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Executives

Jane Gavan – CEO

Ana Radic – COO

Mario Barrafato – SVP and CFO

Analysts

Mark Rothschild – Canaccord Genuity

Mario Saric – Scotia Capital

Neil Downey – RBC Capital

Sam Damiani – TD Newcrest

Alex Avery – CIBC

Dundee REIT (OTC:DRETF) Q1 2014 Earnings Conference Call May 9, 2014 9:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Dream Office REIT First Quarter 2014 Conference Call for Friday, May 9, 2014. 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 the securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Office REIT’s website at www.dundeereit.com. Later in the presentation, we will have a question-and-answer session. (Operator Instructions)

Your host for today will be Ms. Jane Gavan, CEO of Dundee REIT. Ms. Gavan, please go ahead.

Jane Gavan

Thank you. Good morning everyone. Welcome to the Dream Office REIT first quarter conference call. I'm here with Ana Radic, our Chief Operating Officer and Mario Barrafato, our Chief Financial Officer. I'll provide a few comments and then turn the call over to Ana and Mario. Afterwards we'll open up the call for questions.

At Dream Office REIT we've always focussed on running our buildings well and providing our tenants with the most productive useful, efficient and frankly pleasant workplace from which they can run their business, that's our business. That thing said with the office market facing some headwinds, keeping our buildings full and making sure our tenants continue to choose us gets a big spotlight and you'll see that in our quarter numbers.

Dream Office is reporting a very solid first quarter results with good leasing velocity for the quarter and we're seeing that leasing momentum continue into Q2. We've already completed over 2 million square feet of leasing transactions that will take effect 2014. Our tenant retention was over 60%. Our balance sheet is strong providing us with lots of flexibility with a leverage ratio of 47.6%.

Last summer I became the President of Asset Management for Dream. The Asset Manager for Dream Office REIT and in that capacity I've been overseeing the performance of all our REITs, both on the financial targets like FFO and NOY as well as developing the strategy.

The role of CEO of Dream Office fits with the task of overseeing all our public real estate vehicles and it's just a natural extension of the job I've already been doing. Similarly over the last year we've been focussed in all the REITs on broadening the platforms by adding skilled real estate professionals to the team who have very clearly defined roles and responsibilities.

We've also established clear targets and goals at all levels of the organization. In Dream Office REIT, we've created the role of Portfolio Manager, three Business Leaders reporting to Ana, who are responsible for the performance of our specific geographic divisions. These Portfolio Managers are themselves responsible for delivering performance and add to the tremendous bench strength of our team. And like always, Michael, Mario, Ana and I will work together on setting the strategy for the REIT and executing that vision.

I'm now going to turn the call over to Ana.

Ana Radic

Thank you, Jane. Great to have you officially on the Dream Office REIT team and in our first quarter conference call. CBRE’s first quarter national statistics indicate that office leasing is continuing at a modest pace. The national overall office occupancy rate declined 60 basis points this quarter to 89.7%, which is below 90% for the first time since the second quarter of 2010.

Turning to our portfolio, quarter end in place occupancy decreased only 10 basis points as expected to 94.2%, primarily due to known tenants vacating the largest being on Airport Road in Mississauga. We are seeing good new leasing activity with future leasing commitments increasing by 17,400 square feet quarter-over-quarter, driven by 20,000 square feet of positive absorption in downtown Calgary, 19,500 square feet of new leasing in suburban Edmonton and 19,000 square feet of positive absorption in Yellowknife.

On our last call we communicated that 1.5 million square feet of leasing commencing in 2014 was completed. We have ended our first quarter of the year having completed just over 2 million square feet of leased transactions commencing in 2014, 1.3 million square feet of renewals and 740,000 square feet of new leasing. Leasing continues to be brisk in these first eight days of May. Our leasing teams across the country have completed 111,000 square feet of leased transactions, 31,000 square feet of net new leasing and 80,000 square feet of renewals.

Not included in any of the aforementioned activity, are two conditional offers totalling 50,000 square feet completed in the Airport Node subsequent to the end of the quarter. The first was with the Global Logistics Company for 45,000 square feet and 5925 Airport Road with further expansion very likely and the second with a travel company for 8200 square feet and 2810 Madison Boulevard. Both these transactions commence this year.

Turning to our portfolios. In the overall downtown total market vacancy rose by 40 basis points quarter-over-quarter to 6.3%. According to CB Richard Ellis, this figure is largely a relic of 2013 leasing slowdown. Tenant activity increased significantly in Q1, with activity in the first three months of 2014 exceeding that of the last nine months of 2013. As there tends to be a lag between tenant activity picking up and lease suites being taken off the market, this activity has not yet manifested itself through decreasing vacancy rates or positive net absorption figures. In the coming quarters CBRE expects vacancy to remain stable as stronger leasing activity downtown is countered by tapering demand in some suburban markets.

