Q3 2019 Earnings Call
Good morning, ladies and gentlemen, welcome to the summit <unk> third quarter 2019 results conference call.
Please be advised that this call is being recorded.
I would now like to turn to meeting over to Mr., Paul Dykeman, Chief Executive Officer. Please go ahead mr. like net.
Thank you. Good morning, Thank you for joining us today as usual wall Street or Chief Financial Officer is here with me.
Before we begin let me remind everyone that during the conference call. We may make statements containing forward looking information. This word looking information is based on a number of assumptions and is subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those disclose or implied I.
I direct you to our earnings release, Mdna and other security filings for additional information about these assumption some assumptions risks and uncertainties.
As you are aware this has been a very busy and productive time for summit through the.
Through the subsequent to the end of the Corps third quarter, we significantly expanded and diversified or property portfolio. Returning our focus exclusively on our core industrial property segment grew our pipeline of highly accretive development opportunities.
We're also pleased to have issued a seven cents special distribution to unitholders in October resulting from the realized gain on the sale the data center properties.
To date, and including acquisitions announced subsequent to the end of the third quarter. So far in 2019, we have agreed to acquire interest in total of 42 light industrial properties well located in our Threed target markets.
Adding approximately 4.2 million square feet to the portfolio.
For a total cost of approximately 730 million once completed these transactions will increase our asset base to 149.
Light industrial properties totaling 17.7 million square feet of Julie with a book value of approximately 2.5 billion.
In addition to generating significant growth in our cash flows going forward. These transactions strengthen our presence in or three target markets enhance the diversification of our asset base and drive reduce costs through the current through economies of scale and operating synergies over the long term.
The largest acquisition so far with this summer to was the purchase of 37 light industrial properties in Alberta, totaling 3.3 million square feet of GE late at the end of October 22 of the properties are in Edmonton 14, or in Calgary with one in Grand Prairie. We also acquired a 53 acre fully leased parcel Atlanta.
I haven't done.
We paid 580 million for the portfolio. It was funded by a 230 million dollar bought deal equity offering and cash.
As I outlined we were pleased to have quickly invested some of the proceeds from the gain of a data center.
Data center properties into this accretive general transaction, which will generate an overall going in cap rate of 5.5%.
The portfolio contains a mix of single and multi tenant properties with approximately 67% of the portfolio consisting of modern class a space.
This feature significantly enhances the quality of our property portfolio with almost 60% of the total space consisting of highly functional logistics building properties that were made in high demand in the market.
Currently the occupancy stands at 91.7 present on this portfolio.
With this vacancy is only in primarily in nine multi tenant buildings.
With which feature highly functional and leasable space. We're confident we can enhance our going in yield as we lease up this vacancy.
The tenant base is made up of primarily transportation warehouse like manufacturing firms only 17 per se, 17% of the spaces occupied companies that are in the oil and gas Bennett gas business at many of those are on long term leases.
So the significant transaction brings a number benefits to the unit holders and most importantly, it's significantly and immediately accretive to our AFFO per unit.
It increases the size and scale of the portfolio a significant 32% from the end of last year. It expands our presence in one of our three core target markets. We're confident with this increased present in western Canada will generate strong and growing return spurt unit holders.
While the diversified nature or tenant base will shield us from possible downturns in any one a economics sector in western Canadian markets.
We also have the opportunity to grow cash flows through lease up of the vacant space development opportunities on vacant land and redevelopment potential based on tenant expansion. These opportunities are real and will generate solid growth in the years to come.
In another major transaction during the third quarter returned our focus exclusively to our core industrial markets. In early September we completed the sale of our interest in the Datacenters proceeds from the sale were approximately 178 million generate realized gain of $42 million or 35 cents per unit on the sale, we also had or working capital.
I mean loans repaid for another 62 million.
With this all at realized gain on the sale of the noncore properties.
We were pleased to issue a special seven cents per.
For unit distribution in October , which is consistent with our policy to return a 20% of any realized gains were unit holders and this is a third.
Special distribution that we've made a on the sale of properties.
Looking ahead, we continue to be involved in the development of two or two datacenters.
One in Richmond Hill, and one in downtown Montreal through new mezzanine loans to do joint venture owners of the properties. They will be partnering with a major institutional investor can to complete these two buildings and with these mezzanine loans, we will participate in the potential gains and value add once the properties and completed and fully leased.
