Q3 2019 Earnings Call

November 6, 2019

Good morning, ladies and gentlemen, welcome to the Dream Industries third quarter 2019 conference call.

Operator: Good morning, ladies and gentlemen. Welcome to the Dream Industrial REIT Q3 2019 conference call for Wednesday, 6 November 2019. During this call, management of Dream Industrial 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 Industrial REIT's control, that could cause results to differ materially from those that are disclosed in or implied by such forward-looking information.

Wednesday November six 2018.

During this call management a chain it does feel like beach may make statements contain forward looking information within the meaning of applicable securities legislation.

Forward looking information is based on a number of assumptions and is subject to number of risks and uncertainties.

Many of which are beyond green dot chilling beats control could cause results to differ materially for those are disclosed in our implied by such forward looking information.

Operator 2: Additional information about these assumptions and/or risks or uncertainties is contained in Dream Industrial REIT's filings with securities regulators, including its latest annual information form, MD&A. These filings are also available on Dream Industrial REIT's website at www.dreamindustrialreit.ca. Later in the presentation, we'll have a question and answer session. To queue up for a question, press star one on your telephone keypad. Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go ahead.

Operator: Additional information about these assumptions and/or risks or uncertainties is contained in Dream Industrial REIT's filings with securities regulators, including its latest annual information form, MD&A. These filings are also available on Dream Industrial REIT's website at www.dreamindustrialreit.ca. Later in the presentation, we'll have a question and answer session. To queue up for a question, press star one on your telephone keypad. Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go ahead.

Additional information about these assumptions indoor risks.

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My first question Press Star one tiny telephone keypad.

Our host for today will be Mr., Paul Brian .

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Brian Pauls: Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's 2019 Q3 conference call. Speaking with me today is Lenis Quan, our Chief Financial Officer. Through 2019, we have been focused on driving same property NOI growth, adding scale in our target markets, and enhancing overall portfolio quality. We have and continue to make progress on each front and have done so in conjunction with improving and maintaining a safe and flexible balance sheet. During the quarter, we completed the sale of the Eastern Canada portfolio, providing enhanced flexibility to add scale in our target markets and acquire properties with stronger future cash flow and asset value growth. We will continue to look at opportunities to selectively prune our portfolio, including assets in non-core markets, and/or those that we believe are fully valued with lower growth potential.

Thank you good morning, everyone. Thanks for joining us today for Dream Industrial reached 2019 third quarter Conference call speaking with me today as long as Kwan, our Chief Financial Officer.

Through 2019, we've been focused on driving same property NOI growth, adding scale in our target markets enhancing overall portfolio quality.

We haven't continued to make progress on each front and have done so in conjunction with improving and maintaining a safe and flexible balance sheet.

During the quarter, we completed the sale of eastern Canada portfolio, providing enhanced flexibility to add scale in our target markets and acquire properties with stronger future cash flow and asset value growth. We will continue to look at opportunities to selectively prune our portfolio.

Including assets and noncore markets and or those that we believe are fully valued with lower growth potential. One of these opportunities is for 39 Sovereign road in London, Ontario, which we have agreed to sell the 70000 square foot property is currently vacant and we expect to complete this disposition in the fourth quarter consistent with our <unk>.

Brian Pauls: One of these opportunities is 439 Sovereign Road in London, Ontario, which we have agreed to sell. This 78,000 sq ft property is currently vacant, and we expect to complete this disposition in Q4. Consistent with our strategy to recycle capital into higher quality assets, we are pleased to announce that the Trust, Dream Unlimited, and Pauls Corp are in exclusive negotiations to acquire an interest in a 24 acre development site in North Las Vegas. This is an attractive parcel that will support the development of a 400,000 sq ft+ Class A industrial building. The site is well located in a strong industrial sub-node that includes e-commerce players such as Amazon and Bed Bath & Beyond.

Energy to recycle capital at a higher quality assets were pleased to announce at the Trust Dream Unlimited and Paul score our exclusive negotiations to acquire an interest at 24 acre development site in North Las Vegas.

This is an attractive parcel that will support the development of a 400000 square foot plus class a industrial building.

The site as well located in a strong industrial sub know that includes ecommerce players such as Amazon in bed Bath and beyond pose Corp is expected to serve as a development manager has a strong development platform with an extensive track record and commercial development, having developed over 16 million square feet of real estate across Canada, and the U.S., including.

Brian Pauls: Pauls Corp is expected to serve as a development manager and has a strong development platform with an extensive track record in commercial development, having developed over 16 million sq ft of real estate across Canada and the US, including Las Vegas. The industrial market in Las Vegas is one of the fastest-growing markets in the US. Overall vacancy remains low and net absorption continues to outpace completions with increasing rental rates, driven largely by the increase in e-commerce. Several California companies are choosing to relocate or expand into Las Vegas due to lower rents, access to lower cost labor, close proximity to large population centers, and a faster permitting process. We are excited to initiate our development program and will provide further details in upcoming quarters. We are also currently under contract to acquire 600,000 sq ft industrial portfolio in Kitchener, Ontario.

Las Vegas.

The industrial market in Las Vegas is one of the fastest growing markets in the U.S.

Overall vacancy remains low and net absorption continues to outpace completions with increasing rental rates driven largely by the increase in E. Commerce, several California companies are choosing to relocate or expand into Las Vegas due to lower rents access to lower cost labor close proximity to large population centers and it fast.

For permitting process.

We're excited to initiate our development program and will provide further details in upcoming quarters.

We're also currently under contract to acquire 600000 square feet industrial portfolio, and Kitchener, Ontario, the expected purchase price of 62, and a half million represents a going in cap rate of 5.2% and we see opportunities to increase rats and drive free cash flow growth. The portfolio consists of small and mid may buildings. It.

Brian Pauls: The expected purchase price of CAD 62.5 million represents a going-in cap rate of 5.2%, and we see opportunities to increase rents and drive free cash flow growth. The portfolio consists of small and mid bay buildings and has a strong and diverse tenant base that are well-situated in an attractive business park. The acquisition is expected to close in December. Separately, we are in advanced negotiations to add an additional 40,000 sq ft property within the same park for CAD 5.7 million. The Waterloo industrial market is comprised of Kitchener, Waterloo, Cambridge, Guelph, and Brantford. It has and continues to benefit from strong fundamentals as modest new supply, minimal availability, and solid demand have resulted in strong rental growth across the market.

As a strong a diverse tenant base that are well situated in attractive business Park.

The acquisition is expected to close in December .

Separately, we are in advanced negotiations to add an additional 40000 square foot property within the same park for 5.7 million.

The Waterloo industrial market is comprised of Kitchener, Waterloo, Cambridge, Welford Bradford It has and continues to benefit from strong fundamentals as modest new supply minimal availability and solid demand have resulted in strong rental growth across the market within the kitchen or market rental rates have increased by 14% year to date.

Brian Pauls: Within the Kitchener market, rental rates have increased by 14% year-to-date, with availability currently sitting at 1.4%. Our acquisition pipeline continues to be robust, with approximately CAD 300 million of properties that we are actively in the process of evaluating and underwriting. We are well-positioned to capitalize on these opportunities with a solid balance sheet and strong liquidity. We are currently in advanced negotiations on approximately CAD 80 million of acquisitions, predominantly in the GTA, which should close in Q1 2020. As we deploy our acquisition capacity, we expect target leverage to be in the high thirties to low forties. We will remain disciplined with our acquisition strategy, targeting properties in markets that improve our portfolio quality with opportunities to grow free cash flow and increase net asset value per unit.

With availability currently sitting at 1.4%.

Our acquisition pipeline continues to be robust with approximately 300 million of properties that we are actively in the process of evaluating an underwriting.

We are well positioned to capitalize on these opportunities with a solid balance sheet and strong liquidity.