Counter to the market at the end of the first quarter our in-place and committed occupancy in downtown Toronto increased 10 basis points to 96.8%. We are continuing to see strong demand for assets downtown and it had success in expanding tenants within the portfolio.

Leasing activity in the quarter was steady with the team completing over 110,000 square feet of transactions, 39,000 square feet of new or expansion transactions and 71,000 square feet of renewals. The net rental rate on renewals exceeded by the grades by almost 20% with the average being $28.30. The rates achieved on new transactions met our budget at $22.75.

The overall suburban GTA market finished the quarter in an occupancy rate of 86.7% which is only 10 basis points higher than the previous quarter as a mere 15,000 square feet of negative absorption occurred. This is a considerable improvement over the quarter when 260,000 square feet of negative absorption was recorded.

Committed occupancy in our suburban portfolio declined 120 basis points to 94.4%, still 770 basis points above the overall market, largely as a result of negative absorption at an Airport Road property.

In the quarter 36,000 square feet of leases with commencements in 2014 were completed with 14 tenants. 8300 consisted of new leases completed at an average rental rate of $14.00, which was 16% greater than budgeted. 28,000 square feet of renewals were completed at an average rental rate of $13.45, 9% greater than budgeted. The largest renewal completed was with Hostopia for 21,000 square feet on Airport Road, which exceeded our budgeted net rental rate by 8%.

In addition to the above new leases and renewals commencing this year, we completed a 13,000 square foot renewal of TD Meloche Monnex, whose lease expires in 2015 for a three-year term at a rate 3.8% above the expiring rent. Subsequent to quarter end we also leased over 19,000 square feet to [indiscernible] and our 400,000 square foot Commerce West on the 427 of which our ownership interest is 40%. Catelli Foods with contemplating renewing in a neighbouring building and has a longstanding relationship with our leasing Vice President as a result of his many years in brokerage contacted him to discuss the overall markets. As we had place available in the complex, he used this opportunity to present our space in the benefits of being at Commerce West. Our firm ten-year deal was concluded and is in line with our budget and with no downtime between tenants. Catelli Foods will be moving into the building this summer.

Turning to our second largest market category, the first quarter of 2014 marked an apparent stabilization of Calgary's overall CVD Office markets after four consecutive quarters of negative absorption and client vacancy. Q1 ended with 23,000 square feet of positive absorption and overall vacancy remaining flat at 9.1%. A particular note is that the amount of sub-lease vacancies declined 6% quarter-over-quarter after eight quarters of consecutive increases. The shift can be attributed to a few large pockets of sublet space being absorbed as well as a few mid-sized pockets being taken off the sub-lease market.

In the absence of any pipeline approvals, the drivers of overall sentiment are multiple smaller factors, including a strengthening outlook for natural gas, improving access to public equity markets for junior and midsized players and pipeline planning and engineering. Occupancy in our downtown report portfolio increased 60 basis points, from 95.3% to 95.9% as a result of a large volume of smaller lease deals concluded this quarter. We make a very concentrated efforts to ensure our vacant space looks the best it possibly can. We build model suites out in most of markets so that we have spaces that are move-in ready for smaller tenants. As a result of our model suite program we are having great success leasing 2000 to 6000 square foot suites. We have completed 15 new deals totalling 69,000 square feet in downtown Calgary and an average rent of $22.70 per square foot in line with our estimates. We continue to see strong demand in this segment of the market renewals totaling 100,000 square feet were also completed, the largest being with TELUS Communications at TELUS House, who extended on 70,000 square feet at own share until 2018. The lease rate secured for the extension exceeds the expiring brand by 45%.

Interest in our available space as 4447th Avenue has been excellent with tour activity on the space steady to the quarter and prospects ranging in size from 20,000 to 50,000 square feet currently engaged in space planning. A new building and fitness center and conference facility to be shared between 4447 and 6064th will be completed this year as will an upgrade of the main fore lobby.

Occupancy on Calgary suburban portfolio decreased 70 basis points ending the quarter at 86.1%. The largest contributor to this drop was 12,000 square feet of negative absorption at 311215 12th Street in North East Calgary which is partially offset by new leasing. 11 transactions totalling approximately 25,000 square feet occurred this quarter with 13,400 being renewals and 11,500 square feet being new deals. The largest deal was the expansion of Calgary Airport Authority by approximately 8000 square feet at Airport Port Centre.

