, we were very clear on our priorities. On our Q4 call, we outlined a plan to lease 150,000 square feet of vacancy and achieve 57% retention on 2026 expiries. With 65,000 square feet of vacant leasing completed so far and retention currently at 52%, we're on track to meet and potentially exceed those objectives. As Derrick noted, we're now working towards 88% to 90% committed occupancy in Toronto by year-end 2026. In-place occupancy also came ahead of plan. We expected a decline in Q1, but finished up 150 basis points from the start of the year. This was driven by a 40,000 square foot tenant taking physical occupancy 1 quarter earlier than expected. Rent commencement for this lease remains in Q2, so the NOI contribution from this deal is still in line with our plan. In total, we now have 250,000 square feet of vacant space with contractual commencement through the remainder of the year. This drives our expectation for in-place occupancy to end the year at 84% to 86%, with about half of that growth in the next 2 quarters and the remainder in Q4. Looking ahead, the path to achieve our 2026 target in Toronto is clear. To reach committed occupancy of 88% to 90%, we need to deliver 57% retention and complete an additional 90,000 square feet of vacant leasing. On renewals, we have strong visibility, and we're actively engaged with our target tenants. On the vacancy side, our efforts are focused in 3 key areas. Firstly, on Bay Street. We're targeting 30,000 square feet of vacant leasing here with 95% of that space delivered in model suite condition. Secondly, at 74 Victoria, where we're targeting 25,000 square feet, representing one additional floor at the asset. And finally, at Adelaide Place, where we're targeting 35,000 square feet of leasing. This includes 15,000 square feet in advanced negotiations with the balance representing a full floor opportunity that's expiring later this year, and we're confident we can lease. While leasing momentum remains strong, the cost to complete deals is still high. However, in A-class assets, costs are stabilizing, and we're pushing our rents, particularly at buildings like Adelaide Place, where committed occupancy now stands at 96.5% and NERs continue to improve. Sub A class assets continue to require more landlord spend as tenants expect turnkey delivery or significant funds for build-outs. In summary, this was a very strong quarter for Dream Office. We made real progress on our vacancy, tracked well against our guidance and maintain discipline on deal economics. I'd like to thank the team for their continued hard work. And with that, I'll turn it over to Jay to walk through our financials.

Thank you, Kingsley and Derrick, and good morning. I'll walk through our first quarter financial results and update you on our outlook for the balance of 2026. We reported diluted funds from operations of $0.57 per unit for the first quarter. This compares to $0.56 per unit last quarter and $0.68 per unit in the first quarter of 2025. Quarter-over-quarter, the improvement reflects $0.08 of higher NOI and straight-line rent, partially offset by $0.05 decline from sold assets, including our Kansas City building and our 50% interest in 606 Fourth Street in Calgary and $0.02 of higher interest expense. Building on what Kingsley described, there is currently an 890 basis point spread between in-place and committed occupancy in downtown Toronto. We completed our construction obligation on several large leases committed in past quarters and tenants have taken possession of their space for their fixed rate period. The financial effect of this is elevated straight-line rent of $1.6 million this quarter. We expect straight-line rent to remain elevated in Q2 and then gradually decline in Q3 and Q4 as those leases reach economic commencement and we begin recognizing cash NOI. Year-over-year, the $0.11 decline was primarily driven by assets sold over 2025 and Q1 2026, including 438 University, our Kansas City building, our vendor take-back mortgage in Calgary and 5.9 million units of Dream Industrial REIT. Cumulatively, these dispositions reduced FFO by approximately $0.23 per unit. We also realized $0.05 of lower FFO from reduced NOI at 212 King, which is now held for sale, along with lower lease termination fees and other items. These declines were partially offset by higher comparative NOI of $0.06, higher straight-line rent of $0.07 and lower interest expense of $0.04. As a reminder, we used the proceeds from assets sold of $186 million to repay our outstanding debt in anticipation of refinancing in a higher interest rate environment and to make our balance sheet safer. Without these asset sales, our interest expense will be $0.11 higher per quarter and leverage ratio would be up 350 basis points. On the financing front, we have already addressed $144 million or 84% of our $170 million of debt maturities in 2026. Of the $26 million remaining, $18 million is for 212 King, which will be addressed on closing of the sale. The only remaining maturity is $8 million Calgary mortgage due in Q3, which were in advanced refinancing negotiations. Our net asset value per unit was $49.61, utilizing a weighted average cap rate of 6.3% on our total income portfolio. It represents a modest decline of $0.31 or 0.6% from $49.92 last quarter. The decrease was primarily driven by slight fair value losses on investment properties and write-offs of maintenance capital. Our net total debt to net total assets was 54.8% and net total debt to EBITDA was 11.9x. Our liquidity was $91.7 million at the end of Q1. With the expected closing of 212 King in the second quarter, we intend to use the proceeds to repay the $18 million mortgage on the property and pay down approximately $21 million on our credit facility. Relative to our March 31 financial position, the immediate impact to our net total debt to EBITDA will be 0.3x lower and our liquidity will improve by additional $21 million. As covered on our February conference call, our focus remains on achieving 90% in-place occupancy across downtown Toronto in 2 years. At that point, we estimate that downtown Toronto portfolio NOI increases by approximately $15 million and our debt-to-EBITDA improves to around mid-10x. Also on our last conference call, we provided FFO guidance of $2.25 to $2.30 per unit, assuming no dispositions. With the sale of 212 King, which is approximately $0.05 accretive, we are raising that to $2.30 to $2.35 per unit. Q1 was a solid start to the year, and we are well positioned to achieve our guidance for the balance of 2026. We look forward to updating you on our progress in future quarters and hope to see you at our Annual General Meeting on June 3. Now I'll turn the call back to Michael.