As this transaction demonstrate remain very opportunistic in our capital deployment and recycling strategies by monetizing the significant gains on the data center properties, reducing our mezzanine loan and working capital loans, we freed up that hundred 45 million in capital and were very quickly to reinvested in the like core industrial markets through the up over to acquisitions along with.
The acquisitions as well.
We believe this is an exact Ecolink example, excellent example of how we move quickly in accretive lead to build long term value for unit holders.
Now turning to our development pipeline, we continue to expand a one property and develop four newbuildings all in the GTN region. We've just recently finished the expansion of our kitchen or property, adding 65000 square feet based on that tenant demand and the cost of this expansion was $6.6 million and we.
Generated an 8% return on this incremental cost.
We'll be constructing construction in early 2020 on a brand new 87000 square foot building.
On excess land, we only Mississauga and another 146 40000 square feet on 7.5 acres of excess land in Burlington. These projects will be started in 2020.
And complete the other in late 2020 or early 2021.
In conjunction with the acquisition of two brand new properties and the recently established industrial Park and wealth, Ontario, We acquired a 50% interest in 49 acres of development land and have entered into a joint venture with Cooper construction to fully developed that park. Once completed these developments projects will at an estimated 774000 square feet of new space.
There are currently two of these buildings under construction and apart when completed will add a total of 387000 square feet and some of that has the option to acquire the the over the remaining 50% balance once they are complete and leased.
So in total we currently have approximately 685000 of square feet of new space under development all in the very strong GT, a a regional market.
With significant future growth opportunities on other owned property land and expansions. We expect these niche initiatives will provide very strong and very accretive returns for our unit holders in the years to come.
Finally, we are proud to be named as one of the best the three best performing issuers on Tronics stock exchange over the last three years being the only real estate issue and that included in that TX.
30 is measure of our growth strong operating performance and our commitment to unitholder value over three year period from June 2016 to July 2019 summer generated 160% the overall return.
On a distribution adjusted unit price in summary, with this was another very strong quarter for summit, we look forward to this growth and stop strong operating performance to continue I'll now turn over things to Ross to discuss the operating results in more detail. Thanks Paul.
Our strong portfolio growth so far this year and through the fourth quarter 2018 has had a very positive impact on our results through the first nine months of 2019.
Revenues were up almost 55% sent to $101 million for the nine months ended September Thirtyth also driven by our effectively full occupancy and continuing increases in monthly rental third quarter revenues rose 43%.
With this revenue growth and our continued focus on efficient property management net rental income was up 59% for the first nine months of 20, I'm going to 47.8 million with Q3 net rolling come rising 46.2%.
We were pleased to once again generate solid increases in our same property NOI for the nine months ended September thirtyth.
Total organic growth was 5.5% <unk> driven by strong gains in our key target market.
6.1% in the GCA, 2.3% in Montreal, and 4.3%, 14.3% in Western Canada.
Looking ahead, we're confident that current 1.5% contractual rent increases in our leases combined with the strong increases we are achieving on our lease renewals. We will continue to drive further organic growth in the quarters ahead.
With this growth in our revenue and Hawaii, FFO rose almost 55% to 47.8 million for the nine months ended September thirtyth.
Or 43.9 cents per unit.
Third quarter, AFFO increased 41.3% to 16.5 million or 13.8 cents per unit.
Importantly, our growth remains accretive as FFO per unit was up 5% for the first nine months of 2019, despite the 47% increase and the waiter number units outstanding compared to the first nine months of last year.
We continue to make solid progress on the financing front capitalizing on current low interest rates and extending the average term for the mortgage portfolio that's applicable.
Mitigate the impact of rising rate going forward.
As an example are finding at activity through the first nine months of 2019 included included locking in long term mortgages, which added more than a full year of average term to maturity rising to just under six years compared to 4.8 years at the end of 2018.
During the second quarter, we increased our revolving operating.
Facility to $150 million as of September Thirtyth, there was nothing drawn on this facility.
Our exposure to floating rate debt as of September Thirtyth was only 0.9% of the total debt at quarter end.
In late October we completed a $230 million bought deal equity offering using the proceeds to partially fund the large acquisition pot line.
Prescription receipt issue for this offering contingent on the completion of the Albert acquisition, where then converted to write units on a one for one basis on November Onest.