The rated average rental rate for new transactions completed in Q1 was $16.40, approximately $2.40 higher than our budgeted marketed rents. The weighted average rental rate for the 13,400 square feet of renewals completed this quarter was generally in line with budget at $18.25 per square foot.

Despite the new construction, Edmonton CBD Market remained relatively static during the first quarter of 2014 with limited activity and the overall vacancy rate remaining flat from the previous quarter at 9.7%. Our Edmonton portfolio remains stable remains stable in the first quarter with no new leasing activity. At High Fill placed in the government district, we had interest in 8000 square feet of ground floor retail space and with the exterior and interior renovations that we have been marketing commencing imminently we have seen greater to our activity that includes office prospects as large as 25,000 square feet.

Demand in our suburban Edmonton portfolio has been particularly strong with occupancy quarter-over-quarter increasing 180 basis points to 95%, as a result of 90,500 square feet of new leasing commitment secured in the quarter. Average rental rates for new deals were $12.95 per square foot, which was just slightly below the $13.20 we had budgeted. The average rate completed on renewals at $13.45 per square foot exceeded expiring rents by 40%.

In terms of the wider South West Ontario market, two major transactions took place this quarter. The sale of Blackberry's 3 million square foot real estate portfolio to a U.S. buyer is rumour to be conditionally done. We will continue to monitor this portfolio as it could have a material impact on the Kitchener Waterloo and GTA West Marketplaces. Also of note Google leased 185,000 square feet of new space in downtown Kitchener which is an incredible endorsement for the city of Kitchener in the region.

Turning to our portfolio the previous quarter we reported the completion of several large renewals, including those with Rogers, Arbado, Sun Life Financial and Marks Canada. This quarter an additional 60,000 square feet of leasing was completed, the largest transaction being the expansion renewal of TD Bank in London. This transaction represents a 28,000 square foot expansion, 11,200 square feet at own share and the extension of 26,000 square feet. The 30,000 square feet of new deals we completed were at rental rates 16% above those budgeted and the 30,000 square feet of renewals exceeded our expectations by 35%.

Through our continued marketing efforts and those of CBRE who list our vacant space across the region we have seen increased to our activity. We have recently completed one new transaction in Kitchener and expect more in the coming months.

Subsequent to quarter end we have also conditionally completed a 7200 square foot deal with CB Richard Ellis to relocate their London Office into London City Centre. This transaction will bring a complex to nearly 100% occupancy and will greatly enhance the impression of the retail area.

The central area of Montreal experienced 185,000 square feet of negative absorption in the first quarter of 2014 resulting in occupancy decreasing 90 basis points to 91.9%. Our portfolio on Montreal experienced by a quarter with no leasing activity but we maintain our occupancy at 96.1% exceeding the market. Subsequent to quarter end however we finalized a 13,000 square foot expansion of our existing tenant AMT at 700 de la Gauchetiere's. This will increase our Montreal portfolio occupancy by 1%.

In our Greater Vancouver portfolio occupancy was generally stable during the first quarter declining slightly due to 6200 square feet of negative absorption. Two new deals and one significant renewal were completed in the first quarter totalling 41,700 square feet. The renewal comprised the extension of the Fraser Health Authority for 37,200 square feet at Station Tower completed at a rent 65% higher than expiring rent.

Occupancy in our downtown Ottawa portfolio increased by 30 basis points to 99.4% as a result of 2000 square feet of new leasing at 130 Slater. Occupancy in our 5000 square feet suburban portfolio decreased by 90 basis points to 94.1% and the 10,600 square foot tenant -- sorry the 10,000 square foot space was vacated at innovation drive. That space was subsequently leased to an expanding tenant who relocated for 5800 square feet in Gateway Corporate Centre, resulting in 4600 square feet of negative absorption. We were very pleased to retain an expanding tenant in the portfolio and the smaller space being left behind, the Gateway is very well out and should lease quickly.

During the quarter 23,750 square feet of leasing with commitments in 2014 were completed with five tenants, 10,500 being new leases and an average rental rate of $14.90 per square foot, which is 8% greater than market rent. The balance consisting renewals was completed at a rental rate of $19.20, 1% above the expiring rate. We had experienced good toward activity in our largest block of contiguous space, 22,000 square feet innovation drive in Canada and are in negotiations with the prospect for 70% of the space.

In Regina our occupancy at quarter end remained unchanged at 98% with rental rates remaining strong as evidenced by our recently seen activity. During the quarter leasing totalling 15,800 square feet was completed. The weighted average rent exceeded the market rent by 6% and is 11% greater than the tenants rent expiring.