Back to me for the first time. Welcome, everybody. I think you've heard in quite specific detail what's happening at the company. Kingsley walked through what we need to do to hit our numbers for the year and with actually quite incredible specificity in terms of which buildings we're looking to lease up and what we expect. I want to talk a little bit more generally. For 6 years, we've been having these conference calls talking about the tour velocity, generally quite positive and the difficulty to get deals closed. And I think it's true we continue to have a fair amount of tours. It still is a difficult time getting deals closed. But on the margin, we're getting more deals closed. And as Kingsley pointed out, the rent to the landlord is up 15% this year over last year. So I think that's quite positive. In August of last year, on our conference call, I was saying that I can see that there's real evidence that the market is changing, and we should wait a couple of quarters to see if it continues. So 3 quarters later, we've said that I think the overall vacancy is down 400 basis points in Toronto. That's a big deal. I think it's continuing to see -- we continue to see quite a bit of demand. We are making progress on the return to the landlords from the leases, but they're still very expensive. But what I would say is I think that we're now into a new era for office in Toronto. The issues that we've been dealing with are behind us. We're definitely into the recovery. This quarter, we had an exceptional quarter with exceptional leasing. And I think the team's view is if for the rest of the year, we can be a slightly positive about 30 basis points, we'd be pleased with that. I think our expectation is that next year, we're going to see some more leasing, and we're going to see continued improvement. And we're at a margin where the company is producing more and more free cash. So we're getting to a real turning point, which we're quite excited about. And the buildings are showing well. Nothing is easy, but it has been quite a tremendous change from where we were. I mentioned on the last conference call that if you look at the -- for quite a few years, the only office buildings that we're trading were office buildings we're trading from an office owner to some type of institutional user. And we were quite opportunistic in terms of selling some assets at very good prices and so were some of the others. So the provincial government bought some buildings. George Brown College bought a building from another REIT. We sold a building to a health sciences company, all at great values. And what I was saying was in the last 12 months, we're starting to see investors buying office buildings for the purpose of running office buildings. And when we see how they're trading, they're trading at very, very attractive compared to how we're trading in the public markets. We keep investigating what type of assumptions are necessary to get those values. And what's happening there is they are pro forma in higher occupancy, like equilibrium occupancy that we're using, and they're showing lower costs. So there's real money being spent now. There was, I think, 123 Front recently sold, and we heard about 95 Wellington in the last 10 days. And if we use those as metrics, there's some really decent value in our business. At the annual meeting, I think Jay and I will present an update to our September 6, 2023, hypothetical model for the next 5 years of the business. I think that will be quite exciting to hold our fingers to the fire on what we've said and what's happened. And I would say that -- it's a tough business, but there's a lot of signs of improvement, both in the private industry as well as the public. And I think it's going to be a little bit surprising that the government is going to need a lot more space in order to fulfill their new mandate of 4 days a week. That's undergoing like review now. And hopefully, we'll start to see more of that. As the team has said, we've already seen quasi-government leasing, and I think the government is going to need to step up as well. So we can see increasing demand. And as far as the issues we've had over the last 6 years starting with COVID, it looks like that's behind us. So we're very pleased to have made it. Anyhow, if anybody has any questions, we'd be happy to answer them.