We are currently in advanced negotiations on approximately $80 million of acquisitions predominantly in the DTA, which should close in the first quarter of 2020 as we deploy our acquisition capacity, we expect target leverage to be in the high thirtys to low fortys.

We will remain disciplined with our acquisition strategy targeting properties in markets that approve our portfolio quality with opportunities to grow free cash flow and increased net asset value per unit.

Brian Pauls: This year, we have looked at over 1 billion of properties or portfolios, both marketed and off-market. We remain focused on acquiring higher quality properties that will increase in value over time. These trade at lower going-in yields but offer tremendous growth opportunities, which we expect to unlock through our active asset management strategies. As a result, we expect the yield on targeted assets and their values to increase over an extended period of time. Looking at our markets, Canadian industrial market fundamentals remain strong, with the national availability rate continuing to trend lower at 2.9%. This marks the first time that national availability has dipped beneath 3%. We'd note that Toronto and Montreal have among the lowest availability of any North American industrial market.

This year, we've looked at over 1 billion of properties or portfolios, both marketed and and off market.

We remain focused on acquiring higher quality properties that will increase in value overtime. These trade at lower going in yields but offer tremendous growth opportunities, which we expect to unlock through our active asset management strategies. As a result, we expect the yield on targeted assets and their values to increase over an extended period of time.

Looking at our markets Canadian industrial market fundamentals remain strong with the national availability rate continuing to trend lower at 2.9%.

This marks the first time that national availability has dip, but need 3%. We note that Toronto Montreal have amongst the lowest availability of any north American industrial market.

Brian Pauls: The national average net asking rent increased to CAD 8.63 per sq ft, representing a 3.5% increase quarter-over-quarter and a 16% increase year-over-year. The increase has been largely driven by gateway industrial markets, including Toronto and Montreal. In Q3, the market experienced 8.5 million sq ft of absorption with 5.7 million sq ft of new supply. In our US markets, we continue to see strong demand for industrial real estate, resulting in low availability and growth in property values. Active asset management is an important foundation to our strategy. Our focus on driving rents, capturing leasing spreads, and renewals or expires has led to strong same property growth in Ontario and Quebec.

The National average net asking rent increased to $8, a 63 cents per square foot, representing a 3.5% increase quarter over quarter in a 16% increase year over year.

The increase has been largely driven by gateway industrial markets, including trial in Montreal in Q3, the market experienced 8.5 million square feet of absorption with 5.7 million square feet of new supply.

Our U.S. markets, we continue to see strong demand for industrial real estate, resulting a low availability and growth in property values active asset management is an important foundation to our strategy our focus on driving rents capturing leasing spreads on renewals or expires has led to strong saw strong same property growth.

Terry Quebec.

Brian Pauls: In Ontario, approximately 312,000 sq ft of leases commenced during the quarter, with an average spread of 22% over prior rents. On approximately 1,000,000 sq ft of lease commitments taking occupancy in 2019, we've achieved an average spread of 16% over prior rents. Occupancy dipped 100 basis points, largely due to the anticipated departure of a 111,000 sq ft tenant in Mississauga. We have already seen solid leasing interest given the property's attractive location at Highway 401 and Mississauga Road. We are actively trading paper at rates over 10% above what the last tenant was paying. We see this as an opportunity to drive rent growth upon lease up due to the tight market availability. As an example, we recently completed a 5-year renewal with a tenant occupying 80,000 sq ft in the GTA.

In Ontario, approximately 312000 square feet of leases commenced during the quarter with an average spread of 22% over prior rents on approximately 1 million square feet of lease commitments picking occupancy in 2019, we've achieved an average spread of 16% over prior reps occupancy dipped 100.

Basis points, largely due to the anticipated departure of a 111000 square foot tenant in Mississauga.

We've already seen solid leasing interest given the properties attractive location at highway for one and Mississauga Road, we are actively trading paper at rates over 10% above with the last tenant was paying we see this as an opportunity to drive rent growth upon lease up due to the tight market availability.

As an example, we recently completed a five year renewal with a two occupying 80000 square feet in the DTA.

Brian Pauls: On this deal, we achieved a 94% spread to expiring rent with only CAD 1.50 per sq ft in total leasing capital. The lease commences in May 2020 and includes 3.5% annual escalators over the 5-year term. In Quebec, approximately 117,000 sq ft of leases commenced during the quarter at an average spread of 12.3% over prior rents. In 2019, we had 757,000 sq ft of lease commitments in Quebec at an average spread of 12.1% over expiring rents. In Western Canada, we've been focused on driving occupancy, and we are seeing results with positive net absorption of 77,000 sq ft this quarter and committed occupancy at 96%.

On this deal we achieved at 94% spread to expiring rent with only $1.50 per square foot in total leasing capital.

Police commences in May of 2020 and includes 3.5% annual escalators over the five year term.

In Qubec, approximately 117000 square feet of leases commenced during the quarter at an average spread of 12.3% over prior reps in 2009 team, we had 757000 square feet of lease commitments in Quebec, and average spread of 12.1% over expiring rents.

In Western Canada, we've been focused on driving occupancy and we are seeing results with positive net absorption of 77000 square feet this quarter and committed occupancy at 96%.

Brian Pauls: Across our comparative portfolio, year-over-year, we have seen a 3.1% increase in average occupancy and comparative properties NOI growth of 7%. While there continues to be some pressure on expiring rental rates, we are building contractual rent growth in our leases, and we remain focused on investing capital prudently. Occupancy in our US portfolio is strong at 94%. We had two anticipated vacancies in Columbus totaling 121,000 sq ft. We are in the process of demising the units into smaller suites and are confident these will result in a quick lease up at higher rental rates. At one of the locations, 66,000 sq ft has been demised into three units. Two out of the three leases have been signed.

Across our comparative portfolio year over year, we have seen a 3.1% increase in average occupancy and comparative properties and Hawaii growth of 7%.

Well there continues to be some pressure on expiring rental rates, we are building contractual rent growth in our leases and we remain focused on invested capital prudently.

Occupancy in our U.S portfolio strong at 94%, we had to anticipated vacancies and Columbus totaling 121000 square feet.

We're in the process of devising the units into smaller suites and are confident these will result in a quick lease up at higher rental rates at one of the locations.

66000 square feet has been demise see the three units two out of the three leases have been signed these leases are expected to commence over the next two quarters and we are achieving nearly 20% rental increases over prior rates.

Brian Pauls: These leases are expected to commence over the next two quarters, and we are achieving nearly 20% rental increases over prior rates. In 2019, we have signed 371,000 sq ft of leases commencing this year in our Midwest US portfolio. These leases are an average spread of 21% over prior rents. We've received strong interest from potential tenants at our 303,000 sq ft property in Louisville due to its strategic location right off the I-65 in close proximity to the UPS Worldport, and we expect this space to be leased in early 2020. Overall, our strategic initiatives have positioned us well for above average free cash flow and net asset value growth over the long term. I will now turn it over to Lenis, who will provide our financial update.

In 2019, we have signed 371000 square feet of leases commencing this year in our Midwest you as portfolio.

These leases or an average spread of 21% over prior risks.

We have received strong interest from potential tenants at EUR 303000 square foot property in Louisville, due to a strategic location right off the ice 65 in close proximity to the you PS World Port and we expect this space to be leased in early 2020.

Overall, our strategic initiatives have positioned us well for above average free cash flow and net asset value growth over the long term.

I will now turn it over to let US who will provide our financial update.

Lenis Quan: Thank you, Brian. Diluted funds from operations for Q3 was $0.19 per unit compared to $0.21 in Q3 of 2018. Higher FFO from strong comparative properties NOI growth across all regions and acquisitions was offset by the impact of lower average leverage, which decreased by approximately 9% year-over-year and is consistent with our strategy to maintain a stronger balance sheet with financial flexibility. Comparative property NOI increased by 6.4% compared to Q3 of 2018, largely driven by increased occupancy in Western Canada and higher rents in Quebec and Ontario. Western Canada experienced comparative property NOI growth of 7%, with Quebec and Ontario at 10.7% and 3.6%, respectively. At the end of Q3, the IFRS value of our portfolio was CAD 2.3 billion.

