Q1 2020 Earnings Call

May 6, 2020

Good morning, ladies and gentlemen, welcome to the Dream Industries first quarter conference call for once told me 620 20.

Operator 2: Good morning, ladies and gentlemen. Welcome to the Dream Industrial REIT Q1 Conference Call for Wednesday, 6 May 2020. 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. 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.

Operator: Good morning, ladies and gentlemen. Welcome to the Dream Industrial REIT Q1 Conference Call for Wednesday, 6 May 2020. 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. 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.

During this call management upstream industry may make statements concerning forward looking information within the meaning of applicable securities legislation.

Oh, we're looking information that's based on a number of assumption.

To a number of risks and uncertainties many of which I began team industrial beats control that could cause actual results to differ materially from Doe sarkis close or implied by such forward looking information.

Additional information about these assumptions and risk and uncertainties, it's composed of tremendous <unk> filings with securities regulators, including its latest annual information form and block.

These filings are also available on dream industrial weeks website at Www Dot Kim industrial read that C.

Later in the presentation will have a question answer session to kept for a question press star one on the telephone keypad. Your host for today will be Mr., Brian Poly Sci Oh upstream industry. That's the calls please go ahead.

Operator 2: 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: 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.

Thank you Karen good morning, everyone.

Brian Pauls: Thank you, Karen. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's 2021 Q1 conference call. Speaking with me today is Lenis Quan, our Chief Financial Officer, and Alexander Sannikov, our Chief Operating Officer. We began the year with tremendous momentum, but the last several weeks have brought on unprecedented changes to how we work, live, and do business. This call will review our Q1 results briefly, and we'll focus on providing an update on our business and how we are managing during this global pandemic and corresponding economic disruption. The health and safety of our employees and our tenants remain our top priority. We are interacting daily on a virtual basis and working with our tenants during these difficult times. Our Q1 results were consistent with our original outlook for 2020.

Thank you for joining us today for DRAM industrial reached 2021st quarter Conference call.

Speaking with me today is one is Kwan, our chief financial Officer, and Alex It's kinda caused our chief operating officer.

We began the year with tremendous momentum, but the last several weeks it brought on unprecedented changes to how we work live and do business.

This call will review, our first quarter results briefly and we'll focus on providing an update on our business and how we're managing during this global pandemic and corresponding economic disruption.

The health and safety of our employees and our tenants remain our top priority.

We are interacting daily on a virtual basis and working with our tenants during these difficult times.

Our first quarter results were consistent with our original outlook for 2020. However, we expect some pressure on our rental revenue and operating results in a short term as he economic impacts of the global shut down take effect.

Brian Pauls: However, we expect some pressure on our rental revenue and operating results in the short term as the economic impacts of the global shutdown take effect. Our long-term outlook for industrial real estate remains unchanged, and there are trends arising from social distancing and disruption to local supply chains that could provide further positives for industrial real estate. Before the disruption, DIR.UN had a very active Q1. Within the first two months of the year, we closed on CAD 425 million of acquisitions across Europe and our Canadian target markets of Ontario and Quebec. These acquisitions added 3.9 million sq ft of well-located product that is above the average quality of our portfolio and should generate healthy cash flow and NAV growth over the long term.

Our long term outlook for industrial real estate remains unchanged and there are trends are rising from social distancing and disruption to local supply chains that could provide further positives for industrial real estate.

Before the disruption the IR had a very active first quarter within the first too much of the year, we closed on 425 million of acquisitions across Europe, and our Canadian target markets of Ontario, and Qubec. These acquisitions added 3.9 million square feet of well located product that is above the average quality of our portfolio.

And should generate healthy cash flow and the navy growth over the long term.

Brian Pauls: We also commenced the execution of our debt strategy and repaid CAD 149 million of Canadian mortgages during the quarter, funded by a portion of our CAD 230 million equity offering completed in February. We will earn 3.7% return immediately from the interest savings, and the accretion will increase further as we deploy our acquisition capacity. Over the past two months, with the incredible challenges brought by the COVID-19 pandemic, our focus has been on tenant and employee safety and managing the business prudently while complying with social distancing and mandatory closures. While there are limited data points on operating fundamentals in today's market, we expect some near-term impact on market absorption as small and medium businesses deal with the disruption to their operations and strategy.

We also commenced the execution of our guest strategy and repaid 149 $9 million of Canadian mortgages during the quarter funded by a portion of our $230 million equity offering completed in February.

We will or 3.7% return immediately from the interest savings and the accretion will increase further as we deploy our acquisition capacity.

Over the past two months with the incredible challenges brought by the co bid 19 pandemic. Our focus has been on tenant employee safety and managing the business prudently well complying with social distancing and mandatory closures.

Well there are limited data points on operating fundamentals in today's market. We expect some near term impact on market absorption, a small and medium businesses deal with the disruption to their operations and strategy.

Brian Pauls: Our focus over the near term will be on free cash flow retention and balance sheet flexibility. We expect the pace of our acquisition activity to slow down over the next few months as we gain further clarity on the business environment and pace of economic recovery in the coming months. We expect leverage to be near current levels for most of 2020, below our average target of the mid-30% range. We continue to watch the markets closely for attractive investment opportunities, and we'll have capacity to complete CAD 300 million of acquisitions before our leverage exceeds 35%. Over the long term, the outlook for industrial space is becoming even more favorable than before in both North America and Europe. The current environment is already showing signs of an acceleration in the penetration of e-commerce.

Our focus over the near term will be on free cash flow retention and balance sheet flexibility. We expect the pace of our acquisition activities slowed down over the next few months as we gain further clarity on the business environment and pace of economic recovery in the coming months.

We expect leverage to be near current levels for most of 2020 below our average target of the mid 30% range.

We continue to watch the markets closely for attractive investment opportunities and we'll have capacity to complete $300 million of acquisitions before leverage exceeds 35%.

Over the long term the outlook for industrial spaces, becoming even more favorable than before and both North America in Europe. The current environment is already showing signs of an acceleration in the penetration of ecommerce supply chains evolve to efficiently serve large population centers, we expect demand for last mile logistics assets to increase further.

Brian Pauls: As supply chains evolve to efficiently serve large population centers, we expect demand for last mile logistics assets to increase further. Within our portfolio, this segment comprises distribution and urban logistics properties that are located close to major population centers and are ideally suited to meet last mile distribution needs. These properties represent over 75% of our overall portfolio GLA. Furthermore, we expect that additional drivers for demand for industrial space will emerge coming out of this crisis, such as reshoring of manufacturing of goods back to developed economies, including the markets where DIR.UN has strong presence in Canada, US, Germany, and the Netherlands. Looking back, our strategic initiatives over the past 24 months have resulted in a higher quality portfolio that is considerably larger and more diversified, resulting in increased stability of cash flows over the long term.

Within our portfolio. This segment comprises distribution and urban logistics properties that are located close to major population centers and our deeley suited to meet last mile distribution needs. These brought these properties represent over 75% of our overall portfolio July.

Furthermore, we expect that additional drivers for demand for industrial space will emerge coming out of this crisis, such as re showing of manufacturing of goods back to developed economies, including the markets were de IR has strong presence in Canada, U.S., Germany, and the Netherlands.

Looking back our strategic initiatives over the past 24 months have resulted in a higher quality portfolio that is considerably larger and more diversified resulting in increased stability of cash flows over the long term.

Brian Pauls: We continue to retain ample balance sheet flexibility and are well positioned to navigate through this disruption. I will now turn it over to Alexander Sannikov to talk about our operations.

We continue to retain ample balance sheet flexibility and are well positioned to navigate through this disruption.

I will now turn it over to Alex to talk about our operations.

Thank you Brian our Q1 operating results were healthy was 1.2 million square feet of leases commencing across the portfolio and committed occupancy ending the quarter 96%.

Alexander Sannikov: Thank you, Brian. Our Q1 operating results were healthy, with 1.2 million square feet of leases commencing across the portfolio and committed occupancy ending the quarter at 96%. On these leases, we achieved an average spread of 10% over prior rents, led by 20% in Ontario and 14% in the US. During the quarter, we also successfully onboarded the 2.6 million square feet European portfolio acquired during the quarter. Comparative properties NOI increased by 0.6% for the quarter, driven by higher occupancy and rental rates in Quebec, partially offset by lower occupancy in Western Canada. In Ontario, while rental rates have been strong, our year-over-year average occupancy was lower due to two vacancies in the GTA, totaling 209,000 square feet.

On these leases, we achieved an average spread of 10% over prior rents.

