Q4 2021 Summit Industrial Income REIT Earnings Call
Thank you for standing by my name is Cheryl and I will be your conference operator today at this time I would like to welcome everyone to the stomach industrial income with weak fourth quarter 'twenty 'twenty. One results conference call. All lines have been placed on mute to prevent any background noise. After the.
Speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press. The star one. Thank you Mr. Dykeman, President and CEO you May begin your conference.
Great. Thank you.
Operator, 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 actual results to differ materially from those disclosed or implied we direct you to our earnings release MD&A.
Other security filings for additional information about those assumptions risks and uncertainties.
Joining me as usual on this call. This morning is frustrate, our chief financial Officer, and Dana against our Chief operating Officer.
Let me start by saying, we're very pleased with our performance in 2021. It was another record year for summit.
Our results were driven by the same strategies that have generated our growth and success in the past our disciplined approach to growing the portfolio through acquisition and development combined with the significant organic growth through our strategic leasing program and achieving significant rental rate increases.
We have consistently delivered.
So we've consistently delivered significant annual portfolio growth since the recent section as you can see on slide four our growth has accelerated over the last few years, where we now own 156 properties totaling just over 20 million square feet of GLA with a fair value of close to $4 5 billion.
You can also see that occupancy has remained at or near full level. Since inception, we closed out 2021 with occupancy just shy of 100%.
Our strong tenant relationships to ensure that we keep bankruptcies and associated churn turnover costs very low.
Yes.
As shown on slide five rental rate increases have also been a key driver of our growth through 2021, we've completed $2 1 billion square feet of lease renewals and new leases.
Importantly, these leasing transactions generated at 28% increase in monthly rent.
The significant 67% increase in Ontario at certain percentage back then that excludes some contractual renewals we have.
With the record low availability and high demand of your comp rental rates will continue to grow, especially in Ontario, and Montreal, where 72% of our portfolio GLA dislocated.
With our portfolio growth, our high stable occupancies and strong rental uplift.
Revenue from our income producing properties has risen significantly gain since inception as you can see on slide six.
And all of the strength.
And that very positive trend in funds from operation as detailed on slide seven.
And we look forward to this growth to continue for a number of years ahead.
Another key advantage for summit is our sole focus on Canadian industrial market.
A growing presence in our three target markets the greater Montreal area. The GTA in Alberta is a key contributor to our success, we know and understand these markets.
That there is still ample room.
Grow our growth portfolio.
Of those four cities.
This geographic focused also generate significant operating synergies and economies of scale and with total revenue of almost $217 million in 2021.
That's <unk> com.
Despite property management locations.
Now returning to our results for the three months and year ended December 31 2021.
The fourth quarter was another strong quarter for summit as you can see on slide 10 revenue rose, 11% with net rental income up almost 12%.
<unk> growth continues at the same property NOI rising four 1% in the quarter funds.
Operation Rose, 23%, another solid quarter of accretive protein holder.
Per unit was up 12%.
As you can see on slide 11.
'twenty one was another record year for summit revenues were up almost 14% with same property NOI, increasing close to 5%.
Organic growth was particularly strong in our key target markets with same property NOI up six 5% of Ontario.
Three 4% for both Alberta and Quebec.
In 2021, we paid secured.
Mortgages with funds from our unsecured debt offerings and this will result in an annual interest cost savings going forward of $4 5 million annually not.
Not including debt refinancing prepayment costs, our <unk> rose, 27% to 2021, but most importantly, <unk> per unit was up eight 3%.
Our payout ratio not including these prepayment class.
The benefit of the drip program with 79%.
I will now turn things over to Rob.
Thanks, Paul.
Turning to slide 13, 2021, with a very active financing year for the REIT, including our activity in the unsecured debenture market, where we have access to attractively price debt, while extending our maturities.
We were pleased to expand our participation in green financing with the structuring of a new $75 million Green unsecured development credit facilities on the heels of our green bond the IPO.
Paul mentioned earlier proceeds from our unsecured debentures were used in part to strategically addressed early repayments of $330 million of high.
Higher interest rates secured mortgage debt generating annual interest savings of approximately $4 5 million.
During the third quarter, we were success, we successfully completed a $127 million.
Equity offering and access the market through our ATM equity program.
Slide 14 details the continued strengthening of our financial position.
Our strategic debt restructuring program has resulted in our unencumbered properties growing to $3 billion, representing 66% of total assets are.
Our proportion of unsecured debt rose to 72% of total debt up from 39%. This time last year.
We also decreased both our overall average interest rate and leverage ratios over the course of the year.
Our strategic balance sheet repositioning will generate considerable savings going forward and provide us with the financial resources and flexibility to continue our growth trajectory.
Liquidity and financial flexibility is always top of mind and as you can see on slide 15, we continue to build on our available financial resources in Q4.