Thank you Brian .

Diluted funds from operations for the third quarter was 19 cents per unit compared to 21 cents in the third quarter 2018.

Higher AFFO abstract comparative properties and alike growth across all regions and acquisitions was offset by the impact of lower average leverage which decreased by approximately 9% year over year and is consistent with our strategy to maintain a stronger balance sheet with financial flexibility.

Comparative property NOI increased by 6.4% compared to the third quarter as 2018, largely driven by increased occupancy in western Canada, and higher rents in Quebec and Ontario.

Western Canada experienced comparative property NOI growth of 7% with Quebec, and Ontario at 10.73, 0.6% respectively.

At the end of this third quarter, the IRS value of our portfolio is 2.3 billion.

Lenis Quan: This reflects CAD 353 million of investment property acquisitions during the year, the sale of the Eastern Canada portfolio, and CAD 89 million in fair value gains, driven primarily in Ontario and Quebec. The fair value increase reflects strong leasing activity, market rent growth, and lower capitalization rates. The Trust's reported net asset value, or NAV, per unit has increased by CAD 0.55 this year or 5% to CAD 11.09 at the end of Q3. On a year-over-year basis, NAV per unit has increased by CAD 0.97 or approximately 10%. We have made excellent progress in improving the safety of our business. Our net debt to assets ended the quarter at 31.4%, and our net debt to EBITDA was 5.4x.

This reflects $353 million have investment property acquisitions during the year assailant, the eastern Canada portfolio, and $89 million and fair value gains driven primarily in Ontario and Quebec.

Fair value increase reflects strong leasing activity market rent growth and lower capitalization rates.

The trusts recorded net asset value or NAV per unit has increased by 55 cents this year or 5% to $11 a nine cents at the end of the third quarter.

On a year over year basis NAV per unit has increased by 97 cents or approximately 10%.

We have made excellent progress in improving the safety of our business.

Net debt to assets ended the quarter at 31 plane, 4% and our net debt to EBITDA was 5.4 times.

Lenis Quan: At quarter end, our balance sheet was solid and liquidity remained strong, with unencumbered assets totaling CAD 345 million, CAD 130 million of cash on hand, and full availability on our CAD 150 million credit facility. This provides significant financial flexibility to execute on our acquisition pipeline and to pursue development opportunities. We expect comparative properties NOI growth to be at the upper end of our previously communicated 3% to 3.5% range for 2019, excluding assets held for sale. We are finalizing the budgets for our annual December strategy planning session and will provide more detailed guidance for our 2020 performance on our year-end conference call in February.

At quarter end, our balance sheet with solid and liquidity remains strong with unencumbered assets totaling $345 million.

130 million of cash on hand, and full availability on our $150 million credit facility.

This provides significant financial flexibility to execute on our acquisition pipeline and too pricy development opportunities.

We expect comparative properties and alike growth to the upper end of our previously communicated 3% to 3.5% range for 2019, excluding assets held for sale.

We are finalizing the budgets for annual December strategy planning session and we'll provide more detailed guidance for 2020 performance at our yearend conference call in February .

Lenis Quan: We expect Q4 FFO per unit to be lower than Q3 due to the timing of capital deployment following the sale of the Eastern Canada portfolio this quarter. We have CAD 150 million of acquisitions that are currently under contract or in advanced negotiations and are expected to close in December 2019 and early 2020. We expect our leverage to increase to approximately 35% after these acquisitions close, with an additional 170 million of acquisition capacity, assuming 40% leverage. As Brian noted, we are focused on improving our overall portfolio quality, and this includes acquiring higher quality properties in our target markets that are consistent with our investment criteria. With that, we will be prudent in deploying our capital and maintain a strong balance sheet, ample liquidity, and flexibility to pursue attractive opportunities.

We expect Q4 SSL per unit to be lower than Q3 due to the timing of capital deployment. Following the sale of Eastern Canada portfolio this quarter.

We have $150 million of acquisitions that are currently under contract or in advanced negotiations and are expected to close in December 2019 in early 2020.

We expect our leverage to increased to approximately 35%. After these acquisitions close with an additional 170 million of acquisition capacity, assuming 40% leverage.

As Brian noted we are focused on increasing our overall portfolio quality and this includes acquiring higher quality properties and our target markets that are consistent with our investment criteria.

With that we will be prudent in deploying our capital and maintain a strong balance sheet ample liquidity and flexibility to pursue attractive opportunities over the long term, we are targeting leverage in the high thirtys to low fortys.

Lenis Quan: Over the long term, we are targeting leverage in the high thirties to low forties. We are confident that this strategy will result in a more stable portfolio with higher quality as well as stronger cash flow and NAV growth potential over the long term. I will now turn it back to Brian to wrap up.

We are confident that this strategy will result in a more stable portfolio with higher quality as well as stronger cash flow and NAV growth potential over the long term.

I will now turn it back to Brian to wrap up.

Brian Pauls: Thank you, Lenis. We are pleased with the progress made in transforming the Dream Industrial portfolio and at the same time improving and maintaining a strong and flexible balance sheet. We remain committed to driving unitholder value through organic income growth and using our balance sheet strength for attractive investment opportunities, including income property acquisitions and developments that meet our investment criteria. We would now be happy to take any questions.

Thank you let us we're pleased with the progress made in transforming the dream dust real portfolio and at the same time, improving and maintaining a strong and flexible balance sheet, we remain committed to driving unitholder value through organic income growth and using our balance sheet strength for attractive investment opportunities, including income property acquisitions and develop.

What's that meet our investment criteria, we would now be happy to take any questions.

Thank you well now begin the question and answer session.

Operator 2: Thank you. We'll now begin the question-and-answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. There'll be a delay before the first question is announced. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have an audio question, please press star then one on your touchtone phone. Our first question comes from Frederic Blondeau from Laurentian Bank. Your line is open.

Operator: Thank you. We'll now begin the question-and-answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. There'll be a delay before the first question is announced. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have an audio question, please press star then one on your touchtone phone. Our first question comes from Frederic Blondeau from Laurentian Bank. Your line is open.

You have a question please press star and Martin on your pets.

If you wish to BMS MCU. Please press the pound signed or the hash key.

My first question for now.

If you think speakers.

You may need to pick up against that from the press and numbers Mike's again, if you have an audio question. Please press star and one on your touchdown Scott.

And our first question comes to a fad.

Well.

I find wealth your line is open.

Frédéric Blondeau: Thanks, and good morning. Just looking at the capital structure, Lenis, you were just mentioning, I guess post-acquisition high thirties to low forties. Is it fair to say that you're at your target leverage at this stage?

Thanks, and good morning, just looking at the capital structure than us.

Just mentioning I guess post acquisition high Thirtys too low fortys.

It's hard to say that you're at your target leverage at this stage.

Yes target leverage over the long term is going to be around in high thirtys below 40%. So I think that's the that's that's what the yet.

Lenis Quan: Yeah. Our target leverage over the long term is gonna be around in the high 30s to low 40%. I think that's, you know, what our acquisition capacity would be.

That's what our acquisition capacity would be.

Frédéric Blondeau: Okay.

Okay, and lower than that right now Fred we sit lower than that so we've got depth.

Brian Pauls: We sit lower than that. Right now, Fred, we sit lower than that.

Frédéric Blondeau: Yep, yep.

Brian Pauls: We've got some acquisitions that we can do within that kind of leverage target.

Some acquisitions that we can do within that kind of leverage target.

Frédéric Blondeau: Yeah, you said 35 post-acquisition, so yes.

Yeah, you said 35 post the conditions, so yes, yes.

Brian Pauls: Yeah.