Led by 20% in Ontario, and 14% in the last.

During the quarter. We also successfully on boarded the 2.6 million square feet European portfolio.

Acquired during the quarter.

[noise] comparative properties in Hawaii increased by 0.6% for the quarter, driven by higher occupancy and rental rates and come back partially offset by lower occupancy in western Canada.

Okay.

In Ontario, while rental rates have been strong.

Our year over year average occupancy was lower due to to make in season, the DTA totaling 209000 square feet.

Alexander Sannikov: Approximately half of this space has been leased at a 14% spread over the prior rent, with 3.5% annual escalations. The rent payments on that lease will commence in May. Assuming a full quarter NOI from the space, CP NOI growth in Ontario would have been 3% for the quarter and 1.5% for the overall portfolio. For the remainder of 2020, we have limited lease maturities outstanding. To date, we have secured commitments on renewals and new leases representing approximately 76% of total GLA expiring in 2020. Only 4% of the portfolio is expected to mature over the remainder of the year. The in-place rents on these expiries are on average 8% below market.

Approximately half of the space has been leased at a 14% spread over the prior rent 3.5% annual escalation.

The rent payments on that lease will commence in may.

Assuming a full quarter and away from the space CPN Hawaii.

Growth in Ontario would have been 3% for the quarter and one half percent for the overall portfolio.

For the remainder of 2020, we have limited lease maturities outstanding.

Today, we have secured commitments on renewals and new leases, representing approximately 76% total gillette expiring in 2020.

And only 4% of the portfolio is expected to mature over the remainder of the year.

The in place rents on these expirees are on average 8% below market.

We expect renewals to typically occur as planned and we had generally seen limited changes in market rents across our markets.

Alexander Sannikov: We expect renewals to typically occur as planned, and we are generally seeing limited changes in market rents across our markets. Since 15 March, we have transacted 19 leases totaling approximately 450,000 sq ft at rental rates that were slightly above our target and represented an average spread of 18% over the prior rates. Over the past month and a half, we have been working with our tenants to support them and ensure that they can continue successfully operating their businesses following the disruption caused by the COVID-19 pandemic. In early April, we have put in place a rent deferral program targeted at tenants whose businesses are most impacted by the shutdown.

Since March 15th we have transacted 19 leases totaling approximately 450000 square feet.

Rental rates that were slightly above our target and represented an average spread over 18% over the prior rates.

Over the past months and a half would have been working with our tenants to support them and ensure that they can continue successfully operating the business just following the disruption caused by the cold at 19 pandemic.

In early April we have put in place a rental program targeted attendance was businesses most impacted by the shutdown.

As part of this program tenants looking for rent Deparle, where requested to pay their April one simple provide financial information as well as responses to a standardized questionnaire in order to help us assess their requests.

Alexander Sannikov: As part of this program, tenants looking for rent deferral were requested to pay their April rents in full, provide financial information as well as responses to a standardized questionnaire in order to help us assess their requests. For qualifying tenants, we were generally offering a deferral of May and June net rents, with the tenants continuing paying operating costs and realty taxes. The deferred amounts are to be repaid in monthly installments starting Q3 2020 over six to nine months. In certain cases, we agreed to apply future free rent or prepaid rent earlier, or to defer payment of realty taxes in line with the deferrals announced by various municipalities. To date, we have agreed to rent deferral requests representing approximately CAD 3 million in total rent, or 5% of our Q1 revenue.

For qualifying tenants, we were generally offering a deferral of May and June net rents with the tenants continuing paying operating cost and realty taxes.

The deferred amounts are to be repaid the monthly installments started Q3 2020 over six to nine months.

Certain cases, we agreed to apply future free rent or prepaid rent earlier or to the for payment of realty taxes in line wasn't deferrals announced by various municipalities.

Today, we have agreed to rent deferral requests representing approximately $3 million in total rent or 5% of our Q1 revenue.

Alexander Sannikov: On these spaces, we note that in-place rents are on average 9% below market rents. We have collected 90% of April gross rents due and have generally not applied security deposits to date. Of the 10% that was not collected, 1% pertains to amounts that we expect to receive in May, 2% were deferred as part of the rent deferral program, and 7% were withheld by tenants. While it is early to draw any conclusions from the rent, from the rent collection data for May, as of yesterday, we collected approximately 65% of our rents for Canada, adjusted for agreed deferrals, which is slightly lower compared to where we were at the same time in April. The US and European collections for May are so far in line with April.

On these spaces, we know that's in place rents are on averaged 9% below market rents.

We have collected 90% of April gross rents.

Do you and have generally not applied security deposits to date.

Well the 10% there was not collected 1% pertains to announce that we expect to receive in may 2% were deferred as part of the rent deferral program.

7%, where we sell by tenants.

While it is early to draw any conclusions from the rent from the rents collection data may as of yesterday, we collected approximately 65% of our rents for Canada. Adjusted for agreed deferrals, which is slightly lower compared to where we were at the same time in April.

The U.S. in European collections from May our so far in line with April Hello, We typically see collection data to come and gradually although of course of a months can these regions.

Alexander Sannikov: However, we typically see collection data to come in gradually over the course of a month in these regions. The Canada Emergency Commercial Rent Assistance Program has been announced subsequently to us reaching a commercial agreement regarding rent deferral with the tenants in our portfolio. Some of these tenants have expressed interest in participating in this program as opposed to deferring their rents. We continue monitoring the details of the program and will work with our tenants to reach the most mutually beneficial arrangement. In early March, Spectra Premium Industries filed for CCAA protection to reorganize their overseas operations. They have paid their March and April rents, and from our communications, we understand that the two locations within our Montreal portfolio are central to their business, and we currently expect them to stay at those locations.

The Kennedy emergency commercial rental assistance program has been announced subsequently to us reaching a commercially beginning agreement regarding rent deferral was the tenants in our portfolio.

So I won't be sands have expressed interest in participating in this program as opposed to deferring their rights.

We continue monitoring the details of the program and will work with our tenants to reach the most than most mutually beneficial arrangement.

In early March spectra premium industries filed for Cc double a protection to reorganize their overseas operations.

They have paid their March and April rent and from our communications, we understand that the two locations within a Montreal portfolio are central to their business and we currently expect them to stay at those locations.

Looking beyond the near term disruption our portfolio is positioned to perform well over the long term.

Alexander Sannikov: Looking beyond the near-term disruption, our portfolio is positioned to perform well over the long term. With contractual rent escalators that average approximately 2% for the overall portfolio and in-place rents well below current market rents, DIR is well positioned to generate healthy internal growth over the long run. One of our key strengths is the diversity, and the quality of our portfolio. We have nearly 1,200 tenants operating and/or providing logistics services to over 15 distinct broad sectors of the economy. I would like to provide additional breakdown regarding our tenant mix. While our average tenant size is approximately 21,000 sq ft, the smallest 65% of our tenants by count represent 15% of our annualized rent. Our smallest tenants may not have the same balance sheet strength to weather the economic downturn as larger businesses.

What's contractual rent escalators that average approximately 2% for the overall portfolio and in place rents well below current market rent yeah, our is well positioned to generate healthy internal growth over the long run.

One of our key strengths as a diversity and the quality about portfolio. We have nearly 1200 tenants operating and not providing logistic services to over 16 distinct brought sectors of the economy.

I would like to provide additional break down regarding our tenant mix.

While our average tenant size is approximately 21000 square feet, the smallest 65% of our tenants by count represent 15% of our annualized rent.

Our smallest tenants may not have the same balance sheet strengths to weather the economic downturn as larger businesses. However, these tenants are likely to benefit the most from various government support programs being put in place.

Alexander Sannikov: However, these tenants are likely to benefit the most from various government support programs being put in place. From industry exposure perspective, the portfolio is well diversified. We have just over 10% of tenants supporting each of the residential, automotive, and food and beverage industries. Oil and gas tenants represent approximately 1% of the total portfolio, while tenants in recreational services industry account for approximately 2% of annualized base rent. Within our portfolio, tenants representing over 45% of annualized base rent are directly involved in or actively support e-commerce operations and stand to benefit further from the accelerating penetration of e-commerce. I will now turn the discussion over to Lenis to provide our financial update.

From industry exposure perspective, the portfolio as well diversified.

We have just over 10% of tenants supporting each of the residential automotive and food and beverage industries.

Oil and gas tenants represent approximately 1% of the total portfolio.

While tenants and recreational services industry accounted for approximately 2% of annualized base rent.

Within our portfolio tenants, representing over 45% of annualized base rent directly involved in quite actively support E commerce operations and stand to benefit farther from the accelerating penetration of E Commerce.

