Q3 2022 Dream Industrial Real Estate Investment Trust Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Dream Industrial REIT third quarter Conference call for Wednesday November 2nd 2022.
During this call management of Dream Industrial REIT may make statements containing forward looking information within the meaning of applicable securities legislation.
Forward looking information is based on a number of assumptions and are subject to a number of risks and uncertainties. Many of which are beyond dream industrial reached control that could cause actual results to differ materially from those that are disclosed in our implied by such forward looking information.
Additional information about these assumptions and risks and uncertainties is contained in dream industrial rates filings with securities regulators.
<unk> latest annual information form and M D N a.
Filings are also available on dream industrial Reits website at Www Dot Dream industrial REIT Dot C H.
Later in the presentation, we will have a question and answer session.
Looking up for a question press zero one on your telephone keypad.
For today will be Mr. O'brien, Pauls CEO of Dream Industrial REIT Mr. Paul. Please go ahead.
Good afternoon, everyone. Thank you for joining us today for Dream Industrial REIT third quarter 2022 conference call.
Speaking with me today is last Kwon, our Chief Financial Officer, and Alex <unk>, Our Chief operating officer.
For Q3 2022.
We reported <unk> per unit of <unk> 22 for the quarter led by strong CPE NOI growth.
Excluding $1 1 million of lease termination fees and $1 7 million of one off U S Fund related income recorded in the prior year, our year over year <unk> growth was nearly 7%.
Our pace of CPE NOI growth continued to be robust and was eight 2% in Q3 led by Ontario, and Quebec at 17% and 10% respectively.
For the nine month period, our CPE NOI growth was 10% during.
During the quarter, we leased a total of 457000 square feet of new expansions and achieved a yield on cost of approximately seven 7% or.
Our capital deployment activity remains focused on driving cash flow and NAV growth over the long term.
Our near term development pipeline totaled nearly $2 8 million square feet with a total cost of $578 million based on our current expected unlevered yield on cost of over six 4%. These projects are expected to add over $30 million of NOI to our portfolio.
During Q3 2022, we completed the previously announced acquisitions of two properties in Germany totaling 276000 square feet.
For a total purchase price of $37 million.
October we completed the acquisition of 217000 square feet.
Weighted on $10 seven acres of land in a topical for $66 5 million.
The property is immediately adjacent to our existing asset at 161, the worst mall. This acquisition gives us control of over 21 acres with frontage on both highway $4 27 in the West Mall. The best in class location allows for significant optionality in the future. Despite the.
<unk> economic environment industrial fundamentals remained strong and have supported robust leasing momentum across our portfolio.
Our portfolio is located in markets that are in close proximity large population centers and present presents significant barriers to entry for new supply.
With vacancy in the low single digit brings across our markets and replacement costs continuing to increase.
We expect further upside and market rents, we continue to see a long runway for industrial fundamentals in our business is well positioned to outperform.
Ill turn it over to Alex to talk about our organic growth outlook and operations.
Thanks, Brian and good afternoon.
Leasing momentum in our portfolio remains strong and we reported eight 2% year over year CPE NOI growth. This quarter. This was driven by a four 5% increase in in place rents.
And the 0.8 increase in average occupancy.
Year to date, our CD NOI growth was has been 10%, which is at the upper end of our previous guidance of 8% to 10%.
We ended Q3 2022 with committed occupancy at 99% essentially unchanged from the prior quarter.
We're continuing to see strong levels of leasing activity across our key markets.
Since the beginning of the third quarter, we have signed $2 6 million square feet of leases across our portfolio at an average spread of 39%.
In Canada, we have signed one 5 million square feet of leases at a spread of 60%.
I will talk about some of the key highlights.
In Montreal, we signed a 206000 square foot lease at a 55% spread.
We achieved 4% contractual rent growth over the five year term.
In the GTA without a signed a 180000 square feet renewal, where we were able to more than tripled the rental rate was for the quarter annual steps over the five year term.
We also signed a 10 year renewal with our largest tenant.
Tenant in Regina totaling 275000 square feet with 2% annual steps.
In Europe , the industrial leasing market remains robust and we signed one 1 million square feet of leases during the quarter.
The largest lease was at a 600000 square foot building in France, where the tenant vacated upon lease expiries.
Q3 2022.
We identified in our underwriting last year that we would get the space back and that the in place rent was above market.