Frédéric Blondeau: Okay, it looks like you will put a greater emphasis on development. What are your views on development yields? I guess what would be your internal required development yield?

Okay.

And it looks like you will put a greater emphasis on development.

What are your views on development yields on the.

Yes, what would be your intermodal required development yield.

It will depend on the market right now we're looking at.

Brian Pauls: It will depend on the market. Right now, we're looking at 6 or high fives in terms of development yield. We're building to core. We're building to hold. It's an opportunity for us to get class A, kind of best-in-class properties that we couldn't necessarily afford to buy. In many cases in the markets that we're looking at building, when you buy, you're buying at above replacement cost, so building makes a lot of sense.

Six or high fives in terms of development yield were building to core we're building to hold.

It's an opportunity for us to get.

Class a kind of best in class properties that we couldn't necessarily afford to buy.

In many cases in the markets that we're looking at building.

When you buy your buying at above replacement cost. So building makes a lot of sense.

Frédéric Blondeau: Yep.

Brian Pauls: In round numbers, to answer your question specifically, 6% is a good target development yield, although it may be lower than that in some markets.

So in round numbers to answer your question, specifically, 6% is a good target development yield although it may be lower than that in some markets.

Brian Pauls: In round numbers, to answer your question specifically, 6% is a good target development yield, although it may be lower than that in some markets.

Frédéric Blondeau: For example, like maybe more specifically on Vegas, what would be your expected yield there?

So for example, like maybe more more specific vegas, what what would be or expected yield.

Six.

Brian Pauls: Six.

Frédéric Blondeau: Six? Perfect. Thank you. That's it from me.

Perfect. Thank you that's it for me.

Operator 2: Our next question comes from Chris Couprie from CIBC. Your line is open.

Operator: Our next question comes from Chris Couprie from CIBC. Your line is open.

Your next question comes to Chris have free.

See I B C line is open.

Questioning regarding Vegas.

Chris Couprie: It's a question regarding Vegas. So, I guess how did this opportunity come to you? Why did you select Vegas as a market? And can you give us any other kind of color on what the economics might look like in terms of total cost to develop? And additionally, just in terms of how this transaction is gonna be structured between yourselves and Dream Unlimited and Pauls Corp.

So I guess, how does how did this opportunity come to you.

Why why why did you select Vegas as a market.

And can you give us any other kind of color on.

What the economics might look like in terms of.

Total costs develop.

And Additionally, just in terms of how this.

This transaction at the restructured between yourselves and staff.

Great game permitted add Paul's Corp.

Brian Pauls: Sure. To answer the first part of your question, Chris, you know, Dream Industrial, we, along with Pauls Corp and Dream Unlimited, are looking at a number of markets. We're tracking a number of markets, looking for development and acquisition opportunities. This is one of those markets. Pauls Corp's had a lot of history in Las Vegas as well as other US markets, so we have been looking for opportunities there. This was a relationship the Pauls Corp folks had. They have developed very close to this location. This is just a market that we collectively like. We like the growth of this market. We like the distribution kind of metrics and the characteristics of this market, given how close it is to California, given where e-commerce is heading there.

Sure.

Sure to test the first part of your question Chris.

You know dream industrial we along with post Corp, and Dream Unlimited are looking at a number of markets were tracking a number of markets looking for development and acquisition opportunities. This is one of those markets post Corp.'s had a lot of history in Las Vegas, as well as of the U.S. markets. So we have been looking for opportunities. There. This was.

A relationship the polls core folks had they've developed very close to this.

This location and so it's just a market that we like we collectively like we like the growth of this market we liked the.

The the distribution.

Kind of metrics and the characteristics of this market given how close it has to California, given where E. Commerce is is is heading there the amount of distribution that flows through there is really in the path of progress so we like that market.

Brian Pauls: The amount of distribution that flows through there is really in the path of progress, so we like that market. The second part of your question of the economics, this would be a venture between Dream Industrial, Dream, and Pauls Corp. Right now, it's set up as an 80-10-10 venture, where DIR is 80%, Dream Unlimited is 10%, Pauls Corp's 10%. Pauls Corp would manage the development. Total costs are roughly CAD 96 per sq ft. That's a rough number. But in general budget terms, that's about what it costs to build, including land and all-in costs. The structure is just a straight development structure. There's no promote or premium paid for the development relationship.

The second part of your question of the economics as would be a venture between Dream Industrial Dream and poll score right now it's set up as an 80 10 10 venture were the IRS, 80% Dream unlimited, 10% Postscripts, 10% post Coke would manage the the development.

Total costs are roughly $96 per square foot, that's a rough number but in general budget terms, that's about what it cost to build including land and and all in costs.

There is.

The structure is just a street development structured there is no. There's no promoter there's no premium paid for the development relationship as we previously announced we've got a relationship with both Dream Unlimited and polls Corp to source acquisitions into source development and so this is really just suggest a straight joint venture without a promote.

Brian Pauls: As we've previously announced, we've got a relationship with both Dream Unlimited and Pauls Corp to source acquisitions and to source development. This is really just a straight joint venture without a promote.

And the.

Chris Couprie: The property that is gonna be developed, is it gonna be built on spec?

The property that it's going to be developed is it could it be built on spec.

Ideally, yes that the plans to build on spec in many cases.

Brian Pauls: Ideally, yes, that the plan is to build it on spec. In many cases, a spec property gets leased as it's being built, but we would start it without any tenant commitments.

A spec property gets to at least as is being built but we've started without any tenant commitments.

Chris Couprie: What would development yield spreads to kind of market cap rates be right now in that market?

And what would development yield spreads to kind of market cap rates be and.

Right now and that market.

Brian Pauls: Yeah. I mentioned on Fred's question that development yields are roughly 6%. Acquisitions would be, you know, if you went to buy a fully leased building, it'd be less than that, in the 5s, probably close to 100 basis point spread.

Yes, I mentioned on Fred's question that develop yields are roughly six.

Acquisitions would be he went to buy a fully leased building you'd be less than that.

The fives, probably close to 100 basis points spread.

Chris Couprie: Okay. Just in terms of like future development opportunities in other markets, would it be in a similar type of arrangement?

Okay, and then just in terms of like future development opportunities is is it.

Other markets would it be it a similar type of arrangement.

Brian Pauls: Yes.

Chris Couprie: Would you partner with other developers?

Or would you guess partner with other developers.

Brian Pauls: It's to be determined. We've had plenty of interest from others who would like to partner. This one is as I've described, and we'll see what happens with other opportunities. We'd be open to other partners if it was something that was attractive to us and allowed us to maybe spread risk.

It's to be determined we've looked at we've had plenty of interest from others, who would like to partner. This one is as I've described been we'll we'll see what happens with other opportunities, but we'd be open to other partners. If it if it was something that was attractive to us and allowed us to maybe spread risk.

Chris Couprie: Is there any kind of target that you have for on-balance sheet development?

Is there any kind of target that you have for our balance sheet development.

No we'd like to increase from where we sit today.

Brian Pauls: No. We'd like to increase from where we sit today. We don't have a specific amount targeted, though.

We don't have a some specific amount targeted though.

Chris Couprie: Okay, got it.

Brian Pauls: It would really depend on opportunities. I think, Chris, we're more limited by opportunities than we are, you know, trying to limit it.

Got it depending on opportunities I think Chris were more limited by opportunities that we are.

Trying to limit limited pressure, okay. Thanks, guys I'll turn it back.

Chris Couprie: For sure. Okay, thanks, guys. I'll turn it back.

And our next question.

Operator 2: Our next question comes from Himanshu Gupta from Scotiabank. Your line is open.

Operator: Our next question comes from Himanshu Gupta from Scotiabank. Your line is open.

Hello.

Jeff Scotiabank your line is open.

Thank you and good morning.

Himanshu Gupta: Thank you and good morning. Just to follow up on Chris Couprie's question on development yields. You mentioned 6% development yield. What rent growth are you underwriting on this Vegas property? You mentioned about spread between California and Vegas market trends. How big is the spread, and what is the rent growth opportunity there?