Occupancy in our Saskatoon portfolio dropped by 130 basis points to 94% due to 7000 square feet of negative absorption primarily consisting of retail tenancy. Rental rates continued to be strong in Saskatoon during the quarter, 21,000 square feet of renewals were completed and an average rate of $27.00, 13% above the expiring rent.

Committed occupancy in our Yellowknife portfolio increased by 580 basis points to 92.9%. As a result of 19,2000 square feet of future leasing completed in the quarter that included a 9600 square foot expansion of the Commissioner of the Northwest Territories at Scotia Centre in a new deal with Diavik Diamond Mines for 8400 square feet at Northwest Tower. The Commissioner of the Northwest Territories at Scotia Centre also extended 20,000 square feet for a further ten-year term. The average rental rate on the 20,000 square feet of new leasing was done in line with market rents at approximately $24.00 per square foot.

We have now firmed up two disposition transactions encompassing our interest in four B-class suburban office assets in Calgary and Edmonton. Gross proceeds totalled $26.7 million and the average Cap rate was 6.9%. We expect these transactions will both close by the end of the second quarter.

In addition to attracting new office tenants to our portfolio we are working to uncover unrealized value in our 1 million square foot retail portfolio by both repositioning existing retails and adding new retail spaces. Opportunities include expanding and upgrading the retail at 8th King Street East, by creating access to lower level space, converting existing space to two storey retail and converting large lower space to alternate uses.

In addition we are working on identifying suburban sites where we can add small retail pads to both increase the cash hold of the property as well as expanding these we offer our office tenants. By combining Dream’s development experience with our market intelligence and tenant and broker network, we are forced to bring several new development opportunities to market. In Vancouver where we have an 8 acre site, we have the ability to build a 200,000 square foot lead Corn and Shell building offering immediate access to rent for station on this sky train millennium line. We are finalizing our design and plan and hope to be marketing the building in the coming months.

In Kitchener were we have a small parking lot on Kitchener main street, King Street, we are marketing 100,000 square foot lease gold corn shell urban leasing opportunity. Again our portfolio is the best that has ever been and with our exceptional team and added development capabilities we are poised to create additional value by upgrading our properties, by putting spaces and buildings to higher and better uses and by intensifying on underutilized land.

I'll not turn things over to Mario to speak of our financial results.

Mario Barrafato

Thank you Ana. Good morning everyone. Our first quarter results were in line with our expectations. As supposed the period was $0.72, which is up $0.01 or 1.4% over the same period last year and flat to last quarter.

Our FFO was $0.62.5 per unit, up $0.01.5 from the same period last year and also flat to last quarter. The increase in our year-over-year AFFO and FFO was result of a wide growth. Interest savings on refinancing, the accretive acquisitions we completed in 2013 and the purchase of units under our normal course of bid in Q4 of 2013.

The first quarter was very quiet from a transactional perspective. We closed on the fee announce, $150 million debenture issue which had a rate of 4.1% and a six-year term. $88 million of these proceeds were used to pay on our credit facility and $60 million was used to pay five more issues with an average rate of 6%.

We incurred a yield maintenance payment of $1.2 million to discharge the mortgages early. This amount has not been expanded in our full calculation.

From an operational perspective our operating fundamentals remain stable and our in-place rent continues to increase. We saw a high level of leasing activity with 631,000 square feet of leasing taking effect in the quarter. Of this leasing 413,000 square feet or 62% of our expiring space were renewals and 218,000 square feet were new tenants.

Main absorption for the quarter was 42,000 square feet or 10 basis points compared to the national decline of 60 basis points. In aggregate the leasing spread on renewals were approximately $1.77 or 11% of the expiring rents. The leasing of vacant space was completed at an average net rent of $18.25.

With this leasing activity our overall in-place rent increased by just under 1% to $17.97 from $17.83 in the prior quarter. We estimate our in-place rent will still be 9% below market with downtown Calgary rents at 17% below market and our downtown Ottawa rents 10%.

The overall market rent for our portfolio went up $0.15 per square foot and this was not a change in our view of office rates but rather adjusting to reflect the market rents in our retail space, which is now material segment as 5% of our NOI. Our overall in-place and committed occupancy was 94.2%, just down slightly from 94.3% in the prior quarter.

Our comparative NOI for the quarter increased by 0.6% or $700,000 compared to the prior year. The increase was driven by higher rental rates under leasing and contractual steps, offset by a decline in occupancy. We expand our reporting segments, our RD&A to break out our two largest markets. Downtown Toronto and downtown Calgary. For the quarter downtown Calgary comparative NOI was up 3.7% while downtown Toronto was flat. Offsetting out NOI increases was a 4% decline in suburban Toronto NOI due to a drop in occupancy.

