Q3 2021 Dream Industrial Real Estate Investment Trust Earnings Call
Yeah.
Good morning, ladies and gentlemen, welcome to the Dream Industrial REIT third quarter Conference call for Wednesday November <unk> 2021.
During this call management of a dream industrial REIT may make statements containing forward looking information within the meaning of the applicable securities legislation.
Or the information is based on a number of assumptions and is subject to a number of risks and uncertainties many of which are beyond human gesture.
So that can cause actual results to differ materially from those are disclosed or implied by such forward looking information additional information about these assumptions and risks and uncertainties.
Three months after we finally, maybe switches later what it is.
Latest annual information requirement and DNA. These filings are also available on the website at Www Dot Dream industrial REIT dossier later in the presentation. We will have a question and answer session.
That's a question Star then one on your telephone keypad.
Your host for today will be Mr. Brian Paul.
O Olive dream industrial REIT Mr. Paul. Please go ahead.
Good morning, everyone. Thank you for joining us today for Dream Industrial reached 2021 third quarter Conference call speaking with me today is <unk> Kwon, our Chief Financial Officer, and Alex Santa Cough, our Chief operating Officer drew.
During Q3, we continued to see the significant positive impact of our strategic initiatives on our operating and financial results. We reported a 25% increase in <unk> per unit led by strong CPE NOI growth lower cost of debt and our robust pace of capital deployment.
Our pace of CPA CPE.
C. P. NOI growth continued to accelerate and was seven 5% in Q3, the highest pace of CPE NOI growth since the IPO of the REIT led by Ontario at 15% or.
Our pace of capital deployment remains robust with over $2 1 billion of acquisitions closed or waived year to date and approximately $400 million of acquisitions that are in exclusive negotiations.
We have advanced our development pipeline with approximately 700000 square feet of projects currently underway in Canada, and the U S with an additional 241000 square foot expansion in Germany expected to commence construction in the next 90 days.
We continue to focus on maintaining a strong and flexible balance sheet during the quarter, we repaid $264 million of secured mortgages bearing interest at a rate of three 5% lowering our company average cost of debt to 86 basis points today.
Since the beginning of 2020, when we announced our first European acquisitions, we have grown and upgraded our portfolio quality significantly including acquisitions that are expected to close. This year. We will have completed over $3 billion of acquisitions across North America, and Europe, adding over 21 million square feet of high quality assets to our poor.
Folio and doubling our footprint.
These acquisitions have allowed us to expand into new markets in Europe, while adding significant scale in our existing core markets, such as the GTA and Montreal, where.
We're on track to end 2021, with close to $6 billion of assets in some of the most sought after industrial markets globally.
Our expansion into Europe has provided us access to a deep pool of high quality investment opportunities at attractive economics to the REIT.
We expect industrial fundamentals in Europe to strengthen further led by rising ecommerce penetration reactions to global supply chain problems and high barriers to entry to new supply.
We have been able to add $1 3 billion euros or approximately $2 billion of high quality distribution in urban logistics products and some of the most densely populated regions.
On the continent.
Over the past two years and we expect to grow further in these markets. We recently waves all conditions on an off market 600000 square foot industrial and high end high Tech complex in the Hague for 100 million euros.
Presenting a going in yield of four 5% with additional growth expected from from raising in place rents, which are currently below market and fully indexed to CPI.
The Hague as the third largest city in the Netherlands, and a key component to the Randstad urban cluster industrial land in the Hague is scarce with one of the lowest availability of rigs in the country. The complex is well connected with extensive public transfer transport connections, including a tram station with direct service to the city.
Center it.
It is 100% occupied by tenants primarily active in the technology and life Sciences sector, we plan to expand the footprint by nearly 115000 square feet.
Two pre leased expansions totaling 65000 square feet are currently underway and included in the purchase price.
An additional 39000 square foot expansion is targeted for development in the next 24 months.
In Germany, we have waived all conditions on a 250000 square foot urban logistics facility located near Dortmund, The largest city in the region of Germany. The most populous urban area of Germany with over 5 million people and density of approximately 2800 people per square kilometer.
