Q4 2019 Earnings Call

February 19, 2020

Operator: Good morning, ladies and gentlemen. Welcome to the Dream Industrial REIT year-end 2019 conference call for Wednesday, 19 February 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 actual results to differ materially from those that are disclosed in or implied by such forward-looking information.

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

Good morning, everyone. Thank you for joining us today for dream industrial reads 2019 fourth quarter and year-end conference call speaking with me. Today is Lana Squan our Chief Financial Officer named Alex and a cough and Bruce Traverse into the dream industrial team as Chief Operating Officer and Senior vice president. They will also be available to answer questions after our prepared remarks in January. We announced our expansion into the European industrial market with the acquisition of approximately 224 million Euros or $327 of assets in the Netherlands and Germany, totaling 3.2 million square feet of dla. These markets are displaying strong demand for industrial product due to the growing demand from e-commerce and third-party Logistics users. We decided we are excited about our expansion into these attractive mom and it represents an unprecedented opportunity for the read to add scale and upgrade our portfolio with significant economic benefits.

Operator: To queue up for a question, please press star then one on your telephone keypad. Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go ahead.

Brian Pauls: Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's 2019 Q4 and year-end conference call. Speaking with me today is Lenis Quan, our Chief Financial Officer. We welcome Alexander Sannikov and Bruce Traversy to the Dream Industrial team as Chief Operating Officer and Senior Vice President. They will also be available to answer questions after our prepared remarks. In January, we announced our expansion into the European industrial market with the acquisition of approximately EUR 224 million or $327 million of assets in the Netherlands and Germany, totaling 3.2 million square feet of GLA. These markets are displaying strong demand for industrial product due to the growing demand from e-commerce and third-party logistics users.

at the same

Time we remain committed to growing and improving our portfolio across our North American Target markets since you're in 2019, we have completed our our in advanced negotiations on a hundred fifty-eight million dollars of Assets in the greater Toronto area Kitchener in Montreal. These assets are well located on are expected to deliver above-average noi and nav growth month or acquisition pipeline continues to be robust with over five hundred million of properties across our three Target regions that we are inactive are actively and in the process of evaluating are underage in addition to our previously announced Canadian and European Acquisitions. We are well positioned to capitalize on these opportunities with a solid balance sheet and strong liquidity. We are currently in negotiations with a hundred million dollars of Acquisitions predominantly in the GTA.

Brian Pauls: These markets are displaying strong demand for industrial product due to the growing demand from e-commerce and third-party logistics users. We are excited about our expansion into these attractive markets, and it represents an unprecedented opportunity for the REIT to add scale and upgrade our portfolio with significant economic benefits. At the same time, we remain committed to growing and improving our portfolio across our North American target markets. Since year-end 2019, we have completed or are in advanced negotiations on CAD 152 million of assets in the Greater Toronto Area, Kitchener, and Montreal.

Brian Pauls: We are excited about our expansion into these attractive markets, and it represents an unprecedented opportunity for the REIT to add scale and upgrade our portfolio with significant economic benefits. At the same time, we remain committed to growing and improving our portfolio across our North American target markets. Since year-end 2019, we have completed or are in advanced negotiations on CAD 152 million of assets in the Greater Toronto Area, Kitchener, and Montreal. These assets are well located and are expected to deliver above average NOI and NAV growth. Our acquisition pipeline continues to be robust, with over CAD 500 million of properties across our three target regions that we are actively and in the process of evaluating our underwriting, in addition to our previously announced Canadian and European acquisitions.

Brian Pauls: These assets are well located and are expected to deliver above average NOI and NAV growth. Our acquisition pipeline continues to be robust, with over CAD 500 million of properties across our three target regions that we are actively and in the process of evaluating our underwriting, in addition to our previously announced Canadian and European acquisitions. We are well-positioned to capitalize on these opportunities with a solid balance sheet and strong liquidity. We are currently in negotiations on approximately CAD 100 million of acquisitions, predominantly in the GTA.

We're also making good progress executing our debt strategy to reduce our overall cost of borrowing and reduce risk or european asset-based allows us to access debt at rates that are currently two hundred basis points lower than North American financing rates. We are aiming to opt our optimize our capital structure where most of our debt would be euro-denominated which allows us to hedge our Euro exposure while significantly improving our cost of capital and our Returns the proceeds from last week's $230 Equity raised will go toward prepaying approximately two hundred million of Canadian mortgages took this to be completed by the end of the month effectively earning 3.6% on those proceeds immediately. This allows us to fund our future Acquisitions with new debt at one point three to 1.5% which will be meaningfully a creative to our ffo moving on to our operations active Asset Management remains an important foundation to our strategy our focus on driving range.

Brian Pauls: We are well-positioned to capitalize on these opportunities with a solid balance sheet and strong liquidity. We are currently in negotiations on approximately CAD 100 million of acquisitions, predominantly in the GTA. We're also making good progress executing our debt strategy to reduce our overall cost of borrowing and reduce risk. Our European asset base allows us to access debt at rates that are currently 200 basis points lower than North American financing rates. We are aiming to optimize our capital structure wherein most of our debt would be euro-denominated, which allows us to hedge our euro exposure while significantly improving our cost of capital and our returns. The proceeds from last week's CAD 230 million equity raise will go toward prepaying approximately CAD 200 million of Canadian mortgages.

Brian Pauls: We're also making good progress executing our debt strategy to reduce our overall cost of borrowing and reduce risk. Our European asset base allows us to access debt at rates that are currently 200 basis points lower than North American financing rates. We are aiming to optimize our capital structure wherein most of our debt would be euro-denominated, which allows us to hedge our euro exposure while significantly improving our cost of capital and our returns. The proceeds from last week's CAD 230 million equity raise will go toward prepaying approximately CAD 200 million of Canadian mortgages.

capturing leasing spreads on renewal

In expiries has led to strong same property growth in 2019 a 4.1% of the one point two million square feet of 2019 lease expires in Ontario. We secure renewal and new lease commitments totaling approximately 1 million square feet at an average rental spread of 15% Notably during the fourth quarter. We least a hundred eleven thousand square foot vacancy in Mississauga a rental rate that is 17% higher than the prior rate. The lease also includes 3.5% annual contractual rent growth on the seven year term commencing in March of 2020 in Quebec approximately 750000 square feet of leases commence during 2019 at an average rental spread of 11% or Quebec portfolio occupancy is over ninety nine percent, and we were actively evaluating opportunities to access higher Market rents as Lisa's roll over or through discussions with tenants on early renewals in western Canada. We have been focused on driving occupancy and have seen our average increase by birth.

Brian Pauls: We expect this to be completed by the end of the month, effectively earning 3.6% on those proceeds immediately. This allows us to fund our future acquisitions with new debt at 1.3% to 1.5%, which will be meaningfully accretive to our FFO. Moving on to our operations. Active asset management remains an important foundation to our strategy. Our focus on driving rents, capturing leasing spreads on renewals, and expiries has led to strong same property growth in 2019 of 4.1%. Of the 1.2 million square feet of 2019 lease expiries in Ontario, we secured renewal and new lease commitments totaling approximately 1 million square feet at an average rental spread of 15%.

Brian Pauls: Notably, during Q4, we leased 111,000 sq ft vacancy in Mississauga at a rental rate that is 17% higher than the prior rate. The lease also includes a 3.5% annual contractual rent growth on the 7-year term commencing in March 2020. In Quebec, approximately 750,000 sq ft of leases commenced during 2019 at an average rental spread of 11%. Our Quebec portfolio occupancy is over 99%, and we are actively evaluating opportunities to access higher market rents as leases roll over or through discussions with tenants on early renewals. In Western Canada, we have been focused on driving occupancy and have seen our average increase by 170 basis points in 2019, resulting in comparative properties NOI growth of 3.2%.

70 basis points in 2019

Resulting in comparative properties in a y growth of 3.2% while there continues to be some pressure on expiring rental rates. We are building contractual rent growth in our leases Thursday remain focused on investing Capital prudently occupancy in our us portfolio is strong in ninety-four percent. Are you as leasing activity has been concentrated in the midwest u.s. Portfolio acquired in June of 2019 for the full year. We signed 459 thousand square feet of leases that commenced in 2019 and average spread of 22% over prior Reds game overall. It has been another significant year for the read we are excited to have Alex and Bruce join the team who will significantly enhance our Acquisitions and operations team. I will now turn over to Leno's who provide our faith to update. Thank you. Brian deleted funds from operations Was Eighteen cents per unit for the quarter and $0.78 for the full year, which was in line with our expectations higher f f

Brian Pauls: In Western Canada, we have been focused on driving occupancy and have seen our average increase by 170 basis points in 2019, resulting in comparative properties NOI growth of 3.2%. 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%. Our US leasing activity has been concentrated in the Midwest US portfolio acquired in Q1 of 2019.