I will now turn the discussion over to lends to provide a financial update.

Thank you Alex.

Lenis Quan: Thank you, Alex. Diluted funds from operations was CAD 0.17 per unit for the quarter, which was in line with our expectations. FFO per unit was lower compared to the prior year comparative quarter, primarily due to 14% lower leverage, higher undeployed cash balances, and higher G&A expenses related to the European expansion. At the end of Q1, the IFRS value of our portfolio was CAD 2.9 billion. This reflects CAD 425 million of investment property acquisitions during the quarter and currency gains on the US and European assets. IFRS NAV per unit at the end of Q1 was CAD 11.84, compared to CAD 11.76 at year-end 2019.

Diluted funds from operations with 17 cents per unit for the quarter, which is which was in line with our expectations.

AFFO per unit with lower compared to the prior year comparative quarter, primarily due to 14% lowering leverage.

And like cash balances.

And higher DNA expenses related to the European expansion.

At the end of Q1, the IRS value of our portfolio was $2.9 billion.

This reflects $425 million.

He acquisitions during the quarter and currency gains on the U.S. and European assets.

I have for us NAV per unit at the end of Q1 was $11 an 84 cents.

Compared to $11.76 at year end 2019.

Lenis Quan: The increase in IFRS NAV per unit was due to a stronger US dollar and euro relative to the Canadian dollar, partially offset by transaction costs on the acquisitions completed during the quarter. We suspended our distribution reinvestment program at the end of March, as we did not want to issue equity at prices being impacted by the market disruption and volatility. Our focus on strengthening the balance sheet has positioned us well for the current market disruption. We ended the quarter with net debt to assets at 28%, net debt to EBITDA at 5.3x, and CAD 66 million in cash. Over the remainder of 2020, we have CAD 17 million of debt maturing.

The increase in IR for NAV per unit due to a stronger us dollar in euro relative to the Canadian dollar.

Partially offset by transaction costs on the acquisitions completed during the quarter.

We suspended or distribution reinvestment program at the end of March as we did not want to issue equity at prices being impacted by the market disruption and volatility.

Our focus on strengthening in a strengthening the balance sheet has positioned us well for the current market disruption.

We ended the quarter with net debt assets at 28%.

Net debt to EBITDA at 5.3 times.

And $66 million in cash.

Over the remainder of 2020, we have $17 million of debt maturing.

Lenis Quan: We expect to close shortly on a new unsecured $250 million credit facility, which will replace the existing CAD 150 million secured facility. The borrowing costs on the new facility are unchanged for CAD and $ draws and adds the ability to borrow in EUR. This new facility will boost our liquidity by CAD 200 million to over CAD 400 million, comprised of cash on hand and availability on the credit facility. In addition, we will have unencumbered assets totaling CAD 1.1 billion, representing approximately 38% of our total investment properties value, and this positions us well for obtaining an investment-grade credit rating. Our Q1 results were largely untouched by the economic disruption resulting from the COVID-19 pandemic. However, we continue to monitor our rental collections and work with our tenants.

We expect to close shortly on a new unsecured U.S. $250 million credit facility, which will we will replace the existing Canadian 150 million secured facility.

The borrowing costs on a new facility are unchanged for Canadian and US dollar drop and has the ability to borrow in Europe.

This new facility will boost our liquidity by 200 million over.

Over $400 million comprised of cash on hand, and availability on the credit facility.

In addition, we will have unencumbered assets totaling $1.1 billion, representing approximately 38% of our total investment properties value and this positions us well.

Obtaining an investment grade credit rating.

Our Q1 results for largely untouched by the economic disruption, resulting from the coded 19 pandemic.

However, we continue to monitor our rental collections and work with our tenants.

Lenis Quan: We have taken a closer look at our operating and capital expenditures budget and have deferred over CAD 5 million of non-essential capital expenditures to 2021. We have also pushed out a significant portion of our operating expenses to the latter half of 2020. We will have a full quarter's contribution from the acquisitions completed so far this year, starting in Q2. However, we are more cautious about the expected timing of vacancy lease-up over the next few months and do not know the impact of the Commercial Rent Assistance Program. Referring back to Brian's comments on strategy and capital allocation, we expect to have lower leverage and a higher undeployed cash balance for a little longer than our expectations from earlier in the year.

We have taken a closer look at our operating and capital expenditures budget and have deferred over $5 million of non essential capital expenditures to 2021.

We have also pushed out a significant portion of our operating expenses to the latter half of 2020.

We will have a full quarter's contribution from the acquisitions completed so far this year starting in the second quarter.

However, we are more cautious about the expected timing of vacancy lease up over the next few months.

And do not know the impact of the commercial bank assistance program.

Referring back to Brian's comments on strategy and capital allocation.

We expect to have lower leverage higher undeployed cash balance for a little longer than our expectations from earlier in the year.

Lenis Quan: The uncertainty in this current environment makes it difficult to forecast, and we will provide an update on our next quarterly call when we have more information and clarity on the situation. We retain sufficient financial flexibility to fund our distributions for the foreseeable future, and while our near-term focus is on preserving liquidity, we are well positioned to execute on attractive investment opportunities. I will turn it back to Brian to wrap up.

The uncertainty in the sense in this current environment makes it difficult to forecast.

And we will provide an update on our next quarterly call. When we have more information and clarity on the situation.

We retained sufficient financial flexibility to fund their distributions for the foreseeable future and while I near term focus is on preserving liquidity, we are well positioned to execute on in check on attractive investment opportunities.

I will turn it back to Brian Toronto.

Thank you line is.

Brian Pauls: Thank you, Lenis. While this has been the most uniquely challenging business environment in recent history, our team shares tremendous pride and gratitude for the strength of our management team, balance sheet, and the quality of our assets. I would like to thank our operations and leasing teams in every region for keeping our buildings safe, staying in touch with our tenants, and supporting them through these challenging times. Thanks to all our employees who contributed to our Q1 reporting, all while working remotely from home. While it is an incredibly difficult time to forecast the impact on operating results in the near term, we continue to work with the tenants in our portfolio and await the reopening of economies in our target markets.

Well this has been the most uniquely challenging business environment in recent history, our team shares tremendous pride in gratitude for the strength of our management team balance sheet and the quality of our assets I would like to thank our operations and leasing teams in every region for keeping our building safe staying in touch with our tenants and supporting them through.

These challenging times.

And thanks to all our employees, who contributed to our first quarter reporting all while working remotely from home.

Well it is an incredibly difficult time to forecast the impact on operating results in the near term we continue to work with the tenants in our portfolio and await the reopening of economies in our target markets.

Brian Pauls: We remain optimistic on the long-term outlook for industrial real estate, and DIR.UN is well positioned to take advantage of these strong fundamentals and create long-term value for our unit holders. We will now open it up for questions.

We remain optimistic on the long term outlook for industrial real estate and de IR is well positioned to take advantage of these strong fundamentals and create long term value for our unit holders.

We will now open it up for questions.

Okay. Thank you we will now begin the question answer session. If you have a question. Please press Star then one and the Touchtone phone if you wish to be removed from the Q. Please press the pound side or the hash key there will be a delay before the first question is announced if you using your speaker phone you many to pick up the handset first before passing the numbers.

Operator 2: 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 wish to be removed from the queue, please press the pound sign or the hash key. There will 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 a question, please press star then one on your touchtone phone. All right, we do have our first question from Himanshu Gupta from Scotiabank.

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 wish to be removed from the queue, please press the pound sign or the hash key. There will 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 a question, please press star then one on your touchtone phone. All right, we do have our first question from Himanshu Gupta from Scotiabank.

Once again, if you have a question. Please press Star then one on the Touchtone phone.

Right and we do have my first question from you much you could go from Scotiabank.

Thank you and good morning.

Himanshu Gupta: Thank you, and good morning. On the rent collections, you mentioned May rent collections trending at 65%. Can you break out between Western Canada versus Ontario or Quebec? Would the collections for multi-tenant portfolio in Western Canada trending any different compared to other regions?

On the then collections you mentioned Maven collection spending at 65%.

Can you breakout between Western Canada versus Ontario, Quebec.

Well be collections for Multitenant portfolio in Western Canada, sending any different compared to other regions.

Sure It takes some anshu.

Brian Pauls: Sure. Thanks, Himanshu. Alex, can you field this for Himanshu?

Alex are you.

Could you feel this for commence you.