The building is fully let to a globally renowned toy manufacturer with their European operations headquartered in an adjacent building.
We are buying the asset for just over $20 million euros, representing a going in cap rate of 5%.
Increasing replacement cost and rising institutional demand continues to push values across our strategic European markets.
In Canada, we continue to focus on our core markets of the GTA GMA and other strong markets in the greater Golden Horseshoe region of Ontario.
Replacement costs and rents continue to rise rapidly in these markets demand remains at an all time high and supply is limited and slow to develop we have acquired over $550 million of assets in these markets over the past two years below replacement cost and with in place rents about 20% below market.
We expect strong cash flow and NAV growth as we mark expiring leases to market.
Recently, we closed on a 78000 square foot distribution facility near greater near the greater Toronto area for $18 million Bill.
Built in the early two thousands this asset has a clear ceiling height 28 feet and is located just north of highway 401 and Ajax.
Amazon's, New 1 million square foot distribution center.
We agreed to acquire the asset fully vacant and we're able to lease the entire building prior to closing for a 10 year term with three 5% annual contractual rental rate growth and lower than budgeted leasing costs.
Assuming a cap rate of 4% on a fully leased building we estimate that we were able to increase value by over 15% before even completing the purchase of the asset.
With a large portfolio and strong balance sheet, we're now able to meaningfully execute on our development pipeline.
We have three projects currently underway that will add an incremental 700000 square feet of GLA to the portfolio over the next 12 to 18 months.
The first phase of our 220000 square foot expansion at our Martin Currie property in the GMA is largely complete with completion expected in early 2022.
Rents have continued to increase.
And we are marketing this space at almost 20% higher asking rents than what we underwrote and our portfolio earlier this year.
We are also actively looking for opportunities to acquire attractively located land sites, where we can build high quality logistics product that will generate higher returns than buying comparable stabilized product.
This year, we acquired 38 acres of land in the GTA across two sites for $48 million at an attractive pricing of $1 $3 million per acre.
The site can support the development of approximately 700000 square feet of high quality logistics buildings within the next two and a half years, we are targeting unlevered yield on cost of approximately 6% on these projects, which represent a spread of 250 basis points compared to cap rates for comparable stabilized properties.
In early 2022, we expect to begin construction on three additional development projects across Europe and Canada.
In Germany, we are advancing the 241000 square foot expansion of our existing property in Dresden.
The 34 acre site is currently improved with a 274000 square foot warehouse with site coverage at just over 20%.
We intend to nearly double the density by adding 241000 square feet of brand New state of the art logistics space, we expect our yield on cost on the expansion to exceed six 5%.
In the GTA, we continued to execute on our strategy to add to our significant concentration here the largest population centers and major highway interchanges we.
Have a cluster of three buildings totaling 212000 square feet situated on 10 acres of land located in close proximity to high was four 1% and 410 near Dixie wrote in Mississauga, we intend to commence the redevelopment of this cluster by mid 2022 and build of 209000 square foot building with completion expected by the end of 2023.
Three.
We are currently forecasting a yield on cost more than 150 basis points higher than cap rates on comparable stabilized product.
In the spring of 2022, we plan to commence construction at our recently acquired eight acre site located on appetite drive in the GTA directly adjacent to highway for Ted We are in advanced stages of obtaining the site plan approval for the construction of approximately 150000 square feet of modern last mile logistics space.
Overall, we expect to have projects totaling about $1 3 million square feet.
Projects underway in 2022, we have ample room to expand our pipeline before achieving our target of having 5% of our total assets under development.
We will balance our development pipeline with our focus of driving <unk> per unit growth.
We continued to make significant progress on all aspects of our business I'll now turn it over to Alex to talk about our operations.
Thank you, Brian and good morning, everyone.
Industrial market fundamentals remained robust across all our markets driven by strong demand from both occupiers and investors.
Availability rates have continued to trend down and most of our markets dropping to the low 2% range across Canada with availability in the GTA and GMA just over 1%.
The outlook for rental rate growth remained robust with limited new supply coming online and in the context of the ongoing pace of absorption.
