Q3 2021 Summit Industrial Income REIT Earnings Call

Good day and thank you for standing by welcome to the summit Industrial income Reis third quarter 'twenty 'twenty. One results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer says.

And to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

You require any further assistance please press star zero.

Thank you I would now like to hand, the conference over to your first speaker today, Mr. Paul Dykeman, President and Chief Executive Officer, Sir. Please go ahead.

Thank you operator, and good morning, everyone before we begin let me remind everyone that during this call. We may make statements that contain forward looking information, which is based on a number of assumptions that are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those disclosed or implied we direct you to our.

Earnings release, our new MD&A and other security filings for additional information about these assumptions risks and uncertainties.

Joining me as usual on this call is Ross <unk>, our Chief Financial Officer, and Dana Gibbs, our Chief operating officer.

We are pleased to report again this quarter, we achieved a number of key accomplishments driving solid growth and strong operating performance.

Towards another record year for summit in 2021.

Occupancy hit almost 100% rental rates were up as a result of strong leasing activity and we continue to expand the size and scale of our property portfolio and development pipeline.

Slide four summarizes the significant growth we've achieved in our income producing portfolio since the inception of the REIT in 2013. So far this year, we completed four industrial acquisitions, one in GTA two in Montreal, and one in Calgary and in close to 2 million square feet to our portfolio and deploying close to $400 million.

Capital.

Our growing industrial base continues to drive revenues NOI increases as well as operating efficiencies and economies of scale due to our increased presence in all of our key target markets.

Graph on this slide also demonstrates the significant value our portfolio is generating for unit holders given the strong fundamentals in our key target markets in Canada. Our income producing portfolio continues to continues to benefit from me for value increases quarter over quarter.

Strengthening occupancies are also driving the growth as detailed on slide five.

Even though throughout most of the challenging pandemic months, we consistently generated solid and growing occupancy in all our target markets leading to near full occupancy at September 30 of 99, 2% the key to our occupancy.

<unk> this quarter was the improvement that we were able to achieve in Edmonton, which rose from 91 at December 31, 2020 to 97 four at September 30th.

And in the past I've talked about some tenants that were had on our watch list and the good news all of those are continuing to to thrive and some we're actually renewing and increasing their rents. So we don't have a watch list for tenants anymore.

As shown on slide six in addition to our portfolio growth and increasing occupancy monthly rental rate increases have also been a key driver of growth year to date through the first nine months of the year, we completed over one 7 million square feet of lease renewals and new lease deals.

Most importantly, these leasing transactions generated a 29% increase in monthly rents with a significant 68% increase in Ontario, and 41% increase in Quebec.

Excluding the contractual renewals.

With low with record low availability and high demand. We are confident rental rates will can only continue to grow specific, especially in GTA and Montreal, where approximately 80% of our portfolio is located.

With these achievements the third quarter of 2021 was another strong period for summit as you can see on slide seven revenue rose, 12% with net rental income up almost 16% organic growth continued with same property NOI rising five 4% as Ross will discuss later our strategy to repay secured mortgages with unsecured debenture offerings.

Resulted in a nonrecurring prepayment expense in the quarter, we estimate the net benefit from the strategic refinancing will result in annual interest savings of approximately $4 5 million per year.

Excluding this nonrecurring costs rose rose, 26% with <unk> per unit up seven 1% another strong quarter for summit.

With that backdrop of our strong Q3 performance. We are on track for another record year in 2021 as you can see on slide eight year to date revenues were up 15% same property NOI has increased close to 5%. The second second the second consecutive quarter. The same property NOI has tracked around that 5% Mark.

Organic growth was particularly strong in our key target markets with same property NOI up six 5% in Ontario, a four 2% in Alberta to 6% in Quebec.

Not including these nonrecurring mortgage prepayment costs <unk> 28, 8% through the first nine months to September 30, with <unk> per unit up seven 1% and our payout ratio ended the quarter at a very conservative 79% I will now turn things over to Ross.

Thanks, Paul.

Turning to slide 10, 2021, it's been a very active period for the REIT over.

Over the last 12 months, we successfully completed the placement of $925 million unsecured debentures with a low average interest rate of only $2 one 8%.

While sequentially, extending our maturities and tightening our credit spread pricing.

During the third quarter, we were pleased to continue to expand our participation in green financing with the structuring of our new $75 million Green unsecured development credit facility as well as a $25 million conventional tranche to find finance, our current and future development projects.

Proceeds from our unsecured debentures werent part used to strategically addressed early repayment of $330 million in higher interest rate secured mortgage debt as Paul mentioned earlier, we expect to generate annual interest savings of approximately $4 5 million as a result of these refinancing.

During the quarter. We also successfully completed a $127 million bought deal equity offering used to finance, our recent Alberta acquisition.

Slide 11 details the continuing strengthening of our financial position over the past 12 months alone.

Our strategic debt restructuring program has resulted in an unencumbered properties.

Temporary properties growing to $2 $8 billion, representing 64% of our total assets up from 37% at the same time last year.

Our proportion of unsecured debt rose to 72% of total debt up from 28% last year.

Also degrees, we also decreased both our overall average interest rate and leverage ratios both down from this time last year.

Our strategic balance sheet repositioning generate considerable savings going forward and provide us with the financial resources and flexibility to continue our growth trajectory in the quarters ahead.

Liquidity and financial flexibility is always top of mind and as you can see on slide 12, we continued to build on our available financial resources at September 30, we had approximately $1 1 billion in available liquidity, including cash.

All of our credit facilities and the potential financing on our available unencumbered asset pool hypothetically. If we were to use all of our available liquidity our average our leverage ratio would remain a conservative <unk> 43 per cent.

In summary, our financing achievements over the last year have supported a strong capital structure and balance sheet as shown on slide 13.

<unk> overall leverage was reduced to a very conservative at 29% at quarter end and we continue to capitalize on the lower interest rate environment in Q3, reducing our average effective interest rate to two 5% at quarter end, while also extending term.

I'll now turn things over to Dana.

Thanks, Ross and good morning, everyone.

As Paul mentioned, we've enjoyed significant fair market value gains in our property portfolio over the last several quarters driven by ongoing demand for industrial in Canada, and the underlying strong market fundamentals in our key target markets.

As you can see on slide 15, we've recorded total fair market value gains of $933 million or $5.54 per unit. So far this year.

These value increases are being driven by record low availability rates limited new supply continuing demand from e-commerce significant rental rate growth and rapidly increasing replacement cost in the GTA and GMA, particularly.