[Operator Instructions] Your first question comes from Mark Rothschild with Canaccord Genuity.

Michael, you just made some comments now about transaction volume increasing and values on deals. The unit price obviously is dramatically below where you guys have your IFRS NAV. Based on your comments, can we or should we assume that you'll look to even be more aggressive in possibly selling assets at those prices?

I just got a déjà vu when I said at the conference call 3 or 4 ago that I don't really want to become the 30 Adelaide Street East REIT. So I would say we would be happy to sell in the other market category. In downtown Toronto, I don't see it. So no, I think we sold $8 billion of assets so far. We're down to $2 billion. I'm not sure how much more we would sell.

Okay. Maybe just one more. It sounds like the leasing is going well, but there was a comment made, I think it was by Kingsley that still requires significant funds for build-out. To what extent are NERs recovering along with the occupancy improvement?

I think Kings -- that's what I was referring to. Kingsley saying the NERs are up 15% from a year ago.

Your next question comes from Alexander Leon with Desjardins.

And thanks for all the great color provided on the call so far. It's very helpful. I think it was mentioned that there was about 90,000 square feet of new leasing left to do to hit the kind of 2026 target that you've outlined. I haven't heard anything, I don't think, on the Bay Street collection. So I was just wondering if it was safe to assume that some of the majority of that new leasing was kind of concentrated in those assets.

Yes. So of that 90,000 that we mentioned on the vacant front, we think we're going to do 30,000 on Bay Street. One thing I'll note on that front is 95% of those suites are in model suite condition. So they're ready to go. We've had a lot of success with these units. We've leased 90% of them that we've delivered to date, and they've all leased within 6 months of them being completed. So we feel good about that 30,000 square foot target, and that's all on Bay Street as part of that 900.

Okay. Great. I appreciate that. I mean that kind of answers maybe part of my second question I was going to ask, which was just like where you were seeing the most demand, whether that was concentrated on any specific maybe type of tenant or type of space within the portfolio?

I wouldn't say it's any type of tenant. We've definitely seen more government users or quasi-government users coming to the plate to take up space. Our Bay Street stuff does really well with financial services companies that are client-facing because you can take a 5,000 square foot floor plate and have a full floor. So they really like those buildings. But it's been kind of widespread on where we've seen demand. Obviously, the deals that we did this quarter were very concentrated at 74 Victoria and 30 Adelaide. Big block space, there's not a lot of that available downtown anymore. So I think that's why we're getting those looks, especially at 74 Vic. But no, I wouldn't say we're concentrated on a type of tenant demand, but the space is definitely doing well.

Okay. Great. And then last one for me is just whether you guys have any -- or when you guys expect maybe some of the leasing spreads in the downtown Toronto portfolio to inflect positively?

Yes. So we're currently at 81% or 80.9% in-place occupancy as of this quarter. Throughout the year in 2026, we expect about half of the spread between our year-end guidance to take place between Q2 and Q3 and then the remainder of it in Q4 to hit that 84% to 86%.

Is that what you're asking about? Or are you asking about the rate?

No, no. I'm talking about the rate on the leasing spread.

Yes. So when do we see the...

Leasing -- yes, just shifting positively. Like I think this quarter, you guys averaged about negative 5% for the leases signed in downtown Toronto.

I think a lot of that goes to the mix of the leasing. Kingsley, do you have a view on it?