Alexander Sannikov: Yeah, absolutely. Himanshu, I would say that for April, let me just start with answering your question, where we can draw a little bit more conclusions from the rent collection data compared to May. We're only in the third business day of May, so far. For April, we have seen consistent rent collection across all of our regions. We have five operating regions, Ontario, Quebec, Western Canada, Europe, and the United States. We have seen all of them come in consistently right around 90%, some higher, some lower. So far for May, Western Canada rent collections are slightly higher or actually quite a bit higher than Ontario and Quebec. Now I wouldn't draw any conclusions from that.

Absolutely.

Thank you I would say that for.

For let me just started with answering your question for April where we can draw a little bit more conclusions from the rent collection data compared to.

Compared to May we only in the third business they have may.

So far for April we have seen consistent grants collection across all of our regions. So we have five operating regions, Ontario, Quebec, Western Canada Europe in the United States, we have seen all of them come and consistently right around 90% some higher some lower.

So far from May be a western Canada, Brent collections or slightly higher we're actually quite a bit higher than Ontario, and Quebec.

Now I wouldn't draw any conclusions from that said, it's still early but.

Alexander Sannikov: As I said, it's still early, but we're seeing reasonable rent collection data so far from Western Canada.

We are seeing reasonable went collection data so far from Western Canada.

So we do have our next question from Sam Damiani from TD Securities.

Operator 2: We do have our next question from Sam Damiani from TD Securities.

Operator: We do have our next question from Sam Damiani from TD Securities.

Thanks, and good morning, everyone.

Sam Damiani: Thanks, and good morning, everyone. Just to start off, Brian, you mentioned reshoring in your opening comments, and I'm just wondering if you're seeing any evidence already of any sort of de-globalization trends in your markets, hearing anything anecdotally. Does this theme, you know, seem to be picking up in your mind, and does it change any of your strategic priorities?

Just to start off Brian you mentioned re shoring in your opening comments. So just wondering if you're seeing any evidence already have any sort of de globalization trends in your markets hearing anything anecdotally.

And does this theme.

You know seem to be picking up in your mind and does it change any any of your strategic priorities.

Yes.

Brian Pauls: Yeah. Sam, we are seeing a lot of interest in companies either increasing their inventory levels, being less susceptible to supply chain disruptions. I think what this pandemic has done is exposed some significant exposure to supply chains around the world to places that, you know, maybe people weren't thinking that there was this much exposure. A lot of our tenants and a lot of just the general economic talk is that the economies where we're in need to be more self-reliant and less reliant on supply chains around. We think inventory levels will go up. Manufacturing will be reshored in a lot of places where it can and will be maybe less reliant on global supply chains and more dependent on local ones.

We are seeing a lot of.

Interest in companies, either increasing their inventory levels being less susceptible to supply chain disruptions. So I think with this pandemic has done is exposed some some.

Significant exposure to supply chains around the world to places that you know maybe people weren't thinking that it was.

There was this much exposure so a lot of our tenants in a lot of just the general economic talk is that.

The economies where were in need to be more.

Self reliant and less relied on supply chains around so we think inventory levels will go up manufacturing will be re short and a lot of quit places where it can and will be maybe less reliant on global supply chains and more more depended on local ones and that's that's for Europe.

Brian Pauls: That's for Europe, the US, and Canada. I guess I should say we're hearing a lot of that being talked about. We do think as we emerge from this and come back to work, we'll see an increase in demand for industrial space as inventories rise and as some of the supply chain is shortened to be more reliant on local production.

USA and Canada, So we're seeing a lot of that being.

I guess it should say, we're hearing a lot of that being talked about.

We do think as we merged remission come back to work.

We'll see an increase in demand for industrial space as.

As inventories rise and as some of the supply chain is shortened to to be more relied on.

Local production.

And we do have our next question from Chris Creepy from Sea ITC.

Operator 2: We do have our next question from Chris Couprie from CIBC.

Operator: We do have our next question from Chris Couprie from CIBC.

Chris Couprie: Good morning. Just turning it back to April. I think you mentioned that 7% of rent was withheld by tenants. Just wondering if you can give any color there and how you're approaching these tenants right now.

Good morning.

Just turning it back to to April I think you mentioned that 7%.

Of rent was with held by tenants just finding give any color there and how you're approaching these tenants right now.

Sure, Chris Let me start and I'll, let Alex chime in as well, let me just say.

Brian Pauls: Sure, Chris. You know, let me start, and I'll let Alex chime in as well. Let me just say, Chris, the short term's gonna be lumpy, okay? I think the metrics of, you know, business day 1, 2, 3, 4 or 5 at the beginning of each month is. It's information. I think it's helpful. It can show kind of what's happening with our portfolio, with our tenants. We are aggressively reaching out to each of our tenants, working with them. My point is that it's gonna be lumpy and unpredictable. Any one day's data point, you know, I don't think means that much. I think what we're looking at is the strength of our portfolio, the strength of our tenants, the long-term stability of our balance sheet to kind of weather this storm.

Chris the short terms going to be lumpy, okay, I think the the any the metrics of.

Business day, 1234, or five at the beginning of each month is.

It's information I think it's helpful. It could show kind of what's happening with our portfolio with our tenants we are aggressively.

Reaching out to each of our tenants working with them. My point is that it's going to be lumpy an unpredictable.

In any one days data point.

Yeah, I don't think means that much I think what we're looking at is the strength of our portfolio the strength of our tenants. The long term stability of our balance sheet to kind of weather. The storm and we are aggressively working with tends to make sure. The the last check they write isn't direct checks to us but that they are surviving.

Brian Pauls: We are aggressively working with tenants to make sure the, you know, the last check they write isn't a rent check to us, but that they are surviving this and that they're paying their employees. I'll let Alex comment specifically on your question on the April collections. I do wanna emphasize the point that we are less focused on any one day's data point and more focused on the health and safety of our people, our tenants, and the overall company as we kinda navigate this. We're taking the view that we're really locking arms and walking through this together. Alex, can you comment more specifically on Chris' question?

So that they're paying their employees and so.

I'll, let Alex comment specifically on the.

Your your question on the on the April collections.

But I do want to emphasize the point that.

We are less focus on any one days data data point and more focused on the health and safety of our our people our tenants and the overall company as we kind of navigate this source picking the view that were really locking arms will walk you through this together, but Alex can you comment more specifically on Christmas question.

Absolutely so for 7% that were withheld for April.

Alexander Sannikov: Yeah, absolutely. So for 7% that were withheld for April, the largest chunk of that is actually larger tenants. You know, we have a couple of cases in Ontario, in Quebec, in the United States, where larger tenants have withheld rent payments. The working sort of theory for that is, you know, as these larger tenants who we deem to be pretty strong financially have been looking at the outlook for a couple of months. In early April, it was completely uncertain when the economy is gonna come back and what the timeline of this is going to be. They made some of those decisions to withhold rent payments. We'll continue working with them.

The largest.

And could that is actually larger tenants.

In that would have a couple of cases in Ontario, and Qubec in the United States will larger tenants have withheld rent payments.

The.

The working so theory that as you know as tenants as these larger tenants, who we deem to be.

Pretty strong financially.

I have been looking at the outlook for a couple of months in early April. It was it was completely uncertain. When the economy is going to come back and what the timing of line of this is going to be so bad so they've made some of those decisions to withhold rent payments.

We'll we'll continue working with them, we havent taken legal action against the sample so far but we'll we'll continue evaluating the situation and monitoring when that you know what the timelines are for the economies to come back.

Alexander Sannikov: We haven't taken legal action against these tenants so far, but we'll continue evaluating the situation and monitoring when, you know, what the timelines are for the economies to come back. We'll work with the tenants accordingly, to collect the rents. These are not sort of agreed deferrals, nor are these tenants who we would deem qualifying for any rent deferrals given the strength of their balance sheets.

And we'll we'll work was the tenants accordingly.

Two.

To collect the rents visa not sure agreed deferrals nor are these tenants, who we would deem.

Qualifying for four and your rent deferrals, given the strength of their balance sheets.

Okay.

And we do have a next question, Matt Cornick from National Bank financial.

Operator 2: We do have our next question from Matt Kornack from National Bank Financial.

Operator: We do have our next question from Matt Kornack from National Bank Financial.

Hi, Greg I guess, we get one question so I'll ask two in one.

Matt Kornack: Yeah, I guess we get one question, so I'll ask two in one. With regards to the 65%, maybe if you could provide what that would've been in April, because I don't think that's where you're ultimately gonna end up for the month. And then just with regards to the Spectra space in the unlikely event that they do end up vacating, is that functional space that could be easily released to someone else?