Since the end of Q2, we signed over 950000 square feet of leases at an average rental spread of 23% over prior rents on these leases. We also achieved an annual contractual rental growth of 2%.
Year to date, we have signed nearly three 4 million square feet of leases across our Canadian and European portfolio at an average rental spread of over 22%.
Finally in place occupancy has increased by nearly 290 basis points compared to the beginning of the year to 97, 6%.
Including over 140000 square feet of leases that have been signed but not commenced to date committed occupancy in our portfolio was 98% at Q3.
As a result of strong leasing activity, our CP NOI growth continued to accelerate and we reported a seven 5% year over year growth this quarter driven by a four 4% increase in place rents.
From strong rental uplift as well as contractual rental growth and a 180 basis points increase in average occupancy.
We reiterate our previous forecast of mid single digits CP NOI growth in 2021, and we'll be providing our 2020 to CP NOI guidance. When we report our Q4 results.
Rising land prices and market rents continue to drive to drive higher asset values across our portfolio.
During the quarter the value of our assets increased by $162 million, reflecting lower capitalization rates as well as higher market rents in Ontario, and Quebec.
As at September 32021, our investment properties were valued at approximately $155 per square foot, including the Ontario, and Quebec portfolios that are being carried at 207 and $151 a foot respectively.
With asset.
Pricing setting new records in most of our markets, we expect asset values to continue to increase and our portfolio overtime, that's private market transactions provide additional data points.
We continue to advance our ESG framework for 2021 and are increasingly prioritizing green investments and our capital allocation decisions.
We're in advanced stages of planning renewable power projects in Canada, and the Netherlands in collaboration with our tenants and their respective regulatory authorities.
Including our existing panels, we are targeting to install over 50000 solar panels across three and a half million square feet, which could result in over 10% of the trust portfolio being powered by renewable energy.
We have finalized the season.
<unk> studies as well as the respective agreements for three projects two in Alberta, and one in the Netherlands totaling 60000 square feet with the target system capacity of approximately four megawatts.
The total investment is expected at approximately $5 million.
And we are targeting an unlevered IRR of seven 5% and a yield on cost of over 7%. The systems are expected to be operational in mid 2022.
Additionally, we have established a target of upgrading approximately 1 million square feet of GLA in 2021 to led lighting.
On a year to date basis, our lighting retrofits totaled over 700000 square feet and we are on track to achieve our 2021 targets.
Our initiatives have been well received and we have seen a significant enhancement in our ESG ratings profile by some of the largest rating agencies.
In the latest grasp public disclosure survey conducted during the quarter. We ranked second out of 10 in North American industrial peers.
We will provide further details on our initiatives and our approach to sustainability and a 2020 corporate sustainability report is expected to be released later this year.
I will now turn it over to Dennis who will provide a financial update.
Thank you Alex our financial results for the third quarter were strong diluted funds from operations was 22 per unit for the quarter, 25% higher than the prior year comparative quarter due to higher NOI from a comparative property successful deployment of our balance sheet capacity towards over $2 billion of.
<unk> have in the past 12 months and lower borrowing costs as we executed on our European debt strategy.
The pace of our capital deployment remains strong and we have closed or leads on over $2 $1 million of acquisitions. Thus far in 2021 and have an additional $400 million of assets that are currently in exclusive negotiations.
Our debt strategy has allowed us to transform the REIT to occur.
Operate primarily with an unsecured financing model and has continued to result in a lower cost of debt.
To date in 2021, we have repaid approximately 400 million secured mortgages at an average interest rate of three 5%.
This just lowered the proportion of secured debt to approximately 32% of total debt from 100% a year ago.
Our unencumbered unencumbered asset pool has increased by over $2 million year over year and was $3 $4 billion as of September 32021, representing approximately 67% of total investment properties value.
Over the past 12 months, we have raised $1 $2 billion of unsecured debt at a weighted average interest rate under 50 basis points after swapping Trs <unk>.
<unk> $800 million of unsecured debentures issued in June of this year at an average interest rate of only 35 basis points after swapping to Europe.