Yes, yes, I can speak to that for sure. So I think there are 2 pieces that -- and sorry, I missed your point on the rate. The replacement rents were down a bit this quarter. We had 2 commencements in Q1. One of them was at 30 Adelaide and one of them was at 20 Toronto. These were big block spaces, and those deals were done in Q1 of 2025. So a little bit lower rents there. That's why you're seeing them down. And then the deals done in the quarter were down a bit as well. We did a deal at a potential redevelopment site for 20,000 square feet that dragged that down. And in terms of them turning, they're already turning. If you strip out that potential redevelopment deal, we're ahead of our 2026 rates on where we're doing deals. Costs are coming down a bit as well, which we're liking, and that's really why the NERs are going up. But in terms of the rates turning, it's already happening, especially at the A class assets. Adelaide Place, we're doing deals into the 40s on net rates. So that's a positive piece there.

Your next question comes from Sairam Srinivas with ATB Cormark Capital Markets.

Congratulations on a good quarter. This question is probably for you. When you look at the kind of tenants on the tours and when the participants over there, has the industry -- the industries that represent has that changed over the last 12 months? And what I'm trying to get to here is that initially, obviously, you saw a huge demand from traditional users of space in the core. Has that slowly starting to show a lot more hybrid users, a lot more different kinds of users there?

I would say the only real change we've seen is just more government activity from a meaningful standpoint, the rest of our assets are well positioned for financial services, and that's where we get a lot of the demand. We haven't dealt with a ton of hybrid users on space.

All right. And when you talk to your government partners in terms of their requirements for space, have they -- I mean, as of this point, you figure out how much space they would need? Or do you anticipate them actually coming back with more demand through the rest of the year as they come back to office?

Sorry, can you repeat that?

I think what we're seeing is both. I think more people are coming back to office. And I think people are finding they just don't have enough space. And some of that is more people come back and some of it is their businesses are growing.

Yes. I mean, exactly. And I was trying to figure out if the government uses specifically kind of that part of the equation figure out because we saw that with the banks, right? They had a whole bunch of people come in and then figure out they don't have enough space for people to accommodate. And since the government has actually been giving back some space in the last couple of years, I was trying to understand if that would be a similar conclusion they would come to.

That's actually a great example. I think the banks have actually been reducing the number of employees in some areas, adding employees and others, maybe net lower, but they still need much more space. So I don't know, it's probably 1.5 million square feet that's been leased in the last year by banks. Look, we're not going to be able to provide clarity because there isn't any it's almost like every situation is different. But in total, we are seeing a higher demand for space, and we are seeing the costs coming down a bit. But when you think about like you have a base rent of x and then you got all these leasing costs, I think where we're really getting the net effective increase is just dialing back the costs a little bit and the rents are more or less the same. And I guess that goes to the prior question, are the rents up 5% or down 5%. Well, that's the face part. It kind of goes along with the cost, and we're seeing it improving. If it comes up, if we can see rents going up another 15% at a net effective level, that would be pretty good for next year. And it also mean that there's less space for tenants to choose from, and it's going to increase. This is my experience is when you come through a bad time, landlords have operating costs and taxes they're paying. They want to fill up their buildings. And it costs like for us, it might cost $5 a month to have a space vacant, so you want to get it full. And then as you sort of get past a certain number of occupancy in the market, you start to see the costs reduce a lot. And at that point, what happens is you have leased up a lot of your space, and it's not economic to wait until everybody else leases up their space and then lease. But what we'll see then is when we have 15% or so a year of space that comes up, we'll do really well on that. And effectively, we'll save that for the annual meeting because I think that's part of the way we're seeing things shaping up.

Your next question comes from Sam Damiani with TD Cowen.

And again, I'll echo the comments earlier. Thank you very much for the detailed review and sort of plans that you have and goals that you have for the year. Maybe just on the government, it seems to be, I guess, one of the biggest changes as you guys see it from your corner of the market. Do you see the government like buying buildings? I know that was a plan a couple of years ago. I don't know if they've really done a lot of that. But is that something you see happening? Or are they -- you see them mostly leasing space?

I think it's a great question. When we talk about governments, there's a lot of different levels plus quasi governments. We have seen the province of Ontario relatively surely buying office space where there's a lot of there's not a lot of other buyers. I haven't seen the federal government looking to buy buildings. So I think we have no evidence that they're going to be buyers. It looks like they just want to lease. They own a lot already in Ottawa, especially. But if you think about it, for over 5 years, people didn't go into the office. Now there's a mandate, and they've got to go to every single department in the federal government and ask them what space do they have, how many people, how many they can fit. And I think the expectation is by the end of the year, they'll have a good idea. I think the government leasing hasn't -- the federal government leasing hasn't really started. It's actually other governments that we've been dealing with more. And hopefully, that will be another push.