Brian Pauls: 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%. Our US leasing activity has been concentrated in the Midwest US portfolio acquired in Q1 of 2019. For the full year, we signed 459,000 sq ft of leases that commenced in 2019 at an average spread of 22% over prior rents. Overall, it has been another significant year for the REIT. We are excited to have Alex and Bruce join the team, who will significantly enhance our acquisitions and operations team. I will now turn it over to Lenis, who will provide our financial update.

Brian Pauls: For the full year, we signed 459,000 sq ft of leases that commenced in 2019 at an average spread of 22% over prior rents. Overall, it has been another significant year for the REIT. We are excited to have Alex and Bruce join the team, who will significantly enhance our acquisitions and operations team. I will now turn it over to Lenis, who will provide our financial update. Thank you, Brian. Diluted funds from operations was CAD 0.18 per unit for the quarter and CAD 0.78 for the full year, which was in line with our expectations.

some strong comparative properties and

Across all regions and the contribution from our recent acquisitions was offset by the sale of the Eastern Canada portfolio in July 2019, as well as 10% lower year-over-year leveraging these strategic initiatives are consistent with our announced strategy of upgrading the quality of our portfolio while maintaining a strong and flexible balance sheet.

Lenis Quan: Thank you, Brian. Diluted funds from operations was CAD 0.18 per unit for the quarter and CAD 0.78 for the full year, which was in line with our expectations. Higher FFO from strong comparative properties NOI growth across all regions, and the contribution from our recent acquisitions was offset by the sale of the Eastern Canada portfolio in July 2019, as well as 10% lower year-over-year leverage. These strategic initiatives are consistent with our announced strategy of upgrading the quality of our portfolio while maintaining a strong and flexible balance sheet. Comparative properties NOI or CPNOI increased by 2.5% for the quarter and 4.1% for the full year. Our year-over-year CPNOI growth was driven by increased occupancy in Western Canada and Quebec, and higher rents in Ontario and Quebec.

Comparative properties and white or sepia know I increased by 2.5% to the quarter and 4.1% for the full year.

Brian Pauls: Higher FFO from strong comparative properties NOI growth across all regions, and the contribution from our recent acquisitions was offset by the sale of the Eastern Canada portfolio in July 2019, as well as 10% lower year-over-year leverage. These strategic initiatives are consistent with our announced strategy of upgrading the quality of our portfolio while maintaining a strong and flexible balance sheet. Comparative properties NOI or CPNOI increased by 2.5% for the quarter and 4.1% for the full year. Our year-over-year CPNOI growth was driven by increased occupancy in Western Canada and Quebec, and higher rents in Ontario and Quebec.

Are you over your CPO was driven by increased occupancy in western Canada and Quebec and higher rents in Ontario and Quebec for the full-year western Canada experienced CPN growth of 3.2% which Quebec and Ontario at seven point five and 2.9% respectively at the end of 2019 the IFRS value of our portfolio was two point four billion dollars. This reflects over three hundred seventy million dollars of investment property Acquisitions during the year the sale of the Eastern Canada portfolio and 169 million dollars in Fair Value gains. Largely attributed to Ontario and Quebec a fair value increase reflects a strong leasing activity Market rent growth and lower capitalized capitalization rates.

Lenis Quan: For the full year, Western Canada experienced CPNOI growth of 3.2%, with Quebec and Ontario at 7.5% and 2.9% respectively. At the end of 2019, the IFRS value of our portfolio was CAD 2.4 billion. This reflects over CAD 370 million of investment property acquisitions during the year, the sale of the Eastern Canada portfolio, and CAD 179 million in fair value gains, largely attributed to 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 increased by CAD 1.22 this year, or 12% to 11.76 at year-end 2019. We have made excellent progress in improving the strength of the balance sheet and our financial flexibility.

Reported net asset value or nav per unit increased by a dollar twenty two this year or 12% 21176 at year end 2019. We have made excellent progress in improving the strength of the balance sheet and our financial flexibility our net debt to asset end of the year at 23.7% and our net debt to adjusted ebitda was 4.3 times which reflects $442 in cash balance at year-end. This cash will fund are announced Acquisitions in Europe and Canada and early 2020s. Largely. Thank you. Once the proceeds of our recent Equity offering will be utilized prepay. Approximately two hundred million dollars in Canadian mortgages by the end of this month so that we will get a 3.6% return on those proceeds after these transactions. Arnett debt-to-assets will be around 30% and we will have approximately 250 million dollars of acquisition capacity and are dead.

Lenis Quan: The Trust's reported net asset value, or NAV, per unit increased by CAD 1.22 this year, or 12% to 11.76 at year-end 2019. We have made excellent progress in improving the strength of the balance sheet and our financial flexibility. Our net debt to assets ended the year at 23.7%, and our net debt to adjusted EBITDA was 4.3x, which reflects CAD 442 million in cash balance at year-end. This cash will fund our announced acquisitions in Europe and Canada in early 2020, largely in Q1.

Lenis Quan: Our net debt to assets ended the year at 23.7%, and our net debt to adjusted EBITDA was 4.3x, which reflects CAD 442 million in cash balance at year-end. This cash will fund our announced acquisitions in Europe and Canada in early 2020, largely in Q1. The proceeds of our recent equity offering will be utilized to prepay approximately CAD 200 million in Canadian mortgages by the end of this month, so that we will get a 3.6% return on those proceeds. After these transactions, our net debt to assets will be around 30%, and we will have approximately CAD 250 million of acquisition capacity, and our unencumbered assets will increase to almost CAD 1 billion.

encumbered assets will increase

almost 1 billion dollars

for 2020 we expect our interio and Quebec portfolios to continue to outperform and Achieve strong VPN alive growth of 45% led by higher occupancy and wage growth. There is no lease rollover in our comparative property portfolio. And we expect CPN growth in this region on a constant currency basis to be driven entirely by rep escalators of approximately 1.5 to 2% in our western Canada portfolio occupancy increased significantly in 2019, which resulted in strong competitive Rock piano Lounge for 2020. We expect see piano I growth in this region to be driven by the timing of lease up of available space depending on the timing of the lease commencements. We expect c p m c p noi growth to be flat to slightly down.

Lenis Quan: The proceeds of our recent equity offering will be utilized to prepay approximately CAD 200 million in Canadian mortgages by the end of this month, so that we will get a 3.6% return on those proceeds. After these transactions, our net debt to assets will be around 30%, and we will have approximately CAD 250 million of acquisition capacity, and our unencumbered assets will increase to almost CAD 1 billion. For 2020, we expect our Ontario and Quebec portfolios to continue to outperform and achieve strong CPNOI growth of 4% to 5%, led by higher occupancy and rental rate growth.

Lenis Quan: For 2020, we expect our Ontario and Quebec portfolios to continue to outperform and achieve strong CPNOI growth of 4% to 5%, led by higher occupancy and rental rate growth. There is no lease rollover in our comparative property US portfolio, and we expect CPNOI growth in this region on a constant currency basis to be driven entirely by rent escalators of approximately 1.5% to 2%. In our Western Canada portfolio, occupancy increased significantly in 2019, which resulted in strong comparative property NOI growth. For 2020, we expect CPNOI growth in this region to be driven by the timing of lease up of available space. Depending on the timing of the lease commencements, we expect CPNOI growth to be flat to slightly down. For the overall portfolio, we are looking at CPNOI growth in the 2% to 3% range for 2020.

Lenis Quan: There is no lease rollover in our comparative property US portfolio, and we expect CPNOI growth in this region on a constant currency basis to be driven entirely by rent escalators of approximately 1.5% to 2%. In our Western Canada portfolio, occupancy increased significantly in 2019, which resulted in strong comparative property NOI growth. For 2020, we expect CPNOI growth in this region to be driven by the timing of lease up of available space. Depending on the timing of the lease commencements, we expect CPNOI growth to be flat to slightly down.

For the overall portfolio in the two to 3% range for 20 20.

Over the past twelve months. We have upgraded the quality of our portfolio through the recycling of the Eastern Canada region and select non-core assets as well as strengthen the balance sheet by bringing down leverage off. This is Transforming Our portfolio into one that can produce strong cash flow and nav growth over the long term our 2020 ffo growth will be impacted by the lower-end Healdsburg asset recycling are announced European expansion and debt strategy improve the ffo per unit growth potential of the read once we have implemented the debt strategy and early 2012. The annualized impact on ffo per unit is two to three cents and will become more evident in our results in the second half of 2020 and in 2021.