We continue to allocate substantial capital towards sustainable initiatives across our portfolio across our existing portfolio and in our investment opportunities.
Proceeds from our $400 million Green bond issued earlier. This year has been fully allocated are committed towards eligible investments we intend to provide details on the use of proceeds including individual projects in our full year 2021 annual report, which will be released in February 2022.
We established an aftermarket equity program earlier in the year as an additional and cost effective source of equity capital used to fund individual acquisition.
Since establishing the program we have raised approximately $41 million in equity at an average unit price of $16 69.
We also completed a $288 million equity offering in October 2021, with proceeds allocated towards funding our acquisition pipeline.
Pro forma the offering closed acquisitions and after including assets that are firm or an exclusivity or leverage is expected to be in the mid 30% range and we will retain over $200 million of acquisition capacity. This foreign leverage reaches our targeted mid to high 30% range.
We expect most of the acquisitions and are affirming exclusive pipeline to close towards the end of the fourth quarter 2021, and as a result, our leverage will be temporary and temporarily below our targeted range during the fourth quarter.
In addition included in our Q3 results was approximately $1 million of lease termination fee fees from one of our recently acquired assets, which allowed us to take back 200000 square feet and re let the space with no downtime at 20% higher rental rates.
As a result, we expect mid to high single digit <unk> per unit growth for the fourth quarter.
And we reiterate our guidance and SSO per unit growth of just over 10% for the full year 2021.
<unk>.
Looking forward to delivering SSO per unit growth remains a key focus area for the REIT, along with growing and upgrading portfolio quality.
We will provide our 2022 guidance on our year end results conference call in February 2022.
Turn it back to Brian to wrap up.
Thank you Linus 2021 has been incredibly exciting time for DIR and we've taken significant steps to position DIR as the premier industrial REIT in each of our operating markets. We'll now open it up for questions.
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 continue to loosen the queue. Please press the pound sign or the ASCII.
There will be a delay with first question Vanessa.
Excuse me Speaker phone 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 and your first question comes from Matthew <unk> with National Bank.
Hi, guys. Thanks again.
Yes.
Quick question on current income tax it was trying to obviously you paid some with regards to the transaction, but is there an ongoing.
Current income tax.
Item that we should be accounting for as a result of some of your international properties.
Hi, Matt it's Lance.
So yes, there were some current income taxes networks that are flowing through from our European operations.
It's about $1 1 million impacting asset, it's a little bit higher this quarter because of the lease termination fees. So I think on a run rate basis, we would expect that to be a little bit lower going forward.
So around 1 million would be an okay number to run quarterly.
Maybe 20% less than that okay fair.
Fair enough and then on G&A as well can you give us a sense as to what a normalized figure will be after the announced acquisitions come through I mean, maybe just.
I mean, we can do the asset management side, but is there any incremental G&A associated with some of these European acquisitions related to platform value.
I mean, yes, we've been growing our European platform with the expansion, but I think as a general sort of run rate.
Can probably run with about 10% of NOI.
That's sort of all in our G&A included.
Sorry. This is one more technical on and then I'll go to the leasing one but.
On the JV accounting the SSO contribution that you have in the quarter. It essentially should be two of the three quarters right.
If we look at that I don't think you reported an actual segmented.
Income statement for the U S. So does that is that going to be the case going forward should we just kind of look at.
<unk> contribution and grow it accordingly.
So the our investment in the U S.
Is equity accounted.
The closing of the fund was effective July one.
<unk> contribution.
Patients with <unk>.
It reflected the full quarter. Okay. So assuming the same properties that would be a decent run rate for the quarters and then layering on any acquisitions as assignment grows.
Okay perfect that's helpful.
With regards to the lease maturity profile.
For Q4 and also into 2022.
Position there it looks a little bit skewed Western Canada, and then obviously Europe figures pretty prominently in 2022.
How should we think I mean, the disclosed rent spreads in Europe, I think there are seven 5%.
But I think the view is that that market's pretty fluid and improving so how should we think about.
Rent spreads.