Yes. I assume in downtown Toronto, you're talking mostly the province and maybe the city, but most of the province or an affiliated.

There's a lot of space in the downtown core that the federal government leases. But I think generally, they've been just -- like in 74 Victoria by the federal government, they moved some of their space. And I think what they're doing is just maintaining a status quo. And now that they've got a mandate as to what people are supposed to do, they know what they're solving for. And it's obvious that they don't have a space for it.

Okay. And I remember a couple of years ago, you guys were focusing on ready suites, model suites and leasing them for sort of 3-year terms, getting really good traction at that time. Has that -- has the market shifted that that's no longer a focus? And how is the length of leases signed changed maybe over the last year or so?

I'll touch your first point there, Sam. Thanks for the question. On length of leases last year on our new leases, our WALTs were 8 years. So that was very strong. Just slightly after COVID, those were coming down. We saw a big uptick last year. This year, we're at 5 years, which we're also very pleased with. So that covers the WALT piece. With regards to model suites, I would say it depends on the type of asset you're looking at. Sub A class space, you're probably going to have to put a bit more money into your deals. Tenants want turnkey. The reason really why we do them on Bay Street and the reason why we're successful with them, if you think about the dynamic of the Bay Street assets, these are 2,000 to 10,000 square foot floor plates. Often tenants in that size range don't have an in-house real estate team that wants to manage a build-out. So what we're able to do is we're able to build out the space for them. And there -- it's a very seamless process for them to come in. And with that, we've just seen a massive uptick in terms of the reduced downtime that we face on space like that. We think that investment gets paid off with the downtime that we reduce by holding that space vacant and unfinished versus cleaning it up.

That makes sense. Okay. And last one for me is on the CapEx side. I think Michael and maybe Jay as well, you both referenced free cash flow. Last year, I think the REIT spent about $35 million on just improving the buildings. What's the budget for '26 and 2027 on that line item?

Yes. Just on a comparable basis, Sam, for building capital, I think we did the bulk of the work over the past couple of years. The buildings are in better shape. If you look at sort of the run rate in Q1, we spent about $4.5 million on the building capital. I would say the run rate for the year is about $15 million, and that really depends on the timing and when we need to spend on certain building maintenance items. I would go with that for now.

Okay. $15 million, but then what was the other sort of $20 million that was spent last year on that line item in the financials?

So those were also building capital, but we made more improvements last year in anticipation of some of the leasing and most of that sort of refers to the Kingsley's commentary on the model suites. But more of the model suites are done and the cash was already spent. So we expect to spend less money this year.

And would you say the same thing for 2027? I know it's still your way, but just given the way the business is kind of shaping up?

Yes. I think from a building maintenance perspective, it would be comparable. Our capital allocation for 2027 would be mainly to address new leasing and renewal leasing costs.

Okay. That's helpful. Last one for me is just on the IFRS NAV, it was basically unchanged this quarter. I haven't seen that too much in the last few years. So I'm just wondering what your view is on the IFRS NAV, why it didn't go down as it often has in the last 2 or 3 years?

Yes. Well, Sam, I think for the most part, we do a lot of appraisals, both for financing and valuation purposes. The appraisals tend to track the market inputs, and they're often validated by the various brokerage firms. So for example, if you follow CBRE, both since from Q3, Q4 and Q1, the office market investments and valuation cap rates have remained relatively flat. So we carry those forward, and that's consistent with our appraisal process as well. And the other is the income is stabilizing and over time across our portfolio, we're seeing higher income in a lot of places, and that's the other component. And overall, we expect that to be pretty stable over the course of the year.

[Operator Instructions] Your next question comes from Matt Kornack with National Bank Financial.

Can you speak a bit to the breadth of the tenant demand? I know we've talked about financial services and financial services adjacent users and now the government, but are you seeing kind of broader tech tenants and other users come into or come back to office space at this point?

Yes. We did a big deal at 67 Richmond last year with an AI user Cerebrus. I think we talked about it on the last conference call. That filled the whole building.

By the way, on that one, we did our due diligence on the financials, we were satisfied and then they got a $36 billion valuation from venture capital.