We also established at 30 $382 million bridge facility in November for the Albert acquisition.
Our success on proactive leasing activity continue through the first nine months of 2019.
Occupancy rose to effectively full levels of 99.5%.
At September Thirtyth up from 98.4% last year.
To date this year, we've completed almost all of our 2019 lease rolls with a very strong 99.2% retention rate a key objective at summit.
We now have only 0.2% of the portfolio remaining to be renewed in 2019.
We are confident we will continue retain the majority of our tenants renewing them at a higher monthly rents, particularly in our core markets of the GCA and Montreal.
We also completed early renewals so some 2020 leases, resulting in a modest 5% of the portfolio now expiring next year as well as a large 322000 square foot lease set to expire in 2022.
In addition to strengthen the stability and predictability of our long term cash flows are leasing activities are generating significant increases in monthly rents demonstrating the strength of our target markets and how ongoing demand is driving increases in our revenues and a wide.
Overall, our 2019 renewals have generated at 11.1% increase in monthly rents from expiring rent with a significant 17.8% increase in GTH.
In addition, our 2020 renewals generated an average 9.2% increase in monthly rent over the expiring rent with a much higher 17.4% increase our GCA market.
In summary, another strong quarter, and we look for our growth and strong operating performance to continue.
You for your time this morning, I'll turn things back from Paul to wrap up.
Thanks Ross.
So looking ahead, we continue to execute the same value enhancing strategies that we have so successfully done in the past, we prudently and profitably acquire quality properties and our target markets purchasing newer well maintain assets at below replacement cost with rents below market, where we believe we can generate value through our prudent proven management programs.
Our cash flows will grow organically as we capitalized on the continuing strong fundamentals in light industrial sector.
Hold on a contractual annual rental increases generating increased operating synergies and reduce costs through the increase size and scale of our property portfolio.
We will leverage our proven expertise to develop an estimate of 700000 square feet on land parcels, we own primarily all within the GT a vibrant GP market. These investments, we anticipate will be highly accretive to our unit holders more importantly, we will maintain our proven track record of delivering stable sustainable and growing monthly.
Currency unitholders recognize that in today's uncertain economic times Regresses look at summit for stable and predictable income will maintain that focus in everything we do in summary, we were very pleased with our gross and performance. We look forward for continued progress in the years ahead with the strong industrial fundamentals best in class properties.
Our proven management team with decades of experience, we're well positioned to continue to deliver the stable sustainable and increase value per unit holders over the long term.
Like to thank you for your time and attention. This morning, and now we will be pleased to answer any questions operator.
Thank you.
We'll now take questions on the telephone line. If you have any question and you are using a speakerphone. Please if I said before making their selection.
If you have your question. Please press star one on your telephone keypad.
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Please press star one that this time if you have a question there will be brief pause while the participants can register for questions. Thank you for your patience.
My first question is from Brad Sturges from Securities. Please go ahead. Your line is now open.
Hi, good morning.
Right.
With the Kitchener expansion when was that completed and when does the when did the runs kick in.
It was completed in the rents ads.
Kicked in September Onest sits on first.
With the.
The new wealth developments with Cooper construction I think the timeline for completion was mid 2020 that is that correct and when would you think that project those projects gets stabilized.
Yeah.
They'll they'll be completed.
And they're doing them in stages. So the first one we will get done early spring SEK, one will get done later summer.
Theres lots of already lease inquiries, so I'm not anticipating a very long lease up period other than if we want to hold those and try to get the highest highest rent possible. So I'd like to think that would be.
The first one could be as early as the the middle of 2020 and probably the Sakhalin later of 2020.
Then there is two additional buildings, we can build there so.
Once we have any kind of momentum on the first two buildings will immediately started the process on building three and four down there.
We definitely have a price advantage over GTN rent asking rental rates, we've looked around at some of the development of being done on spec, whether it's in the east and or.
In the in the trial.
Asking rents are nine on a quarter of seen 975 million seen above 10.
Down there because of the land prices.
We can still get the same kind of development yields at rents that are in the.
Mid Sixs seven type of thing so we have that that pricing power, so and essentially the golf lands, which feel we've driven out there are both 10 to 15 minutes.