At yearend, we had approximately $1 1 billion available liquidity, including cash and available credit facilities and potential financing on our unencumbered asset pool hypothetically. If we were to use all of our available liquidity our leverage ratio would still remain a conservative 42%.
In summary, our financing achievements have supported a strong capital structure and balance sheet as shown on slide 16.
The REIT overall leverage was reduced to a very conservative 28.
5% at year end with a weighted average interest rate of two 5%.
As seen on slide 17, our portfolio experienced significant fair market value gains gains.
Gains over the course of 2021, the result of ongoing demand for industrial space and underlying strong market fundamentals with the most significant increase seen across our Ontario, Quebec portfolios, which represent 77% of our total portfolio value.
Fair value increase represents.
An increase in our NAV per unit of <unk>, 49%.
I will now turn things over to Dana.
Thanks, Ross and good morning, everyone.
The Canadian industrial market remains strong national availability dips below 2% for the first time on record and for the third consecutive quarter every major market in Canada availability rate contraction Q4.
As Ross mentioned, we saw significant fair market value gains in our portfolio. During the year. The result of strong demand for industrial space in our target markets driven by record low availability.
Limited, new supply significant rental rate growth and rapidly increasing replacement costs.
The GTA, Canada's largest and most robust industrial market and the largest proportion of our portfolio continues to see strong fundamentals as shown on slide 19.
Demand has exceeded new supply consistently over the course of the year, resulting in overall availability below 1%.
This market tightness has continued to fuel pricing power for both rental rate increases as well as increases in annual lease escalators in our portfolio.
As detailed on slide 20, Montreal is experiencing the same imbalance between supply and demand pushing the availability rate below 1% for the first time and putting this market on par with Toronto and Vancouver.
As a result net rents have shown strong increases over the last few quarters with the largest increase in asking rents in Q4 and rental rates, having followed an upward trend now for 13 consecutive quarters.
This market shows no sign of slowing down in 2022.
Turning to slide 21 calories growing position as a logistics hub for Western Canada is driving strong demand for larger industrial space.
21 was a landmark year for Calgary, having posted a record of over 7 million square feet of net positive absorption.
Availability is now sitting at just over 5% down from over 9% at the height of the pandemic.
Absorption continues to outpace new supply, resulting in significant rental rate increases through each quarter of 2021, and we continue to be optimistic about this market.
Slide 22 details the positive impact that strong market fundamentals are having on our portfolio.
Availability in Canada strongest industrial market saw net rents rise to $11 58 per square foot, marking another record of 19 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 six 8% same property NOI increase and RGA properties for 2021.
Our net rents in the GTA stood at $7 50 per square foot at year end and as such we have considerable upside as we renew leases.
Montreal, Canada second largest industrial market is also generating strong growth as you can see on slide 23.
Yes.
With the availability rate sitting at an all time low combined with a 16% increase in asking rents Montreal is now ranked fourth in net average asking rates nationally.
During 2021 the rate achieved same property NOI growth of three 4% and we're fully occupied.
The industrial markets in Western Canada, and specifically in Calgary has picked up meaningfully over the course of 2021 as you can see on slide 24.
We are pleased to have seen a three 4% increase in same property NOI in our Alberta portfolio, including a two 8% increase in Calgary and 4% increase in Edmonton.
Ed mentioned reported an impressive $2 1 million square feet of positive absorption during the fourth quarter, reducing the availability rate to 7% and narrowing the gap to the Calgary market.
Looking ahead, we continue tend to continue to focus on the same growth strategies that have generated positive unit holder returns to date and an extremely strong year for the REIT in 2021.
Our growth and performance continues to be based on our three part strategy.
Expanding the size and scale of our portfolio through selective accretive acquisitions.
Proactive development and expansion and capitalizing on strong market fundamentals to achieve organic growth within our existing portfolio, all while striving to achieve our ESG initiatives.
As shown on slide 27, despite the highly competitive acquisition market in 2021. The reach acquisition program continues to be active completing close to 400 million or almost 2 million square feet of high quality income producing property acquisitions at very attractive cap rates.
We also completed several strategic dispositions of noncore properties as we continue to actively manage our portfolio.
Our sightlines for 2022 are good and we're confident that we'll be able to meet our acquisition targets again in 2022.
Given the potential for attractive relative returns the REIT continues to grow that platform.
But eight at year end, we had over $1 4 million square feet under development in various stages of planning or construction.
During the year, we close on close to 30 acres or just under $33 million of new interest and development properties with two other announcements subsequent to year end.
Our development pipeline continues to align with our ESG initiatives in Green financing framework as we strive to achieve maximum efficiencies and minimize our environmental impact through our newly built properties and we were pleased to also announce the addition of our green unsecured development line in 2021 to support our development projects.
Another area of growth for the REIT is the embedded opportunity to add GLA through our expansion and intensification programs within our existing portfolio.
As you can see on slide 29, we have the potential to add up to 5 million square feet overtime by extending current buildings based on tenant demand and the development of new buildings on properties, where we have lower site coverage.