Our G&A costs remained flat to prior quarter. New for the quarter is a $276,000 cost related to our investment and process and technology initiatives. While technically an investment in our internal operating platform, the cost has been expensed and a calculation of our FFO.

Turning to our balance sheet, our debt metrics remained stable during the quarter. All of our metrics were flat. Leverage remains strong at $47.6. Interest rate remained at $4.2. Interest coverage ratio and debt EBITDA ratios remain strong at 2.9x and 8x respectively. Our FFO values were essentially unchanged at $7.3 billion with average cap rates remaining at 6.2%.

On the financing side we're close to completing a ten-year deal on a property in Regina. It's for $24 million. The all in rate will be 4.16%, reflecting a spread of 180 basis points. And looking to the remainder of 2014, our business will continue to generate stable results. Out fully diluted FFO for pass for Q2 is $0.72 which is flat to Q1. We are forecasting an growth for approximately $700,000 over this prior quarter and that will be partially offset by a $500,000 non-cash G&A charge and that will be a onetime charge.

For the year our front forecast for fully diluted FFO is $2.88 and this reflects the onetime cash G&A charge plus a full year of technology improvement costs. We're just monitoring two issues right now, the main of factor forecast and one is the timing of new leasing and second is the timing of dispositions in cash.

I'll now like to turn the call back to Jane.

Jane Gavan

Thanks Mario. I'm going to open up the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Mark Rothschild from Canaccord Genuity. Please go ahead.

Mark Rothschild – Canaccord Genuity

Hi, good morning everyone. In regards to the position on the industrial unit, the industrial unit price has recovered somewhat. What -- is there an update on the status position? You looked at it as something you could potentially modify if there are some growth opportunities for the [indiscernible]?

Mario Barrafato

Hi Mark, it's Mario. Yeah, I mean our intent was never to hold those long term. One of the reasons we held them was there was just a tax liability, [indiscernible] for our retail investors. I think the real issue for us is the -- is getting value for it and right now there not of the value, we think they are. I think secondly is really the issue we are struggling with right now is the use of proceeds. If we do monetize it what do we invest in and right now there's really no clear pipeline of assets that we like or our use of proceeds of that amount.

Mark Rothschild – Canaccord Genuity

Okay, and in regards to the asset sales, some are modest at this point. Is the probation in that and as far as use the proceeds or unit, is the unit buy back and is that something you might use the money for?

Mario Barrafato

We would like to, be more active on dispositions where you have a small pipeline. Our target right now is a $100 million, but you know we are seeing activity. The question you know we struggle with a few things. One is we're getting up a high yield on some of these assets and you can't replace that yield and so it’s really looking at where we want to put the money and buying back stock, we are very active and we know Q4 and we support the stock. But when you deploy that capital you can't get it back and so we really want to take it slow and look at all our options and I really would love to invest it on the balance sheet, on the asset side of the balance sheet and not necessarily right now on the credit side. We made a lot of improvements last quarter and last year on lowering that in buying back stock. So for right now we're going to just go slow and see what the opportunities are and if it doesn’t pick up then we are buying back stock and continue down there.

Mark Rothschild – Canaccord Genuity

Okay. And lastly, give some more information with limits [ph] on what’s the one-time G&A cost [indiscernible] what’s it really do?

Mario Barrafato

Literally, just the accounting for non-cash job competition mostly for our Board of Directors we have some transitioning and so usually we account for this on a longer term horizon and with the few board members retiring just to show [ph] the recognition that we expect.

Operator

Thank you. Our next question comes from Mario Saric from Scotia Bank. Please go ahead.

Mario Saric – Scotia Capital

Hi. Good morning. First of all, Jane, congratulations on the move-over. I had a quick question for you just more of a broader question. But in terms of your experience in the last couple of years in Germany and given the kind of look for the office market here in Canada, I’m curious as to what you think are the one or two things that you really learned or picked up in the last couple of years that you think will be of benefit to get experienced in Canada going forward?

Jane Gavan

That is such a good question. The international portfolio was such a challenge. When we bought it, it was 85% lease if you might recall to Deutsch Post. So, we really focused over the last two and half years on diversifying that portfolio. So, leasing, leasing, leasing, keeping the buildings full making sure they’re operating well in a very tough environment and a bad economy. We just focused on getting the house in order. So, I think when we talk about the leasing challenge in Canada, to me they feel much less daunting than what we were seeing in Germany two and half years ago and taking advantage of opportunity when you see them being quiet when it’s time to be quiet and then jumping on opportunity when you see it. So, certainly, when we entered into Europe it wasn’t the exciting time to go in or at least the popular time to go in and so we took advantage as we saw an opportunity. In Canada, what we’ll do is get our house in order and then be watching to see when the next opportunity arises.