Lenis Quan: For the overall portfolio, we are looking at CPNOI growth in the 2% to 3% range for 2020. Over the past 12 months, we have upgraded the quality of our portfolio through the recycling of the Eastern Canada region and select non-core assets, as well as strengthen the balance sheet by bringing down leverage. This is transforming our portfolio into one that can produce strong cash flow and NAV growth over the long term. Our 2020 FFO growth will be impacted by the lower NOI yields from the asset recycling.

Lenis Quan: Over the past 12 months, we have upgraded the quality of our portfolio through the recycling of the Eastern Canada region and select non-core assets, as well as strengthen the balance sheet by bringing down leverage. This is transforming our portfolio into one that can produce strong cash flow and NAV growth over the long term. Our 2020 FFO growth will be impacted by the lower NOI yields from the asset recycling. Our announced European expansion and debt strategy improve the FFO per unit growth potential of the REIT. Once we have implemented the debt strategy in early 2020, the annualized impact on FFO per unit is 2 to 3 cents and will become more evident in our results in the second half of 2020 and in 2021.

For the full year twenty-twenty we expect diluted ffo per unit to be flat to 1% higher than the 2019 as mentioned above as we complete our analysis years in a position and Implement our debt strategy during twenty-twenty the contribution to SFO growth will be more meaningful in the second half of the year.

Lenis Quan: Our announced European expansion and debt strategy improve the FFO per unit growth potential of the REIT. Once we have implemented the debt strategy in early 2020, the annualized impact on FFO per unit is 2 to 3 cents and will become more evident in our results in the second half of 2020 and in 2021. For the full year 2020, we expect diluted FFO per unit to be flat to 1% higher than 2019. As mentioned above, as we complete our announced European acquisitions and implement our debt strategy during 2020, the contribution to FFO growth will be more meaningful in H2 of the year.

Strong balance sheet and a growing pool of unencumbered assets. We are well-positioned to pursue an investment-grade credit rating and unsecured financing in the near-term.

I will now turn it back to Brian to wrap up a 2018 was an incredible year for the re we made significant progress on strengthening our operations growing and upgrading the quality of life and increase in our balance sheet strength. We acquired over three hundred seventy million of Assets in Canada and the US adding four point five million square feet of high quality in our Target markets, including including Ontario Quebec in the u.s. In addition. We completed the disposition of our Eastern Canada portfolio in the second half of the year with proceeds being deployed into higher quality assets that will generate strong free cash flow and net asset value growth over the long term.

Lenis Quan: For the full year 2020, we expect diluted FFO per unit to be flat to 1% higher than 2019. As mentioned above, as we complete our announced European acquisitions and implement our debt strategy during 2020, the contribution to FFO growth will be more meaningful in H2 of the year. With a strong balance sheet and a growing pool of unencumbered assets, we are well-positioned to pursue an investment-grade credit rating in unsecured financing in the near term. I will now turn it back to Brian to wrap up.

Lenis Quan: With a strong balance sheet and a growing pool of unencumbered assets, we are well-positioned to pursue an investment-grade credit rating in unsecured financing in the near term. I will now turn it back to Brian to wrap up.

Brian Pauls: Thank you, Lenis. 2019 was an incredible year for the REIT. We made significant progress on strengthening our operations, growing and upgrading the quality of our portfolio, and increasing our balance sheet strength. We acquired over CAD 370 million of assets in Canada and the US, adding 4.5 million sq ft of high-quality GLA in our target markets, including Ontario, Quebec, and the US. In addition, we completed the disposition of our Eastern Canada portfolio in the H2 of the year, with proceeds being deployed into higher quality assets that will generate stronger free cash flow and net asset value growth over the long term. The European asset and finance strategy will significantly add to our asset diversification and operational performance going forward.

The European acid and finance strategy will significantly add to our asset diversification and operational performance going forward. We are pleased pleased with the progress made and transforming the dream industrial polio and at the same time improving and maintaining a strong and flexible balance sheet. The read has achieved significant milestones in 2019, and is poised to capitalize on many opportunities in twenty-twenty and Thursday. Would now be happy to take any questions.

Thank you. We don't have the in the question answer session. If you have a question, please press * then 1 on your touchtone phone. If you're using a speakerphone, you may need to pick up the handset first month before pressing the numbers. Once again, if you have a question, please press * then 1 on your touchtone phone. Our first question comes from Brad Sturgis from my a Securities please go ahead line is open. Hi, good morning.

Brian Pauls: The European asset and finance strategy will significantly add to our asset diversification and operational performance going forward. 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. The REIT has achieved significant milestones in 2019 and is poised to capitalize on many opportunities in 2020 and beyond. We would now be happy to take any questions.

Brian Pauls: 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. The REIT has achieved significant milestones in 2019 and is poised to capitalize on many opportunities in 2020 and beyond. We would now be happy to take any questions.

Good morning.

Starting with the the plan to repay two hundred million of Canadian Mortgage Debt. Is there any cost associated with that payment at the end of the month by the end of the month?

Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touchtone phone. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touchtone phone. Our first question comes from Brad Sturges from iA Securities. Please go ahead. Your line is open.

Yeah, there is the the prepayment penalty or yield maintenance costs or boots 3 1/2 million associated with us.

And the the payback on that with the 3.6% interest savings is less than one year.

Right in terms of the the balance sheet capacity of the acquisition capacity going forward and your guidance on ffo per unit. What are the expectations for home right now baked into those assumptions in terms of deploying that capacity on the balance sheet over the course of the year.

Brad Sturges: Hi. Good morning.

Lenis Quan: Good morning.

Brad Sturges: Just starting with the plan to repay CAD 200 million of Canadian mortgage debt, is there any cost associated with that payment by the end of the month?

Sorry, could you repeat that question in terms of getting the balance sheet up to Target leverage and deploying I guess acquisition capacity. What's what's your expectations in terms of timing in terms of getting leverage closer to the longer-term Target?

Lenis Quan: Yeah, there is. The prepayment penalty or yield maintenance costs are about CAD 3.5 million associated with that.

Brad Sturges: Okay.

Lenis Quan: The payback on that, with the 3.6% interest savings, is less than one year.

So I as I mentioned we've got about two hundred fifty million of acquisition capacity. We probably I mean that's going to be dependent on how quickly the pipeline materializes but we kind of see that throughout the second half of the year.

Brad Sturges: Great. In terms of the balance sheet capacity or the acquisition capacity going forward and your guidance on FFO per unit, what are the expectations for right now baked into those assumptions in terms of deploying that capacity on the balance sheet over the course of the year?

What what Leverage is that based on the 250 million of acquisition you're passing and are targeted leverage ranges in the 30 to 39% range will be right in the middle of that.

Lenis Quan: Sorry, could you repeat that question?

Brad Sturges: In terms of getting the balance sheet up to target leverage and deploying, I guess, acquisition capacity, what's your expectations in terms of timing, in terms of getting leverage closer to the longer term target?

and

In terms of the the lease expiries for 2020 I think in terms of what's been done so far. There's uh, I think the rates that she'd 8% rent spread. How do you see that off that trending over the course of the year as you work on the remaining lease expires for the year?

Lenis Quan: I, as I mentioned, we've got about CAD 250 million of acquisition capacity. I mean, that's gonna be dependent on how quickly the pipeline materializes, but we kind of see that sort of in mid to H2 of the year.

I would say overall Brad is going to be consistent with what we have achieved so far.

Brad Sturges: What leverage is that based on, the CAD 250 million of acquisition capacity?

And then obviously largely driven the positive spread. Largely June in Ontario and Quebec.

Lenis Quan: That'll take us to the mid-30s. Our targeted leverage range is in the sort of 30% to 39% range. We'll be right in the middle of that.

Any update on the Louisville Space?

Brad Sturges: Got it. In terms of the lease expiries for 2020, I think in terms of what's been done so far, there's I think the REIT has achieved an 8% rent spread. How do you see that trending over the course of the year as you work on the remaining lease expiries for the year?

We're in negotiations with the prospect. So it's currently between us and another property in a different market. So we're we're

going to be in advanced negotiations. So we'll know if that Prospect will materialize pretty soon and beyond that way marketing the space actively. There's a good pipeline good during activity.

Alexander Sannikov: I would say overall, Brad, it's gonna be consistent with what we have achieved so far. Obviously largely driven by the positive spread in Ontario and Quebec.

Okay. I'll turn it back.

Thank you. Our next question comes from TD Securities, please go ahead your line is open. Good morning everyone Brian just on the acquisition Pipeline and you're looking at over five hundred million of potential Acquisitions right now. What would be the geographic mix of that of that bucket right now?

Brad Sturges: Any update on the Louisville space?

Alexander Sannikov: We're in negotiations with a prospect. It's currently between us and another property in a different market. We're kind of in advanced negotiations. We'll know if that prospect will materialize pretty soon. Beyond that, we're marketing the space actively. There's good pipeline, good touring activity.