Those leases in total.
'twenty two.
<unk>.
Europe is.
Slightly harder to predict specifically because as you know in a lot of cases in Europe tenants have renewal options at index trend so until those options Byrne burn off.
Contractually we cannot.
Push rents to market.
On a.
Non negotiated renewal when tenants exercise the option if it's a negotiated renewal or new lease then obviously, we can move that to market. So Europe will be harder to predict in that regard.
<unk>.
But generally on these lease expiries.
<unk> been sort of underwritten a lot of them are in Omega.
And.
Those are factored in into our occupancy forecast for 2022, which we overall, we don't expect any material movement in occupancy for the for the year as a whole there maybe.
Some temporary.
You can see when.
Some of these leases renew or don't.
But overall, we expect.
Occupancy will remain strong.
Yes.
And then the last one from me with regards to value add capex. It was a bit higher this quarter, but would that also include sort of the the.
The expansions that you're doing or is that related to something else.
Yes. It does include expansions.
We are also.
Looking at.
Wrapping up our value add program.
For us.
You will see that in the fourth quarter.
We have accelerated some of our roofing projects.
Buildings that have long leases at below market rents.
Where we probably could have managed the roof for another couple of years or replace it now.
And amortize it with.
With interest.
We've accelerated some of those projects and we think that.
We'll provide higher values of the buildings in the long run and we will improve sustainability. So you will likely see some of that as well in the fourth quarter.
Great. Thanks for the color.
And our next question comes to Mac Macey's. Your line is open.
Hi, there thanks.
Just had a tremendous year in 2021, just from an acquisition source perspective.
I know, it's tough to predict but do you think that the conditions are still there.
If you look at your cost of capital when you look at where your same property pricing is going and that you could potentially have a similar year in 2022.
Hi, Mike ill start.
We have big plans to to grow in 'twenty two.
21 had a few anomalies like Omega that we're really really big we can't predict to find something like that but we would expect to grow at a more normalized pace in 'twenty two relative to the size of the company. We are now so we will we intend to grow in the three main geographic regions, where sourcing deal.
Directly in Canada, and we will likely find more.
Opportunities there that rent growth there continues to show really good promise.
Europe, we will continue to grow in our core markets, particularly in Germany, and the Netherlands, and we have boots on the ground finding deals.
Regulatory there we've got a very strong pipeline and then will grow with the U S. Funds. So I would expect that we would grow in all three areas.
It's hard to say whether that would likely be to the extent of <unk> 2021 that would be unlikely, but we do we do anticipate.
Strong growth in all three of those geographies.
Okay, Great and then just with respect to the U S Fund can you remind me.
Is the strategy now different in terms of how DIR would've acquired previously when it was on.
Aside from just the volume of transactions, but in terms of target markets would be the first part and then just in terms of.
Sort of how you guys look at your your Unlevered returns.
In Canada and Europe.
The target would be similar in the U S.
The U S fund will likely target more liquid more expensive markets and more development.
The fund will be geared toward.
More towards total return rather than current income as we are as a REIT. So we like the opportunity to participate in that growth without the dilution of.
If we did it at 100% ourselves. So that's part of the strategy. There we would expect the percentage of our assets in the U S to grow higher than what it is today is that fund has opportunity and we have the opportunity to.
To grow with it so the metrics are the same in Canada, but we would expect the U S fund to target more total return then.
The current income we would expect our returns to be higher through our participation in the fund than if we were doing it.
By ourselves.
Yes, no fair enough, Okay, and then last one for me and this might be technical but Lance I think you answered matts question, just about the <unk> contribution or I guess lack of contribution from the <unk>.
The sale of the 75% interest in the fund.
Did that all flow through as an equity accounted investment I just noticed in fee income there is added.
Administration fee as well that's in there I'm just trying to get a sense of if that's part of that or how that all works.
Yeah, that's great so as an investor in the timing.
Yes.
So DIR would be.
Eligible for the full quarter of equity income, which is reflected in the statements.
The actual acquisition legally closed towards the end of July. So there was included in interest and other income the $1 $7 million just related to the <unk> cash flow that was generated by the properties for that one month.