Continue to work with our tenants to anticipate expansion requirements in order to generate attractive incremental returns for the REIT on land that we already own.
The third pillar of our growth strategy is to continue our track record of maximizing organic growth through our existing properties.
As you can see on slide 30 over the next five years, we have over 10 million square feet of below market lease renewals coming due with meaningful mark to market upside potential.
As we discussed earlier, Ontario, and Quebec in particular continue to be a landlord's market, which will provide the right with further flexibility in our lease negotiation.
I'll now turn things back over to Paul to wrap up.
Thanks Dana.
So in closing we continue to be very optimistic about the fundamentals of the key Canadian markets that we're operating in.
We expect to continue to be able to execute our disciplined and selective acquisition program.
And while acquisitions remain one element of our growth strategy.
We are definitely expanding the development pipeline, which will contribute a very attractive yield to cost returns and get brand new environmentally efficient real estate to our portfolio.
Panic growth will continue.
Accelerating as we renew leases at the new market rents, which are currently considerably higher than our in place rents and continue to move higher as well.
And finally, our strong liquidity position and access to capital will allow us to execute on this growth strategy going forward.
I'd like to thank you for your time. This morning and were now pleased to take any questions I just want to remind people that we're trying to limit everyone to two questions one.
A question and one follow up.
Everyone have a tour operator.
Thank you to ask a question. Please press star one on your telephone keypad. The first question comes from Sam <unk>.
<unk> of TD Securities. Please go ahead your line is open.
Thanks, very much and good morning.
Good morning, just trying to start off maybe just on the cap rates that have fallen so much.
Certainly in Central Canada, how are you thinking about.
Income property acquisition opportunities for 2022.
Maybe.
Quebec versus Alberta.
Hi.
Yes, sorry, I'll take a hammer.
We're working remotely here just trying to kind of coordinate it so.
I think what we've seen is obviously tunnel is what we call our center right.
There's been significant portfolio transactions.
And what's happening there starting with the artist that portfolio shrink it down around a three cap GTA with portfolio was two five.
And more recently there is another one that I don't think its public yet, but nevertheless portfolio.
Down two to three tap and price per square foot on those are all up into the $3 50 and above down per square foot. So I think people are saying that's very rich sets based on a lot of assumptions that youre going to have to move rents to get a reasonable return in that capital moves over to Montreal, which is the second largest.
Industrial market and we're seeing that same kind of cap rate compression there.
The rental rate growth has picked up as much in Montreal, but I think it's coming very soon.
So Alberta, it looks pretty good when you compare it to those two markets.
We're just being very selective.
We are aware of our allocation.
G GTA and GMA roughly.
Roughly what 78%.
But selective acquisitions like we did on cross point, where which are immediately accretive for Brandon real estate good quality tenants.
Yes.
It would be a mixture dana thank you guys.
Yes, no I think also the balancing act is the attractiveness of going in cap rates in Alberta versus the upside on on rental rates in eastern Canada. So the tradeoff that balanced in terms of our portfolio allocation. Yeah. We've had a stated allocation of 20%.
For Alberta and were happy to pick up over that on a temporary basis and in some sort of interesting anecdotes in terms of just affordability of eastern Canada.
Then we're also seeing it with Vancouver, where we now for the first time, we're actually seeing some commentary in the market about certain tenants looking to Alberta versus the GTA for affordability, we've seen a lot of it recently of the overspill from Vancouver into places like Calgary, because you have the rail lines accessing the ports quite easily but we're now hearing sort of.
First time, some overspill from the affordability of GTH, Robert So as Paul said, we'll be selective but are mindful that you don't have the same supply constraints in Alberta as you would have in eastern Canada.
That's great color, thanks very interesting.
And then just looking at same property NOI growth, you guys reported including including bad debt, but if I back out the changes in bad debt.
About a 3% organic growth rate for the fourth quarter and for 2021, and that's down from over 5% in the previous couple of years I guess, we saw the big Alberta portfolio acquisition from a couple of years ago roll into same property last year, which certainly would have brought it down but I guess I'm a little.
Surprised that brought it down that much.
What's your view on I guess your.
2020 one's performance in terms of same property with your portfolio and how does it make you think about.
Growth in 2022.
Well.
So the Alberta portfolio had some vacancies in.
In 2021 and calories as of the first quarter of 2022 will be fully occupied so you saw stronger same property NOI growth in the Alberta market in the second half of the year. So that was helping the overall.
And it was muting it.
Earlier in the year, so we're very very comfortable with.
We're seeing accelerated.
Leasing spreads in the GTA and Montreal market. So.
To see continued growth there and then in comparison David.
For Alberta.
Starting to see rental rate growth on renewals and new deals there and as well.
Approved occupancy in the <unk>.
In those both those markets.
<unk>.
Yes.
<unk>.
Our same property NOI growth will continue to improve.