Yeah, actually we've got we're very active in all three markets. We we're in advanced negotiations on probably a third of that in in Canada spread in the GTA and I'm in Montreal we've got probably over a third of that more like forty percent in Europe that were looking at and then we've got, you know pretty active pipeline in the US. So it's it's spread not quite evenly but I would say our priorities if we had to rank them would be would be Europe Canada us but we've got active opportunities that would fit our portfolio and be very complimentary and all three markets. I think we're you'll see us probably active in in all three of those Target regions throughout 20/20 on it on the Acquisitions front. Thank God be helpful and let us the leverage metrics that you mentioned were that were those for a Target 1/4 and 1 like into the first quarter. That's 30% that debt figure

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

Operator: Thank you. Our next question comes from Sam Damiani from TD Securities. Please go ahead. Your line is open.

Sam Damiani: Thanks, and good morning, everyone. Brian, just on the acquisition pipeline, you mentioned you're looking at over CAD 500 million of potential acquisitions right now. What would be the geographic mix of that bucket right now?

Brian Pauls: Yeah. Hi, Sam. We've got. We're very active in all three markets. We're in advanced negotiations on probably a third of that in Canada, spread in the GTA and Montreal. We've got probably over a third of that, more like 40% in Europe that we're looking at. We've got, you know, a pretty active pipeline in the US. It's spread not quite evenly, but I would say our priorities, if we had to rank them, would be Europe, Canada, US. We've got active opportunities that would fit our portfolio and be very complementary in all three markets. I think you'll see us probably active in all three of those target regions throughout 2020 on the acquisitions front.

So that's 30% net debt figure was after all the things that we've got in terms of Acquisitions and the debt repayment. So that'll probably triple into April before we're at 30% There's there's a couple of Acquisitions that may slip out of a coupon in to early April that you still have another 250 million capacity to life towards some of the stuff that you're looking at right now, correct? Okay, it does need your guidance include any Acquisitions beyond that 250 million that would require selected later on in the air.

Sam Damiani: Thank you. That's helpful. Lenis, so the leverage metrics that you mentioned, were those for a target year Q1, like end of Q1, that 30% net debt figure?

No, no, sorry and just looking back to the operations of the quarter the press release seem to indicate that off the read basically sort of terminated the lease in Oakville 98,000 square feet under if you get a little bit of a little give us a little bit of color on that and with the backfill prospects are dead.

Lenis Quan: The 30% net debt figure was after all the things that we've got in terms of acquisitions and the debt prepayment. That'll probably trickle into April before we're at that 30%.

Sam Damiani: Right.

Lenis Quan: There's a couple of acquisitions that may slip out of Q1 into early April.

Sure.

Sam Damiani: Right. Then you still have another CAD 250 million capacity to utilize towards some of the stuff that you're looking at, right now?

I can start and Alex can jump in to add any additional color. We had a tenant in there is 98000 square feet in Oakville single-tenant property. They were uh, they were difficult tenant am behind on their rental payments. They were also in there at below-market rent. So we took the opportunity to terminate them and are actively Touring that asset. Yeah, we're we're in negotiations with one prospect there and we expect to see a significant lift on the rent twenty 30% and we also marketing the space. So if she doesn't materialize that that Prospect there's a there's a pipeline of other tenants, um, at the end of the day the timing of it will obviously impact, uh, same property in Hawaii looks for the year, but overall, this is uh is a positive move for for the asset and the value of the property in the long-term income of the property.

Lenis Quan: Correct.

Sam Damiani: Okay. Does your guidance include any acquisitions beyond, you know, CAD 250 million, that would require additional equity later on in the year?

Lenis Quan: No. No.

Sam Damiani: All right. Just looking back to the operations on the quarter, the press release seemed to indicate that the REIT basically sort of terminated a lease in Oakville, 98,000 sq ft. I wonder if you could give us a little bit of color on that and what the backfill prospects are.

Lenis Quan: Sure, I can start, and Alex can jump in to add any additional color. We had a tenant in there. It was 98,000sq ft in Oakville, single-tenant property. They were a difficult tenant and behind on their rental payments. They were also in there at below-market rent, so we took the opportunity to terminate them, and are actively touring that asset.

It was any was any red?

That former tenant included in the Q4 in Hawaii.

No.

Alexander Sannikov: Yeah, Sam. We're in negotiations with one prospect there, and we expect to see a significant lift on the rent, 20% to 30%. We're also marketing the space. If it doesn't materialize with that prospect, there's a pipeline of other tenants. At the end of the day, the timing of it will obviously impact how same-property NOI looks for the year. Overall, this is a positive move for the asset, the value of the property, and the long-term income of the property.

It was not.

I'll turn it back.

Thank you. Our next question comes from Brendan from canaccord, please go ahead your line is open.

Good morning, everyone.

When is just the clarify on the 250 million of acquisition capacity just to confirm that is that's an equity number and so it would translate into higher. I said value or purchase price know. Those are those that's a total asset figure.

And presumably that would be funded by that would be funded by 100% debt at at one and a half percent.

Sam Damiani: Was any rent from that former tenant included in the Q4 NOI?

Okay, and when when you guys are referencing the rates available in Europe, can you just remind us again? Exactly kind of what term or you know length of term you would be looking at the only close to 1.3 to 1.5% We're looking at a 5 year fixed rate.

Lenis Quan: No, it was not.

Sam Damiani: Great. Thanks. I'll turn it back.

Operator: Thank you. Our next question comes from Brendon Abrams from Canaccord. Please go ahead. Your line is open.

Brendon Abrams: Hi, good morning, everyone. Lenis Quan, it's just to clarify on the CAD 250 million of acquisition capacity, just to confirm, that is, that's an equity number, and so it would translate into a higher, asset value or purchase price?

Okay, maybe just turning to the Quebec portfolio perform pretty well in 2019 and that basically. See when I take a look at Market versus in place rent in the md&a here. It's it's essentially in line but renewal spreads for 29 years and over 11% higher. So just wondering what your expectations would be for Renewal spread in 2024 the Quebec portfolio.

Lenis Quan: No, that's a total asset figure. Presumably that would be funded by 100% debt at about 1.5%.

Brad Sturges: Okay.

Brendon Abrams: When you guys are referencing the rates available in Europe, can you just remind us again exactly kind of what terms, or, you know, length of term you would be looking at?

So on the same property and why this is we expect to see called around 5% growth growth in twenty-twenty as late as I mentioned in a marks and that's largely driven by uh, moving rental rates and then built in escalators. Uh, the the fact that the way GM DNA were saying the rents are largely flat to Market is driven by a couple of properties that dough mature for for quite some time.

Lenis Quan: When we quote the 1.3% to 1.5%, we're looking at a five-year fixed rate.

Brendon Abrams: Okay. Maybe just turning to the Quebec portfolio, you know, performed pretty well in 2019 and basically full occupancy. When I take a look at market versus in-place rents in the MD&A here, it's essentially in line. But renewal spreads for 2019 were, you know, over 11% higher. So just wondering what your expectations would be for renewal spreads in 2020 for the Quebec portfolio.

Okay, that's helpful. And then just last question for me before I turn it over the US portfolio looks to be running at around 94% occupancy. I'm just wondering kind of that 6% vacancy. Would you suggest that kind of just structural for the portfolio or you do you expect that to Trend up? Okay. Yeah, Brenda. We we expect that to Trend up, you know Louisville's a significant part of that and we're you we've got a lot of activity on that. It's a very very long usable good well located building and we've got a good activity on that. So we'll see that take up as we as we lease that space and some of the other kind of residual spaces that have come up with the leasing office on the whole portfolio has been really good. So we're we're optimistic that that will you know will close that Gap.

Alexander Sannikov: On same-property NOI basis, we expect to see around 5% gross growth in 2020, as Lenis mentioned in her remarks. That's largely driven by mark-to-market rental rates and then built-in escalators. The fact that in the MD&A, we're saying the rents are largely flat to market is driven by a couple of properties that don't mature for quite some time.

Brendon Abrams: Oh, okay. I'd say that's helpful. Just last question from me before I turn it over. The US portfolio looks to be running at around 94% occupancy. I'm just wondering if kind of that 6% vacancy, would you suggest that's kind of just structural for the portfolio, or do you do you expect that to trend up over time?

And just to add on to the Louisville the Louisville vacancy itself would contribute 4% of occupancy.

Okay, right. So that's yeah, pretty okay. Thank you very much. I'll turn it over.

Thank you. Our next question comes from himanshu Gupta from Scotiabank, please go ahead your line is open.