We already signed 80% of the building or 407, 467000 square feet with a global logistics company and the lease commenced in October .
Although we achieved a rental rate above our underwriting this in place this new lease negatively affected our overall leasing spreads for the region.
Excluding this deal the average rental spread for our European leasing volume was nearly 6% for the quarter and 10, 5% year to date.
We are in advanced negotiations with the prospects for the remaining 130000 square feet at a rental rate that is over 10% above the deal signed in Q3.
In Dresden, Germany, which we leased up 241000 square foot expansion to two tenants with leases commencing in January 2023.
There was significant interest in this space and we were in advanced negotiations with four different tenants.
We achieved an unlevered yield of six 8% on our development, which is above our underwriting.
With an essentially full portfolio and strong leasing momentum via organic growth profile for DIR remains robust.
We now expect <unk> NOI growth for 2022 to be above 9% compared to our prior guidance of in the 8% to 10% range.
During the quarter the value of our assets increased by $43 million, primarily driven by higher market rents increased values for properties appraised externally and substantially complete the expansion start now.
Driven largely by the increase in net in the asset values DIR NAV per unit increased two <unk>.
$17 five.
A 19% increase year over year.
The current carrying value of our assets equates to just over $170 per square foot, which is well supported by private market data points.
While the cap rates are likely to increase modestly on the back of riding rising interest rates, we believe that the spread between in place and market rents should offset the impact on capital values.
We're continuing to see significant disconnect between public and private market valuations.
For example, our carriage unit price implies a capital value of just about $130 per square foot on our income producing properties, which is significantly below private market values, especially as our operating performance remains robust.
In addition to CP NOI growth, we continue to see similar drivers of NOI and NAV growth across our portfolio.
We have made significant progress in our development pipeline and achieved strong unlevered yields on our recently completed projects.
The 96000 square foot phase II expansion at Mary Kirby in Montreal is substantially complete.
We signed a lease at a rate that is 30% higher than the rate we achieved on phase one earlier this year.
Overall, we achieved an unlevered and levered yields of over eight 5% on both phases.
Also in Montreal, we signed a lease for 120000 square foot expansion expected to be completed next spring, which resulted in a yield on cost of over 8%.
Over the next 12 months, we expect to complete construction on seven projects totaling over 1 million square feet and we are currently in various stages of negotiations and marketing for the balance of the space.
We expect that these projects will be substantially leased prior to completion.
Lastly, moving onto some of the other value drivers within our portfolio.
We are executing on <unk> solar projects across Canada, and Europe that will add over 22000 solar patents.
We expect an overall capital outlay of $12 million with us.
Levered yields on cost over 10%.
Q3 marks the first quarter that solar income came online and we realized nearly half a million dollars from our completed projects in the Netherlands, We expect the run rate to increase materially in the coming quarters.
Property management and leasing platform continues to generate strong income we have generated an operating profit of nearly $3 million to date in 2022.
Overall, we are encouraged by the operating fundamentals in our markets and the opportunities within our business to drive organic growth in NOI and NAV as.
As we execute our active asset management strategy.
I will now turn it over to <unk>, who will provide a financial update.
Thank you Alex.
Our financial results are strong and demonstrates the success of our strategic initiatives over the past several years.
Diluted funds from operations was 22 per unit for the quarter.
9% higher than the prior year quarter, and 7% higher after excluding a $3 million of lease termination fees and one time ethylene administration fees recorded in the prior year.
The strong year over year growth was due to higher NOI from our competitive properties and property management income from the U S industrial site.
We ended the quarter with leverage just about 29% and was $346 million of available liquidity.
In October we Upsized, our unsecured facility to $500 million.
With an additional $250 million accordion, providing us with additional flexibility to capitalize on strategic investment opportunities.
Our near term debt maturities are limited with <unk> $250 million of debt maturing in the next 15 months.
Continued access to euro denominated debt is around 100 basis points lower than North American debt.
We expect refinancing these upcoming maturities to have limited impact on our financial results.
Our in place rents are nearly 30% below market, which should continue to support healthy organic growth offsetting any increase in interest expense from refinancing debt at higher rates.
We continue to expect <unk> per unit for the full year 2022 to be in the range of our prior guidance dependent on foreign exchange rates are.
Our strong and flexible balance sheet and significant opportunities of driving cash flow and net asset values continue to position us well to deliver strong operating and financial results.