Yes. And so I would say we are seeing more breadth in terms of just financial services.

And then I guess the opportunities for people to move are being constrained by the fact that it seems like Class A, downtown core, pass connected, all those guys are seeing improved occupancy. On the retention side, are you starting to see that reflected in future discussions with existing tenants?

Absolutely. So we're targeting -- I think we said 57% retention on the call earlier this year. I think one way that we get to the higher end of our range on committed occupancy is we do better on our renewals, and I think we are doing better on our renewals. We did 60% retention this quarter. We see that continuing to go up. And the biggest piece, I would say that's really a signal of that is the deal cost that we're putting into our renewals is a lot lower than it was before, to an extent we were in through COVID, paying to keep tenants around. That's not happening anymore. There's less options for them, so we don't have to put in the same amount of money we did before.

At the same time, I would say that the renewal rates are lower than the historical averages. So there's room to move up. I'm not sure why it's lower, but maybe some of it is sort of pent up because of the leases, people's business changes have changed and they need different things. But I think that increasing renewal rate is probably one of the biggest drivers of value in our business.

Makes sense. Michael, maybe for you. You have made it, but you're, I think, $150 million of free float at the moment. So a much smaller entity. It sounds like you've got a positive outlook for the next 3 years. I understand that it's a chicken and egg scenario in terms of your cost of capital. But in today's environment, looking at what you're seeing in the office market, would you be inclined to kind of purchase more assets in Toronto if you had the cost of capital to do so?

I think that I'm not sure what the cost of capital would be. I mean, obviously, if we could issue equity at a price that increases the metrics of the business, that would be good. I think that's unlikely to happen in the near term. And quite honestly, I meant the opposite that it looks as if prices in some ways are moving further away from our cost of capital. But I think what's interesting is we would look at maybe how we could use some of our assets with a third -- with an institutional partner. If we see opportunities that are great, maybe we try to grow the business that way, but we're not going to dilute the company.

Okay. Fair. Just need the shareholders to come on side, it will happen.

That's all. And you know what, we're looking to you on that one.

That's fair. I've got a few where I need to get the prices moving in the right direction. So it's an effort here. But thanks for the color, and it seems like the business is doing much better. So that's great.

Your next question comes from Roger Lafontaine with Nugget Capital Partners.

I was wondering if you could touch base on what you would consider for an NCIB. I know Dream was active in the past on it. I don't think you've talked about it for a number of times for obvious reasons. But with the great improvement in transaction liquidity and the discount to the NAV and the strengthening of cap rates perhaps for office, as you mentioned on the last call, is that something that you would consider? And what would it take for you to consider using an NCIB for Dream Office units?

So firstly, I think Dream Office and its predecessors is the only company that bought back more than 40% of its stock 3x. So we're quite familiar with it. It is not on our mind. Our debt level is too high. The way we want to fix that is by growing our EBITDA and value. So I think that using capital to buy back stock would be premature because we want to make sure -- we continue to want to make sure we've got lots of liquidity. So we'll see what happens in the future, but it's definitely not on our mind to use capital for anything other than getting tenants, taking good care of the buildings and paying distributions. So I don't think that's something that we're thinking about now.

And would you be able to touch base on any improvements in market liquidity in your other markets like Saskatoon, Regina, Calgary, I know that it seems that Toronto, downtown centric is getting very, very attractive prices almost after every deal, it seems that the price is getting better for the next office sold. And I think we're seeing it in Ottawa, too. But I was wondering, have you seen any improvement in your other markets? And is that something you would perhaps consider? And if you were to sell properties in your other markets, would that go towards reducing debt as well?

I mean in total transparency, we've been quite open to selling other market assets for quite some time with the conversion of 1 of our 2 downtown Calgary office buildings to an apartment building is another way of reducing our office exposure there. Our building in Saskatoon has been [indiscernible] a tech company that's growing. And one of these days, I think we'll be able to sell it. And we got cooperators in Regina, and that's a good building, but the market has been quite narrow. So if you want to buy them, we'd love to meet with you or anybody else. But I think it's been a little bit quiet.

This concludes the question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

I think we've covered a lot, and I appreciate everybody's support and interest in the company. And hopefully, we'll have a chance to share some more ideas and get your thoughts at or after the annual meeting. So thank you all very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.