Mario Saric – Scotia Capital

And I guess when you reference opportunities in Canada going forward, is that specifically looking at capital deployment in acquisitions once the market get it better or what are some of the kind of contrary in opportunities that you see in Canada for the next couple of years?

Ana Radic

As Mario just said right now, we’re not seeing anything and so the challenge for us is to just stick to anything and make sure that we keep our buildings full in that discipline. But I supposed at some point there are going to be acquisition opportunities. We’re going to focus, for example, in our portfolio and redevelopment maybe doing some new development, which is different for us and that’s the thing about our platform. I’m not sure what the opportunity is today but will be eyes open over the next 12 months and see what’s happening in the market.

Mario Saric – Scotia Capital

Okay. And then I guess you’re spending more time on focusing on intensification development, your retail platform and I think you mentioned two potential development sites in Vancouver as well as in Kitchener I’m wondering kind of bigger picture. At what point do you think you may be ready to give us just a general idea of the magnitude of each of those kind of value creation initiatives for Dundee if we look out over the next kind of three to five years so even we break it down between development aside from retail redevelopment and then it’s intensification going forward?

Mario Barrafato

Yes. I’m Mario. We’re still in the early stages, I think yesterday at the AGM Ana would have mentioned. We just actually hired somebody in charge of Commercial Development. He’s been here a few months. He’s building up a team. We have three portfolio managers. We’re now kind of like many COOs. They’re going through their portfolio identifying strengths, weaknesses of various opportunities. So, we’re really starting to process. I think we’ll just see in the near term is the retail repositioning. The fact that we’re talking about it now is becoming a bigger segment. You’ll see more, I think, improvements for buildings to retain tenants. The next three years are really important and so we do think lot of that building improvement and that I think the year after you’ll start seeing some of this development on these smaller buildings and we’ll get it going. I think as we get into we’ll find more opportunities. So, it will have more clarity kind of the year as to what next year looks like and then I think as the development team keeps going, the more they’re working the more ideas are coming up with. So, I think this could really ramp-up in 2016 probably.

Mario Saric – Scotia Capital

Okay. Ana, I missed the two depositions that you talked about around. Can you just provide some color as to what those were about [ph]?

Ana Radic

Yes. We sold the 25% interest we had in three suburban assets in Calgary and Edmonton Plaza 124 Shopping Center and Riverbend Atrium. And then there is a building in suburban Calgary, 9705 Horton Road that also has been sold, that building storey, we own it 100% and $9 million deal and that should close in the second quarter as well.

Mario Saric – Scotia Capital

Okay. And would you be able to share who the buyers were?

Ana Radic

No. I can’t. I’m afraid.

Mario Saric – Scotia Capital

Okay. That’s from me. Thank you.

Ana Radic

Okay. Thank you.

Operator

Thank you. Our next question comes from Alex Avery from CIBC. Please go ahead. Reply to me, Alex. If you’ve muted your sounds, please unmute it or if you are on a speakerphone, please speak on the handset. Reply to me, Alex. Our next question comes from Mike McCredit [ph] from Discern [ph] Capital. Please go ahead. Reply to me, Mike.

Unidentified Analyst

Hi. Good morning. Sorry about that. Ana, you give some really good disclosure earlier about all the leasing successes that you’re seeing in each of your markets at the local level. I guess when you guys just look out for the remainder of 2014, do you have a general sense of what you’re expecting in terms of achieving with respect to your portfolio occupancy?

Ana Radic

As I said, we had good traction at 700,00 square feet of new deals and we typically do about a million square feet of new leasing every year. So, I think that is what we’re targeting and based on the pipeline that we have across the country, it should be achievable for us. We do have some spaces that we are getting back and we’re securing some commitments that I forgot to mention like the Kelly [ph] Foods that we did on 4/27 in advance of that. But as a result of those known vacates, our occupancy will be flat or declined slightly to about 90% to 94% probably committed and occupied.

Mario Barrafato

My compliant is right now we have some known vacates in Q3, the biggest one being the National Energy Board in Calgary. So, we’ll see occupancy be stable trend down in Q2. In Q3, it will go down above maybe 50-60 basis points, but we have a lot of deals in our pipelines when they take effect. Our goal will be to be by the end of the year we get back to where we are today.

Unidentified Analyst

Okay. That’s very helpful. Just switching to the asset sales that you mentioned obviously a small amount thus far and Mario is [indiscernible] due to the fact that the cap rates on these or the income on these assets is typically quite high. Can you give us assumptions what’s the cap rate on the – it was it was 27 lines [ph] of assets you’ve sold. It would be or whereabouts only.