I will turn it back to Brian to wrap up.
Our strategic initiatives over the past several years have provided a strong platform for DIR to deliver robust organic NOI and <unk> growth overtime, while upgrading portfolio quality through our development pipeline.
We remain well positioned to create value for unit holders will now open it up for questions.
Okay.
Thank you we will now begin the question and answer session. If you have a question. Please press <unk> one on you touched on phone.
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There will be a brief delay before the first question is announce.
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Once again, if you have a question. Please press zero and then one on your Touchtone phone.
We have a question from Mr. Mark Rothschild. Please go ahead.
Thanks, Good afternoon, everyone.
<unk>.
Brian you spoke about.
The difference in values.
Between private market and public markets can you maybe just expand on how the strategy for capital changes to the extent. This goes on with the unit price trading well below NAV.
Sure. Thanks Mark.
We are seeing is we.
We are constantly underwriting we're looking for opportunities where we are.
We're very aware of our cost of capital we've got.
Significant balance sheet strength to two <unk>.
Allocate two strategic initiatives or strategic opportunities or any distress that we might find.
What we're finding is some of our best investment is in development, it's in our own properties and certainly through our organic growth, that's where we see.
Some real opportunity and where we're going to focus although we're we're kind of always looking giving given the capacity we have.
And while you may not need the capital now.
Asset sales enter into the picture is that something youre, considering with the different values.
Sure I mean, I've mentioned before that we have a model evaluating all of our assets all of the time and so I think we for example, we have gotten calls from users from some of our properties that may pay more than the market would pay for an investment property, if theyre going to use it themselves and we would certainly look at that.
It's now, it's probably one off opportunities or one off discussions within our team of what we might recycle rather than a we're in the strategic markets. We want so we're not looking to necessarily exit certain markets or make some.
Different kind of strategy exit like that but we are looking at one off opportunities to continue to upgrade quality quality. We're very focused on long term growth asset quality. It's why we are performing really really well in uncertain times right now.
So we're going to continue to upgrade quality.
Okay, great. Thanks, and maybe just one more question.
Clearly the leasing spreads are quite strong in Ontario, Eastern Canada and <unk>.
Not bad, but just not nearly at that level and some of the other markets should we expect over the next year or two for this to be somewhat similar range for what you can achieve or would this converts at all.
Alex you can talk about our outlook.
When we look at.
Alberta, Calgary in particular, Mark we see that the rents are starting to rise and so we expect that our spreads in Calgary will.
Oh, it will trend upwards over time, we're seeing the same in Europe .
We are seeing rents are generally rising so.
That will be.
And delivering strong spreads will they get to the Ontario level spreads.
It might take some time, but we think that the trajectory trajectory is generally upwards.
Okay, great. Thanks, so much.
Thank you. Our next question comes from Sam Damiani. Please go ahead.
Thanks, and good afternoon, everyone.
Just to follow on Mark's question, just wondering what your updated thoughts are on buying back units just given I guess your youre seeing the asset values continue to increase.
And have confidence that it's going to continue to do so how you look at the gap to where their price.
Price is trading.
Sure Sam.
I mentioned to Mark that we took some of our best investment is in our own properties through development and that's a great place to allocate capital.
Probably our highest priority is right now is.
Allocating capital, there, but and Alex you may want to add to that yes.
Yes, Thank you Brian .
You know we disclose.
As.
Yields on our development projects.
Average to about six 4% for the program.
Obviously that six 4% number includes land.
Which is already owned so the incremental yield on incremental capital invested in these projects is much much higher than six 4% in other words.
Not pursuing a development projects has an opportunity cost of <unk>.
<unk> percent to 9% depending on the projects and so thats, how we how are we thinking about them.
And so you've seen that as a more favorable.
Opportunity than buying back buying back your own portfolio.
Whatever it is 6% cap rate today.
Yes.
Okay.
And just on the interest interest rates Lenis, you mentioned about 100 basis points spread between North America and Europe .
Was that.
<unk> basis or is that we're using domestic Europe that and I Wonder if you just clarify what the absolute rates are.
Right now yes.
Yeah for sure.
I think right now the.
Im looking between unsecured and then.
<unk> in Canada, and swapping two euros it'd be about 100 basis points different.
Obviously, if we were to look at.