These fair market value gains are being experienced in all of our target markets and as you can see on slide 16, with the most significant increases across our Ontario, and Quebec properties, which represent close to 80% of our total portfolio value.

We're optimistic that our key target markets and asset class will continue to show further strength in the quarters to come and I will now discuss our specific markets in which we operate.

Slide 17 details the positive impact strong market fundamentals are having in the GTA avail.

Availability in Canada strongest industrial market return to the pre pandemic availability record of below 1%.

Overall net rents rose to $11 63 per square foot, marking a record 18 consecutive quarters of rental rate growth.

Over the last five years rental rates have almost doubled.

Given these extremely tight market conditions, we saw a nine 8% same property NOI increase in our GTA properties in Q3.

Our net rents in GTA stood at $7 35 per square foot at September 30th and we believe there is still considerable upside as we renew maturing leases in the quarters ahead.

Montreal, Canada second largest industrial market is also generating strong growth as you can see on slide 18.

The availability rate declining further in the quarter to an all time low of one 2% and a six 9% increase in asking rents Q3 marks the 12th consecutive quarter of rental rate growth in this market.

During the third quarter. We also achieved same property NOI growth and come back of <unk>, 6% and our at near full occupancy.

The industrial markets in Western Canada, and specifically in Calgary has improved throughout 2021 as can be seen on slide 19.

We are pleased to have seen a four 2% increase in same property NOI year to date in our Alberta portfolio, including a two 6% increase in Calgary and two 7% increase in Edmonton for Q3, and as Paul mentioned earlier, we are seeing strength in Edmonton with occupancy in that market, increasing meaningfully in the quarter and by almost six percentage.

<unk> points.

The improvement in Alberta is due in part to the trend of Calgary, and Edmonton, becoming distribution centers for Western Canada.

As detailed on slide 20 companies are recognizing the relatively high leasing in land cost in the Vancouver region, and with little room for expansion in that market due to land scarcity. Many are choosing instead to locate their logistics and distribution centers in Alberta.

It's estimated to still be 30% less expensive to located distribution centers in Calgary versus Vancouver, even when considering the incremental transportation costs to and from ports in Vancouver.

Alberta also has significant expansion potential in both main cities, which is attractive to companies looking for flexibility and scale and their logistic centers.

With this trend in mind, we continue to selectively consider growth opportunities in Alberta, a key example, as shown on slide 21 is our recent acquisition of a 725000 square foot brand New class a logistics center near Calgary located in close proximity to the airport.

This new facility consists of two buildings, both with 36 foot clear ceiling heights, numerous loading docks and ample trailer parking.

The first building built in 2020 totaled 525000 square feet and is 100% occupied by Amazon.

The second building seem to be completed is already 60% pre leased to an existing tenant of ours, who has an option to lease the balance of the space.

Looking ahead, we will continue to focus on the same successful growth strategies that have generated positive unit holder returns to date.

Our growth and strong performance continues to be based on our three part strategy.

Expanding the size and scale of our portfolio through accretive acquisitions.

Proactive development and expansion and capitalizing on strong market fundamentals to achieve organic growth in our existing portfolio, all striving to achieve our ESG initiatives and targets.

As shown on slide 24, our acquisition program continues to be active completing over 380 million acquisitions in our target markets. So far this year.

We also sold seven non core properties generating a little over $60 million of proceeds as we continue we'll continue to actively manage our portfolio.

While we still remain active in the acquisition market, we continue to see significant tightening as existing and new players recognize the strong fundamentals of the Canadian industrial sector, fueling increased investment demand and cap rate compression.

Cap rates continue to be seen sub 3% and several GTA transactions with Montreal also showing very low rates and valuation metrics shifting more towards replacement cost, which is being driven by rapidly increasing land values.

The rates have been increasing its focus on development and expansion as a result of the current acquisition market landscape.

As you can see on slide 25, we currently have over one 2 million square feet under development in various stages of planning or construction.

The leasing market for our development pipeline is extremely strong and we estimate we can achieve returns breath of between 100 to 150 basis points over current market acquisition cap rates.

We're also seeing more expansion opportunities with our existing properties and tenant base.

Our development pipeline also aligns with our ESG initiatives and Green financing framework as we strive to achieve maximum efficiencies and minimize the environmental impact of our newly built buildings.

The third pillar of our growth strategy is to continue to execute on our track record of organic growth as we capitalize on the strong demand in our target markets.

As you can see on slide 26 over the next four years, we have approximately $9 6 million square feet of lease renewals coming due with meaningful rental rate mark to market upside potential.

Ontario, and Quebec, specifically.

We need to be a landlord's market, which will provide the REIT with further flexibility in lease negotiations.

I'll now turn things back over to Paul to wrap up.

Thanks, Dana so in closing we see a number of key factors that we are confident we will continue to drive unitholder value over the long term, we continue to execute our disciplined acquisition program with emphasis on price per square foot compared to replacement cost.

And while acquisitions remain one element of our growth strategy, our expanding development pipeline as Dana mentioned will contribute attractively yield on cost returns brand, new environmentally efficient real estate to our portfolio.

Continued appreciation in land values in our target markets will continue to drive growth organic growth will continue continue as we renew leases in eastern Canada at market rents, which are considerably higher than our in place rents and finally, our strong liquidity position and access to attractively priced debt and equity capital will allow us to.

Execute on this growth strategy going forward.

I. Thank you for your time this morning, and now we'd be pleased to take any questions you may have operator.

Thank you Paul as a reminder to ask a question you will need to press Star and then the number one on your telephone keypad again, just press Star and then the number one on your telephone keypad and do enjoy your question press the pound key please standby, while we compile the Q&A roster.

Your first question comes from the line of Brad Sturges from Raymond James. Please proceed with your question.

Hi.

Hey, good morning, Brad Good morning.

In terms of your your in place leases as it relates to the contractual stuff thats been trending higher.

Aided by some of the leasing activity done, but I'm curious to know is mainly what's in place today is that based on fixed steps or would there be a CPI a meaningful CPI component within some of the leases.

Virtually no CPI so it's all contractual based in.

As more and more of our portfolio trends over our standard leases is annual steps. So when you buy a property, sometimes there's a bit of a mixed bag in some every three or five years, but our standard leases. It's contractual so that will make it a little bit more predictive.