With regards to the 65% maybe if you could provide what would have been in April.

I don't think Thats, where you are ultimately going to end up for the month.

Just with regards to the spectra space in the unlikely event that they do at depth vacating.

Is that functional space that could be easily released to someone else.

Thanks, Matt will answer both of those.

Brian Pauls: Thanks, Matt. We'll answer both of those. Alex, go ahead. I have some thoughts. I'll let you answer both those questions for Matt.

Alex go ahead of some thoughts.

I'll, let you answer both those questions for Matt.

Okay sounds good thanks Brent.

Alexander Sannikov: Okay. Sounds good. Thanks, Brian. Matt, as I said in the prepared remarks, the 65% for May is as of the third business day, and so we're comparing it. We're monitoring how rent comes in daily, and also comparing that to prior periods. As of the same time in April, we were just sort of right around 70% mark, depending on the region. That said, we did then receive some of our checks bounced back, and then we collect them again. It's not exactly day-for-day comparison. That's why our assessment right now is that we're tracking slightly behind where we were in April, but not substantially behind at this point.

So yes.

Happens had been in the prepared remarks, the 65% from make is as all the third business day answer when comparing it we were monitoring how rent Cook comes in daily.

And I was comparing that to prior periods. So as of the same time in April we were just sort of right around 70% Mark.

Depending on the region.

That said, we didn't then receive some some of our.

Checks bounce back and then we collect them again, so it's not exactly day for day a comparison.

So that's why.

Our assessment right now as I wished tracking slightly behind where we were in April but not not not substantially behind at this point.

Alexander Sannikov: As we said, as well in our press release and in our remarks, overall for April, we ended up at around just over 90%. With respect to Spectra, as we said, we expect them to stay in both of our locations in Montreal based on their restructuring plan that they have put forward. The restructuring plan, and it's a public document, is really centered around them continuing manufacturing in Quebec. The two locations we have with them in Montreal, one is about 400,000 sq ft, and that's their largest and their most important facility.

And as we said as well in our press release and our remarks that overall for April we ended up at around.

Just over 90%.

With respect to spectra.

As we said, we expect them to stay in both of our or below patients in Montreal days and the restructuring plan that they have put forward.

The restructuring plan and it's a public documents is really.

Centered around them.

Continuing manufacturing in in Quebec.

So the two locations we have with them in Montreal, one is about 400000 square feet.

And that's their largest and most important.

Facility.

Alexander Sannikov: That is to us essential to them. In our mind and what we hear from them as well is essential to them continuing the operations. The other location is probably less essential. It's sort of a standard 200,000 sq ft warehouse, and we can easily relet them. There's plenty of demand in Montreal right now for logistics space. I should note that there's also a 14,000 sq ft unit we have with them in Ontario. That's not material.

So that is to us essential to them contained in our in our mind and what we hear from them as well is essential to them continuing the operations. The added location is probably less essential and it's sort of standard 200000 square foot so warehouse.

And we can we can either re let them there's plenty of demand in Montreal right now for a logistics space.

And I should note that Theres also at 14000 square foot unit, we have them and Ontario, that's not material.

Your next question comes from.

Operator 2: Our next question comes from Pammi Bir from RBC Capital Markets.

Operator: Our next question comes from Pammi Bir from RBC Capital Markets.

Tommy Bear from RBC capital markets.

Thanks, and good morning.

Pammi Bir: Thanks and good morning. I'll try to slip in a couple questions as well. Just curious between your small bay versus large bay tenants, can you maybe comment on what you're seeing in Q2 to date, from a leasing perspective in terms of new leasing and renewals? Then secondly, if you could comment on the progress for lining up the euro denominated debt refinancing strategy.

You get better I'll try to slip in a couple questions as well.

Just curious between your small day versus large pay tenants.

Maybe comment on what you're seeing in Q2 to date from a leasing perspective in terms of new and new leasing and renewals.

And then secondly, if you could comment on the progress.

For lining up the you're the euro denominated debt refinancing strategy.

Sure Pony.

Brian Pauls: Sure, Pammi. I'm gonna, Lenis, why don't you start with the second part of that question first in terms of lining up the euro debt, and then Alex, if you could follow up with just some of the renewals. Just as a preamble, Pammi, our renewals are actually coming in really well in terms of our rental rates and our renewals that are being done. I'll let Alex comment more specifically on that, but we've been pleasantly surprised with the spread to expiry rents and our renewals. Lenis, go ahead on the euro debt.

Im going to.

Let us why don't you started on the with the second part of that question first in terms of lining up the the euro debt and then Alex if you could follow up which is that some of the renewals just as it preamble pommies our renewals are actually.

Coming in really well in terms of our rental rates and our renewal.

The renewals that are being done I'll, let Alex comment more specifically on that but we've been we've been pleasantly surprised with the the spread to spread to expiring rents and and our renewals, but let US go ahead on that on the euro debt.

Sure.

Lenis Quan: Sure. Pammi, we initiated sort of the overall debt strategy earlier in the year, you know, starting off with our initial European acquisitions. Following our equity raise in February, we repaid CAD 149 million of Canadian mortgages, bringing down our leverage. The strategy is that for future acquisitions, we would line up the euro debt with pairing that with new additional acquisitions. As Brian had mentioned, the pace of our acquisition activity is expected to slow down in the just in the near term until we sort of evaluate the situation, values and certainty of cash flows. Certainly when that acquisition activity picks up again, we'll resume executing on that debt strategy.

The Tommy we initiated on serve that overall debt strategy earlier in the year.

Starting off with our initial European acquisitions.

Then following our equity raise in February we repaid $149 million of Canadian mortgages, bringing down our leverage.

The strategy is that for future acquisitions, we would line up year on debt.

Peering Atlas additional acquisitions.

As Brian mentioned, the Pacer acquisition activity is expected to slow down in the just in the near term until Easter evaluate the situation values uncertainty of cash for.

But certainly when that acquisition activity picks up again real that will resume executing on that that strategy.

And just switching gears to renewals.

Alexander Sannikov: Just switching gears to renewals. As we said, over the last 45 or so days, we transacted just under 20 leases. It's not a large enough sample, if you will, to draw any statistically significant conclusions. Nevertheless, that totals 450,000 sq ft. The rents that we saw in those deals, mostly renewals, are slightly higher than our budgeted rates, and we actually increased our rental targets early in Q1 2020. Those rates are generally exceeding those targets as well and represent also a healthy spread to the prior rates.

So.

As we said over the last 45 BOE show days, we transacted just under 20 leases.

It's not a large enough.

Sample if you will to draw any statistical lease significant conclusions. Nevertheless, that's that totals 450000 square feet and the rents that we saw in those deals mostly renewals.

Our likely higher than our budgeted and.

Budgeted rates and we actually increased our rental targets.

Early in Q1.

2020, so those rates generally exceeding those targets as well and represented so healthy spread to the prior.

Prior rates, so what we drawing the conclusion withdrawing from data and also from various conversations we've had with market participants and in our markets private and public is that industrial rents are holding and we're not seeing.

Alexander Sannikov: The conclusion we're drawing from that, and also from various conversations we've had with market participants in our markets, private and public, is that industrial rents are holding and we're not seeing significant downward pressure on rates. That is true for all unit sizes so far. We haven't seen any data that would suggest that there's different trends for smaller units versus larger units. With respect to renewals going forward, what we expect is that generally tenants are not looking for making sort of drastic space decisions. You know, if some of our tenants were thinking of moving to different premises, they will likely to look to stay where they are for the time being until they have, you know, more certainty in terms of the outlook for the economy. We expect the positive impact on the retention ratio for the balance of 2020.

Significant downward pressure on rates and that is true for all unit sizes. So far we have seen many data that would suggest that there's different trends for small units versus larger units.

And with respect to renewals going forward, what we expected that.

Generally tenants and not looking for making.

Drastic space decisions and so.

Alexander Sannikov: You know, if some of our tenants were thinking of moving to different premises, they will likely to look to stay where they are for the time being until they have, you know, more certainty in terms of the outlook for the economy. We expect the positive impact on the retention ratio for the balance of 2020.

Some of our tenants worsening of.

Moving to different premises.

They will.

Likely to look to stay where they are for the time being until they have.

You know.

A more and more and more certainty in terms of the outlook for the economy, who we expect the.

Positive impact on the retention ratio for the balance of.

2012.

Right.

And our next question is from Sam Damiani from TD Securities.

Operator 2: Our next question is from Sam Damiani from TD Securities.

Operator: Our next question is from Sam Damiani from TD Securities.