Cured that in Europe , the rates could be a little bit lower than that.
So we do have some options on that front, but they could be about 50 basis points.
Even lower than what we're seeing on the slide.
So that would put you in the mid fours to high fours.
And just handling the refinancing activities that you anticipate over the next.
18 months or so like how much of that could conceivably be done.
In Europe or swapped into euros.
Yes, so the mortgages, we have maturing next year Theyre all European mortgages. So we would look to be able to replace that with European mortgages.
Perfect. Thank you I'll turn it back.
Thank you. The next question comes from Kyle Stanley from Desjardins Capital markets. Please go ahead.
Thanks afternoon, everyone.
You mentioned a little bit on your leasing strategy for new developments I'm. Just wondering has there been a shift there at all or is it still more lucrative to wait as long as possible before signing a deal on a new development or would you rather have something locked in a little bit sooner just given the macro headwinds.
Yes, Kyle it's Brian .
We have started all of our development on spec.
We're in very very tight markets.
Many tenants do not plan so far ahead.
That it works to wait for a pre lease and what we're finding is that.
The financial results on a pre lease or a pre negotiated deal when you haven't broken ground or not as good as if we're building into a market that has tremendous need for new supply. So I think our execution has been better to basically build on spec sometimes tests come when steel goes up sometimes they come earlier or later, but basically prepare.
<unk> be prepared to build entirely on spec and lease it.
Kind of kind of build into a market and it is coming to us. So Alex you can respond with what's happening on the ground, but he gave some examples.
In our opening remarks of our results of development, which have proven.
Proven that this strategy has been working but go ahead, Brian we're continuing to see that tenants look to make space decisions.
In relatively short order.
Tenants really start engaging on a project win.
<unk> is up.
And we're building isn't closed.
What we're also seeing is.
Our leasing strategy in general losing strategy of this of the site allows us to.
Mitigate any construction cost increases is much more effectively compared to pre leasing at a defined rate.
Two years before.
Okay great.
The the three Pls and e-commerce tenants have obviously been very active in taking up space in the last few years I am just wondering shouldnt should you see a slight slowdown from those types of tenants are there enough tenants that have either been on the sidelines are priced out of the market in recent years that could kind of backfill that demand.
Any kind of negative absorption.
Just to be mitigated by that.
So what we are seeing from <unk> remained very active both in Canada and in Europe , and so we've done deals in some of the deals that we talked about with <unk>.
We users directly taken space.
In our buildings, but theres a lot of <unk> activity as well and these are global.
Global names, who are who are very active.
In markets like Europe , Europe E Commerce still has a lot of runway.
That continues to drive some of that activity, but generally we continue to see.
<unk> being exited.
Okay. Okay. Thanks for that.
And then I think just last question is.
Last quarter, you mentioned seeing some development projects in the nodes that you are currently operating and maybe being put on hold could you elaborate on that are you seeing any more of that this quarter.
Yes, I was trying to see more evidence of that or some of the some of the data points that were more speculative when we've made that comment last quarter are becoming more firm.
In terms of projects getting delayed.
These.
I don't want to get into the exact projects, but examples would be markets like southwestern Ontario, we are seeing some some of the more merchant developers.
Slowing down and putting projects on hold.
Which is which is positive in terms of the health of the overall market and the positive story from a perspective for rental growth the development does that.
<unk> has to happen is sponsored by well capitalized.
Players, primarily and built a whole programs.
Okay, Thanks, and I actually lied I did have one one last quick question.
Same property NOI growth in Quebec, we are still very strong in this quarter, but it did slow a little bit from the second quarter I'm just wondering what the driver of that slowdown was.
I don't think that there is anything that is in particular.
Idiosyncratic drivers.
What I think we need to have highlights and maybe emphasize with respect to same property numbers.
As you are looking at is when.
When you look at it.
Year to date numbers for nine months versus the current quarter. The same property pool is different.
So.
So for example, when we issue guidance.
The beginning of the year, and then reiterate that guidance throughout the year or content that guidance in any way, we would refer to the same property pool at the start of that particular year. So at the start of 2022.
And in the case of this year's guidance.
And so when you look at Q3 2022, the same property pool in Q3 2021 is different because there were some acquisitions that were completed.
So that number will move around the quarterly number.
Okay. Okay. That's it for me I'll turn it back thanks very much.
Yes.