You'll get that one 9% every single year and you know a lot of it's been driven by increasing our annual steps on our GTA portfolio in particular, so what was two or two 5% is now 335% or sometimes even higher.

Right.

Given given what youre seeing in Alberta in terms of.

The demand.

Distribution hub and you did a good job of highlighting I guess the differential between Vancouver, I guess does that change your view at all right now in terms of the amount of exposure do you want to have in Alberta.

Is it just if anything a constraint on opportunity too.

To do a little bit more capital recycling, given perhaps a little bit better liquidity in the market.

Yeah, I think I think both.

We've mentioned that that market has changed dramatically you know even over the past nine months or.

So we're still going to use the word selective but the market has definitely turned the corner specifically Calgary. So we continue to monitor it I mean, there's obviously more and more interest now that it has turned the corner as is becoming more competitive. So you know, we're very happy with our our Amazon acquisition that we just did and we'll continue to you know sort of manage that allocation you know we're still keeping that.

Palio target of Twentyish percent, but you know if if we find things that make sense on sort of an individual acquisition basis, we'll certainly do that or if there's opportunities for us to expand you know some of our existing properties in that market, we'll do it as well you know we've got very little site coverage, there, which again has positioned us well for.

But where we sit today in that market.

If youre looking at capital recycling.

Today as the pipeline so it's like.

How how large of a program would it be is it still fairly opportunistic in small or do you see the.

Kind of expanding versus our previous commentary.

Oh no.

Again.

Primarily or almost entirely focused in western Canada, because we bought a large portfolio a few years ago. So still weeding out a couple of properties that we have listed on their balance sheet for you know properties.

$7 1 million $3 3 billion.

40000 square foot of 30000, and so we're trying to build up our average tenant size. So those smaller bay or the smaller single buildings or any of our multi base that we have left it's still over in that $50 million to $100 million kind of range. So I don't think it's anything bigger than that.

Okay last question, just just acquisitions in general and just thinking more as it relates to capital allocation you know obviously been ramping up the development program.

How is the acquisition.

Pipeline looking today and.

Where are you seeing the better opportunities.

Yes, the acquisition pipeline as it is.

It's actually fairly tight with these low cap rates.

Youre seeing a fairly regular a number of offerings looking at machine year to date, we've underwritten and $4 4 billion and we.

Talked about buying just under 400 million, so little under 10% hit rate.

But particularly.

Still being driven more by iron ore buyers that are looking at.

What that rent mark to market rent is going to be so we're seeing cap rates that are migrating well down below 32226 in GTA.

But more importantly, what stops us from even entertaining those as a price per square foot. So we saw with the Artis deal you know halfway through the year that was about $300 per square foot.

We just lost out on another one that's not public yet around that $300 million in total.

But it's at least $330 per square foot in the GTA, maybe maybe higher so ones that you know so it's tight there.

But again, we're looking at everything like this Amazon Youll have to remember that wasn't a marketed deal. So we went directly to the owner and so.

When we can try to find those unique opportunities.

Try to do that but you're competing in Toronto Youre going to have 10, or 15 bidders easily youre going to have five or eight bidders in Montreal and now we're starting to see a few more bidders in Alberta and there was another.

Offering a brand new real estate. After this Amazon are treated a 4.04. So you know I think cap rates are going to start to move down and in Calgary as well.

Benefit of our existing portfolio.

Okay, Great I'll turn it back thank you.

Thank you.

Thank you. The next question comes from the line of Joanne Chen from BMO Capital markets. Please proceed with your question.

Hi, good morning.

I guess it does.

Thinking on the sticking with the acquisition.

And just kind of given the current pricing environment and you know.

How are you thinking about the balance between the acquisitions of <unk>.

Producing properties versus continuing to grow in your development pipeline.

Particularly now with the current inflationary environment has your thinking around on the development side changed.

No I mean, clearly that's where our focus is because we know Matt.

Matter, what crazy price for land is that Youre looking at we bought so service road, a $2 1 billion, we've got some other land.

The diligence on that so even above that number were going west whether it's wealth Kitchener to try to find some less expensive land.

Even at today's rental rate the yield on cost is significantly better than the acquisition cap rate. So.

That's the best way for Us to go it's more accretive youre upgrading the portfolio, you're hitting your ESG targets as well. So yes. So we've got a couple of pieces of land.

We'll try to target land Thats.

I need to go which is kind of three years or less.

We did have some land tied up the Milton that was more of a five year vintage in the five years put it ended up.

Moving to seven to eight or nine if certain things didn't happen in servicing and zoning wasn't completed so I think we're still focused on.

Let's say smaller parcels, but more of that ready to go category in and around where existing portfolio as well.

The acquisitions makes sense, we'll do them. So we're not shy to know when to stretch and went into to be competitive on.

On acquisitions so.

I like to think that 150 or $200 million a year would be a normal run rate on development and gradually increase that a little bit, but that's kind of a target for the next couple of years.

Okay and I just wanted to clarify if I might've missed this earlier, but have you seen that development spread it's still kind of around that 150 basis points over.

Acquisition cap rates.

Yeah, and if anything if anything they're wider if anything they're wider just because.

Cap rates continue to go down too.

Really low levels of care.

Taro portfolio, which was brand new real estate, there was an Amazon in there that traded at.

Yes, three or slightly below there are some properties in the east the east part of Toronto.

No.

We're seeing yield on cost of say four and a half two five and stuff.

Sometimes higher on existing debt.

Land that we already own.

Okay, and I guess on some of the recent.

Our recent land purchases you know.

Obviously headline a lot on the inflationary environment.

But right now, but when do you think about you know, perhaps pushing back some of the developments on someone's at recently acquired land or are you still looking to you know try to break ground.

As early as possible.

There's nothing wrong with waiting so either strategy works, it's really dictated it's really dictated by.

The municipalities and so you are the only you would actually have to try to wait because you are forced to wait until.

So service road.

We have to get a site plan approval.

Which will take four to six months.

Is do you wait until the site plan approval is done before you order your steel, which has a nine to 12 months lead time.

So again, if youre comfortable that youre going to get Youre planning approval, but yeah, so and again, even on so service road I think our market asking rents even in the last six months is probably up at least the dollar from where we would have pro forma so and we've got the <unk>.

Our development on surveyor, which was a spec development is just under 100000 square feet.

I think our recent asking rent is over $14 now so we just keep bumping the asking rates every six months or so so yeah. So theres nothing wrong with waiting, but so we're just trying to find the.

Land that we're ready to go but at the same time we.