Sam Damiani: Thanks. Just a couple follow-ups. Lenis, both I guess for you, and maybe I missed it, but, you know, how much debt has been swapped into euros at this point? And how much more do you expect to do in Q2? And my second question would be on the expected credit loss hit in NOI for Q1 of CAD 312,000. How is that number determined? And any guidance you would give for Q2 on that line item?

Thanks, just a couple of follow ups I'll, let us both both I guess for you and maybe I missed it but how much debt has been swapped into euros at this point and how much more do you expect.

To do in the second quarter and my second question would be on the expected credit credit loss Pip in Hawaii for Q1 of 312000, how has that number determined and.

The guidance you would give for Q2 on that line item.

Two headlines.

Alexander Sannikov: Go ahead, Lenis.

Brian Pauls: Go ahead, Lenis.

Sure.

Lenis Quan: Sure. Okay, if I've missed one of the questions, just remind me. I think you were talking about the timing or sort of the euro debt strategy, so a little bit more details on the execution of that. To date, we have not put in place any euro-denominated debt. As I'd mentioned, setting up for that, we, you know, closed on the European assets and repaid some Canadian mortgages to bring down our leverage level, saving 3.7% in interest costs initially. The thought was to pair new acquisitions with additional debt denominated in euros. That will occur over the remainder of 2020 when the pace of acquisition activity picks up.

Okay. Thanks, if I missed one of the questions remind me.

Thank you were talking about the timing or sorry, the euro debt strategies, a little bit more details on the execution on that and to date, we have not put in place any euro denominated debt.

I'd mentioned the.

Setting up the I guess setting up for that we closed on the European assets and repaid some Canadian mortgages to bring down our leverage level.

Saving 3.7% in interest cost initially in the Scotland compare add new acquisitions with additional debt denominated in euros. So that will occur over the remainder of 2020, when the pace of acquisition activity picks.

And in terms of.

Lenis Quan: In terms of the bad debts, it ticked up a little bit in this quarter. As Alex had mentioned on his script, Spectra had filed for CCAA restructuring in respect of its overseas operations. That was filed in March. They have paid their March and April rents. May is not actually due till next week. But they have not paid their February rent, so we just, in conjunction with their CCAA filing process, we did provide for their February rent in our Q1 numbers.

The bad debt.

It ticked up a little bit this in this order.

Alex had mentioned on his great.

Extra had filed for Cc definitely restructuring interest in respect of its overseas operations that was filed in March.

They have paid their margin April rent may not actually do until next week.

They have not paid to February right. So we just in conjunction with there.

I believe filing process, we did provide for further February rent in our Q1 numbers.

And so I'm just wanted to do to add to lenses comments about debt.

Alexander Sannikov: Sam, just wanted to add to Lenis's comment about debt. We have repaid the Canadian mortgages earlier in Q1 with the intent to then put in place euro debt, draw on that debt and invest that capital in acquisitions. Since we have not been actively deploying capital, we haven't drawn any euro-denominated debt or any debt for that matter.

We have repaid the Canadian mortgages earlier in Q1 was the.

With the intent to them.

It.

Could put in place your debt.

Draw on bad debt and invest that capital and acquisition. So since we have not.

Been active actively deploying capital we have and.

Drawn any any euro denominated debt or in debt for that matter.

And we have a next question from Mike marketing from the Shannon.

Operator 2: We have our next question from Mike Markidis from Desjardins.

Operator: We have our next question from Mike Markidis from Desjardins.

Hi, Thanks for taking my question I don't want to booking trends look at a two part one the first one.

Mike Markidis: Hi. Thanks for taking my question. I don't wanna buck the trend, so I've got a two-part one. The first one, just with respect to Spectra and their CCAA filing, not specific to Spectra, but could you comment firstly if there are any other tenants in your large tenant list that you disclosed that would be on a watch list? And then the second question is more hypothetical in nature, but Brian, you've noted that you've got a tremendous amount of flexibility, which is great given the current environment, but that you wouldn't hesitate to take advantage of opportunities if they were there. I'm just curious as to what pricing adjustment you would need to see given the state of the world today versus where we were 2 to 3 months ago in order for you to want to transact on them.

Just with respect to spectra and their CPW piling up specific the spectrum, but could you comment.

Firstly, if there are any other tenants in your large tenant list, which you disclose that.

On a watch list.

And then the second question is more hypothetical nature, but.

Brian you noted that you've got a tremendous amount of flexibility, which is great. Given the current environment that that you wouldn't hesitate to take advantage of opportunities. If they were there and I'm just curious as to what pricing adjustment you would need to see given the state of the world today.

Versus where we were two three months ago in order for you to want to transact.

Mike Markidis: Thank you.

Thank you.

Yeah, Mike Good questions. Let me answer the second one first and then Alex will answer the the spectra slashed large tenant watch.

Brian Pauls: Yeah. Mike, good questions. Let me answer the second one first, and then Alex will answer the Spectra/large tenant watch question. For new opportunities, there's no real data points. We're not seeing any transactions right now, which are kinda indicative of where market value is. However, we do expect because of disruption in income and the uncertainty, that there will be some impact on pricing or on values. We haven't seen that yet, and it's likely there's not likely to be a lot of distress in the industrial real estate world. There's a lot of liquidity out there. There's a lot of interest in this asset class for the long term, and the asset class in general is quite healthy.

Question for new opportunities, there's no real data points, we're not seeing any.

Transactions right now, which are cut indicative of where market value is however, we do expect because of this disruption in income and the uncertainty that there will be some.

Some impact on pricing or on values.

We haven't seen that yet and it's it's likely there's not likely to be a lot of distress in the industrial real estate world. There's lot of liquidity out there there's a lot of interest in this.

Asset class for the long term and it's the asset classes generals quite healthy and as I mentioned in my earlier remarks, we think we'll come out of this the industrial real estate sector will come out of this healthier than probably went in and given the new demand generators. So.

Alexander Sannikov: As I mentioned in my earlier remarks, we think the industrial real estate sector will come out of this healthier than probably it went in, given the new demand generators. We are, however, looking for opportunities. We think cap rates may

Brian Pauls: As I mentioned in my earlier remarks, we think the industrial real estate sector will come out of this healthier than probably it went in, given the new demand generators. We are, however, looking for opportunities. We think cap rates may, Cap rates will probably come up, but, you know, the income you're capping is gonna be suspect. I think prices per foot may come down a little bit. We're looking for opportunities that will be accretive on a free cash flow basis, and will be accretive on an asset quality basis in our target market. We don't have a specific cap rate or a specific price per foot that we have targeted. However, we're watching closely any transaction that happens in these markets.

We are however.

Looking for opportunities, we think cap rates may.

Brian Pauls: Cap rates will probably come up, but, you know, the income you're capping is gonna be suspect. I think prices per foot may come down a little bit. We're looking for opportunities that will be accretive on a free cash flow basis, and will be accretive on an asset quality basis in our target market. We don't have a specific cap rate or a specific price per foot that we have targeted. However, we're watching closely any transaction that happens in these markets. Most of what's happened is properties that didn't transact earlier were just pulled from the market and are not available. Our teams are watching any transaction closely. We're also talking to some of the previous sellers that we were in communication with to see if, you know, they may wanna sell.

Cap rates will probably.

Come up but the income year capping is is going to be suspect so.

I think prices per foot may come down little bit we're looking for opportunities that will be accretive on a free cash flow basis will be accretive on an asset quality basis in our target markets. So.

We don't have a specific cap rate or a specific price per foot that we have targeted however, we're watching closely any transaction that happens in these markets. Most of what's happened is is properties that didnt transact earlier, we're just pulled from the market and are not available. So our teams are watching.

Brian Pauls: Most of what's happened is properties that didn't transact earlier were just pulled from the market and are not available. Our teams are watching any transaction closely. We're also talking to some of the previous sellers that we were in communication with to see if, you know, they may wanna sell. Our liquidity is precious. However, we are seeing, you know, potential opportunities that we could buy that will be at probably better metrics than would have been prior to the, you know, the pandemic. Alex, you wanna comment on our large tenant list and any other tenants on the watch list that you might have?

Any transaction closely we're also talking to some of the previous sellers that we were in communication with to see if.

They may want to sell so our liquidity is precious. However, we are we are seeing potential opportunities that that we could buy that we'll be at.

Brian Pauls: Our liquidity is precious. However, we are seeing, you know, potential opportunities that we could buy that will be at probably better metrics than would have been prior to the, you know, the pandemic. Alex, you wanna comment on our large tenant list and any other tenants on the watch list that you might have?