Pass Milton and it's like two or three minutes off the four one so great access to the transportation hubs. So it's really just that continuing growth and push.
They are one of the two buildings that we bought.
One of the tenants in there was a tenant we headed in the east end of the city and he was trying to expand and this was the only place he was able to find that work for him at the right kind of rent so.
He has a second location down and wealth now.
Okay.
In terms of lease expires for next year is 700000 square feet at September Thirtyth is that balanced throughout the year.
Or is it frontend backend loaded and then I assume that's mostly.
A good proportion that still and Tromso.
Pays to kind of wait at this point if it is.
Given the rent growth.
Looking at the larger tenants fees, it's mainly backend loaded the second half of the year.
And stuff and some of the bigger ones, there's one big one in Montreal, but some of the bigger ones are in Toronto. So yes.
Entered and again as I mentioned the last call. We we've we've definitely have started to.
And it's partly because we're we're working on the 2020, but tenants are really starting to pay attention that they don't have many options. So we have tenants coming to us a lot earlier than possible, but we're no rush to try to negotiate those because time is on on our side in the renewal negotiations.
And with the new Alberta portfolio.
How much.
Lease expires would you have for next year and I know you've only had it for a couple of weeks, but any initial.
Expectations.
And I have a piece of paper that has that answer on it. So I'd because they are we have on this portfolio for 12 days, but.
Our our team has already been out there a number of times as part of this portfolio, which you may or may not be aware of we picked up by the employees that are currently managing this so we have eight employees, including some accounting staff a in Calgary and Edmonton, So they're very familiar with the assets.
There was a couple of deals that were being worked on so the vacancy.
Like 276000 square feet as was 100000 of that is in.
Calgary, we have one.
Deal 21000, that's done starting at a rent of around $9 Theres. Another 51000 network. We're having some of this early discussions on in Calgary. So we're more comfortable in the Calgary market than a Edmonton in terms of the overall environment, but still in Edmonton.
About 175000 square feet of vacancy we have one deal that we're very close to 33000 square feet.
We've done a month to month deal, which goes to May 2020 on 44000 square feet. So definitely expect the.
The occupancy to improve quarter over quarter Ross do you have the expirees.
I can yeah, it's not substantial Brad it like three to 400, yes like three to 400000 each of the next two years and the strategy in the philosophy is Calgary, we think is a very tight and in balanced market.
We have contractual rents in this portfolio of 1.3%. So we can probably be a little bit more aggressive with tenants. They are trying to push for other rental increases or a good steps in the rent Edmonton. The strategy is going to be a little bit different which is theres more options and vacancy we believe Edmonton is stabilized, but it's still.
And then full recovery mode, so tenants coming up.
They have options to so we have definitely in this environment will be very proactive starting to deal with the expirees in the next 24 months right away. So the more we can lock that down.
Trying to keep in that case this gradually keep rent kind of where it is on on those expirees and if we have to give some minor rent adjustments will do that but overall between leasing up of the vacancy the contractual rental increases what we think we can do in Calgary, we still anticipate that the the NOI for the entire Alberta portfolio has.
Good chance of moving up over the next couple of years.
Okay, Great I'll turn it back. Thank you. Thank you.
Thank you.
Next question is from Matt Logan from RBC capital markets. Please go ahead.
Thank you and good morning, good morning, and Matt.
Can you guys just talk a little bit of though some of the fair value marks in the quarter Youre Mdna highlighted the DTA and Montreal, but maybe you can just give us a sense for the split between geographies.
And if there any specific trends transactions that supported you're thinking.
Well.
Weve overall we've.
We've reduced the cap the average cap rate on there are GK portfolio is now right around that 4.65% and our much all portfolio is 5% to went from about 5.85, 0.9% down 5%.
We.
That that represents the majority of the fair value increases.
Our portfolio in that.
And there's been a couple larger Montreal transactions.
That are definitely pushing that we we thought we were behind a bit on lower and cap rates there.
But there is now been a couple both last year and just recently new deals there. The latest one was like a 3.9 cap.
So we're still well above those kind of numbers.
Because people are starting to anticipate higher rental growth in Montreal, as well and the DTA, We just bought a.
Property, we're looking at another one.
Right around that same number like a high three low forecast, so and I think it's going to be increasingly difficult define any properties and the GCA that are stabilized.
Over four cap is going to be tough.