We have tenants that are asking us for space. So some of this is to accommodate or existing tenant's ability to expand or have another location as well.

Right.

Okay, that's good to hear.

And just sorry going back to the contractual rent step ups why are they like now in Ontario, Quebec.

We haven't had a lot of you haven't had a lot of sorry, we haven't had a lot of renewals in Quebec. So again, we're just continuing to disrupt and try to buy and it's a balancing act because.

In Toronto.

Do you do you think youre moving the market from six to whatever the number is 10 11 12 or is that too much of a jump so where a tenant may be cant handle all of the mark to market today, that's where you can push okay. We're giving you a deal because we're not pushing it up that extra 50 or a dollar today, but we want higher than average.

Going forward, so that's where you get into the.

Four or higher on the renewals, but Montreal, we thought was about two to three years behind Toronto and Theres more and more evidence that's correct and so I think youre going to start to see some acceleration. So rental rates are clearly going up and then once it's more of that landlords market, we'll be able to push on them.

The rental steps as well.

Alright.

Okay, and maybe just switching gears I guess back on the balance.

Balance sheet side of things so congrats on that.

Credit.

That's good to see him but he.

And maybe comment on how what kind of pricing you're seeing now in the unsecured market, particularly as you know you do have that positive credit rating.

Largely going to be kind.

Kind of where you're seeing.

Financing for on the unsecured side over the near term.

Yeah, I know it's interesting. So we're at we've got sort of a divergence here, we've got record low credit spread pricing right. Now you know relationship across five seven and 10 years, I'd say, but with the bonds moving away from US you know, it's it's more expensive you know since we've been in the market, it's really sort of the highest all in coupon rate. So you know.

Five year is probably around 2.6 sevens or probably just under 3%.

We've actually had our interest for our name in the 10 year space, which is great.

So it's an interesting environment, where you know where our credit spread is continuing to come in you know we expect.

And hope that that will continue but to your point about the change in outlook. You know that really you know a lot of very astute that investors out there that for the most part is already priced into the market.

And you know I really didn't see a whole lot of movement there so.

Record low credit spreads that are all in rates are creeping away from us now because of what's happening with bonds.

Yeah, well yields came back down a little bit today, so hopefully.

They'll be good but okay.

Alright, that's it for me I'll leave it there thanks very much okay. Thanks, Brian.

Thank you. The next question comes from the line of Sam Damiani from TD Securities. Your line is open.

Thanks, Good morning, everyone.

First question just on the acquisition market.

Continues to be very interesting and I guess, you Wonder written 4 billion plus in close on less than 10% of that.

Are we getting to the point with pricing, Paul where it starts to make sense to look some assets go where maybe another buyer might have a different view of value.

Summit.

Yeah.

That's always a tricky one right.

Right now in Toronto, and Montreal, We just think the upside is so significant that.

To hold onto everything we we have been for the most part this portfolio built up different than summit. One it was really bought one or two buildings are built one or two buildings at a time so.

Our properties in Toronto, and Montreal or larger.

Buildings with larger tenant sizes until they kind of fit that criteria. There's a few that we had won.

And in Ontario, which mean that small base. So we've entertained and looked at that so yes, if someone would pay us.

A sub three cap, we might we might look at that but it goes into we want to make sure. We can we can reinvest those proceeds in something accretive so right now we're focused on more.

The noncore, which would actually be the worst would be more of a higher cap rate. So you're you have a little it's a little bit of a dilutive exercise. So we haven't really looked at weather, but like we have a small interest in a property in Montana, where just redoing. The tenant there we will look at that so it's really more strategic in terms of the.

What we're trying to dispose them.

Okay. That's helpful. And then just on the occupancy its great to see it go back above 99%.

That's pretty full I mean, where do you think the source of variability is I guess over the next few quarters.

And.

I just I guess by region, just curious where you are what youre thinking in terms of over the next few quarters.

Yeah.

You will notice one of the items that we're always very.

I'm aware of with the retention ratio and we always wanted to be 90, or 95% and that number has started to go down and so we're doing selective.

Non ratable so let's say so the tenant doesn't have an option to renew we buy they don't like their use or we don't think maybe they can pay that afford to pay the highest rent. So anything we're going to do there is going to have minimal downtime because youre going to <unk>.

One of our Montreal literally there's there's a lineup you know even the property.

We called Kubota say at least that we're going to do a 60000 square foot expansion. We've got three people bidding on that so it's really.

It's a landlord market, we've never even seen before so you're kind of auctioning the space.

Clearly, we're happy with what's going on in Alberta, I do think theres going to be some movement, there, but we're budgeting or thinking about occupancy around this number going forward through all of 2022, so there might be a month here or there that there's going to be a little bit of downtime and then some re leasing, but nothing structurally different than that and again.

I said the retention numbers, we're not striving to achieve a higher number we're just we'll take our chances on a few of them.

You know our renewals that we won't do to allow the market to dictate what that new price should be on the rent.

That's great and last one for me is just on the on the Quebec region with the same property NOI growth.

Fairly flat in Q3, and certainly well below Ontario's pace for the year to date.

With the market.

As strong as it is what is the prospect or I guess can you explain the the low growth in the third quarter and in.

And how quickly you expect that to sort of ramp up over the next couple of quarters.

And the same property NOI Theres always you know Theres. These one time items that day.

In the prior year that can impact that has overall.

In Montreal, we haven't had a lot of the lease expiries.

In 2022, but so it was then.

Contractual steps, but then the timing of those dependent.

They're not there these are inherited leases so they're not annual ones and that so theres a bit of one time items in the prior year and that so that it's kind of flattened it out.

But.

Looking ahead, we're going to see that step.

Step up in rents and we you know we have a significant rental spread.

What we're showing in our MD&A are in Quebec, right now and that that's good that's taking effect in our thinking the fourth quarter and that that was what would be the actual expiry taken place, though so it will start to move upwards.

Going forward, but.

Somewhere between.

Some are a little under with the GTA is doing.

We're very optimistic about the Quebec in particular, the Montreal marketplace.

I'll be really happy if we could continue to grow our portfolio there through either acquisitions or.

Or development or if theres, an opportunity for a lot of redevelopment there.

Because I do think the outlook is not that far behind GTA. So I think you're going to start to and youre seeing that in land prices finally.

With 1% availability, there should be a lot more development and it's been very sluggish.

But when you're going to start to look for land.