Yes.
Alright, Thanks, I'll turn it back thank you.
Thanks, Dan.
Your next question comes from ISI eight of CIBC. Please go ahead. Your line is open.
Thanks, Good morning.
Just to touch on.
Our leverage now it's down to sub 29%. So just wondering what that implies for acquisition capacity.
The ideal leverage range you'd like to be in.
So I'll touch on it to start I guess, and then lastly can you chat a little bit about some of the specifics.
We've pivoted and Ted commentary in the past about switching a little bit more from sort of a target leverage number to sort of the more broader metrics that we would think about in particular with some of our.
Our debt stakeholders, so thinking about things more on a debt to EBITDA metrics.
Cash thinking.
Particularly because of some of the movements in our underlying.
<unk> S valuations on our real estate portfolio. So we don't have a stated leverage target we've been gradually migrating leverage down we're happy where we are right now.
With again more of the focus being on on debt to EBITDA, which clearly is impacted by our leverage but.
These are gradual movements.
And given what's been happening in the bond market.
We also had our seatbelt on here watching the government of Canada curve, but.
I think we'd be comfortable having some temporary upticks in our debt metrics. If we think that it makes sense strategically to lock in some pricing in an inflationary environment, where things are only going one way. So we potentially be comfortable with some short term upticks, but over the long period, we're happy where we are in.
Gradually continue to migrate that down with those.
Proving our debt to EBITDA multiple in particular.
Okay. Thanks for that.
And then I guess you guys look out at your acquisition activity and pipeline is for the year.
Is that going to be weighted more towards income producing or more more spending on the development side.
Okay.
So I think it will look similar to what we did in 2021.
The beginning of the year, we're always sitting in worry how.
How are we going to get to our targets, especially you know in an environment, where there's more and more competition and cap rates are only going one way.
But we were very successful in 2021, we're happy with what we're calling our selective and patient approach to acquisitions on the income producing property side. So.
So we've got some good sightlines to 2022, I appreciate where on a quarterly call here, but are comfortable that our stated.
Acquisition targets should be met.
Again, we're going to be quite picky and selective of what we're doing we don't feel that we have a need to go out and just be the most aggressive bidder necessarily.
It's gotten used to being number two or later down in the bidding process over the course of 2021, but.
Obviously by virtue of the more attractive returns hope to continue to be active on the development side, both on balance sheet and with existing and potential new JV partners. So more of a focus on the development side.
And expansion with some of our existing properties that is a little bit trickier, because we're lining up timing of.
Lease maturities and things and tenant requirements, particularly in an environment where timing.
Can be difficult to predict.
With approval processes and availability.
Hard materials, but we're trying to focus on that as well because it's existing owned land. So youll see more of a focus in that area, but we do feel still comfortable that we can achieve our acquisition targets.
Gary I just wanted to ask.
Sorry plan a couple of little points are one of the other things we're looking for acquisitions.
Last year half of them were off market. So we're continuing to talk to the same people that we did last year.
Try to grab deals before they get to a broader marketing and we're also fine.
Whether it's in sale leasebacks for properties that are undergoing training.
Our property.
Yes.
Can be expanded so it's not just your straightforward acquisition.
Yes, a bit more.
So with the straightforward acquisition.
I think actually that's a finally a competitive advantage that we have as well that is where you have you may have these acquisitions situations that are not completely middle of the fairway, where there could be a development piece in a stabilized piece, we can come in and are comfortable at sort of both sides of that situation, where perhaps that might eliminate some of the some of the other.
Bidders.
The only other thing I'd add is in 2020 22, you will see a few more.
The developments coming into income producing properties.
A very accretive yields in that so there is we saw the first wedding January 440000 square foot development come into income producing that there's a few more in the pipeline there in Q2, and Q3 that will kind of.
The income producing and start generating income.
Okay, great. Thanks for the color.
Thanks.
Your next question comes from Joanne Chang of BMO. Please go ahead. Your line is open.
Yeah.
Hey, good morning.
I was wondering if you could provide.
Provide some color right now.
Now kind of what youre seeing spreads between where market rents are and in place rents and that you have in place by market.
Well I'm not going to talk about all the markets, but I'm going to talk about one. So you are right. Your pen ready. So there is one number in our update was 150000 square feet.
We bumped it by 65% and Thats the third bottom line. Please.
Five years.
But they're only doing three years deal. It's a U S player, but then it gets better so there's another 100 these aren't starting at our MD&A So language.
Trouble with a possible this way but.
100, 117% increase on 140000 square feet, 123% increase on 120000 square feet and 147% increase on 58000 square feet. So and these are rents that are now into the 13, She's got a $14 rent. So there's been no material movement and where rent.
So I know <unk> never likes to talk about same store NOI and give guidance but.
Earlier on that discussion, we expect all of this.
Happens throughout the year when these leases.
The new rents kicked in so it will have a gradual but the momentum is increasing.