Hitesh Gupta: Thank you and good morning. Just to follow up on Chris Couprie's question on development yields. You mentioned 6% development yield. What rent growth are you underwriting on this Vegas property? You mentioned about spread between California and Vegas market trends. How big is the spread, and what is the rent growth opportunity there?

Just a follow up on the on Chris copies question on development team can you mentioned six person development.

But that growth are you underwriting on this week as property.

Mentioned about spread between California, and weaker market trends, so how big is a spread and what is event good opportunity there.

Sure Hi, Matt you were so we're looking at 3% annual growth.

Brian Pauls: Sure. Hi, Himanshu. We're looking at 3% annual growth for Vegas. We see, I think your question was spread to acquisition to development yields. Again, I mentioned that's, you know, somewhere in the 100 basis point spread. We see a lot of growth in the Las Vegas market, and you look for that as a great opportunity for the REIT to acquire or own long-term Class A industrial.

For Vegas.

What we see I think your question was spread to acquisition to develop yields again I mentioned, that's somewhere in the 100 basis point spread.

We see a lot of growth in the Las Vegas market and.

Yeah look for that as a great opportunity for the for the re to acquire or how long own long term class a industrial.

Sure you also mentioned about the event spread between you know, California market and Las Vegas market and you know some of the tenants migrating from California to wages to what does that and spread between California and weakness in India bigger opportunity than district.

Himanshu Gupta: Sure. You also mentioned about the rent spread between, you know, California market and Las Vegas market, and, you know, some of the tenants migrating from California to Vegas. What is the rent spread between California and Vegas? I mean, is there a bigger opportunity than just 3%?

Hitesh Gupta: Sure. You also mentioned about the rent spread between, you know, California market and Las Vegas market, and, you know, some of the tenants migrating from California to Vegas. What is the rent spread between California and Vegas? I mean, is there a bigger opportunity than just 3%?

Yes.

Brian Pauls: Yes. You know, I think there's, you know, $1 to $2 per square foot per year spread between California and Las Vegas. The bigger challenge is availability of product. The entitlements and the permitting process in California can be really cumbersome, and that limits supply. There's higher costs and longer time to, you know, market for California products. Companies that domicile in California also pay higher taxes. There's a lot of reasons for companies to cross the border into Nevada to locate their business.

I think there's.

You know a dollar to $2 per square foot per year spread between California, Las Vegas, the biggest the bigger challenges is availability of product the.

Entitlements and the permitting process in California can be really cumbersome and so that limits supply.

So, there's there's higher costs and longer time to longer time to market for California products companies that Domiciling, California also pay higher taxes. So there's a lot of reasons for companies to cross the border into Nevada to locate their business.

Himanshu Gupta: Sure. Generally speaking, you know, how will you balance the development between US and Canada? I mean, do you have any kind of target, like going more harder in US or Canada, or depending upon the opportunity?

Hitesh Gupta: Sure. Generally speaking, you know, how will you balance the development between US and Canada? I mean, do you have any kind of target, like going more harder in US or Canada, or depending upon the opportunity?

Sure.

And generally speaking you know how will you balance could have not been between us and kind of how do you have any kind of target.

Going more hardware anyways, what to Canada, or depending on Monday opportunity.

Brian Pauls: Yeah, we'd like to have a balanced approach, developing in both. We see that as it'll be opportunity-driven, but if, you know, if we could pick, our target would be to develop equally in the US and in Canada.

We'd like to have a balanced approach developing in both and we see that is.

It will be opportunity driven but if you know if we could pick or target would be to develop equally in the U.S. and in Canada.

Himanshu Gupta: Got you. Okay. Just switching gears on the acquisition side, and did I hear correctly? You said you almost looked at CAD 1 billion of product, you know, over the last several months. When you said CAD 1 billion of, you know, product, was it US or was it Canada? Are most of the new acquisitions focused in Canada, I assume?

Hitesh Gupta: Got you. Okay. Just switching gears on the acquisition side, and did I hear correctly? You said you almost looked at CAD 1 billion of product, you know, over the last several months. When you said CAD 1 billion of, you know, product, was it US or was it Canada? Are most of the new acquisitions focused in Canada, I assume?

Okay. Okay, and then just switching gears on the acquisition side and did I hear correctly. You said you understood had 1 billion dollar of products you know for what the last several months.

When you said 1 billion dollar also you know reported was or do you less unwanted Canada and most of the new acquisitions focused in Canada, Hi issue.

Brian Pauls: It's both. The one billion is both. I mentioned we're in advanced discussions on CAD 80 million. That's primarily GTA product. The more immediate acquisitions will be in Canada, although we're looking at both sides of the border. We've got a really strong pipeline. We'll see a lot of acquisitions, you know, coming up in the next 6 to 9 months. The early ones will be primarily in Canada, but we're looking on both sides of the border.

Both the 1 billion is both.

I mentioned, we're in advanced discussions on on 80 million, that's primarily DTA product.

So the the more.

Immediate acquisitions will be in Canada, Although we're looking at both sides of the border. We've got a really strong pipeline will see a lot of acquisitions coming up in the next six to nine months.

The early ones will be primarily in Canada, but we're looking on both sides of the border.

Himanshu Gupta: Got it. Just on the Kitchener, you know, proposed acquisition at 5.2 cap rate, so what is the lease term there and are the in-place rents, you know, below market, do you think?

Hitesh Gupta: Got it. Just on the Kitchener, you know, proposed acquisition at 5.2 cap rate, so what is the lease term there and are the in-place rents, you know, below market, do you think?

Got it and just want to kitchen, our proposed acquisition at 5.2 cap create.

So what are the lease term dealer and other 19 cents below market do you think.

Yes sure the.

Brian Pauls: You want to go ahead?

Lenis Quan: Yeah, sure. The weighted average lease term on that portfolio is 2.9 years. The in-place rents we estimate are about 10% below market.

We did average lease term on that portfolio is 2.9 years.

And the in place rents and we estimate or about 10% below market.

Himanshu Gupta: 10% below market. Awesome. Maybe, you know, just last question on the same topic on the rental spreads. I mean, obviously in a very healthy in Ontario and Quebec. Do you break out between, you know, what rent growth you're achieving on new leases versus renewals? I'm just trying to understand that, I mean, whether the rent growth is much higher on new leases compared to the renewals.

Hitesh Gupta: 10% below market. Awesome. Maybe, you know, just last question on the same topic on the rental spreads. I mean, obviously in a very healthy in Ontario and Quebec. Do you break out between, you know, what rent growth you're achieving on new leases versus renewals? I'm just trying to understand that, I mean, whether the rent growth is much higher on new leases compared to the renewals.

And just awesome and and maybe you know just last question on the same topic on dental strategy. I mean, you. All this generally held in Ontario and Qubec.

Do you breakout between you know what rent growth, you're achieving on new leases, but then once.

I'm, just trying to understand that I'm embedded the scene tenant almond wed.

Then crude as much high on new leases compared to the then whats.

We don't break that out any longer just because I think for especially in the strong markets, Ontario, and Quebec, we're seeing strong spreads on both renewals and and new leases.

Lenis Quan: We don't break that out any longer just because I think, for especially in the strong markets of Ontario and Quebec, we're seeing strong spreads on both renewals and new leases. We just found that, you know, providing the one number, just capturing all the uplift, was a bit more informative and useful for people just to understand what we're seeing in the market. We don't break that out any longer. I think just we used to just give out renewals, and that just wasn't a big enough picture of what was happening.

So we just found that.

Providing the one number just capturing all the uplift was a bit more informative and useful.

For for people just understand what we're seeing in the market.

So we don't break that out any longer I think it needs to just give out renewals and that just wasn't big enough picture of what was happening.