Seen those numbers up 30 or 40% now in the last year. So so I think it's only a matter of time before that's going to start to hit the rental rate and again, if you're a large tenant over even 50000 square feet you have virtually no place to go. So you know it is becoming that that same thing that the landlord market. So there is an education process just like we saw in GTA, what it didn't happen overnight.

It's an acceleration, it's an education of both the brokers and tenants and I think that's beginning.

A year from now and I suspect, we'll be saying a lot more positive things about Montreal.

That's great. Thank you I'll turn it back.

Thanks, Tim.

Thanks.

Thank you. The next question comes from the line of <unk> Gupta from Scotiabank. Your line is open.

Thank you and good morning, so just taking into Montreal.

Montreal is far as Kathleen reviews.

It was something like <unk> six.

Was this in response to a recent portfolio transaction are generally you are seeing transaction.

Three cafes.

It's.

As a result of the ounces.

Transactions as well as just the overall market is tightening up in that so.

But yeah.

So that's basically it together, we're seeing continuing decrease in the cap rates on all transactions of that size.

Yeah.

Okay.

We heard about a large portfolio C.

In Montreal.

Public reach to about that equity.

I do on the pricing there.

Any read across for you are wondering I portfolio.

Yes.

I think we all know what we're talking about the 13 million square foot portfolio. So that's why the landlord with a.

Significant component in Quebec City.

There is no public information so any information I have no pricing is usually come from you guys guessing I, though.

I've heard anywhere from four to four five cap.

Again with the allocation to Quebec city that would dictate a higher cap rate because of the smaller market.

There's a significant amount of.

Small bay property in that portfolio, so if and when this transaction closes.

We're familiar with the buyer and they.

They did this in Toronto, three or four years ago. So again, that's why that's part of my belief that our Montreal is going to look.

A lot.

Better from a rental rate perspective, a year from now once that portfolio closes and you get a bit more aggressive landlord in terms of trying to move those market rents.

Got it that's helpful.

And then just shifting gears to but I'm looking at the Calgary logistics acquisition.

With Amazon.

What is the annual escalator on that team.

It's it's I thought somewhere like one three to one five it's fairly modest the the good news there were buying this at a $175 a square foot.

Which means your you know your rents are fairly low today, so we're pretty comfortable that even with modest.

131, 5% rental growth per year over the 10 years at the end of that lease you're still going to have a rent that's not very not very high compared to what we're seeing in other markets today.

Got it and then you know looking at the same transaction.

Can anyone but that piece I think it was four 3%.

My question is is that.

Absolutely differential enough Oh Gee game on.

To offset the higher the growth potential of what you can.

<unk> market.

The question is are you how attractive.

It's Greg.

Exactly.

Really as attractive until a month ago.

Yes, so again, it's not really cap rate driven.

Most part so right now the last.

Portfolio that Hasnt been announced yet that 300 $300 a square foot that is going to be about a two and a half cap. So that's almost 200 basis points different that would be for 25 year old properties in Toronto. So yes, you you know over the next three to five years, you can move those rents in Toronto, but to get to.

At the same or you've got to get significant growth to hit a 4.3 that we did in Alberta, and then it's going to upgrading and continue to upgrade the quality of the portfolio and so we you know.

We own this real estate long time and you.

If you get 25 year old properties, where they haven't been as well maintain you've got roof replacements, you've got a lot of capex involved in those so our preference is to buy newer quality property. So thats where were prepared to go lower cap rates and GTA. If the if the quality is higher.

But so we're very very comfortable with this recent acquisition and I suspect, we'll be able to do some more selective acquisitions out there as well, so but but it's more of a price per square foot, it's more of a quality issue.

Or how does it.

Fit into our portfolio. So again, well every time, we're going to get stuck in Toronto is not on cap rate and potential to move the rents that's going to be on a price per square foot with $330 square foot, we can still buy land in Toronto and build it for less than that so if we can do that why would I buy 25 year old real estate just because it is a good rental.

Upsides.

Where we start now.

Western is puts the 330 going to be in two years three years or five years, but clearly the buyer in that situation has to believe that replacement costs are going to continue on that same trajectory.

$3 $5400 a square foot is not far away from land prices that we've seen happen in the GTA.

Now gone into the three and a half a million acre we've started to.

On the market right now that are north of four comfortably north of four that's going to start to drive that replacement cost number closer and closer to $400 square foot and I remember, having this discussion last year, saying I think we're going to hit $300.

The square foot replacement cost. So it is moving very very quickly.

Alright, that's helpful. And then you know secondly, GTA, obviously, that's needed unquote story.

How did you guys done any affordability analysis.

Fence, where they'll go to let's say $15 before $10, let's say.

Oddly enough position to fully absorb that any kind of studied that.

Some of your study and we've actually had these discussions at the board level.

But it's more from anecdotal talking to our tenants in them.

I am predicting significantly higher inflation numbers in it.

In Canada because of what we're doing with the rents like we're literally going to be starting to double some rents of tenants and they are kind of going thank you might come out.

So if they don't have a right to.

<unk> adoption to renew they're worried that there'll be other business and can't even operate and then I think when you think about it. So we studied it from an ecommerce perspective rent makes up a very small percentage somewhere in that 4% to 6% of their G&A, it's mostly transportation and labor that's driving their major cost so it's kind of.

Well, it's a rounding error for them, but not big but then it's the next layer of tenants that are more sensitive to price, where you're starting to see them move out outside the the green belt and that's where we were in the path of that in well for Kitchener, Cambridge, Youre, starting to see lots of band.

Acquisitions down in Hamilton and brands for all of those places where land can still be a little bit more affordable.

But you have all the offsetting so doing a cheaper rent, but logistically you you've got a not all the tenants who are out there. So if the tenants that want to and need to be close to that population base. They have no problem with affordability. So it's the other tenants that.

Don't necessarily need to be in Mississauga.

Brampton that they'll.

The move outside the Greenville.

Got it.

And maybe just final question.

Obviously, our cost of capital has improved dramatically.

Are there things you can do Dol lessons you could not do like two three years back I mean any change in approach.

Maybe getting more aggressive on transactions.

Sorry no.

We're.

I think the words, we keep using which.

Is the discipline and patience.

It's worked for US now and sometimes it can be referred to as boring, but it's.

It's a great formula and I said that.

The real move here is into development.

We're going to do a combination of on balance sheet.

Because the carry is not very significant with this rental rate market and then we're also expand that development pipeline doing joint ventures, and we're talking to new potential partners in other markets as well so.