Sure I'll, we don't have as much turnover. So we are getting some decent.
Decent rental bumps, we have one tenant unfortunately had a two year fixed rental who's going to exercise that.
But we'll have some we have some space coming back at Montreal for 100000 square feet will be able to test market.
Some of the newer stuff in Montreal are well located 10 or $11 has now is now market rent there.
You'll continue to see that accelerate and for the first time Theres a couple of leases that were turning over.
But the range and we're.
Starting to ask for like seven so I think across the country that that.
25, 25 or so.
So that's.
Ben and Edmonton pretty much the only market that's flat right now Greg.
Great.
Occupancy as high as we can in both Calgary and Edmonton.
Got it.
That's great to hear.
And maybe just switching gears I guess on the acquisition pipeline side of things.
The markets will focus continue to be I mean, both for <unk> as well as development.
Land or potential whether it be on your existing markets I mean would you consider.
Any expansion into new markets, just given some of the transactions that have happened.
And the Atlantic region, as well just kind of wanted to see what.
The market the focus would be.
Yes. My question comes up a lot in our.
Mr discussions with our board, we chat about it quite a bit.
<unk> seen sort of what what the.
The geographic composition with like with summit one.
The way we look at it right now is so long as we think there is enough to do in our key markets that we're going to stick to those areas. What we would say is that perhaps the definition or the boundaries of those markets expand a little bit. So you see what we're calling the GTA will broaden out a little bit more but really not thinking of entering in any other markets.
Eastern Canada.
Small bay market. So that's really sort of would fit strategically with the types of assets that we would be looking at.
The one area that we would potentially consider would be Vancouver, and that would sort of round out our portfolio in terms of our exposure to sort of the key high growth markets, but what we've found is.
As you know the valuations have really just been prohibitive.
And for Us to go in to a new market like that we would launch a meaningful presence in economies of scale. So we wouldn't be looking to dip our toe into an area like that so for right now we're quite comfortable with.
Areas, we're in no.
Does that have to go to the U S right now.
Okay.
I think staying fairly Canadian I think it's definitely an advantage for you guys that's for sure.
Despite the very attractive cost of capital in year in Europe right now.
Yeah true.
Okay. No. That's very helpful. I will turn it back thanks very much alright. Thank you.
Your next question comes from Matt <unk> of National Bank Financial. Please go ahead. Your line is open.
Guys I guess, it's a bit of a follow up to that prior question as to how far the boundaries of the GTA and Montreal can extend I mean at this point are we talking Windsor to Quebec city or how targeted.
Do you think you have to be and what are the risks going kind of further outside of the GTA.
Cheryl.
Sure I'll start with GTA, because thats where were buying.
More land and it really it's two sections and it's pretty easy.
Inside the Greenville and outside so.
Inside the Green belt land prices or just.
Going up.
Crazy Crazy.
Fifth we're seeing numbers in the $354 million an acre.
I think Amazon bought something for $5 million or.
So okay.
And that's still not as high as well.
What we're hearing about in Vancouver, as well so so selectively we will do that in most of our targets.
I'd call it ready to go and ready to go in today's World is two to three years. So we're trying to line up so that every year.
Yes.
That's 100 million square feet that should be coming from development into income producing so we're kind of building up the pipeline.
Three to four years, so when we look out.
Really really happy with what happened in <unk>.
Good morning for stock back in the queue belt.
We're looking at land in and around that area and then we're going further down we just followed before one down into kitchen now that's not to say there is some significant developers other public REIT that are down more than the branch fared in Hamilton area.
I wont say its pioneering I'm sure everything was going to get me. It's just a matter of what the rental rate is but what we're seeing is there's a lot of tenant types would prefer to be inside of the retail because thats where their customers their employees.
No space available for them so.
So we're trying to be as closest.
So that's why we'd like wealth, and then kitchen or just kind of following the same thing.
<unk> Pickering will buy everything everything there so.
I'm sure all of us.
It's a little harder there to.
Pick, but absolutely John so sure continuing to go go north.
There's just not as much land on the market right now in Montreal, So I think theres more Montreal, we'll see a bit more of a major redevelopment opportunities like we're doing with our property down by the court, we're knocking down a building.
Building another brand new 140000 square feet. So we're looking at sites like that where you would either knockdown or.
Significantly improve the existing real estate, rather than just going out and finding undeveloped.
Undeveloped land just to give you one.
Interesting number on land, we bid on something in the last couple of weeks, we think both of them close to the front runner.
For bids whether that's how crazy things.
Winslet.
That's more bidders than you would have for income producing so clearly theres. The scarcity I think across Canada, we've heard a number of 36 million square feet under construction.
About two thirds of that is already pre leased so it's really not going to make anything any big dent in the availability. So this tight market, which is essentially full in Toronto, Montreal and Vancouver.
We think is likely to continue.