Probably better metrics than than would have been.

Prior to the Pandemics of.

Alex you want to comment on.

Our large tenant list and and any other wash.

It's on the watch list that you might have.

Alexander Sannikov: Yeah, absolutely. With respect to Spectra, I just wanted to point out that the CCAA filing is not connected to COVID. This was the filing happened prior to sort of the pandemic, and it's primarily relating to the tariffs on Spectra's overseas operations, primarily Chinese operations. So that's kind of what was the main driver as we understood from various documents and conversations with the tenant and the tenant's representatives. Just wanted to sort of highlight that this is not a COVID-related filing. With respect to other tenants on the watchlist, nothing specific to highlight at this point. We're obviously in conversations with a lot of our tenants. We've had...

Yes, absolutely.

Sure.

So with respect to spectrum, just wanted to point out that.

The CCW filing is not connected to cope with this was the filing happened.

Two.

Pandemic, and it's primarily relating to the the tariffs.

On.

Spectra's overseas operations, let primarily Chinese operation so that that's kind of what was the main driver as we understood from areas documents and conversations with.

With that with dependent and.

The tenants representatives. So just wanted to highlight that because a lot of cobot related.

Having.

With respect to other tenants on the watch list and nothing specific.

To highlight at this point, where obviously in conversations with a lot of our tenants we've had.

Alexander Sannikov: We have spoken with pretty much every single tenant in our portfolio over the last 45 days, trying to understand how they're doing, how we can support them, and how they're taking advantage of various government support programs out there. There are no tenants of size that would be on the watchlist, other than maybe a couple of tenants who we already were watching prior to the pandemic. They are again not material to the overall portfolio.

We have spoken was pretty much every single tenants in our portfolio over the last 45 days and trying to understand.

How are they doing and how we can support from and how they're taking advantage of various.

Government support programs out there.

There and there are no tenants or size that would be on the watch list.

Other than maybe a couple of times, who we already we're watching try to prior to the pandemic over there again not much material.

To the overall portfolio.

And we do have a next question from you mentioned the Jeff from Scotiabank.

Operator 2: We do have our next question from Himanshu Gupta from Scotiabank.

Operator: We do have our next question from Himanshu Gupta from Scotiabank.

Thank you just a follow up on your European expansion does coal would change entity now.

Himanshu Gupta: Thank you. Just to follow up on your European expansion, does COVID change anything now? I mean, in terms of your plan to increase exposure to the region. Do you think European industrial markets will prove to be less or more resilient compared to North America coming out of this crisis? Any differences you are seeing in terms of rent collection or leasing in the respective regions so far?

Then in terms of health plan to increase exposure to the region.

Do you think European investment markets been proved to be less more resilient compared to North America coming out of this crisis.

Any differences, you're seeing a dumb so rather than collection on easing in the respective region. So far.

That's a lot of questions immense who but ill let me start and then I'll.

Brian Pauls: That's a lot of questions, Himanshu, but I'll let me start, and then I'll let Alex follow up as well. Our strategy remains the same. As we come out of this, we think our exposure to Europe, our targeted exposure there, it remains the same. Our growth strategy remains the same. Kind of the global holdings and the asset quality strategy remains the same. We expect that to continue. Europe, in some respects, is opening up faster than North America. We do expect industrial real estate, e-commerce, proximity to large population centers to increase industrial demand the same as it would in North America. Europe was a little behind North America in terms of its e-commerce penetration and that growth.

Let Alex follow up as well our strategy remains the same as we come out of this we think our exposure to Europe.

Our targeted exposure there remains the same.

Our growth strategy remains the same.

Kind of the the global.

Holdings and the asset quality strategy remains the same so we we expect that to continue Europe in some respects is opening up faster than North America.

We do expect industrial real estate E Commerce.

Proximity to large population centers to to increase industrial demand the same as it would in North America, but.

Europe was a little behind North America in terms of good to ecommerce penetration in and.

And that growth, so we see that potential being being high in Europe and that Doesnt change.

Brian Pauls: We see that potential being high in Europe and that doesn't change. You know, as we emerge from this, we're looking at acquisition opportunities in all of our target markets, but we'll continue on the same strategy that we were before this hit. Alex, you can talk a little bit about the asset quality there, the tenant quality there in Europe.

So.

As we emerged from this we're looking at acquisition opportunities in all of our target markets, but we'll continue on the same strategy that we were.

Before this hit and Alex you could talk a little bit about the.

The asset quality, there the tenant quality there enough in Europe.

Yes, absolutely.

Alexander Sannikov: Yeah, absolutely. You know, fundamentals-wise, we're seeing comparable fundamentals in Europe to North America. Rent collection data, as I mentioned earlier, for April was right in line with what we are seeing for the rest of our operating regions in North America. We think that the industrial fundamentals will continue to be strong and will strengthen. Brian mentioned that, you know, e-commerce penetration in Europe is obviously lower than it is in North America and growing faster. One of the, on the flip side, the trend that Brian talked about of reshoring has been generally growing faster in Europe, especially in markets like Germany.

So.

Fundamentals wise, we seeing comparable fundamentals Europe to to North America rent collection data as as I mentioned earlier for April was right in line as what we are seeing for the rest of our operating regions and North America.

So we think that the industrial fundamentals will continue to be strong and will strengthen.

Brian mentioned that the.

Oh ecommerce penetration in Europe is obviously lower than it is north America and growing faster.

One of the on on the flip side that the trend that Brian talked about re shoring has been generally.

Growing faster in Europe, especially in markets like Germany.

Alexander Sannikov: Germany has been sort of more of an early adopter of reshoring, and we expect that trend is only going to accelerate in that market, which is, as well-known, manufacturing heavy, and we expect that there's gonna be more demand from reshoring in Germany specifically.

Germany has been so more of an early adopter appreciate ARINC and we expected that trend is only going to accelerate in that market, which is.

Well no.

Manufacturing heavy and we expected there's going be more demand from reassuring.

Germany specifically.

Okay.

Thank you and then in our next question is from Brad surges from industrial clients.

Operator 2: Thank you. Our next question is from Brad Sturges from Industrial Alliance.

Operator: Thank you. Our next question is from Brad Sturges from Industrial Alliance.

Hi, there.

Brad Sturges: Hi there. It's a two-parter as well. In terms of the leasing activity that you talked about, the renewal activity that you've been experiencing, just could you maybe expand upon what you're seeing from prospective new tenants and whether there's been a material change in that type of leasing activity? Secondly, in terms of your rent deferral strategies, you know, you highlighted the May and June deferral and with a repayment back, but what other strategies would you consider at this stage in terms of dealing with tenants looking for a little bit of rent relief in the short term?

If the two quarters will.

In terms of the leasing activity you talked about the renewal.

Activity that you'd been experiencing.

Could you maybe expand upon what you're seeing from new prospective new tenants and whether it will it has been a material change on a month type of leasing activity and then.

Secondly in terms of your rent deferral strategies.

No you highlighted the May and June.

Deferral and with a repayment back but what other strategies would you consider at this stage in terms of dealing with.

Tenants looking for a little bit or rent relief in the short term.

Sure.

Brian Pauls: Sure. I’ll let Alex answer that, but just in terms of, I do wanna, before Alex goes, Brad, let you know that we’re talking to every tenant. I mean, we’re proactively talking to every tenant. There’s a couple of government programs, there’s our own D-programs, and then we’re, you know, customizing certain things to meet tenant needs, as need be. But their health and the longevity of those tenants is important to us, and we’re working, you know, with everybody. But Alex can tell you a little more specifics of what we’re doing, what programs we’re offering, as well as kinda how we’re dealing with each tenant.

Yes, I'll, let Alex answer that but just into in terms of I do want to before Alex goes Brad let you know that we're talking to every tenant and we were proactively talking to every tenant theres a couple of government programs, there's our own to programs and then we're you know were customizing certain things.

To me to tenant needs.

As as need be but their their health in the longevity of those tenants is important to us and.

We're working working with everybody, but aloxi tell you a little more specifics of of what we're doing.

What programmatic programs were offering as well as kind of how we're dealing with each time.

Absolutely so well start start was that just to continue continuing on the under.

Alexander Sannikov: Yeah, absolutely. Well, I'll start with that just continuing on the rent support and deferral theme, and then we can talk about new leases. Our main program, as we mentioned, is sort of deferrals of net rent for May and June. We have been working with select tenants who have, let's say, future free rent or prepaid rent that is to be applied to future months to push that forward and to, let's say, if they had a free rent for October, then we will let them apply that free rent for May, and then October doesn't have the free rent any longer.