That's really where we're going and then I guess, we're seeing it on the delevering in the portfolio.

So that's another use of capital so, we're making a little bit more conservative in the ideas as we get more U S investors.

Alright, we're trying and striving to be a bit more comparable to our U S. REIT peers is what we're doing as well so just being a bit more conservative in a bit more bulletproof.

Awesome, that's great to hear.

And then I'll come back.

Thank you.

Thank you. The next question comes from the line of Matt Logan from RBC Capital markets. Please proceed with your question.

Thank you and good morning.

But I'm wondering if maybe we could take a bit of a step back and you know.

Think about the bigger picture, we put a lot of supply chain disruption over the last six to 12 months.

What are you hearing from your tenants in terms of the.

The your thoughts on space or are they taking up more for the same amount of sales and thought.

A trend that you're seeing in your business, maybe just any color there would be great.

Yeah, I mean, I guess, just some of the same themes, we've been talking about in prior quarters, where you know people want to have more control over their inventory and so because of some of the timing uncertainties that obviously requires more and more space. So it's just sort of a common theme. They are looking for more space.

Oh hold on to the space that they do have you know they're worried about are you know what what's coming down the road of trying to perhaps look a little bit further ahead and not get caught off guard.

So really just you know keeping more inventory on hand.

Versus being stuck because their business will be put on hold.

There are supply chain disruptions are ongoing supply chain disruptions.

Yes.

Bill a little bit of a follow up on that we're also.

So theres definitely we called new entrants, but call it the vaccine makers the PPE suppliers, there's a lot of entry new new players coming there.

It's kind of new demand and it's not short term so like the vaccine people are looking for warehouse space production.

And they're looking at 10 year leases. So like I think we were all hoping this pandemic is over but I think there's a preparedness, which ties into what Dana was cycle.

Other tenants, but theres also a full due.

New new user out there that's expanding their requirements.

And I think it's fine.

We anticipate expansion requirements, whereas perhaps it would've been more real time or just in time, there thinking you know with the market is so tight.

Where are we going to be you know, perhaps further down the road because we don't want to be in this conundrum.

You know in two Years' time.

Absolutely. So I guess really the supply chain disruptions are a tailwind for summit and.

Do you guys see any change to those supply chain you know.

What challenges getting resolved over the next six months.

Months or is this something that we could see structurally for the next year or two.

Yeah.

Are all the smarter brains and economists are talking about it's transitory and thats good.

It's not my personal view I think the I think there's absolutely structural changes that are going to happen as a result of this so I think thats how people is going to happen I mean, you'll hopefully be able to order cars or renovate your kitchen at a little bit easier, but I think bigger picture you're going to see structural changes that are going to require you know three five years.

Or longer so I think we're I think we're with this whole issue for a while.

I think the concern about inflation, so I'm, a big believer that we're going to see some ongoing inflation, even if some of these short term supply chain issues are fixed.

We're starting to see that in the bond market, where interest rates are starting to respond to that potential.

The Big thing is inflation, but then you think about industrial we think about what we're doing.

Inflationary tailwind or not really a bad thing for us either so as long as we could try to it's good for existing portfolio. It makes it harder and harder all the time to justify that the land prices to build new.

Indeed, it maybe just changing gears I'm not sure. If Ross you May have mentioned this in your comments, but can you remind us what you're carrying the GTA industrial portfolio at in terms of the price per square foot.

GK industrial on its own we just show, Ontario, but GTA is around 230 $240 a foot.

Yeah, three forecast, but again when you look at that last transaction that traded at $2 six and $330.

Clearly I have rich valuations here are a trailing indicator we caught up a lot. We're trying to manage that I think we're looking at our peers and I think we're all wrestling with the same idea that.

These valuations are moving so quickly.

<unk> quarter, Theres more comps to look at and to justify.

More movements at fair market value. So I don't think we're done yet so I don't know what the number would be going forward, but clearly you know part of that is driven by absolute rental rate increases and Ross was doing an exercise where a lot of properties in 2015, and 16 now or doubled from what they were five years ago. So the NOI, yes, sorry.

Yeah.

And I guess that brings me to my last question here guys. I mean lawsuit for Paul you've talked about a development cost, reaching potentially $400 a square foot at.

$404 million of of cost per acre per land, what would that be based on kind of what you see is the market value of land and Toronto.

And Montreal like what would those development costs.

Tibet.

Well I mean, I can talk real real numbers, which show down and so service road.

We bought the land for $2 1 million an acre, we're going to probably be all in somewhere in that $2 75.

But again, we were originally thinking it was going to be you know 11 or $12 rent and we we already know that it's going to be it's going to be north of that so again.

The market rents are keeping up with.

Keeping up with these replacement cost number so Montreal is lower so it's now above $200 a square foot, but we're seeing like I said, we're seeing that acceleration start to start to take off so I think that.

In one or two years being $2 50 or higher in Montreal is not going to be us.

Apprised, because again and again the municipalities there they're sneaky.

The development charges, which are <unk>.

<unk> thousand $30 a square foot you don't have that in Montreal, but they're putting on requirements that are a bit more onerous. So the Montreal, we're looking at.

You know historical things and what products you can put on your building versus others, you know what kind of greenery or putting whether it's on your roofs or stuff like that so there's a lot of the challenges that are seeking into there and again generally we're trying to build to it.

Least LEED certification ideally lead silver better so all of that is.

Is that again a bit of costs, but tenants are that's where the market is going so we believe that.

Tenants are going to start to demand or want to have buildings that are energy efficient as possible. So it's moving up.

It's frightening how high it is.

And where it's going to go but that's why we'll buy it we'll do some select development inside the green belt.

Which I still think it will make sense for us I think we're still more comfortable with land prices that even EBIT.

Even though the green belt now are going north of $1 million an acre so but it still sounds it makes more sense to us to develop out there where you can you can build under $300 square foot. So trial you have to look.

Inside and outside the Green belt, because there's they're very two different numbers.

Well I appreciate the color. Thanks, Paul Ross There now I'll turn the call back.

Thank you Matt.

Your next question comes from the line of Matt <unk> from National Bank.

Go ahead, hi, guys.

I'm not I'm not sure if I'm reading the disclosure correctly here, but just if you could correct me if I'm wrong, but it seems like you've got a seven.

700000, or those so square feet of your maybe 2022.

Maturities done.