Ana Radic

It was at 6.9% around there.

Unidentified Analyst

Okay. When you just look at the, I guess it was the $100 million, you expect to maybe continue to do and maybe didn’t give us really a timeframe. But was that just be a continuation of the smaller types of assets in your portfolio and would you expect that the cap rate be relatively similar?

Mario Barrafato

Yeah. I think for now the strategy we have always had is try to prune the subs [ph] that doesn’t fit in. So, there is retail space. There is smaller office base. Yeah, that would be the types of property we’re doing right now. And again as we get more color on the market and use of proceeds would help there, maybe we can solve some things that are of a higher value, but we can trade into something better.

Unidentified Analyst

Okay. And Jane, focus or at least something that’s been discussed that are high level on the Dream Global side, it’s been the notion of joint venture partnerships. And I’m just wondering if that proceeds extends to Dream Office here in Canada?

Jane Gavan

You know I think that’s fair and certainly in terms of our conversations with potential partners on global. There’s always interest in getting into the partnership with Dream Office because it’s so hard to get into the Canadian market. Think of Mario mentioned earlier, though it’s a question of how we reduce the proceeds. There’s nothing that we would be selling an interest in that we can find something we want to replace with. So, I think it’s a little bit of a go slower process for the office rate.

Unidentified Analyst

Okay. And lastly, just with respect to the commercial development team that you’ve assembled and the opportunities that you’re seeing there, you’ve mentioned I guess sort of medium to maybe longer term opportunities to build new. Did the scope of that platform as you perceived potentially include doing some sort of value add acquisitions and buying potentially appropriate wherever there was a significant [indiscernible] stabilization?

Ana Radic

Yes, absolutely. I think what we’re seeing is there aren’t many opportunities like that in the market and we certainly have our eyes open and are leasing team and across the country brings everything to us. So, we have a strong team and we welcome those kind of opportunities should they present themselves.

Operator

Our next question comes from Neil Downey from RBC Capital. Please go ahead.

Neil Downey – RBC Capital

Hi. Good morning, everyone. Ana, from your prepared remarks earlier it seemed it’s very much a theme that your re-leasing rates were consistently in excess of your budgeted rates. I think it was also stated in the disclosure show effectively that your estimated market rents haven’t really changed. So, how do I square off those two facts? Was your experiences somewhat anomaly in the quarter in terms of exceeding budget? Are you offering higher incentives and encoring higher re-leasing cost to maintain face rents or how should I square off those facts?

Mario Barrafato

Neil, I think the real issue was that the budget was done last September as more of an operating tool. We’re constantly looking at market rent. So, I think it’s more so that than what our initial expectations were at the operating level and then versus what’s disclosed and what’s disclosed gets updated frequently based on the leasing product mix all that kind of stuff.

Neil Downey – RBC Capital

So, in short, I guess what you’re saying is that with the passage of time is put your budget in the position of being slightly too conservative?

Michael Cooper

At that time, yeah.

Neil Downey – RBC Capital

Okay. Thanks.

Operator

Thank you. Our next question comes from Alex Damiani from TD Securities. Please go ahead.

Sam Damiani – TD Newcrest

Good morning. It’s Alex Damiani. Hi, how you’re doing?

Operator

It’s Sam. Please go ahead.

Sam Damiani – TD Newcrest

No problem. So, first of all congratulation, Jane.

Jane Gavan

Thanks, Sam.

Sam Damiani – TD Newcrest

So, just on the occupancy I think you’ve mentioned your goal is to get back to where you’re today at the end of the year on a committed basis, I believe. But on an in-place basis would you have a similar specific goal to share with us today?

Mario Barrafato

That would actually be on in-place, I mean you can’t. Commitments are just the pipelining, we can’t really control those. We know the goal will be to get to where we are today and start thereof in it have a lot of leasing pipeline. The goal is we can get them leased by the end of the year. That gives us a really, really good tailwind for next year.

Sam Damiani – TD Newcrest

Okay. So, the 92.5% in-place is where you hope to be?

Mario Barrafato

Yeah. Around there probably. But it’s slightly below, but that will be our target.

Sam Damiani – TD Newcrest

Okay. And just looking at the top tenants on page while I think of the report there is a couple of government tenancies with relatively short average for many lease terms specifically the Government of Canada, Government of Saskatoon. What are the likelihoods that these groups of leases will be renewed in the normal course or do you foresee any particular risk of losing any of these leases?