And then I guess, it's a bit of a counter question to some of the prior ones, but I mean, there was some talk about balance sheet capacity, but given where your cost of equity is and where bond yields have gone is it not tempting to kind of over <unk> at this point and maybe move to even lower leverage.
Just your thoughts around that.
Sure I can start.
Jump in but.
Hey, Kevin.
Some of our American investors reached down they're typically have a little bit.
Lower lower leverage coupled with that.
I think when we started the year.
Ross My we're kind of leaning that way I think through internal discussion.
With our.
Such a significant mark to market.
If we can put in seven to 10 year bonds in that.
It was three to 3535, 4% range.
You're still not diluting the returns to your equity, but if I'm thinking.
Wanted to just do everything percent equity, even though we could yes. It would be accretive we think just because we essentially.
Market.
Don't want to.
Issue too much equity.
And yes.
Sacrifice upwards.
Okay.
<unk>.
Okay, No that's fair enough. Thanks, yes, yes, the only thing I would say to you is the benefit of our ATM program. Yes, we can have a little bit of the best of both worlds.
A couple of years ago or year ago, you'd have to come with a larger chunkier deal follow on offering.
So with the use of the ATM, we can kind of.
At least right now market conditions are open and available for us to use that word.
To keep that leverage a little bit smoother and for US. It is really trying to have sort of that that smooth consistent level, you know to the extent that we can keep it there as opposed to bobbing up and down too much.
Makes sense thanks, guys.
Okay.
Your next question is from Alex Leung of Desjardin capital markets. Please go ahead. Your line is open.
Alright, good morning.
I just had a couple of questions on some of the leasing.
Can you remind us the lease maturity schedule. That's disclosed is that net of commitments or are they gross maturities.
It's net of.
Commitments. So if at least has been renewed.
The lease maturity profile in the MD&A will push it out to the new.
Maturity once the leases signed so any any leasing spreads that we've talked about.
In the MD&A of those.
The new maturity date is reflected in the lease maturity schedule.
Okay.
All the stuff that I just mentioned obviously is still in the in the lease maturity schedule. Please and the ones that we're talking to now and will happen sometime between now and the end of the year.
With the shrinking.
Would you have the spreads handy on some of those commitments for Ontario, and Quebec.
For 2022.
Last one yes, Robyn come off earlier so.
Yes.
Ontario.
Right going from 12.
Sorry, going from 575% to $12, 50% to 117% that was on a 142000 square feet.
We had a.
123% increase on 121000 square feet to $13 50, an important thing with these rents in the GTA, we're not only getting a bump of over 100%. We're also pushing up the annual steps. So it's a five year deal we're getting anywhere from a three to three 5% annual steps and that's why you're seeing the overall.
Contractual rental bumps moving up to like one 9% for the entire portfolio.
And then a smaller space better.
158000 square feet in Brampton.
Which of the 147 okay.
Sure.
And each one.
Adding 901000 500750.
Yes.
<unk>.
To the bottom line or.
We apply whatever kind of cap rate.
These are significant.
Okay.
Anticipate maybe.
There is another deal that.
Ross can't remember if it's on the elite sorry, but we did a sale leaseback.
It has the 60000 square foot expansion, which is a great case study because we've been able to.
Brian by 40% on.
On the new tenant that's just signing up there and theyre going to do an expansion, where we're going to earn almost 8% yield on the three well of expansion there. So.
That's going to end up taking a property that we bought at about four 1% cap up to about a five 6% cap so almost 200 basis points.
Listen that one property alone, which I think translates into.
Over $30 million.
New creation of each one of these new leases that gets put in place.
So those are some highlights.
And then we're seeing the same momentum on our development leasing again, we're not going to rush to the leased our developments but.
We've got a number north of $14 on one of our on balance sheet development.
Most of our JV developments that are under construction are either pre leased or mostly pre leased.
Yes.
The rest of them that we are in permitting the decision. We've made is we're not actually entertaining. We're taking offers to lease until we have subsequent approval, which takes a while but then.
Eight eight to 12 months to order steel and precast. So until you are ready to start building. The building or are you know we have a start date for building the building.
Not in any hurry to start the leasing program on those new developments because rental rates are just moving that quickly.
That's great color. Thanks.
Maybe last one for me sticking with the leasing is there anything in the 2022 or 23 remaining maturities that are may be.
Fixed contractual steps that Mike.
Yes. So in fact, there was one.
Just wondering wanted to Montreal, the shirts, and Thats, a big one 240000 square feet and you can look at it as a bad thing or a good thing. So it's only going up I think 10 or 15 cents per square foot.
So again, we don't do that in our standard lease.
A lot of times, we won't put even options to renew in our leases on most of the tenants pay for it.
When we buy properties, we inherit some of these fixed price, which is not a lot, but there's a few in the Montreal portfolio.
When I look at that.
That then even though youre not getting the rental bumps of next two years, because I believe the rental rate will be about 25% higher than two years. So when they do have to go to market and we had that discussion with the tenant we note the Senate.