That leaves a million plus you seem pretty confident that youre going to be retaining or at least maintaining 99% occupancy. So can you speak to kind of weather the leasing spreads that you've achieved to date and it seems like Ontario accelerated in the quarter, Quebec that 41% takes place in Q4 like.

Where those are trending I mean, I know you provide market rents in your MD&A, but I think those are CBRE stats, which.

Everything else or scale yesterday, they're yes, they're not.

They're not real so I'll give you. The one that were currently in negotiations going from $6 to $12 55, So that's a 107%.

Improvement in rents in the GTA and interestingly enough on that 120000 square feet.

Automotive related tenant.

The building is almost 30 years old 20 foot clear.

It's just your its great location, but just your run of the mill.

We'll maintain asset but the location is driving that rent in that in that particular property. So.

Yeah and then.

Montreal, it's going to be a little bit hit method. There is a couple of tenants that still have some.

The word historical.

Automatic rental steps, we have one in Montreal, but it's a two year step, but they really want to have a five year lease so we're going to navigate through that but.

Again, we'd be happy to do short term leases in Montreal, because and very confident in two or three years youre going to see it.

A more meaningful increase in the rental rate there, but as I mentioned on survey wrote that asking rent is now over $14 400000 square feet.

And the good stuff on <unk> Road I wouldn't be surprised it is going to be in that kind of vein as well and anecdotally you'll hear about a deal thats done at 15 or something like that so but again these numbers would've scared us three years ago, we'd say like who can afford to do that.

And now it's like.

They're happy to get the space. Thank you.

And I think of the 13 million square feet that is under construction.

Numbers somewhere in that 80% is already spoken for so theres very little availability.

In the next 12 months, that's even coming online there.

So we've got a couple that we still haven't been leased and we're not in a real hurry to do it.

And then on Alberta.

It seems like.

At least from a category standpoint, you've seen some pretty quick absorption of space there.

Rent spreads were negative this year, but is the anticipation now that you're in the broader market are kind of getting to high <unk> occupancy that rents will start to move accordingly.

Yes, and particularly on our segment that were focused on the larger based off so even if you look at the availability, which I think.

Now the most recent ones like four 5%.

That's come down by almost 60% in 12 months.

The large based up would even be lower availability than the four 5% and so we're seeing so we're seeing definitely firming firming up there.

At the same kind of rental growth here and there, but it is now rental growth. So we're not we're not in that defensive mode. We're in the Brentwood one of the tenants I was talking about that was on our watch list I was convinced because I've been in this space.

And are.

They wouldn't even survive and we just renewed their lease in Calgary.

Under 20000 square feet at a 15% bump in rent. So yeah. So we're gonna start to gradually see some rental increases there.

David mentioned, we have excess density on our site. So we actually are starting to design in and look at you know expansions of existing buildings, which we do probably more on a build to suit we won't build to spec out there at this point, but.

We're not far away from potentially even building or adding onto some of our properties, where we already have the land cost as a sunk cost so incremental building is there's not that much.

Interest in Edmonton, Edmonton, Edmonton, Theres, a little bit more of an unknown there, but have you seen the oil and gas prices.

Albert is continuing to try to diversify their economy and I think the prospects of a population growth in Alberta is good so theres still some.

Backdrop of more positive news yet to come so that's the one that's most.

Just kind of keep our eye on occupancy and that'll that'll be the mengel and then as that turns we'll finally shifted rental rate growth out there, but again our cost based on all of those assets are a really good. So we're comfortable with it takes a year or two away.

Okay.

Positive.

And then I mean, youre getting juicy rent spreads youre, increasing the annual escalators, but can you kind of speak to what youre doing on the Capex recoveries front from tenants as well because I think you are in a beneficial position on that front as well.

Just want make sure I understand the question so.

Capital from tenants.

We're starting to see more of that.

And putting in.

Charges for.

For.

Our capital programs and that then pushing back more on.

And pushing things back to more towards tenants in that yes and.

We learnt this and some of it one because we operate our properties is a park, we're able to drive down and us economies of scale to reduce those costs and so we're already pushing down a lot of our our charge back so that the tenants are already paying for things.

Like maintenance staff and things like that that we would use on a property and then the newer trend now is in the leases to start to add allocations for capital replacement.

Cost, whether it's roofs or HVA C or things like that so yes, we're definitely when the lease comes it's not just whats the rental rate, it's we're not giving options unless you pay for it.

We're not spending capital unless you amortize it and that sort of thing so.

Restitution clauses. If you leave you have to put the building back this way and on and on and on in terms of the.

Other things Youre doing as a landlord.

Okay. Thanks for that.

Last one for me and it's a little bit more of a technical one Ross.

I think straight line rent came down sequentially. It was fairly elevated in the beginning of the year can you can you remind us what that was.

Yes, there was there was.

Yes, Thanks, Matt.

Yes overall, our net rental income went down slightly in Q3 compared to Q2, there was a one time adjustment in Q2 on the straight lining of rent. It was a 10 year lease that had a rental reset in.

During the year, so what do you with the straight lining of rents you have to spread that averaging out over five years. So there was a catch up.

In the second quarter. So it was a one time adjustment for one tenant in the second quarter in that so, which so now you're back down to.

What I would consider normal run rate for straight lining of rent, which you said.

$3 million a quarter in that <unk> to answer that question.

Thanks for that I appreciate it.

Hey, guys.

Okay.

Thank you. The next question comes from the line of <unk> from CIBC. Please go ahead.

Thanks, Good morning, just to confirm on the Calgary and recent acquisitions in this space.

Under construction there, what's the completion timeline and when do you see that becoming stabilized.

Yes, so the.

Building itself is complete they are in the 10 fixed string a phase right now the lease start or at least that's been placed for 60% starts in February.

And we're now actively.

The marketing the balance of the space and we have some interest for people, but the tenant has a right of first refusal which.

I think and we believe theres a good chance they are going to exercise that as well so.

The part of the building will be coming into income producing in February.

And maybe the the balance of the building a few months thereafter.

But all at the same kind of market rents that we have in both buildings.

Alright, okay.

And then just on the leasing side its funding.

What kind of term youre getting on average on the new leases.

How that compares to your prior trends before the markets got as tight as they have today.

Hi.

New leases.

There are at least five years, but seven to 10 years is typical on the new deals and renewals.

As you know.

So said in the past.

We're comfortable with shorter terms, but we're averaging between four and five years, perhaps some three year deals.

A couple of cases.

There is a little longer because the tenant is.