2%.
So that would be a proxy for one month.
No.
At 100%.
Yes at 100%.
Okay. So technically then so I don't know, okay, I guess I'll have to revisit it but if that was recorded at 100% because that deducted out of office.
Now they're all in.
<unk> and then we.
For <unk> purposes, we picked up about $1 6 million of SSO for the U S Fund.
That's sort of.
Also kind of go through that offline I can walk you through the details, but in our affiliation MD&A and that.
Order of the U S at 25%.
Okay, no that would be that would be useful if we could connect offline that would be great from that can turn it back to a higher level questions. Thank you.
And just as a reminder to enter the queue. Please press Star then one on your Touchtone phone and our next question comes from Sam Damiani from TD Securities. Your line is open.
Thank you good morning, let us just on the fourth quarter with the acquisitions scheduled to close whats the plan for that for raising debt to fund that.
So the balance of the year.
So we currently have sufficient.
Liquidity to.
To do that on balance sheet.
But if it.
If markets are open.
Moving we could look to raise some additional debt in the market.
The opportunities there, but we have sufficient liquidity on balance sheet to take that to take that down.
Yes for sure, but I guess, if you were to do some long term debt how much capacity is there to do a cross country cross currency swap on.
What's your pro forma assets at the end of the year.
Sure. So at the end of the third quarter.
200 million Euro.
That capacity plus whatever else we have in the pipeline.
And in Europe.
By the end of the year that number could increase to about $400 million $400 million plus.
Sorry, 400 million euros or dollars.
Yes.
Europe, including pipeline, yet what's left to close.
And based on the market today.
Sub 1% is achievable would you would you say sub 5% as well as favorable.
How attractive is it today versus last time you did.
The interest rates in North America have increased they have not increased to the same extent in Europe. So we're looking at.
Somewhere between 70 to just under 100 basis points for five to seven year term. So it really depends on the terms that we're looking at.
Okay, and just switching over to Western Canada, the occupancy ticked up in Q2, and then slipped back in Q3.
I guess it would be a comment on that and also just generally how you're looking at in Western Canada, if any differently today.
For growth.
Yeah.
So it is the same as Alex said with respect to occupancy as you know our western Canadian portfolio is lots of tenants. So.
Occupancy will move around in this.
In the territory.
As leases mature.
So thats.
It's a natural for the portfolio to see.
Fluctuation.
Overall fundamentals in Western Canada have improved across pretty much all markets, where we are present and we accept expect that they will continue to strengthen.
With.
Dropping vacancy rates to basically low to mid single digit range.
All markets, we're starting to see upward pressure on rents. So the fundamentals have definitely improved.
We are generally positive on.
On the outflow.
So it could be it could be an area of growth for <unk> going forward.
We intend to continue.
We have as we've talked on prior calls we've identified certain assets in our sustained portfolio is non strategic.
We'll partner with them at the right time at the right price.
Improving fundamentals, we expect to see.
There's going to be more liquidity in the markets.
And we will.
We could look at recycling capital within the region.
<unk>.
We're looking at opportunities we haven't seen.
Significant opportunities on the income side, so strive to stabilize or core plus assets.
We haven't seen significant.
Risk adjusted return premium, but maybe.
We're looking at and development opportunities in the west to see if.
The risk adjusted returns are there so we are evaluating.
What options there.
Okay, and just last one from me and before you ask it I'll, just say a great quarter all around.
But the last question I have is just on the market with.
With the market growing at a good clip yet again this quarter and expect it to continue to do so are you seeing any change in the trend of tenant turnover until some some tenants.
So I think the to relocate to cheaper cheaper locations.
Okay.
We haven't seen haven't seen that trend there as there is no no space really for a lot of the occupiers to relocate we continue to see that occupiers prioritize.
Location vis vis <unk> access to major transportation routes and these are the access to.
Two labor pools over overreact.
So that continues to be the priority for occupiers.
It's hard to find cheaper alternatives and locations that offer both of those attributes yes. If anything. Thank you all I think the opposite is true that tenants are hunkering down.