Brian Pauls: Yeah, Brendon, we'd expect that to trend up. You know, Louisville is a significant part of that. We've got a lot of activity on that. It's a very usable, good, well-located building, and we've got good activity on that. We'll see that pick up as we lease that space and some of the other kind of residual spaces that have come up. The leasing on the whole portfolio has been really good, so we're optimistic that that'll, you know, we'll close that gap.

Thank you and good morning. So on Acquisitions around 170 million dollars an ounce and other markets at a capital 4.6. So what is the growth potential inhaler? And how would you describe the quality of these properties in terms of age tenants or location?

I can start and then maybe branch in Japan as well. So we expecting kind of that 4% 5-year compounded average growth from from these properties off. These are largely on the rented the way the average lease term is just under 5 years. So there's there's good room to move to move the rent. Uh, I would say one of the assets is is that we development site so and it's kind of condition we can we can see strong rental growth. Um, it was a sale in the lease back with three years term, but we would also look to intensify the site and and potentially Adam significantly larger building to the to the property and obviously that will affect the properties economics over time.

Lenis Quan: Yeah, just to add on to that.

Brendon Abrams: Okay.

Lenis Quan: The Louisville vacancy itself would contribute 4% of occupancy.

Brendon Abrams: Okay, right. That's, yeah, pretty significant. Okay, thank you very much. I'll turn it over.

Operator: Thank you. Our next question comes from Himanshu Gupta from Scotiabank. Please go ahead. Your line is open.

Himanshu Gupta: Thank you, and good morning. On acquisitions, around CAD 170 million announced in GTA and other markets at a cap of 4.6. What is the NOI growth potential here? And how would you describe the quality of these properties, in terms of age, tenants, or location?

Alexander Sannikov: Well, I can start, and then maybe Brian can jump in as well. We're expecting kind of that 4% five-year compounded average growth from these properties. These are largely under-rented. The way the average lease term is just under five years, so there's good room to move the rents. I would say one of the assets is a redevelopment site. In its current condition, we can see strong rental growth. It was a sale and lease back with three-year term. We would also look to intensify the site and potentially add a significantly larger building to the property. Obviously, that will affect the property's economics over time.

you know just

Your quality question. He managed to I think we're a quality in terms of its functionality is location. How usable is it to the widest array of tennis this this month all these assets that we mentioned here in the portfolio that Alex was referencing as very very high-quality very very functional or it's you know, in location some of this is off Market that we you know, if she was able to source and we're very happy with it and it shows a lot of potential to be able to push rents in in great locations. So we're very happy with it.

Yeah, thanks for the color and maybe you know how competitive is the market right now for these kind of product. I think you mentioned off-market, but I mean who other what other peers are competing against these properties? Everybody wants them to me ask you this is probably the one of the most highest demand kind of Investments right now from other public companies to life companies to even private investors. So it's very competitive out. There are deal flow is good to be a trusted buyer one with a reputation that will close and do what we say we're going to do is very valuable. So we've executed. Well, we see a lot of the deals we've got great relationships with not only the transaction guys like Brokers but also the owners who are selling the properties, so that's some of our competitive advantage in a in a really competitive mom.

Brian Pauls: You know, just to add to your quality question, Himanshu, I think we rate quality in terms of its functionality, its location, how usable is it to the widest array of tenants. All these assets that we've mentioned here in the portfolio that Alex was referencing is very high quality, very functional, or it's, you know, in location. Some of this is off market that we, you know, our team was able to source, and we're very happy with it, and it shows a lot of potential to be able to push rents in great locations. We're very happy with it.

Sorry, maybe you Switching gears on same property noi growth guidance. So thanks for that. I think you mentioned 45% for Ontario and Quebec and probably flat to down for Western. I'm not sure did you mention any number for US portfolio as well?

Himanshu Gupta: Yeah. Thanks for the color. Maybe, you know, how competitive is the market right now for these kind of product? I think you mentioned off market, but I mean, who else are competing? What other peers are competing against these properties?

Brian Pauls: Everybody wants them, Himanshu. This is probably the one of the most highest demand kind of investments right now from other public companies, to life companies, to even private investors. It's very competitive out there. Our deal flow is good to be a trusted buyer, one with a reputation that will close and do what we say we're gonna do is very valuable. We've executed well. We see a lot of the deals. We've got great relationships with not only the transaction guys like brokers, but also the owners who are selling the properties. That's some of our competitive advantage in a really competitive market.

It's going to be largely driven by the rental escalators. There's no roll over in that in the US portfolio in our comparative us portfolios the 1 and 1/2 to 2%

Gotcha. And then when you say on western Canada, you mentioned flat to down. Do you assume any occupancy games here? And what are your assumptions on with the rental spreads? Because I know it was around I think maybe 9% negative this quarter. What are your assumptions for 2020?

So on occupancy side, we we expect to the average occupancy will be largely flat and his lettuce mentioned her remarks a lot of the same property metrics are affected by timing of when some availabilities least up. We we are in active negotiations with a number of prospects. We have a couple of pockets of vacancy including in Edmonton and Thursday would you know depending when when we can lease that will affect the numbers on same property basis in terms of rental spreads. Excuse me. We're looking to see a slight roll down and Rental spreads kind of mid-single digits, uh in 2020 and that will be offset and 21 as we gave some occupancy there.

Himanshu Gupta: Got it. Maybe just switching gears on same property NOI growth guidance. Thanks for that. I think you mentioned 4% to 5% for Ontario and Quebec and probably flat to down for Western Canada. Not sure, did you mention any number for US portfolio as well?

Lenis Quan: It's gonna be largely driven by the rental escalators. There's no rollover in the US portfolio, in our comparative US portfolio, so 1.5% to 2%.

Himanshu Gupta: Gotcha. When you say on Western Canada, you mentioned flat to down, do you assume any occupancy gains here? What are your assumptions on the rental spreads? Because I know it was around, I think, maybe 9%, negative this quarter. What are your assumptions for 2020?

And they built in escalators will also be moving that number up over time.

Alexander Sannikov: On occupancy side, we expect that the average occupancy will be largely flat. As Lenis mentioned in her remarks, a lot of the same property metrics are affected by timing of when some availability is leased up. We are in active negotiations with a number of prospects. We have a couple of pockets of vacancy, including in Edmonton, and that would, you know, depending when we can lease that, will affect the numbers on same property basis. In terms of rental spreads, excuse me, we're looking to see a slight roll down in rental spreads, kind of mid-single digits, in 2020. That will be offset in 2021 as we gain some occupancy there.

Got it. Okay. Okay. So maybe last question from me on development. So any update on Las Vegas development and where does the development in the office realities? I mean over at positions in Europe in Toronto Montreal. So the development Las Vegas is going well where you expect to break ground later in 2026 as we work through entitlements and and and and approvals to get permitted to start but they're strong strong demand in that location and that market continues to do very very well. So we're optimistic that that that development will be very successful. We are looking at other opportunities in the US. So it's a priority for us in both countries wage. And we've got a team in place looking at opportunities in in both places where we could either enhance value by adding density and adding development on some of our current properties as well as

Himanshu Gupta: Got it.

Alexander Sannikov: Just wanted to add.

Himanshu Gupta: Yes, sir.

Alexander Sannikov: Just wanted to add, sorry, the built-in escalators will also be moving that number up over time.

Himanshu Gupta: Got it. Okay. Maybe last question from me on development. Any update on Las Vegas development, and where does the development in the US sit in terms of priorities? I mean, there were acquisitions in Europe and Toronto, Montreal.

Do Greenfield development where?

You know where it's appropriate and where it's available. So it's a priority for us. It's a small part of our balance sheet, but it's a priority to us to add that to our to our portfolio.

Brian Pauls: The development in Las Vegas is going well. We expect to break ground later in 2020 as we work through entitlements and approvals to get permitted to start. But there's strong demand in that location, and that market continues to do very well, so we're optimistic that that development will be very successful. We are looking at other opportunities both in Canada and the US. It's a priority for us in both countries, and we've got a team in place looking at opportunities in both places where we could either enhance value by adding density and adding development on some of our current properties, as well as do greenfield development where, you know, where it's appropriate and where it's available. It's a priority for us.

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

Is there but we are as we are with the whole portfolio all the way across the three regions we're looking at asset recycling. So we're looking at opportunities where we can buy assets that have significant growth in a sense that that are growing is fast or that may be worth more in others hands, for example, where there are users. Um, and there's an opportunity to sell to a user who's going to use the building that's a good opportunity for us to sell. Um add prices that are you know, likely higher than our IFRS value and buy other assets that of you know some growth potential or places that we can we can add value pack and just just to add to that with respect to the specific building. This renewal was a sort of a significant value age over so I wouldn't I think if we didn't look at this deal from a you know, traditional basic, uh lens if you will where you look at the n e r g i o

Brian Pauls: It's a small part of our balance sheet, but it's a priority to us to add that to our portfolio.