Thank you. Our next question comes from Himanshu Gupta from Scotia Bank. Please go ahead.
Thank you and good afternoon.
Just looking on the acquisitions.
The golf properties for around $67 million very recent acquisition. So what was the pricing on this end.
Do you think the values have changed a lot in the last six months.
Any can you kind of.
So maybe I'll start with the with the color. So this is Brian .
Brian commented this is a very strategic.
<unk> it.
Was it immediately adjacent to the site we own it allows us to assemble over 20 acres of land in Prime no debt.
And highway 497.
Just north of Sherwood Gardens.
This is what could be a prime location for double story warehouses if this.
Well it could be industrial mode over time.
It could be higher and better uses.
In terms of pricing metrics for this particular building.
The price per square foot were jumping around $300 Mark.
And.
Just around five cap going in yield.
With upside, obviously as leases roll and as rates continue climbing up.
But the true merit of the deal was the land Assembly and the strategic Merit of having 20 acres in that location.
And lastly, I would just add that there is.
A couple of assembly opportunities, we're looking at within that.
On that note much smaller than.
This deal to almost complete a block.
Right.
Got it and then I'll.
You mentioned that around five cap rate.
The same is quite different from the market rents today on this call today.
Yes, the in place rents are below market.
We continue to see that market rents.
A rising especially in these locations.
Got it Okay fair enough and then sticking to the evaluation team, but moving continents.
European portfolio.
Your Ics that people just took it all 25 basis points.
Was it an offline given the macro and given the cost of financing just told us so.
So maybe can you elaborate in terms of what are you seeing in terms of asset value pricing.
Yes.
Good question, when we look at the European values.
It's about 100 euro per square foot.
These properties are are asked which is.
<unk>.
Very low number compared to obviously, what you see in North America.
C&C rising.
Rents there and overall.
See that while there is upward pressure on.
On cap rates may be from rising interest rates.
Capital values are generally holding because the market rent growth offsets.
Offsets a lot of.
A lot of the pressure on going in cap rate.
Because at the end of the day you look at a total return.
And towards the return equation generally holds given the rising rents.
Okay. So so far you are happy with that.
This disciplined adjustments that kind of takes into account the new cost of financing market.
Okay actually it needs to be seen in the context of.
The rents.
Open market rents.
Okay.
No.
The leases in Europe in our portfolio in particular are indexed to CPI. So we're getting a direct pass through.
And in place rents, which is obviously, if our rent steps in Canada averaged just over over two 5%, obviously, we signing kind of in the fours as we do new deals in Europe , we're seeing high single digits in some cases double digits adjustments contractually.
Got it thank you.
Speaking of the Zen towards profile here.
The NOI was very strong this year on the strength with some guidance.
Any expectations for the next year or what are the expectations for the next year 2022.
We don't issue guidance at this time.
Year, but we will as always provide more context in February .
We hope that all of the ingredients for our same property NOI performance and outlook are in our public materials.
And.
You can arrive at some directional conclusion, but with that.
Okay, or maybe just a follow up there.
Are you expecting on the European lease expiring next year in terms of.
In terms of the vessels and I think not much has come and do any of these masks have been less than 1 billion square feet.
Hey, Scott.
We have nothing that is.
This year in 2022, we have this large 600000 square foot expiry in France, as we've talked about that was the ability of synthetic and assessment space with over over rented to begin with.
We underwrote it that way.
Now thats lease in.
So just a small pocket left 400000 square feet that we are in the process of back filling as we commented.
When we look at 2023 rollover, there's nothing of that profile that sticks out if that's helpful color and we generally expect that.
Our performance on leasing spreads and <unk>.
General leasing activity will be strong in Europe .
Alright.
Phone.
Last question housekeeping current income taxes, I think it was higher in Q2 relative to previous quarters.
<unk> expenses going forward.
And.
Do you expect higher income taxes in the Netherlands.
Okay.
The higher income taxes are not from the Netherlands, where we're active in other countries is actually coming from our Spanish subsidiaries, but I Wouldnt say for everyone right I would take the average of the first nine months and that kind of give you there.
<unk> run rate for the cash taxes on that basis.
Okay. That's fair enough. Thank you, everyone and I'll turn it back.
Thank you. Our next question comes from Gareth mature from <unk> capital markets. Please go ahead.
Thank you and good afternoon, everyone.