Actually looking for more space, we have been in multiple locations in our portfolio. We're going we think you should do a year or five year deal, but it would have to be at market and so they kind of said look.
We take our fixed price.
So we will take our chances in two years so biking.
That's the only one that I'm aware of.
And this year that we have.
Yes, yes.
I'm, sorry, you're saying.
Yes, when we looked at the balance of the portfolio I think there's there's like six or seven of those left in the portfolio.
But in the Montreal portfolio on that just wanted one in Ontario.
<unk> gone by now.
Okay. That's awesome. Thank you very much I'll turn it back.
Thank you.
Your next question comes from Brad Sturges of Raymond James. Please go ahead. Your line is open.
Hi, there.
Hi.
Wondering you.
If you could give us an update on our capital recycling program or initiatives, obviously, you've been a little bit active there in Edmonton and some smaller asset sales just wanted to get a little bit of color of how you're thinking about.
Asset sales and capital recycling for this year.
Yes, I think it's a similar approach to what we've done last year and yeah. We've got our disposition watch list.
We don't have any sort of real sense of urgency in terms of what we have on not on that list, it's really going to be opportunistic and.
As you said capital recycling, what do we do with those proceeds being a public REIT.
Generally net acquirers.
And by virtue of the pricing availability of capital in the market.
Again, Theres no real sense of urgency, but we do have sort of a soft circled list of.
Sort of between 25, and <unk> 40 million that we kind of keep an eye on and depending on the circumstances and pricing with potentially think about some other sort of selective pruning just in terms of upgrading our portfolio. This year.
Yes, I think Dan that most of that list.
Bacon is in Alberta.
Yes between yeah.
So just.
Some of those smaller shop buildings or some that are little bit quasi.
Flex space or retail type things.
Okay.
You've noted some of the positive trends, particularly in Calgary in.
In terms of.
Some of the increased leasing activity and demand there.
And you do have a pretty decent sized land bank can you just remind me how that land bank splits between Calgary and Edmonton and given some of the positive trends is there.
Some of that longer term intensification opportunities that getting pulled forward a bit or how do you think about that.
Yes, I mean, it's certainly alright, well.
I mean, I'd say certainly the market is more of a development market now in terms of our portfolio.
We're focused much more on.
Yes.
Maximizing our market rents and keeping our occupancy stable rate right now we do have a lot of low site coverage. There. So it's something that as we move forward. We can selectively think about the potential for expansion.
But it's not something absolutely absolutely pressing in terms of our development projects.
Yes, Brian it would be more of a build to suit opportunity. So we're definitely scoping out where.
Building.
Because obviously three wells is less than.
Four.
And the cost of doing that pretty well, but it still.
Bill.
And to everything else that we're looking at Montreal and Toronto, So we've got to.
In discussions for tenants.
Thank you.
170000 square feet.
It really attractive.
Yield on cost.
So we'll keep pushing those those opportunities first.
Yes, the only other thing I'd say.
They know about the Alberta market as it's a more.
More development friendly market compared to some of the sort of sub markets I'll say that we're dealing with in the GTA. So things can get done a little bit easier and a little more quickly. So that's attractive.
But again, it's going to be very specific in terms of demand for space.
Okay, that's quite helpful I'll turn it back thanks.
Thanks.
Your next question comes from Hey, Matthew <unk>.
Of Scotiabank. Please go ahead your line is open.
Thank you and good morning.
Good morning, good morning.
Just focus on the development side here.
Looking at the Burlington site.
<unk> land that you acquired in January this year.
How much will be the cost to build on a dollar per foot basis, and what trends are you expecting.
I'm just trying to gauge do with at replacement cost here than economic rents too but.
Perfect.
We were in some.
Investor thing.
A couple of weeks ago, and I was probably a month ago now and.
Thrown out a new replacement cost number for GTA. So that's exactly.
Good question Matt.
Property is going to take somewhere between two to three years develop.
Site planning approval process in Burlington.
Since launch.
We paid about $2 $3 million an acre for land heavier development charges. So this is going to be the first time, we are building a building north of $300 a square foot the final number.
Be impacted by a few things that the city will impose on us, but we're anticipating probably a minimum of $325 a square foot and possibly as high as $3 50, a square foot.
As I mentioned today, we're already achieving rents.
I guess Robert rough.
Roughly we just got a rent a $14 50, so we think.
The leasing for this is not going to take place until another two years, so youre going to be somewhere significantly north of that so, but if you pro forma that in that 15% to $16 range, just kind of where you think your yield on cost is going to be.
If you apply appropriate.
<unk> spread and we think.
You can look at development yields I'd like to do it on a price per square foot. So there's somewhere between us and our entire development pipeline a minimum of $50 as high as $100, but let's just say, it's averaging $75 a square foot development profit.