Himanshu Gupta: Sure. Thank you guys. I'll turn it back.

Operator: Thank you. Our next question comes from Chris Couprie from CIBC. Please go ahead. Your line is open.

Have you so it was more of a having this renewal secured with the capital investment? What does that mean for the value of the building relative to the cost of the of the deal? So in that case the total leasing cost of a couple of two million dollars just their boats, but the overall value impact was significantly greater than that. So it was it was a great messages and the right the right move for the asset. Did you say thanks in circling back on your comments on Capital recycling Brian to last year kind of excluding Thursday in Canada portfolio was kind of what ten to Fifteen million. What do you think any sense for what it might look like this year?

Chris Couprie: Good morning. Two quick ones from me. In Alberta, looks like you did an early renewal, 351,000 sq ft, for your largest tenant in Western Canada. Can you maybe just talk to us as to what the thinking was there on going for an early renewal and how were the TIs relative to what you thought they might be? Then just kind of a broader picture, a broader question on just your thoughts on Alberta or Western Canada in general. You know, when you talk about your acquisition pipeline, you flag, you know, pretty much everywhere that you're active with the exception of Alberta. Any kind of, you know, thinking about what you wanna do here in the longer term?

It's probably more than than the net excluding the East for 2020. We'll see kind of what opportunities there are but we've got a we've got a model and a m very involved in this a model to look at every asset every asset and to see whether we should be recycling the asset adding value to adding density to it. Where can we kind of get the whole performance out of each asset? So that's part of kind of our continuing transformation of the read is having a deeper dive into each region into all the way down into each asset. So we will be actively looking at recycling. You know, I think in in many cases will be recycling in the same region, for example, if we've got a a sale of an asset in in Ontario will likely replace them that you know replace that asset in Ontario and and look for opportunities where we can add value in a high-growth good long-term high-quality assets.

Brian Pauls: Sure, Chris. It's Brian. I'll start, and I'll let Alex chime in as well. The large renewal was an opportunity to secure a very large tenant early. They're a significant player in our portfolio. It's a great building. It works really well for them. It was a good opportunity for us to lock in for the long term that tenant. They're now obviously committed to the space, and it's locked up with good annual escalators, and we're very happy with the deal. The tenant improvements, Lenis can talk about the specifics of the TIs, but we're very happy with the economics of the deal, and kinda what that means for us long term. Gives us some flexibility on that asset.

Brian Pauls: Gives us some flexibility on that asset. In terms of that region, we are looking at specific asset recycling within the West. We're certainly not doing a regional type exit or entrance there, but we are, as we are with the whole portfolio, all the way across the three regions we're looking at asset recycling. We're looking at opportunities where we can buy assets that have significant growth and sell assets that aren't growing as fast or that may be worth more in others' hands.

Brian Pauls: In terms of that region, we are looking at specific asset recycling within the West. We're certainly not doing a regional type exit or entrance there, but we are, as we are with the whole portfolio, all the way across the three regions we're looking at asset recycling. We're looking at opportunities where we can buy assets that have significant growth and sell assets that aren't growing as fast or that may be worth more in others' hands.

Thanks guys.

Thank you. Our next question comes from Paul me beer from RBC Capital markets, please go ahead your line is open. Thanks and good morning just on the off the investment-grade credit rating that you're working to secure. Can you maybe just comment on perhaps the color or some color on on the talks with the agencies and any sense of wage possible timing of when you might be able to secure secure rating?

Brian Pauls: For example, where there are users, and there's an opportunity to sell to a user who's gonna use the building, that's a good opportunity for us to sell, at prices that are, you know, likely higher than our IFRS value and buy other assets that have, you know, some growth potential or places that we can add value.

Alexander Sannikov: Just to add to that, with respect to this specific building, this renewal, it was a sort of a significant value driver. I think we didn't look at this deal from a, you know, traditional leasing lens, if you will, where you look at the NER of a deal and what have you. It was more of a having this renewal secured with the capital investment, what does that mean for the value of the building relative to the cost of the deal? In this particular case, the total leasing cost of two million dollars, just thereabout.

Sure, we've had some preliminary discussions with a couple of the different agencies as well as rating advisors of you know, a lot of a lot of choice initiatives that we've been doing in the resulting impact on our balance sheet being the lower leverage some Financial flexibility growing our pool of unencumbered assets. All of that page is clearing, you know, well positioned path towards obtaining the investment-grade credit rating, you know, it's definitely something that we're working to achieve in the near-term, you know within the next, you know, if it's this year within 12 months, that's what we're striving towards.

Alexander Sannikov: The overall value impact was significantly greater than that, so it was a great investment for us and the right move for the asset.

Thanks, and maybe just following up on the the European acquisition commentary. Can you can you talk about how the pipeline of what you're looking at today? Not the stuff that you've already?

Chris Couprie: Just, thanks. Circling back on your comments on capital recycling, Brian. Last year, kind of excluding the Eastern Canada portfolio, was kinda, what, CAD 10 to 15 million. What do you think, any sense for what it might look like this year?

Announce, but what you're looking at in the future might compare with the announced Acquisitions to date.

Yes, Bruce, I think what we're looking we're looking at a really broad range of assets. We've got a a deep in growing pipeline. Obviously the announcement of Team Industrial entry into the European market Chef loose a lot of opportunities for us and and help with our existing relationships. I would say that the quality of what we bought so far is is good. It's high we're always upgrade the quality. Um, or I would say it's a little bit higher quality overall if if that's possible and what we're looking at a bit more on the logistics, uh, because I was just hard to find what we bought in in in the the large portfolio in in the Netherlands is difficult to find if we can find it will buy it but it's tough to find so the focus would be on moving a quality scale always got it. And that's helpful. I guess you know with that is it is it a bit more competitive in the logistics space than perhaps the light Industrial

Brian Pauls: It's probably more than the net excluding the East for 2020. We'll see kind of what opportunities there are. We've got a model, and Alex is very involved in this, a model to look at every asset and to see whether we should be recycling the asset, adding value to it, adding density to it, where we can kind of get the highest performance out of each asset. That's part of our continuing transformation of the REIT, having a deeper dive into each region, all the way down into each asset. We will be actively looking at recycling. You know, I think in many cases, we'll be recycling into the same region.

Brian Pauls: For example, if we've got a sale of an asset in Ontario, we'll likely replace that, you know, replace that asset in Ontario and look for opportunities where we can add value and have high growth, good long-term, high quality assets.

And and I guess from a pricing standpoint. Perhaps cap rates might be a bit lower or

They certainly range I think depends on the scale of what you're going after. The larger deals are are certainly competitively bid. There's a lot of a lot of capital chasing them. We try to fly below the radar screen I can and and and find the deals and maybe the less competitive sector. So maybe some fifty million euro 40 million euro deals. Uh, and there as you get a little bit smaller you can you can find slightly higher yield but there's no question that the Corps logistics attracts. The highest price is right now that is changing quickly though.

Chris Couprie: Thanks, guys.

Operator: Thank you. Our next question comes from Pammi Bir from RBC Capital Markets. Please go ahead. Your line is open.

Pammi Bir: Thanks, and good morning. Just on the investment grade credit rating that you're working to secure, can you maybe just comment on perhaps the color or some color on the talks with the agencies and any sense of the possible timing of when you might be able to secure a rating?

Got it. Maybe just one last.

Lenis Quan: Sure. We've had some preliminary discussions with a couple of the different agencies, as well as rating advisors. You know, a lot of the strategic initiatives that we've been doing, and the resulting impact on our balance sheet being the lower leverage, financial flexibility, growing our pool of unencumbered assets, all of that is, you know, clearing a well-positioned path towards obtaining the investment-grade credit rating. You know, it's definitely something that we're working to achieve, in the near term, you know, within the next, you know, if it's this year, within 12 months, that's what we're striving towards.

When it's maybe to clarify your comments on ffo growth guidance, does that does your guidance for 2020 include the debt prepayment charges? I'm sorry. It includes the impact of the interest savings from the debt prepayment. But the three and a half million in prepayment charges are not in that number. They're not deducted from my guidance. Okay. Thanks very much.

Thank you. Our next question comes from Mike from De chardin, please go ahead your line is open. Hi. Thanks. Everybody going to clean my ears out a little bit this morning, Did I hear two hundred or two hundred and thirty on the seasons?