Himanshu Gupta: Got it. Maybe just, sorry, one last question on the Columbus vacancy. I think you mentioned about 20% rent increase is expected there. How long do you think you'll be able to backfill that vacancy in Columbus?

Hitesh Gupta: Got it. Maybe just, sorry, one last question on the Columbus vacancy. I think you mentioned about 20% rent increase is expected there. How long do you think you'll be able to backfill that vacancy in Columbus?

Got it.

And maybe just sorry, one last question on the Columbus speak in fee.

And I think you'd mentioned about 20, plus and that increases expected dealer how long do you think you'd be able to backfill that vacancy Columbus.

Yeah. We're in we're in active discussions right now and all the vacancy there.

Brian Pauls: Yeah, we're in active discussions right now on all the vacancy there. I'd say within the next six months it'll be leased.

I'd say within the next six months it will be leased.

Himanshu Gupta: Got it. Okay. Thank you, guys. I'll turn it back.

Hitesh Gupta: Got it. Okay. Thank you, guys. I'll turn it back.

Okay. Thank you guys I'll turn it back.

And our next question comes Tempress started just kind of ice Securities. Your line is open.

Operator 2: The next question comes from Brad Sturges from iA Securities. Your line is open.

Operator: The next question comes from Brad Sturges from iA Securities. Your line is open.

Other.

Brad Sturges: Hi there.

Morning.

Lenis Quan: Morning.

Brad Sturges: When you think about development, and ramping up the program, is there a longer-term target in terms of the type, the amount of exposure that would be prudent, on the balance sheet at any given time?

When you think about development.

And ramping up the program is there a longer term target in terms of the type the amount of exposure that would be prudent on the balance sheet at any given time.

Brad I think 10% it'd be.

Brian Pauls: Brad, you know, I think 10% would be, in round numbers, a good exposure to development that'll be limited by the opportunities we can find, and as I mentioned, be a balance between Canada and US.

In round numbers, a good exposure to development that will be limited by the opportunities we can find and as I mentioned, the b b a balance between Canada and use.

Brad Sturges: Within the broader CAD 300 million pipeline of acquisition opportunity, are there other development sites or opportunities you're reviewing right now?

Within the broader 300 million dollar pipeline of opportunities acquisition opportunities there are other development.

Sites or opportunities you are reviewing right now yes.

Brian Pauls: Yes.

Both Canada USA assume though.

Brad Sturges: Both Canada and the US, I assume then?

Brian Pauls: Yes, both Canada and the US. It's all part of our, you know, our strategy and things that we're looking at.

Yes, both Canada in the us.

It's all part of our you know our strategy and.

And things that we're looking them.

So until I guess.

Brad Sturges: I guess, you know, by the end of the year or early 2020, you said, you know, leverage get up to about 35%. You know, if you're getting closer to your target of high 30s%, low 40s%, is that still more of a timeline of mid-2020 at this point?

By the end of the year early 2020 said leveraged to get up to about 35% if you're getting closer to your target of high 30, low fortys is that still more of a timeline of mid 2020 at this point.

I would say probably probably late first quarter early second quarter to complete those that those acquisitions that we've mentioned.

Lenis Quan: I would say probably late Q1, early Q2 to complete those acquisitions that we've mentioned.

Okay, and then I guess, you've identified the the asset sale potentially in London is there anything else at the moment, you're looking at selling opportunistically or in terms of asset sales as they're much more to do with us.

Brad Sturges: Okay. Then, I guess you've identified the asset sale, potentially in London. Is there anything else at the moment you're looking at selling opportunistically or, you know, in terms of asset sales, is there much more to do at this stage?

There is not tons, Brad we've had interest from users on a few of our properties. A few one offs. If we don't have a big strategy or any big portfolio that we'd be looking to so I think we're always looking to kind of coal properties that.

Brian Pauls: There's not tons, Brad. We've had interest from users on a few of our properties, a few one-offs. We don't have a big strategy or any big portfolio that we'd be looking to sell. I think we're always looking to kind of cull properties that are more valuable in others' hands and provide opportunities to, you know, get higher quality assets. It's an ongoing thing. It's just a management of the business. It's not any one market that we're exiting or any large portfolio, but we are constantly looking at every asset. This London opportunity came, it was a good one. It made a lot of sense. We do have a few other one-offs, but you know, I think those will be ongoing as we manage the business.

Our more valuable than others hands and provide opportunities to get higher quality assets. So it's an ongoing thing. It's just a management of the business is not a.

The one market that we're exiting or any large portfolio, but we're constantly looking at every asset. So this this london opportunity came it was a good one if it made a lot of sense. We are we do have a few other one offs but.

I think those will be ongoing as we manage the business.

Brad Sturges: Got it. Okay, great. I'll turn it back.

Okay, Great I'll turn it back.

And our next question cancer, Sam Damiani from TD Securities. Your line is open.

Operator 2: Our next question comes from Sam Damiani from TD Securities. Your line is open.

Operator: Our next question comes from Sam Damiani from TD Securities. Your line is open.

Thanks, Good morning, everyone.

Sam Damiani: Thanks. Good morning, everyone. Actually, most of my questions have been answered, but just to start off on the development, is that 80-10-10 JV structure with no promote, you know, something that you see replicating in other US markets and potentially in Canada as well?

Just to actually most my questions have been answered, but just to start up.

Is that 80 10 10.

Restructure with.

Something that you see replicating another us markets potentially in Canada as well.

Yes.

Brian Pauls: Yes. I think it's a good model to use going forward. As I mentioned, we've had interest from other partners, institutions, other structures. It's one that we could replicate and one that would be kind of our base case, I would say.

I think it's a good it's a good model to use going forward.

As I mentioned, we've had interest from other.

Other partners institutions.

Other structures, it's one that we could replicate and one that would be kind of our base case I would say.

Sam Damiani: Good. Okay, that's helpful. Just on Louisville, I know you're saying early 2020 now for that. I mean, could you maybe be a little more specific or granular in terms of the progress that's been made since the August conference call?

Good Okay, that's helpful and just on.

Louisville.

You are seeing early 2020 now for that.

Could you maybe a little more specific are great diller. It terms of the progress has been made sense since the August conference call.

Brian Pauls: Sure. We've had a lot of interest in it. It's 303,000 sq ft, so it's, you know, it's a unique size. The location's great. We're looking for the right tenant. We've had a lot of interest. We've had a lot of broker activity and interest in the property. You know, Ford recently announced they're gonna invest $1 billion into Louisville, and that is affecting the market. We think that'll. You know, it's only positive for the whole market. We see a lot of activity. We see a lot of momentum. The absorption's been good in Louisville, so we feel very good about that. That building is really well located, highly functional.

Sure we've had lot of interest in it it's 303000 square feet. So its a.

It's a unique size the locations grade.

We're looking forward the right tenant we've had a lot of interest we've had a lot of broker activity and interest in the.

In the property you know afford recently announced they're going to invest $1 billion into Louisville and that is affecting the market we think that'll.

So only positive for the whole market.

So we see a lot of activity, we see a lot of momentum the absorption has been good Louisville. So we feel very good about that building is really well located highly functional.

Brian Pauls: It's just a good asset, so we're looking forward to having it leased, and we know, you know, we know it'll get there.

It's just a good asset so we're looking forward to having at least and we know.

We know it will get there.

Okay, and just finally on Western Canada does get a lot of attention these days, but our fundamentals, they're starting to turn in such a way that you could actually see yourselves.

Sam Damiani: Okay. Just finally, on Western Canada, it doesn't get a lot of attention these days, but, are fundamentals there starting to turn in such a way that you can actually see yourselves deploying more capital in that market anytime soon?

Deploying more capital in that market anytime soon.

We've looked said we've looked at.

Brian Pauls: We've looked at some opportunities in the West, Sam. We know we've been pushing occupancy in our own portfolio. I'll say this, we're more focused in Toronto and Montreal in the US than we are in the West. However, we do look at opportunities as they come, and if it's compelling, we're taking a harder look at it. I would say it'd be kind of second-tier target to the other markets that we're looking at for acquisitions.