Very quickly get to $400 a square foot, which is the new replacement cost number in GTA and it was only a year and a half ago I was going we're going to surpass $300 square foot.
Absolutely when you when you look at all of these acquisitions that are happening here pretty soon.
Portfolio.
Yes.
350, $360 a square foot for 25 year old property.
Okay.
Building.
Absolutely $400 square foot is around the corner, if it's not already here and then one final one.
Yes.
Dollars are more they're going to be at $400 square foot for sure.
Youre going to need breadth.
Plus to start to make.
To make those things makes sense Scott.
Yeah, and I'd just add in terms of our development leasing strategy is.
In light of the rapidly increasing rental rate market rental rates in the GTA, whereas you are balancing sort of the security of pre leasing with waiting as long as possible to try to really.
Squeeze out all of that upside and market rents and with some of the uncertainty around the actual development of these properties sometimes.
Sometimes timing is as certain as you would've seen in years past.
The balance sort of the deliverable timing and maximizing that the.
The increases in market rents.
Our thinking is that okay.
It's the perfect example is our property in Oakville and survey or just under 100000 square feet.
Steel is going up we've been dealing with offers for over.
For Rfps for over 12 months and we just recently did a.
Deal.
In the mid Fourteens.
Where we own the land before the yield on cost is going to be somewhere around 7%. So that's all.
I'd love to be able to think we can do that every time, but it just shows by waiting there.
Our yielded cost went up significantly.
Got it very helpful.
And then looking at the GTA transactions I think Paul you mentioned youre seeing transactions to quantify sloppy, but once we get paid.
Obviously, I imagine that the central significantly below market rents.
Our acid with five year lease term remaining they're also trading at similar levels.
So the point is the assay that's recruiting itself <unk> is at least to them shortly.
The others, yes, so yes, I think most of them are going to be under five years, but I think kind of five years is that magic number if anything thats under five years that people can see the runway, taking whatever that ingoing yield of 2.2 in.
Moving rents and pushing that yield up to four four and a half is probably.
The strategy and I think that they think they can do that in.
Less than five years, that's worth doing so.
On those it's not that.
Could we do that or not we look at the price per square foot, we say if that translates into $360 square foot for Boeing.
It'd be by 'twenty, five year old real estate with chance of going up to four five cap or we could build brand new on our Burlington land at 325 to $340 square foot to get brand, new real estate and get a yield on cost that is going to exceed or be at least equal to that four.
It's a 5% yield on cost so that's kind of the.
That's the math that we do that drive more more towards development and acquisition.
Got it that makes sense and maybe the last question is on same store NOI growth.
I mean do you think.
Is likely to be flat this year, given that not much occupancy gains expected.
And then the same store NOI.
Tibet could be spiking higher than the last year I've been given the escalation index.
So I'll answer that.
Before giving you this fits everyone absolutely the Ontario is going to be much.
Much higher but Ross can give you the.
Yes.
Yes.
Or to Alberta, because we had lower occupancy in 2021, and when I say lower than the 90% to 93 now its closer to full occupancy.
Youre going to see improved same property NOI there.
And then we are seeing.
Rental rate increases on renewals now.
Whereas last year.
The deals we were doing were flat or slightly negative because we were trying to maintain occupancy.
We will start being a little more aggressive on run rate. So I don't believe it'll be flat, Alberta and.
The GTA.
Continuing the improvement if not an acceleration in the same property NOI growth just based on those rental rates that.
Paul is quoting and that and the deals that we've re leasing spreads as shown in the MD&A.
They didn't fully take effect.
In 2021, so you're going to see the full impact of those rent increases in 2022 and the <unk>.
Contracts as retro steps are continuing to grow so.
I still see a very positive trend in our same property NOI it's been around.
<unk>, 5% the last two to three quarters and that sub.
4% to 5%.
Hi.
I am very comfortable that.
It will continue that way with the growth in rents and we're not.
Not seeing any.
Decrease in occupancy in GTA in Montreal.
And.
We have enough visibility for Alberta to say that.
Stay around that near full occupancy.
A positive.
Same property NOI.
For 2022.
Got it.
Its something around 45% is that what you're saying so I didn't say a number.
He didn't say enough.
That's helpful.
Okay.
Thanks, Joe.
But I can see I can see maintaining and improving on the 5% yes.
Awesome awesome. Thank you. Thank you everyone that knowledge I'm talking about.
Thanks, Andrew.
And there are no further questions at this time I will now turn the call over to Mr. Dykeman for closing remarks.
Alright, well thank you again.
Good call.
We'll look forward to talking to do the next quarter, but 2021.
On reflection was.
An amazing year for summit, and I think all industrial owners and we're seeing lots of runway for 2022, So I think it's going to be another exciting and.
Fund year to have these calls because I think we're going to have lots of.
Nice and fun things to talk about alright. Thank you.
Okay.
Thanks, guys.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
Yes.
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Okay.
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Yes.
Yes.
Sure.
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