So I guess the change this quarter was principally driven by Montreal with maybe a little bit in Toronto.
Yes, and yes, and the process. We go through we we we get a certain number appraisals, we'll do some more in the fourth quarter, but we've also.
Now started to engage to an appraisal firm to help us with that and with that valuation. So management's always a little bit more Tim it or reserved and how we look at these things so.
We're doing it with the help of this third party group in there.
Able to kind of little bit more.
Certain in terms of where we're where the cap rates event and clearly there is there's rental growth in here as well that they're they're capping anticipating as you. All these pumps that were saying we're getting in the GTH some of them having been reflected in our quarterly statements, but they are in the rent rolls and the appraisers can look at those and cap them at the appropriate cap rate.
No. We're certainly starting to see rents pickup in Montreal, and maybe to that end. How is how do you find leasing market. There do you see an accelerating number of leaves compared to say, the DTA or where Montreal was a couple of years ago.
Well the Montreal marketed yes, it's definitely stronger we haven't been had to be as active because our portfolios, but very stabilized. So we've had much less.
Expirees in Montreal, So we haven't had as much first hand experience, but from everything we're seeing and hearing.
It's a very it's a very tight market and again, you really have to look at the market in the and the Tegra properties that you have because the rental growth on high quality. What located properties is definitely growing at a higher clip than inferior properties in an inferior location. So it's hard to be general in Montreal, you really have to look at the individual properties are our 2000.
The 19 renewals were down at a 10.8% increase.
Taking the rents up by about 50 cents a foot.
That's a still pretty healthy I mean, not not quite at that gave it certainly seems to be up over prior years.
Nobody.
Yeah.
Maybe just changing gears a little bit on your contractual rent steps you mentioned, there were 3% for Alberta, where would they sit today for the overall I said I said 1.3 [laughter].
Sure I know that we just inherited yes.
It was three but it's 1.3, so I misspoke there for the portfolio overall, how would that 1.3 compared to your portfolio overall ours ours was 1.5, and it's kind of blending out it really didn't change it.
Materially so.
We again.
Some of the marketing materials, we've seen from of some of the other GJ landlords. The good news is both Ontario, and Quebec, the tenants and the landlords here are very in tune with annual rental increases. So we're seeing some other landlords asking for.
Decent bump in the rent and 3% escalation. So we're going to try to continue to push our our program that way to try to build up.
Contractual rental increase unfortunately in Alberta, Theres still a little bit more program to the flat leases and stuff.
We're pumping them every three years or every five years. So we'll we'll continue to try to execute summit leases and strategy out there, but we're finding it's it's not as easy and in that market one because it's not as tight but two which is historically that hasn't been the pattern of rental bumps there.
And lastly from me just on your same property growth how should we think about maybe some moderation in Alberta.
Combined with some of these healthy rent steps you've gotten kicking in over the next 12 months.
Well I guess, the Alberta portfolio is not going to be in the same store NOI. This new staff lumpy in the same.
No, but you had pretty healthy increases on your existing portfolio of your had a pop because of occupancy yeah that about that will level off closer to the but it's such a small part of the overall and that saw that.
What you're seeing this year.
We expect that trend to continue in that.
4% to 5% range.
4% to 5% property.
Okay. Appreciate the color that's all for me thanks, very much okay. Thanks.
Thank you.
Next question is from Chris Cool free from RBC. Please go ahead.
Morning, guys.
Yes, Hey.
Just two quick ones for me.
Just with respect to data center.
Disposition can you just maybe remind us what kind of led to that sale and.
What the rationale wood is to kind of.
Still have mezzanine loan in that asset class and what type of return you might be looking at on that investment and then secondly, just with respect to the Alberta exposure.
You guys have communicated that you wanted to.
Add to that market.
Just maybe.
Forward, how would you think about re waiting in the portfolio. Thanks sure. Okay start with the the data scientists.
As usual, it's not a straightforward answer.
In this case, we have a partner it's a it's a.
Great I think asset class, great opportunities, but very very different from industrial.
We're building the power shown in the second data center or that was mostly finished.
Would you are doing at a relatively small costs, but then if you get the tenant in there have to fit it up you're talking about like a 100 million dollar [laughter] capital commitments. So so it's very lumpy the Montreal property, it's been completed for close because two years now.