Tenant wants has some.

Requirements for some changes to the space matters that he wants to put some money into the deal.

We look for a longer term typically it's still around five years for renewals and.

Six to 10 years on new deals and it has to do with the amount of money, we're saying so if you get into a new a new use they may say, okay. We want this kind of office space. We want this would want that and we're saying that's fine.

We're going to amortize it back in your lease and in order to make that number sound a little more reasonable for them, it's easier for them to pay that off over a longer.

Lease term, but we are a perfect example of this short term lease strategy Theres, a tennis American based in that.

Going from five to one renewal of our year went to 650, then they went to 770 and now they are back to the table now two years later and now we're talking mid <unk>.

Stuff so.

That short term lease strategy pays off as well so we're trying to be flexible and whats the tenants.

Looking forward and just looking at the stats on our GTA renewals. They are under five years, which we're quite comfortable with given the.

Just at around three and a half years is the average on our renewals on the GTA, which if that.

It gives us another kick at the can.

On the on those leasing spreads continuing to grow.

Alright makes sense.

Okay. That's helpful. Thank you guys.

Okay.

Thank you our last question comes from the line of Mike <unk> from <unk>. Please go ahead.

Hi, everybody good morning.

I don't know if there's any meat left on the bone here.

Mike and I have an answer so if you want to ask this question Paul what what's the.

What's going on with your tenants.

Tenants, where you have expansion capabilities that would be a good question. So then I would ask.

We're currently.

Go ahead, we're currently.

Good afternoon.

We're currently in discussion with the Mezz or smoking I didn't answer that for tenants now two in Toronto in two in Montreal.

Each one.

<unk> itself is not huge but 40 50000 square feet I think some as low as maybe 30000 square feet.

On existing land and in the past you would see those kind of expansions are not very economical because.

Can't spread your development or your construction costs over a larger GLA.

But where land prices are now where these properties are located.

And where rental rates are there is a significant return so even if youre building at $150 a square foot.

Just the hard cost if youre lands already sunk costs, which could be over $100 square foot.

You're getting significant potential yield. So so we have those four and I think we're starting to put more color on that and then clearly the program is to go out.

It's maple leaf foods.

Looks like going down and the property, we just bought in January.

As more and more of those opportunities and I think as people are looking at their supply chain issues as we talked earlier.

Even 40 or 50000 square feet might it might be the answer for them. So we're we're starting to hopefully.

Benefit from that program as well a bit more positive great question Michael.

So you guys you read my mind, Paul that's exactly what I was going to ask thank you.

Alright, I just thought I'd just add.

Maybe two quick ones here.

I know, Alberta has improved maybe you guys have been driving occupancy there.

And I don't want to strike more of a pause to paragon, but you're still rolling down rents or is that something that you foresee in your upcoming let's say 2022, and 'twenty three maturities, but that will start to abate in terms of getting an auction yes.

No.

Uh huh.

Lower negative rental spreads in the Alberta, where.

It's a small sample size, but they were earlier in the year and there was one you know there's one large deal that was spacing.

We knew the tenant was leaving when we acquired the property and.

And we.

It didn't want the space back its a long term deal with the tenant has the option to.

To take the.

Do something different with the space and Theres, a rental reset with that that will bring it back closer back to what the expiring rent was so a lot of those deals were in the first half of the year, where our view Calgary in particular is.

Changed.

We've got more positive I think I would point out is.

With regard to Edmonton Theres very little lease expiry in 2022, it's like under 100000 square feet. So we're not going to see much pressure and in Edmonton and we're just going to see improved occupancy there. So.

That's kind of again, so I think we're kind of past that so.

Let's say in the middle of the pandemic eases.

You were just trying to.

Reduce your risk exposure in a few.

Situations and that's what we did there.

Okay.

I think there is recent de leasing that happened in two of your projects under development one in Montreal in one market.

Did that NOI was that did that contribute to NOI at those two properties in the third quarter or were they all off.

No.

Montreal is Charles Kubota, that's not don't sorry, Ken So the Toronto, one and so that's a great question. It seems like we haven't answered that one so.

About a sale leaseback.

And there is still in there and they've done a few extensions because they're building themselves are new locations, so they're going to be in there until.

January February next year, we can do a 60000 square foot expansion, which we intend to do.

At that point, we thought we were going to have to close down the property we're going to.

Redo, some mezzanine or take out some mezzanine there so we're going to redevelop the property.

We now have three offers on the table and all of them are talking about taking the building kind of as is probably two months of downtime to kind of get it ready for them and then kind of work with them and they are occupying it while we do the 60000 square foot expansion, which is different for the Montreal, one that building is gonna be them demolished.

There will be no rental income until its but were taking a 40000 square foot building and building 140000, So we're adding 100000 square foot of G.

GLA there so it's worth the downtime in that.

That was out in the quarter that was up and that will be at least for another year.

Okay. So kubota still in their Montreal that wasn't in Q3 and there was no.

Yes, yes.

That's a pretty big buildings. So if we do it in a way where we're going to expand and then release it there'll be some shortfall in rent for a period of time, but the good news is it looks like from the people we're talking to they are so desperate for space. They are prepared to.

Live in a home rental well well, while we're expanding a building by 60000 square feet at least use the existing building.

Okay and last one for me.

With the Montreal compression of cap rates in the market starting to heat up there can you just remind us.

It's probably just a combination but are you guys using more of a DCF valuation in coming out with an overall cap rate or is it just adjusting cap rates down.

The reason I asked that question is I'm just curious how your rent growth expectations have changed if you are doing a DCF Montreal the past so yeah, the continuation of that.

Sure I'll valuation question.

That is part of the is the rental rate growth is pushing the value and we are.

For them, particularly the GTA and Montreal portfolio.

Use more heavily weighted towards the DCF method, because that's capturing that rental rate growth.

On a go forward basis.

It is the predominant valuation metrics.

Metrics, that's being used in the discount rates are starting to potentially change as well.

There's more visibility to rentals.

Rental rate growth.

Okay. That's very helpful. Thanks very much.

Okay. Thanks, Mike.

Yeah.

Thank you and that concludes our question and answer session I will now turn the call to Mr. Dykeman. Sir. Please go ahead.

Okay, well, thanks, everyone lots of great questions and discussion this morning.

We'll talk to you again at the end of the year. So in early February so thanks again, everyone.

Goodbye This concludes.

Today's conference call. Thank you for participating you may now disconnect.

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