Some opportunities in the west.

We've been pushing occupancy in our own portfolio.

We're more focused I'll say this we're more focused in Toronto, and Montreal and the U.S. that we are in the West. However, we do look at opportunities as they come and if it's compelling we're we're taking a harder look at it.

I would say it'd be kind of second tier target to the other markets that we're looking at for acquisitions.

Sam Damiani: That's helpful. You'd say it's certainly that market's been promoted in stature from a couple years ago.

That's helpful. So you say it's certainly.

Market promoted stature from a couple of years ago.

Yes, I think it's more stable than it was a couple of years ago. It's by no means out of the woods, we're still working hard to.

Brian Pauls: Yeah, I think it's more stable than it was a couple years ago. It's by no means out of the woods. We're still working hard to raise occupancy. We're working hard to push rents. Some of the old rents are higher than the new rents, so you know, it's still a recovering market. We are, you know, we're looking at recycling some of our own assets in the West. So, coming out of older properties that have maybe showed lower growth potential and into new ones within the West that would show higher growth potential.

To raise occupancy we're working.

Push whereas some of the old rents are higher than the new red So it's still a recovering market.

We are even so we're looking at recycling some of our own assets in the west So coming out of older properties that had maybe you have so lower growth potential and and into new ones within the west that would show higher growth potential.

Sam Damiani: Just sort of one final one. On the Vegas project, it is meant to be a single-tenant development. Is the current plan? Is that right?

And just sort of one final one thought the Vegas project is meant to be a single tenant development.

Sam Damiani: Just sort of one final one. On the Vegas project, it is meant to be a single-tenant development. Is the current plan? Is that right?

The current plans is that right now.

Brian Pauls: No, it's multi-tenant.

No no its multi tenant and sold very flexible building. It's I mentioned, it's roughly 400000 square feet, we could easily do for one hundreds or or some combination of four or five turns.

Sam Damiani: Oh.

Brian Pauls: It's a very flexible building. It's, I mentioned it's roughly 400,000 sq ft. We could easily do four 100,000s or, you know, some combination of four or five tenants.

Sam Damiani: Got it. Thank you. I'll turn it back.

Thank you I'll turn it back.

Your next question comes to Matt car next from National Bank. Your line is open.

Operator 2: The next question comes from Matt Kornack from National Bank. Your line is open.

Operator: The next question comes from Matt Kornack from National Bank. Your line is open.

Matt Kornack: Hi, guys. Sorry if I missed this in your earlier commentary, but for the acquisitions that you're planning to do in Q1 in the GTA, what sort of going-in cap rate should we expect on those?

Hi, guys, sorry, if I missed this on your earlier commentary, but for the acquisitions that you're planning to do in Q1 in the GTH, what sort of going in cap rate should we expect on though.

Brian Pauls: Matt, I'd expect those to be under 5% or just under 5%. You know, I mentioned really focusing on quality. These come at a lower cap rate cost, but offer great growth potential and higher NAV growth and higher free cash flow as the quality is higher. That's what I expect it to be.

Matt I'd expect those to be under five 5% or just under five.

Mentioned really focusing on quality these come at a.

Lower cap rate cost, but but offer great growth potential and.

Higher NAV growth and high free cash flow as the qualities higher so thats sweat expected to be and is that growth that you'd be anticipating is that on turnover of leases or is that built into the rent escalations already both it's both its in the.

Matt Kornack: Is that growth that you'd be anticipating, is that on turnover of leases, or is it built into the rent escalations already?

Brian Pauls: Both. It's both.

Matt Kornack: Okay.

Brian Pauls: It's in the. We have growth built into lease terms. You know, I can't say for things that we haven't acquired yet, but we expect to mark-to-market as leases roll as well.

It's in the we have we have growth built into lease lease terms.

Say for things that we have an acquired yet but we expect.

To mark to market as leases roll as well and that's a big part of the growth.

Matt Kornack: Okay.

Brian Pauls: That's a big part of the growth.

Matt Kornack: Then I guess, given that commentary on cap rates as well as some recent trades in Montreal that I think shocked some people, you're carrying your portfolio in those two markets, on the books at 5.3% and 6.2% cap rates. Is there any view towards potentially taking those lower and taking larger fair value gains? I mean, it would also impact your leverage and some of the guidance that you've given on that front as well.

And then I guess given that commentary on cap rates as well as some recent trades in Montreal that I think shocked some people.

You're carrying your portfolio and those two markets.

On the books that five three and six 2% cap rates is there any view towards potentially taking those lower and taking larger fair value gains I mean, it would also impact your leverage in some of the guidance that you've given on that front as well.

Lenis Quan: Hi, Matt. It's Lenis. Yeah, we've had numerous conversations just in terms of the IFRS valuation process. You know, we follow a lot of the guidance and criteria from appraisers. As these transactions that sometimes shock us go through the market, I think there's a bit of a lag time before some of these, some of those parameters get updated into the appraiser information. That being said, you know, we focus on continuing to capture the rental growth in our underlying cash flows and NOIs, and that as well would also lead to increasing valuations over time.

Hi, Matt it's minus.

Yeah, we we've had numerous conversations just in terms of the IRS valuation process.

We follow a lot of the guidance and criteria from appraisers and as these transactions that sometime shaka scope to the market.

I think theres a bit of a lag time before some of these some of those have parameters get updated into the appraiser information.

That being said.

Leader, we focus on continuing to capture that rental growth and in our underlying cash flows and analyze and that as well. It also lead to increasing valuations over time.

Matt Kornack: Sure. I guess, is there, if we wanted to take out the potential fair market gains, is there a debt-to-EBITDA number that you'd be looking at on the leverage side at this point that we could look to as well?

And I guess is there if we wanted to take out the potential fair market gains is there a debt to EBITDA number that you'd be looking out on the leverage side at this point that we could look too as well.

Lenis Quan: Sorry, if you-

Matt Kornack: In terms of stabilized sort of long-term target on debt-to-EBITDA.

And turning favorably stabilized sort of long term target on that data.

Yes, I don't know, where we're targeting in the sense okay.

Lenis Quan: Yeah, no, we're targeting in the sevens.

Matt Kornack: Okay.

Lenis Quan: Long term.

Matt Kornack: Makes sense. Last question from me. With regards to the vacancies that took place in this quarter, were they at the beginning or end of the quarter? Essentially, was there any NOI attributable to that vacancy that won't be in Q4 just from a modeling standpoint?

Make sense.

And then last question for me with regards to the vacancies that took place in this quarter, where they at the beginning or ended the quarter. So it sort of essentially was there any NOI attributable to that vacancy.

I'll be in Q3, just from a sorry in Q4 from a modeling standpoint.

Lenis Quan: Yeah. The vacancy that happened in Ontario in the GTA was sort of at the end of July, so you got a couple months there. The ones in the US, I think it was about one month.

Yes, and then they can see that happened in Ontario, and DTA wins.

Throughout the end of July see that a couple of months that they're the ones in the US I think it was about one month.

One month was in in Q3.

Matt Kornack: One month was in Q3?

Lenis Quan: Yes.

Matt Kornack: Two months out.

Two monto.

Lenis Quan: Yeah.

Okay perfect. Thank you.

Matt Kornack: Okay. Perfect. Thank you.

And as a reminder, if you have a question. Please press Star then one on your Touchtone phone and our next question comes from Brendan Hebron from Canaccord. Your line is open.

Operator 2: As a reminder, if you have a question, please press star then one on your touch tone phone. Our next question comes from Brendon Abrams from Canaccord. Your line is open.

Operator: As a reminder, if you have a question, please press star then one on your touch tone phone. Our next question comes from Brendon Abrams from Canaccord. Your line is open.

Brendon Abrams: Hi. Good morning.