We havent had traction on the on trying to do something on the building overall, we've had lots of small interest, but we've been reluctant to do that so we're looking at the just the activity and how it's going to fit in with with summit, especially since we want to start building up the development program, but we also looked at financing and data center financing the market is not very deep here. So.
When we went to finance.
The first property to stabilize when DC one it was either.
Hi, or.
The way amortization period of matching lease of 14 or 15 years, this or anything so when the partner and I, we sat down and is like you know what.
We think we can get really good value by liquidating that asset now than that takes off the issue of the financing crystallizer gain we produce close to 68% IR over the year and a half that we owned.
And then the reason that we're staying with Mezz loans all the initial mezz loans were paid out of the the purchaser of the stabilized property is also.
The largest the equity participant in the in the final two developments. The reason we're staying in because it's very high gives very hard to value. The final two assets, because they're not stabilized and lease. So if we just kind of got back or Mezz loans. We felt we would leaving some money on the table. So right now we've got their smaller mezz loans.
So there's less exposure there were earning a high single digit coupon on on them as loans and then they are participating in I'd really like to not put a number on it but.
Right now we've got 20 something million dollars once there's some up financing that will go down to 10.
Roughly 10 million and then build backup as at least what happens.
I see if I had a throw a number whatever downturn mezz loans that we ultimately have on here, we should be able to earn another 40 or 50% return so but we're not counting on it I think it'll be in my mind, a bonus so I see right now very little risk in our in our program. What these mezz loans, and some upside and bonus and when that happens will pay it will pay one another.
<unk> special distribution.
And then getting going to talk to different investors. It's it's not our core business. So I can only call the partner, saying, what's happening what can we do differently and leasing where as we build up the the regular development.
Program, there's lots of different things, we can do when it comes to building and leasing industrial properties. Your second question on Alberta.
We had lots of discussion that are board the yesterday, so ballpark, 50%, Ontario, 20%.
Quebec, and 30%, Alberta, we like it.
To pin numbers down, but I mean, if we were trying to say it we still like 50% as as a minimum for Ontario.
The fed end up being 20 525 for the other two markets you just have to be opportunistic I mean, we we've been in this business long time, we're really excited about the Alberta portfolio basically when talking to the some of the board members, who are little more GCA focused it's like essentially just look at it we did five years of buying in Alberta in one transaction. So we have a great.
Print there we now have operating offices in both those cities.
So we're gonna be opportunistic, but clearly the focus is trying to continue and maintain that allocation to Ontario, but primarily gay and that's where more of our you're seeing or development pipeline is going to be focus there because it's really really hard to buy properties, we announced one add on acquisition. We've got a second one working so 20 million here 30.
<unk> million here 40 million here, so we're doing a lot of that.
One off we we just don't think theres going to being many large portfolios.
Come up in the GTH, so you're really going to have to build at one one building at a build up the portfolio and GA one building at a time, thanks, guys I'll turn it back thank you Chris.
Thank you.
Next question is from a CRM that just renewed this from BMO capital markets. Please go ahead.
Good morning, guys, congratulations great quarter.
Thank you.
My first question essentially is mainly focus towards the west how should we be thinking off acquisition.
Policemen cost when it comes to guide.
Yes, so we.
We've we've done a little bit of that we posted a for and let us know a powerpoint presentation on our website provide a lot more color photos details of the portfolio with our top 10 tenants.
On one of the pages there.
We tried to.
Come up with the land values so.
Typical industrial logistic buildings are built and have a 45% site coverage. This entire portfolio is closer to 20, 122% site coverage. So we essentially tried to do some modeling where we extract that that excess land price.
When it comes down to $140, a square foot, which is comfortably around or below upper were low replacement costs, but in there you still theres a mixture of.
Properties because you have.
Some cross dock facilities, which replacement cost for that cross dock stuff is probably $250 a square foot so but overall.
It's around that $140. If you look at just the purchase price and you look at.
Of these crop das cropped us cross dock facilities on the acquisition price alone you'd be in that 160 970, but once you normalize it for the excess land.
You are back down into normal really replacement cost so and again this land.
Some of it is just you can do expansions on building something you'd have to re purpose because there is what the an element of what we call shop, which is.
Down at like 17% coverage. The cross dock facility is only up 10% site coverage. So as long as they maintain and continued to be a cross dock facility for.