Ana Radic

With respect to the Government of Canada, we’re in active discussions with their leasing department and public works and at present we don’t know that definitively that any of these tenants will be leaving and we’re in discussions with them about capital upgrades of building and making modifications just to suit their needs. So, we’re relatively optimistic we’ll be able to retain many of our government tenants in Ottawa office [ph] and that government tenancy actually spread out across 14 buildings across the country as well. So, we do have them in Ontario as well as in Alberta and they’re definitely utilizing our space in our buildings, so that’s good for us. With respect to the Government of Saskatchewan, there may be pieces of space there that they contract into some of their own buildings and so that’s something that we’re going to get little more clarity on in the coming quarter [indiscernible] say exactly how much space they may get back to us.

Sam Damiani – TD Newcrest

Okay. In those specific buildings, would you say the markets there strong enough for you to be able to replace with it’s very high likelihood of higher rents?

Ana Radic

Yes, absolutely in Saskatchewan specially. I mean the market is very tight, there is good demand in general and you are typically replacing the rents at higher rents and actually with better recovery as well. The space is very good and it’s larger blocks, which are tougher to come by in that market.

Sam Damiani – TD Newcrest

Great. Thank you.

Operator

Thank you. Our next question comes from Alex Avery from CIBC. Please go ahead.

Alex Avery – CIBC

Thank you and sorry about our earlier – I got pulled away. Just looking at your disclosure, you’ve broken out for the first time, I think, the Toronto and Calgary markets into downtown and suburban. And I was just wondering what the motivation behind that was and I guess perhaps how you see those different markets evolving overtime?

Mario Barrafato

I will handle the reporting question, Alex. Ana talk with the markets. But we originally did these segments years ago and just we have Toronto and Calgary as one and now the market is changing and you do get talk about the supply in downtowns and you do get talk about the weakness in suburban end. So, we just thought it’s the way we look at it and without expanding the disclosure too much and too complicated, we thought it would simplify and show people actually what’s happening this quarter-over-quarter. Our western Canada portfolio has been great and downtown Calgary has done great. So, we want to be little more transparent with what’s happening and those two major markets have really comprised 60% of our NOA.

Alex Avery – CIBC

Okay. Ana, did you perceive, I guess, some different evolution, suburban versus downtown?

Ana Radic

A little bit. I think our demand has been greater in downtown Toronto and we’re not seeing really significant pressure on rents there. We’ve been achieving good rental rates on our tenancies, which is in Toronto and actually in downtown Calgary as well and it represented smaller average tenant site in our suburban portfolio. And those smaller tenants tend to be a little bit stickier and we’re able to increase rents a little bit more in those markets. So, that being said, we’re still seeing good demand in the suburban markets. I think we’re getting more than our fair share of tenants in those markets, but overall there is a little bit less velocity in the suburbs of Toronto.

Alex Avery – CIBC

Okay. And then just turning to the normal course, it’s sure that you’re active again in the quarter but a little bit less active at a little bit lower price than you were last year but still active. And I was just wondering if you could give us a sense of perhaps how much capacity you see for further normal course purchases and I guess within the context of maintaining a comfortable capital structure?

Mario Barrafato

Yeah. The key part for me was happened in Q4. I was lured to seeing a lot of volume. So, we’re buying back because there’s lot of people looking themselves talking. We thought it was dipping in between 28 and 29 where buyers -. The volumes slow down and so I guess that’s keeping the capital right now and looking at the best use. We’ll renew the bid and we’ll have capacity to buy more and it is part of it. Right now, we have our drift coming in. So, we probably are in the course. Yeah, we use some of the money maybe to neutralize the impact of the drift and we can’t deploy the money into buildings. And so I guess for me it’s being ready and we’re active that the stock price is still trading at the level we bought back the stock at Q4. So, it really hasn’t done much and so we’ll monitor it and if the stock does move down a bit more of the risk of higher volumes in trading, then we would be active again.

Alex Avery – CIBC

Okay. That’s great. Thank you.

Operator

(Operator Instructions) We have no further questions at this time.

Jane Gavan

Thank you, everyone. We really appreciate your listening in our call. I know it’s a particularly busy time right now with reporting season and all the AGMs. I just wanted to conclude by saying, like I said yesterday at our AGM, as being officially back with the Dream Office 3 feels like coming home. I’ve been with the Office 3 as I said yesterday even before it was read. Ana, Mario and I worked on all the big transactions in the REIT’s history converting to our REIT 2003 the sale of $2.3 billion of our assets in 2007 and the REIT’s largest single exhibition, Scotia Plaza and I’m so pleased to be rejoining the senior management team and it’s already tremendous bench strength. So, we’re looking forward to our call next quarter and thank you very much.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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