Brent rent support in deferral theme and then we can talk but new leases.

So well and our main program as we mentioned is.

Deferrals for net of metric for May and June.

We have been working with select tenants.

Who have let's say future free rent or.

Prepaid rent that is to be applied to future months to to push that forward Dan to let's say they had a three rent for October then we will let them apply that free rent for May and then mix over doesn't have the free renting longer.

Alexander Sannikov: In certain instances, we've been working with tenants who are largely single tenant buildings where the municipalities have deferred payments of realty taxes, and tenants reached out to us and requested that they pay the realty taxes to us in line with the schedule put forward by various municipalities, and we have been generally accommodative of that. Oh, lastly, the commercial rent assistance program has been announced. However, their details are limited, and there's a discussion about and some assistance program coming for larger tenants, so we're closely monitoring that, and we'll evaluate the impact of that and how we implement that in our portfolio as more details become available.

Ask in certain instances that we've been working with tenants who are largely single tenant buildings, where the municipalities have deferred payments of realty taxes and that has reached out to us requested that they pay the realty taxes to us in line was the schedule.

Proposed by various municipalities and we've had been generally accommodative of that.

Well and lastly, the the Big commercial went assistance program has been announced however, there details a limited and we it and there's.

A discussion about.

And some assistance program coming for larger tenants. So we're closely monitoring that and.

Well, we will evaluate the impact of that how we implement that.

In our portfolio as more details become available.

Alexander Sannikov: With respect to new leases, we have generally seen slower leasing activity, new leasing activity, and touring activity across the portfolio. The new leasing activity is slowly coming back in the Netherlands, where, as Brian said, the economy is opening slightly faster, so we actually are in discussions on some new leases for some of the vacancy in the portfolio we just acquired. But generally in Canada and the United States, we have seen slower leasing activity, and that is the case again from the conversations we've been having with various market participants, that is the case for the market overall. The new leasing activity has been slower.

With respect to new leases, we have generally seeing.

Slower leasing activity, new leasing activity in touring activity across the.

The portfolio.

The new leasing activity skin slowly coming back in the Netherlands, where as Brian said, they economies opening slightly faster. So we actually are in discussions on some some new leases for some vacancy in the portfolio. We just acquired.

But generally in Canada, and the United States, where where we've seen slower leasing activity and that is the case.

Again from the conversations we've been having premiers various market participants that is the case for that for the market overall, the new leasing activity has been slower touring space with socially social distancing measures is pretty difficult and tenants are generally.

Alexander Sannikov: Touring space with social distancing measures is pretty difficult, and tenants are generally taking a pause in terms of making expansion decisions on their real estate. There is discussion around e-commerce, larger e-commerce users, and RFPs in the market, both in Montreal and Toronto. We're monitoring all of those RFPs, but there hasn't been any material transactions to our knowledge so far.

Taking a pause in terms of making.

Expansion.

Decisions on on their real estate. There is there is discussion around E commerce.

Yeah, the larger E commerce users and RFP use and in the market both in Montreal and trauma.

We were monitoring but all of those are fees, but there hasn't been any material transactions to our knowledge so far.

Well have our next question from Brendan Abrams from Canaccord Genuity.

Operator 2: Well, we have our next question from Brendon Abrams from Canaccord Genuity.

Operator: Well, we have our next question from Brendon Abrams from Canaccord Genuity.

Hi, good morning.

Brendon Abrams: Hi, good morning. Within your Western Canada portfolio, what percentage of tenants in that region are directly involved in the energy sector? I guess a second, I know there's probably a limited amount of leasing volumes, but have you seen any material changes in renewal spreads over the past few months in that region? What would your expectations more broadly be for your Western Canada portfolio on a go forward basis?

Within your Western Canada portfolio, what percentage of tenant.

In our region are directly involved in the energy sector and I guess, the second I know theres, probably a limited amount of leasing volumes, but you have you seen any material changes in renewal spreads over the top few months in that region in love with your expectations more broadly be for your Western Canada portfolio.

Fully on a go forward basis.

Thanks, Brent and go ahead Alex.

Brian Pauls: Thanks, Brendon. Go ahead, Alex.

Alexander Sannikov: Yeah. Thanks, Brendon. The energy sector represents about 1% of the total portfolio in Western Canada. It's about 7% of the rent from the oil and gas sector. With respect to rent in Western Canada, again, we have limited data, but so far we're seeing that rents are holding and we haven't seen significant declines in rents compared to our targets or pre-COVID rents. The broad outlook so far is that, you know, we'll continue maintaining occupancy and trying to grow occupancy in a few vacancy pockets that we have. We're in discussions, we were in discussions on about 50,000sq ft of vacancy in Edmonton prior to the pandemic.

Yeah.

Thanks Ben.

Yes, a b energy sector represents bed, 1% of the total portfolio in Western Canada, It's about 77% all of the rent is a from the oil and gas sector.

With respect to rents in Western Canada again, we have limited data, but so far are we seeing those rents are holding and we haven't seen.

Significant declines in rents compared to our targets or pre congrats.

Be broad outlook, yeah. So far is that will work will continue maintaining occupancy and.

And trying to grow occupancy in a few vacancy pockets that we have them where.

We're in discussions we were in discussions on about 50000 square feet all vacancy in Edmonton prior to prior to the pandemic and that tenant is still interested in the space. We have the city's approval to proceed.

Alexander Sannikov: That tenant is still interested in the space. We have the city's approval to proceed. We obviously will wait for the economy to come back, and we'll re-engage with the tenant. Hopefully that deal will go through, and that will be a significant boost to the overall occupancy in the region.

Obviously, we'll wait core.

For the for the economy to come back and go.

Reengage the tandem.

But hopefully that deal will pull through and that will be a significant boost to the overall occupancy in the region.

And we do have my next question from Sam Damiani from TD Securities.

Operator 2: We do have our next question from Sam Damiani from TD Securities.

Operator: We do have our next question from Sam Damiani from TD Securities.

Thanks. My last question is just related to the acquisitions in Europe. It looks like around 50 or 60 million Didnt close that was originally targeted back a couple of months ago are those still pending and may take a little longer or.

Sam Damiani: Thanks. My last question is just related to the acquisitions in Europe. It looks like around CAD 50 or 60 million didn't close that was originally targeted back a couple months ago. Are those still pending and may, you know, take a little longer, or have any of those been just dropped?

I have any of those been but just dropped.

Yes, Jim as some of those that were previously announced our our closing and we'll close some of them, we're taking a longer to look at it.

Brian Pauls: Yeah, Sam, some of those that were previously announced are closing and will close. Some of them we're taking a longer look at and we're deciding. It depends on kinda how far we were on due diligence. For example, there's one acquisition in Germany that we actually readjusted the price and will proceed on. And then there's others that we're kinda continuing to watch that we were negotiating on or underwriting. So it depends on which one. We're taking a general pause on acquisitions right now, certainly on new deals. You know, we're looking at what's available, which is not much, and we're looking at what's trading, which is almost nothing.

And we're deciding it depends on kind of how far we were on our due diligence and.

For example, there's one acquisition in Germany that we actually we adjusted the price and we will proceed on.

And then there there's others that were kind of continuing to watch that we were.

Negotiating on or or or underwriting.

So it depends on which one we're taking a general pause on acquisitions right now certainly a new deals we're looking at where we're looking at what's available which is not much in we're looking at what's trading which is almost nothing and we'll continue to look at acquisitions and when there is opportunity capped.

Brian Pauls: We'll continue to look at acquisitions, and when there's opportunity, capitalize on it. Alex, what would you add to that?

Slides audit.

Alex what would you add to that.

No no yeah, I think that the I think thats it.

Alexander Sannikov: No, no. Yeah, I think that I think that's a complete summary.

The timing.

Thank you.

Sam Damiani: Thank you.

And we have no further questions at this time I when I turn the call over to Brian pulse for closing remarks.

Operator 2: We have no further questions at this time. I will now turn the call over to Brian Pauls for closing remarks.

Operator: We have no further questions at this time. I will now turn the call over to Brian Pauls for closing remarks.

Well I'd like to thank everyone for your time today, we look forward to speaking again soon and in the meantime, we we hope everyone will stay stay healthy and stay safe and we look forward to or next call take care.

Brian Pauls: Well, I'd like to thank everyone for your time today. We look forward to speaking again soon. In the meantime, we hope everyone will stay healthy and stay safe. We look forward to our next call. Take care.

All right.

[music].

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