Really the the ecommerce the fedexs in the Purolator's of the world. They only have 10% site coverage, but the.
The the logistics, which is 60% of the portfolio.
45% site coverage is around $130 per square foot.
Thanks, I caught up all of the I mean really in terms of how this is trending going ahead and again, obviously based on cost going up and.
Okay.
Please turn costs trending out generally nickel what on the from a market perspective.
There is not the same forces that's going to cause it to go up anywhere in the same fashion that's happening in the GT in Montreal. So I think it's a more moderate kind of inflationary.
Price because theres still is lots of land that can be.
Resolved and put into the inventory so you're not seeing the pressure on.
Land values.
Completely different regime when it comes the development charges and that sort of thing. So so all the elements of replacement costs are very stable in my mind and.
So I don't see it I don't see it changing but I think construction employment cost now all of us in the west.
Really can change fairly quickly when the sentiment moves and if and when we get a pipeline I think thats really going to benefit the elements in particular.
Calories portfolio, it's much more of a diversified economy, so very little exposure to oil and gas in that particular part very diversified there's lots of construction and development going on in Calgary right now.
We're still getting very very decent rental rates, both on new and renewal developments in Calgary. So it's kind of the tale of two cities.
So Edmonton.
I see that replacement cost number changing very much. So our approach there will stabilize the vacancy and or the occupancy and continue to keep it stabilized until we get more into a recovery mode in Edmonton.
Thanks.
Just looking at Edmonton I think they had a good quarter when it comes from net absorption in Q3.
I think what's been going into 2000 20 million do things options going to pick up in the future for them.
With that.
They went through their downturn.
Was flat for a bunch of and yeah. There is so there's there's positive signs of positive absorption. So it's improving but we're not seeing as you know I would at this point I don't think I would say, it's accelerating but it's a steady and slow progression. So our expectation is not any kind of quick quick return here. So we're in for the long haul.
But we think directionally, it's still it's improving and we'll keep an eye on it but we're going to be defensive in our in our leasing leasing strategies in Edmonton until we have.
Clear views to that recovery, but I guess that things can change quickly in Alberta.
For the better.
All right.
I guess I was 12000 gave color on back thank you.
Thank you once again, please press star one if you have a question or comment we have next question from Alex lay on the from the Xiaomi capital markets. Please go ahead.
Hi, Good morning, gentlemen, I just have Aarding quick question relating to DNA.
Cash in a ticked up marginally from last quarter and there was no did last quarter that there was about 200000 failed transaction costs. So I'm just wondering if there's any.
Those fill transaction costs this quarter or any other onetime items hitting DNA.
There's a there's a there's a small onetime item of about $50000 than it was a timing on expenses.
With that.
Compliance in that but mainly the other pickup it has to do with.
Q2, only had half a quarter of internalization.
So then that Q3 has a full quarter of the internalization cost.
You will see going forward that.
You are close to the run rate now with.
Just a small about and the other thing is in the quarter.
Why don't you have to back off the.
The.
The number is.
We have a fair value increase in those deferred units the trust each receive in that so that's probably another 20 $30000.
But the main reason for the uptick has to do with a full quarter of.
The cost of.
The.
Asset management on a generalization, yes, and we want me to internalize, we gave a forecast on what our expected DNA is and we're still very comfortable with that forecast I think at year end will leave upright a bit more guidance because we think it's a it's a.
A positive thing for something that we're going to be able to operate at a very low and effective DNA number so well.
The next quarter, but we'll give some guidance for 2020.
That's awesome I'll turn it back.
Yeah.
Thank you.
There are no further questions just curious at this time I'd like turn back the meeting over to Mr. segment.
Okay, well, thanks, everyone I'm very busy quarter with lots of activity.
We look forward to the next quarter gate updating everyone to see start seeing the full impact of all these positive things that are going on in the marketplace and thanks again for your time.
Thank you.
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No. This is pretty modest said coffeehouse it does does.
FIFA.
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Okay fair enough.
The Tommy.
Okay.
Yes.
I missed that FIFA.
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Okay opinion.
Okay.
Cushy with funding.
Segment profit before.
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Okay. That's good for that.
Yes.
Okay, because she was trending.
Sorry, 50 for them.
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Okay fair enough because at that medical.
Yes.
Okay.
Yes.