Pammi Bir: Thanks. Maybe just following up on the European acquisition commentary. Can you talk about how the pipeline of what you're looking at today, not the stuff that you've already announced, but what you're looking at in the future, might compare with the announced acquisitions to date?

prepayment

it's a it's approximately $200 million of the it's not a prepayment. It's not the seasons. It's early repayment of the Canadian mortgage has approximately two hundred million off. The equity offering size was 203. Got you. Okay? Okay. So it's the 200 still plus the three and a half million of prepayment penalties. Okay. Gotcha, Okay, I guess Brian you talked about how competitive it is in in Ontario GTA and and Quebec in terms of sourcing Acquisitions. How would you characterize as the competitiveness of the acquisition Market in western, Canada?

Bruce Traversy: Hi, it's Bruce. I think we're looking at a really broad range of assets. We've got a deep and growing pipeline. Obviously, the announcement of Dream Industrial's entry into the European market shook loose a lot of opportunities for us and helped with our existing relationships. I would say that the quality of what we've bought so far is good, it's high. We're always looking to upgrade the quality. I would say it's a little bit higher quality overall, if that's possible, in what we're looking at, a bit more on the logistics, because urban industrial is just hard to find. What we bought in the large portfolio in the Netherlands is difficult to find.

Hm.

It's it's still quite competitive Mike. You know, we're we're seeing spec development in the west which it's a head-scratcher that the rents in the west are a higher than they are in Ontario still that's changing over time. But slowly it's still quite competitive. There are opportunities out there. However, we're basically remaining flat in terms of our home is in the west. Um, uh and you know investment in industrial real estate is very competitive everywhere you go where there's consistent reliable and high-quality assets in in functional buildings is competitive. So we're finding a competitive everywhere. However, I think we've got amazing deal flow with good teams that are able to find think it all these markets and um, you know, we're seeing more, uh, more competitiveness in Calgary than we would in in say Edmonton or or other areas in the West Palm.

Bruce Traversy: What we bought in the large portfolio in the Netherlands is difficult to find. If we can find it, we'll buy it, but it's tough to find. The focus would be on moving up the quality scale always.

Bruce Traversy: If we can find it, we'll buy it, but it's tough to find. The focus would be on moving up the quality scale always.

Pammi Bir: Got it. That's helpful. I guess, you know, with that, is it a bit more competitive in the logistics space than perhaps the light industrial? Then I guess from a pricing standpoint, perhaps cap rates might be a bit lower or?

Bruce Traversy: They certainly range. I think depends on the scale of what you're going after. The larger deals are certainly competitively bid. There's a lot of capital chasing them. We try to fly below the radar screen where we can and find deals in maybe the less competitive sectors, so maybe sub EUR 50 million, sub EUR 40 million euro deals. As you get a little bit smaller, you can find slightly higher yields. But there's no question that the core logistics attracts the highest prices right now. That is changing quickly, though.

Okay.

And and you're you're sort of longer-term commitment to that market is that is that really just based on optimism for a recovery, or would you talked about not contemplating a non block cell? And we saw you guys get out of Eastern Canada last year is that more credit rating and tax driven at this juncture? I think it's more than optimism. Like we're seeing actual results on the ground. We're seeing red growth. We're seeing occupancy growth. These markets have been quite Dynamic especially Calgary where there is long-term demand and it's a good it's a good complement to our overall portfolio. So we're committed to that region and um, we're committed to continue to upgrade our portfolio and drive growth. Um, but we're we're not looking at a some sort of regional exit like like wage compared to the amount. Okay, that's great. Thanks. I guess just another higher level question here, if if we were to ignore the spread or the Arbitrage opportunity on on your balance sheet.

Pammi Bir: Got it. Maybe just one last one. Lenis, maybe to clarify your comments on FFO growth guidance, does your guidance for 2020 include the debt prepayment charges?

Lenis Quan: Yes. Sorry. It includes the impact of the interest savings from the debt prepayment, but the CAD 3.5 million in prepayment charges are not in that number. They're not deducted from that guidance.

Pammi Bir: Okay. Thanks very much.

Operator: Thank you. Our next question comes from Michael Markidis from Desjardins. Please go ahead. Your line is open.

Michael Markidis: Hi. Thanks, everybody. Got to clean my ears out a little bit this morning. Lenis, did I hear 200 or 230 on the defeasance of prepayment?

Lenis Quan: It's approximately CAD 200 million of the. It's not prepayment, it's not defeasance. It's early repayment of the Canadian-

With respect to optimizing the balance sheet. How would you look at the returns or or maybe the the nav growth potential of buying?

That's in Europe right now versus buying Assets in your target markets in North America expand on that as well. You know, the cap rates are similar issue. So, uh, we see the opportunity there of diversifying risk and accretion in terms of just yield and Acquisitions being a great opportunity. Those are good long-term hide emerging markets that we think will add a lot to our you know to our portfolio when you layer on top of that the the Arbitrage or the the dedication it becomes really really compelling. So the combination is is really an incredible opportunity. We're stepping into an entire platform in Deal flow that dream Global was using we don't have to build that platform don't have to build that portfolio. So it's a it's a very unique opportunity to dream industrial that others would have to go build and spend years to to build to get wage.

Lenis Quan: Yes.

Lenis Quan: Mortgages, approximately CAD 200 million. The equity offering size was CAD 230.

Lenis Quan: Yes.

Lenis Quan: Mortgages, approximately CAD 200 million. The equity offering size was CAD 230.

Michael Markidis: Gotcha. Okay. It's the 200 still plus the CAD 3.5 million of prepayment penalties.

Lenis Quan: Right. Correct.

Michael Markidis: Okay. Gotcha. Okay. I guess, Brian, you talked about how competitive it is in Ontario, GTA and Quebec in terms of sourcing acquisitions. How would you characterize the competitiveness of the acquisition market in Western Canada? It's still quite competitive, Mike. You know, we're seeing spec development in the West, which it's a head scratcher that the rents in the West are actually higher than they are in Ontario still. That's changing over time, but slowly. It's still quite competitive. There are opportunities out there. However, we're basically remaining flat in terms of our holdings in the West. You know, investment in industrial real estate is very competitive everywhere you go, where there's consistent, reliable yield in high-quality assets, in functional buildings, it's competitive. We're finding it competitive everywhere.

Michael Markidis: However, we're basically remaining flat in terms of our holdings in the West. You know, investment in industrial real estate is very competitive everywhere you go, where there's consistent, reliable yield in high-quality assets, in functional buildings, it's competitive. We're finding it competitive everywhere.

It's really a great opportunity at all for us from a straight real estate standpoint straight investment standpoint. It makes a lot of sense when you layer on the debt. It's it's very compelling. Go ahead Alex, Well, we look at this. Oh so sweet Target markets from rental growth perspective that and that that's in the in our mind will be the primary driver for nav growth. And you know, we seeing pockets of Catholic compression, but it a lot of the caliper compression is driven by growth expectations as opposed to maybe the the yields dropping themselves off in GTA. We're seeing strong rental growth in Montreal. We still are still seeing strong rental girls and we expect that to continue that said that's a well-understood phenomenon. So a lot of the the gross is already priced in when you acquired assets, um in Europe, we haven't seen as much rental growth today to wear Thursday.

Brian Pauls: However, I think we've got amazing deal flow. We've got good teams that are able to find things in all these markets. You know, we're seeing more competitiveness in Calgary than we would in, say, Edmonton or other areas in the West.

Michael Markidis: Okay. Your sort of longer-term commitment to that market, is that really just based on optimism for a recovery? Or would... You talked about not contemplating an en bloc sale, and we saw you guys get out of Eastern Canada last year. Is that more credit rating and tax driven at this juncture?

Brian Pauls: Yeah, you know, I think it's more than optimism, Mike. We're seeing actual results on the ground. We're seeing rent growth. We're seeing occupancy growth. These markets have been quite dynamic, especially Calgary, where there is long-term demand, and it's a good complement to our overall portfolio. We're committed to that region. We're committed to continue to upgrade our portfolio and drive growth. We're not looking at some sort of regional exit like it would compare to the East of Mountain.

You know we've seen in.

Some markets, but we expect to see more rental growth in Europe. And one thing that we're uh liking about the European strategies that would have to pay for that rental growth today or you don't have to pay as much and so, uh the upside that you can capture from in in terms of nav in value. Um, as to rep start growing is is significantly higher in that market, you know, some some Market participants believe that we kind of a Tipping Point now in terms of rental growth in Europe, so that that that's that's our expectation as well.

Michael Markidis: Okay, that's great. Thanks. I guess just another higher level question here. If we were to ignore the spread or the arbitrage opportunity on your balance sheet, with respect to optimizing the balance sheet, how would you look at the returns or maybe the NAV growth potential of buying assets in Europe right now versus buying assets in your target markets in North America?

And in the US we generally seeing good rental growth, but not to the extent that we seeing in markets like GTA Montreal.