Hi, good morning.

Brian Pauls: Good morning.

Yes.

Brendon Abrams: Brian, just taking a look at the Quebec occupancy, it's now, you know, over 99%. I know in the past you've spoken about kind of the balance between, you know, pushing rents and maintaining, you know, high occupancy levels. How are you, or how is the team kind of positioning the Quebec portfolio looking into 2020, maybe 2021 in terms of that balance?

Brian just thinking to look at the Quebec occupancy now.

You know over 99% I know in the past you've spoken about kind of the balance between pushing rent and maintaining.

Hi occupancy levels How're you.

Or how is the team kind of positioning the Quebec portfolio looking into 2020, maybe 2021 in terms of that.

Ballot.

Brian Pauls: Yeah.

The getting the in other words could you could you see yourself and a sacrificing.

Brendon Abrams: In other words, could you see yourself, you know, sacrificing some short-term vacancy to drive rental growth?

Short term vacancy.

Right rental growth.

Yes.

Brian Pauls: Yes. We are pushing rents. The occupancy is very high there. I mentioned a few examples in the prepared remarks at the beginning. We'll be doing the same thing in Montreal in terms of pushing rents very hard. I would see us probably taking on a little bit of vacancy in Montreal short term as a result of pushing rents. That market's very tight and I think it's a good observation, and we'll likely see some of that.

We are pushing rents the vegas, the occupancy is very high there.

We're I mentioned a few examples in the prepared remarks at the beginning we'll be doing the same thing in in Montreal in terms of pushing rents very hard so I would see us probably.

Taking a little bit of vacancy in Montreal short term as a result of pushing rents, but that market is very tight and.

So so I think it's a good observation and we'll likely see some of that.

Okay.

Brendon Abrams: What-

Brian Pauls: As we see NOI really grow.

I really grow.

Brendon Abrams: As one of the bigger landlords there, what's driving that market in your view? Or what type of, you know, tenants are either expanding or seeing new leasing opportunities?

As one of the bigger landlord, there what what's driving that market in your view or what type but.

Tenant sorry.

Other expanding or seeing new.

New leasing opportunity.

Brian Pauls: Yeah. There's a I mean, there's a lot of uses for distribution space right now. A lot of retail goods obviously are going through warehouses as opposed to retail, you know, brick-and-mortar store floors. More and more demand with just very little supply coming on. That's just making it tighter and tighter. I think what you're seeing in our occupancy rate is a result of just the market getting tighter and tighter with increased demand, very little supply. There's a big imbalance of where economic rent is, rent that justifies new construction, and where rents are today. We see that continuing to grow, and we're gonna be leaders in that and push it.

Yes, I mean, there's a lot of uses for distribution space right now a lot of retail goods, obviously, we're going through warehouses as opposed to retail brick and mortar store floors.

More and more demand with just very little supply coming on that just making a tighter and tighter. So I think what you're seeing in our our occupancy rate as a result of just the market getting tighter and tighter with increased demand very little supply. There's a there's a big imbalance of where economic rent is right that justifies new construction and where rents are today.

Okay. So we see that continuing to grow and we're going to we're going to be leaders in that and push it.

Okay, and just in terms of leasing spread in Ontario, obviously, a very strong over 20% a little higher than if you look at the year to date numbers or even where.

Brendon Abrams: Okay. Just in terms of the leasing spreads in Ontario, obviously, you know, very strong, over 20%. A little higher than, you know, if you look at the year-to-date numbers or even where market rents are relative to your in-place portfolio for that region. Was there anything in particular, one or two leases that kinda drove that outperformance? Or was it, you know, just how should we be thinking of that for kind of 2020?

Market rents are relative to your in place portfolio for that for that region was there but is there anything in particular, one or two leases that kind of drove that outperformance there.

Or was that.

Just how should we be thinking of that for 2020.

Yeah, I don't I don't know, let us if there is one that stood out we're pushing rents as I mentioned, you know how many square feet of role than we're pushing rents in all of those cases. So it's an average of all of them I mentioned, one that was recently done this had been a fourth quarter. One in my remarks at the beginning that's more of an extreme but.

Brian Pauls: You know, I don't know, Lenis, if there's one that stood out. We're pushing rents. I mentioned, you know, how many square feet have rolled, and we're pushing rents in all of those cases, so it's an average of all of them. I mentioned one that was recently done. This would've been a Q4 one in my remarks at the beginning, that's more of an extreme. There wasn't one that drove it, and the others were much lower. I think that's a pretty good representation of everything that rolled during this quarter.

There wasn't one that drove it and the others were were much lower I think that's a pretty good representation of everything that role during this quarter.

Brendon Abrams: Okay. That's.

Okay I would say that currently we are expecting to see that trend continue into 2020.

Lenis Quan: Yeah. I would say that we are expecting to see that trend continue into 2020. I think it's a function of sort of what the in-place rents are that are rolling off on the spaces. You know, so some where Brian had mentioned, we had a 94% increase. You know, you're rolling off a $4 rent, you know, so in those cases, the spreads will be quite higher. I think on average, we're probably seeing high teens to about even 20% on average for even into the next year.

I think it's a function of sort of what the in place rents are that are rolling off on the spaces.

So some.

Well, Brian had mentioned we had a 94% increase you know you're rolling off a $4 Brent.

So in those cases, the spreads will be quite higher but I think on average are probably seeing high teens.

To the even 20% on average for eating into the next year.

Okay. No. That's very helpful. And then last question for me, Brian I know you're obviously.

Brendon Abrams: Okay. No, that's very helpful. Last question from me. Brian Pauls, I know you're obviously very familiar with you know, the US industrial market. There was the big Prologis Liberty transaction announced not that long ago. I think in their release, they disclosed they'd be looking to sell almost $3 billion in kinda non-core assets on a combined basis. Just wondering your view on you know, whether you know I guess it's a difficult question to answer, but you know, could this be a potential opportunity for Dream Industrial down the road as maybe more product comes to market in some markets that you are familiar with?

Very familiar with.

You have industrial market there was.

The big prologue Liberty transaction now not that long ago, I think in there or at least they disclosed they'd be looking to sell almost 3 billion in.

On a non core asset on it on a combined basis.

Just wondering your view on whether you.

I guess, it's a difficult answer your question to answer but.

Could this be a potential opportunity for dream industrial down the road as may be more product comes to market in some markets that you are familiar with.

Brian Pauls: Possible. We know the Prologis folks quite well. You know, the Liberty Property Trust properties, there's some good, some bad. We'll look at what we think is good in markets that we like. There's a lot of what we'd call dogs and cats in there. So we're gonna look and see what comes available. It's possible it's an opportunity for us, and we'll look at whatever it is that Prologis is looking to dispose of and see if it's an opportunity that fits in well with our strategy.

Possible, we know the the pro largest folks quite well.

You know the Liberty Trust properties there some good some bad we'll look at what we think is good in markets that we like.

There's a lot of what we'd call dogs and cats in there so we're going to.

Look and see what comes available it's possible as an opportunity for us and we'll look at whatever it is the prolonged just says is looking to dispose of it and see if it's an opportunity that fits in well with our strategy.

Brendon Abrams: Okay. That's helpful. That's it for me. Thank you.

Okay. That's helpful that for me. Thank you.

And does from Andrew you have a question. Please press Star then one on your Touchtone phone.

Operator 2: As a reminder, if you have a question, please press star then one on your touchtone phone. We're standing by for more questions. Again, that's star one. We have no further questions.

Operator: As a reminder, if you have a question, please press star then one on your touchtone phone. We're standing by for more questions. Again, that's star one. We have no further questions.

And we're standing back my question.

Again that star one.

And we have no further questions.

Brian Pauls: Okay. Thank you everyone for your time today, and we look forward to speaking again soon.

Thank you everyone for your time today, and we look forward to speaking again soon.

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

Operator 2: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.

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

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