They want higher inventories that need more space and wanting to secure the space. They have especially if this is a strategic location and want more of it so.
We're seeing probably the opposite rather than fleeing theyre coming in and wanting longer terms and.
More security in their space.
That's great color. Thank you I'll turn it back.
And just a reminder, if you'd like to enter the queue. Please press Star then one on your Touchtone phone.
And our next question comes there.
<unk> Gupta with Scotiabank Your line is open.
Thank you and good morning.
Just a follow up on <unk>.
Last question.
Thanks, Tom.
And then looking at Bill.
Sure.
We will walk through the key wanted us.
The key in the hospital for Tinder.
So are you seeing any pushback.
But performance listen ballpark.
Yes.
Hi, you mentioned.
Alex we are obviously it is obviously an education process with tenants when it comes to renewal.
And.
Some tenants.
Come to the negotiation table.
More educated on the market some less.
And.
All of them at once they do their homework as to what's available in the market.
Environment is like.
Relatively physically get get get over that.
Bold sticker shock.
So it is.
Definitely conversation, but so far we have not lost any tenants.
Over over price.
Okay.
Most of the reason which has been done.
I also applaud.
I'm going to ask Bob teams.
Plus homes.
CBS.
So in Canada, we are doing the contractual rent escalators.
We are.
Our average for the GTA has been in the three five to four 5% on the more recent leases.
We have been doing around.
Two 5% to three 5% in the GMA.
Around three three to three and a half in markets like Cambridge in Kitchener.
Western Canada.
1% to 2%.
And Europe is CPI, although we are starting to see some contractual rent bumps.
Okay.
Wolfson CBI.
Thank you Paul.
Core European markets.
Thank you.
Meanwhile, mobile lines.
They are on average.
We have seen certain markets in Germany increased by 20.
20% year over year.
Some markets in the Netherlands are growing so it is.
It is definitely up.
<unk> CPI so far.
Okay.
Sure.
Thank you Rob.
Kathy.
The more core markets.
Obviously with an optimal.
David.
Yes.
Pubs.
In the context of more than comfortable multimarket.
We have seen cap rate compression in Europe.
<unk>.
I think what's important for Europe is that we still looking at.
Very very reasonable capital values, despite the cap rate compression compared to some of the north American markets and.
Given the historic rental growth has been lagging.
In North America, we expect that the growth going forward and the potential plans of where the rates of growth going forward.
Significant.
Significant.
And that could lead to more cap rate compression.
Expansion of capital values.
Okay.
And maybe the last question.
Switching gears to development program.
Any update on the lawsuit.
Although given the U S.
Susan.
I will say this that most of that with some sort of weapons.
Europe.
Yes.
So our development program.
Is.
As Brian touched on we are pursuing development and all of the markets, we're in and the U S.
We will be participating in development.
The fund intends to.
Gross development program significantly.
Our Canadian pipeline is very robust with significant pipeline of expansion redevelopment and Greenfield project in GTA in GMA in Europe, we have one project underway.
We talked about.
Approximately 1 million square feet of density that we have acquired with Omega. So we are working on activating that and we're also working on a couple of an intensification in redevelopment projects in the Netherlands. Those in earlier stages. So we haven't included them yesterday in our MD&A disclosure.
As they advance.
We will be providing more detail and color. So there is a much larger pipeline than we are.
Sure I would add to that that there are pipeline, we're adding density in a lot of properties across the region as Alex mentioned, we've got Greenfield development and then we're also looking at a little bit farther out development of land that may take two years to three years to bring into production, but what we want to have a steady pipeline of development.
Opportunities to add to our assets I think we've mentioned that a good long term target would be 5% of our balance sheet and development. We're not there yet so we continue to look for opportunities in this in this area.
Awesome. Thank you guys.
Bob.
And we have no further questions.
Call back over to Brian for final remarks.
So thank you everyone for your time today, we look forward to speaking again soon and in the meantime, stay healthy and stay safe take care.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
Okay.
[music].
Sure.
Sure.
Yes.