Brian Pauls: Good question, Mike. I'll start, and I'll let Alex expand on that as well. You know, the cap rates are similar to the US, so we see the opportunity there of diversifying risk and accretion in terms of just yield and acquisitions being a great opportunity. Those are good long-term, high-demand markets that we think will add a lot to our, you know, to our portfolio. When you layer on top of that the arbitrage or the debt accretion, it becomes really compelling. The combination is really an incredible opportunity. We're stepping into an entire platform and deal flow that Dream Global was using. We don't have to build that platform, don't have to build that portfolio.

That's very helpful. Thank you.

Thank you. We have another question from Sam Damien, please go ahead your line is open. Thanks. Just wanted to drill into the guidance of one and half a percent. I think you mentioned it was going to be mainly the result of rent escalations. Just curious how the Columbus strategy announced last quarter terms of greetings and vacancy and fixing up some space back to capture higher rents. And also the Louisville when that gets back filled is that are those hockey games built into the twenty-twenty guns and if so, why not dead so saying when we quote the comparative property in a life portfolio for the US, it doesn't include the Midwest u.s. Which usually just wear UGG Columbus and Louisville are only because they were required March of 2019. So they're not they were known for the full year you are correct in terms of the rent the leasing that we've been doing in Columbus at Twenty-One twenty-two percent rental spreads and 2019 dead.

Brian Pauls: We're stepping into an entire platform and deal flow that Dream Global was using. We don't have to build that platform, don't have to build that portfolio. It's a very unique opportunity to Dream Industrial that others would have to go build and spend years to build to get there. It's really a great opportunity on all fronts. From a straight real estate standpoint, straight investment standpoint, it makes a lot of sense. When you layer on the debt, it's very compelling. Go ahead, Alex.

Brian Pauls: It's a very unique opportunity to Dream Industrial that others would have to go build and spend years to build to get there. It's really a great opportunity on all fronts. From a straight real estate standpoint, straight investment standpoint, it makes a lot of sense. When you layer on the debt, it's very compelling. Go ahead, Alex.

at least of

Louisville, you know adding that to our in a white we'll move our total noi and ffo, but it is excluded from the comparative property portfolio 4:20 a.m.

Alexander Sannikov: Well, if we look at the sort of three target markets from a rental growth perspective, that's in our mind will be the primary driver for NAV growth. You know, we're seeing pockets of cap rate compression, but a lot of the cap rate compression is driven by growth expectations as opposed to maybe the yields dropping themselves.

And that's why we're only 21 and 1/2 to 2% is that's really the the initial see the initial DCT portfolio in the Nissan building plus the first to Columbus assets wage and that required in 28th. 2018. Got it. That makes sense. It just the just finally on the debt strategy, you know, you you will have over 300 million worth of European assets, you know, by the end of the quarter. When do you expect to have placed, you know, in excess of three hundred million dollars of euro-denominated debt off so Our intention is to put up to 100% of your denominated debt. So so we're talking around three hundred million. We we'd have we could have close to half of that in the end of the quarter and may need a few more months partly as we want a Time sort of the next financings with the next acquisition so that we don't have too much undeployed, uh, cash on the balance sheet.

Michael Markidis: Mm-hmm.

Alexander Sannikov: In GTA, we're seeing strong rental growth. In Montreal, we're still seeing strong rental growth, and we expect that to continue. That said, that's a well-understood phenomenon, and so a lot of the growth is already priced in when you acquire an asset. In Europe, we haven't seen as much rental growth to date. You know, we've seen in some markets, but we expect to see more rental growth in Europe. One thing that we're liking about the European strategy is that you don't have to pay for that rental growth today, or we don't have to pay as much. The upside that you can capture from in terms of NAV and value as rents start growing is significantly higher in that market.

Alexander Sannikov: The upside that you can capture from in terms of NAV and value as rents start growing is significantly higher in that market. You know, some market participants sort of believe that we're kind of at a tipping point now, in terms of rental growth in Europe. That's our expectation as well. In the US, we're generally seeing good rental growth, but not to the extent that we're seeing in markets like GTA and Montreal.

Question actually how much cash do you expect you will have on the balance sheet at the end of the first quarter.

Alexander Sannikov: You know, some market participants sort of believe that we're kind of at a tipping point now, in terms of rental growth in Europe. That's our expectation as well. In the US, we're generally seeing good rental growth, but not to the extent that we're seeing in markets like GTA and Montreal.

We we could have either utilized all of our cash talk to up to a close to a hundred million of cash.

Thank you. We have another question from Paul me beer, please go ahead your line is open. Thanks. Just one hopefully quick follow-up on the the further reduction in your your leverage Target too. I guess mid Thirty range, you know, that's that's come down. Even from last quarter. Is this where you want to keep it longer term? I'm just curious if maybe some some I guess color on to, you know, the decision to bring it out further down and or could we see that even shipped down to close to maybe 30%

Michael Markidis: That's very helpful. Thank you.

Operator: Thank you. We have another question from Sam Damiani. Please go ahead. Your line is open.

Sam Damiani: Thanks. Just wanted to drill into the US same property NOI growth guidance of 1.5% to 2%. I think you mentioned it was gonna be mainly the result of rent escalations. Just curious how the Columbus strategy announced last quarter in terms of creating some vacancy and fixing up some spaces to capture higher rents, and also the Louisville when that gets backfilled. Are those occupancy gains built into the 2020 guidance? If so, why not?

Ami I think you know, we continue to move our targets as we see appropriate less than 40 is certainly in our long-term Target mid-to-high 30s is a good choice for us as that we see um as a kind of risk for the company and go forward leverage state with the with the low cost of debt in Europe it out for just the luxury of having um, you know, less debt with having it affect our our results less. So, you know as there are more opportunities that leverage may go up and you know, it'll be somewhat opportunity driven and as we find good places for the capital will you know will manage that debt from a long-term as the dust settles mid-to-high thirties is a good as a good Target for us.

Lenis Quan: Sam, when we quote the comparative property NOI portfolio for the US, it doesn't include the Midwest, US, which is where Columbus and Louisville are, only because they were acquired in March 2019, so they weren't owned for the full year. You are correct in terms of the rent, the leasing that we've been doing in Columbus at 21, 22% rental spreads in 2019. The lease up of Louisville, adding that to our NOI will move our total NOI and FFO, but it is excluded from the comparative property portfolio for 2020.

Lenis Quan: That's why we're only quoting 1.5% to 2%, because that's really all the initial DCT portfolio in the Nissan building, plus the first two Columbus assets that were acquired in 2018.

Okay. Thanks very much.

Lenis Quan: That's why we're only quoting 1.5% to 2%, because that's really all the initial DCT portfolio in the Nissan building, plus the first two Columbus assets that were acquired in 2018.

Thank you. We have no further questions at this time. I'd like to turn the call back over to management.

I'd like to thank everybody for your time today and we look forward to seeing you again soon.

Sam Damiani: Just finally, on the debt strategy, you know, you will have over CAD 300 million worth of European assets, you know, by the end of the quarter. When do you expect to have placed, you know, in excess of CAD 300 million of euro-denominated debt?

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating you may now disconnect dead dead dead.

Lenis Quan: Our intention is to put up to 100% of euro-denominated debt. If we're targeting around EUR 300 million, we could have close to half of that in by the end of the quarter, and may need a few more months, partly as we wanna time sort of the next financings with the next acquisitions so that we don't have too much undeployed cash on the balance sheet.

Sam Damiani: It's a good question, actually. How much cash do you expect you will have on the balance sheet at the end of Q1?

Lenis Quan: We could have either utilized all of our cash to up to close to CAD 100 million of cash.

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

Operator: Thank you. We have another question from Pammi Bir. Please go ahead. Your line is open.

Pammi Bir: Thanks. Just one hopefully quick follow-up. On the further reduction in your leverage target to, I guess, the mid-30 range, you know, that's come down even from last quarter. Is this where you wanna keep it longer term? I'm just curious to maybe some, I guess, color on the decision to bring it further down, and or could we see that even shift down to close to maybe 30%.

Brian Pauls: Yeah, Pammi, I think we've you know continued to move our targets as we see appropriate. Less than 40 is certainly in our long-term target. Mid- to high 30s is a good place for us as that we see as a kind of risk for the company and go-forward leverage state. With the low cost of debt in Europe, it affords us the luxury of having you know less debt with having it affect our results less. So, you know, as there are more opportunities, that leverage may go up and, you know, it'll be somewhat opportunity driven. As we find good places for the capital, we'll you know manage that debt.

Brian Pauls: From a long term, as the dust settles, you know, mid to high thirties is a good target for us.

Pammi Bir: Okay. Thanks very much.

Operator: Thank you. We have no further questions at this time. I'd like to turn the call back over to management.

Brian Pauls: I'd like to thank everybody for your time today, and we look forward to speaking again soon. Take care.

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

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