Firstly, just focusing on the European portfolio.
Do you think that we haven't gone through most of the price discovery mechanism that most industrial markets.
And Europe has seen or do you think there's still more to come.
Go ahead I'll attempt to answer your question I'm not sure I understand it fully but.
When we think about fundamentals in Europe .
We think that the rental growth is accelerating.
Some of the comments that we made.
About slowing down supply very much applies in Europe .
As we commented before.
Our experience is that.
In Europe , we see more merchant developers generally and so many of these players are slowing down in terms of.
Putting out new products or repricing existing projects.
And that leads to.
More rental growth generally in rental rising rental levels. So we see that.
When it comes to.
Pricing mechanism more price discovery mechanism.
As you know they're competing forces.
So.
Our rate growth.
<unk> interest rates certainly a factor so.
Overall, the data points that we've seen so far point to stable capital values.
But I think it's a new phenomenon in Europe in terms of accelerating rental growth.
Okay great.
Just switching the lens here to the Bakken pipeline.
Has the pressure on construction costs subsided in any manner or is that still proving to be a detriment across most markets.
By closing projects to be delayed.
We are we starting to see that the overall construction costs are stabilizing there are some elements that are they continuing to rise roofing for example.
Is still.
Kind of on an upward movement.
Cost item generally.
But some other cost positions that have been rising over the last 12 months 24 months have stabilized to some extent.
Okay fantastic.
Lastly.
The REIT has a robust development pipeline very strong mark to market opportunity there as well, but if I may ask what will prompt to consider an NCI will be down the road, especially given where the units are currently trading at.
Yes, Greg ill jump in and then.
Kick it back to the team as well I mentioned before that we're.
We're focused on right now and investing in our own properties, making them better building very good best in class.
Buildings on land much of land that we already own so.
That's where our our capital is being allocated we will kind of review this as we go but right now we're seeing opportunities within our portfolio that are that are very accretive very attractive, but probably the best use for our funds. We are watching the market very closely to see if theres any opportunities that would be very strategic.
Or.
Opportunistic for us so right.
Right now that's where we are.
Where we have prioritized our capital.
Okay.
Thank you for the color, Brian and Alex.
Back to the operator.
Thank you. Our next question comes from Paul.
From RBC capital markets.
Thanks, Hi, everyone.
Maybe just coming back to the broader backdrop leasing does seem to be again fairly strong, but I'm curious can you comment are there any signs of maybe early softness or any signs of weakness from a demand standpoint in any particular markets or or any even particular user types and I'm just curious if.
You're seeing if any of your European tenants or our other markets are facing some cost pressures.
That may limit the ability to push through some some of the leasing spreads that you've been getting.
Yes <unk>.
We're looking every day, we're looking every day very very closely for distress for chinks in the armor for any kind of.
Signs of weakness.
Alex mentioned a lot of of what we're seeing we're signing a lot of leases we sign a lease on if you take all of the leases divided by the days of the year is probably a Elisa day and so we're seeing real time data we are not seeing distress on the ground, we're not seeing rents back up or any kind of.
Softness in demand Alex I'll, let you add any color to that.
Thank you Brian .
I think we would point to the leasing activity that we recorded very recently so most of these deals that we talked about where these are large deal in France.
<unk> got some of the deals that we did in Montreal or the renewal join 1000 square foot renewal in Toronto those are very very recent deals.
And in May and they are coming.
Online now. These are these are all signed in August September October and so.
Recent data points that hopefully pointing to the operating fundamentals that we've seen.
Got it no that's helpful.
Just in terms of next year's lease maturities across the portfolio is there anything any larger vacancies or anything that you expect to get back that you know at this point is going to be coming back or or is it still too early.
Okay.
It's still too early the one property that is.
We are definitely getting back on our redevelopment list is that.
You look at our development.
The disclosure of our development table.
You will see a project in Montreal, Quebec and their planning.
So.
That <unk>.
Property, we are getting back in.
But we are excited about the opportunity because it allows us to intensify intensified site. It's very centrally located property. So thats why were getting back what it is going to be a development asset.
Other than that.
We are not seeing anything that would be.
Substantial.
I should correct myself as well as the good do you see that would be assets as well on the redevelopment list so that and again it was always identified as a redevelopment property.
We're going to get.
The property is 200000 square feet. So the 10 to 300000 square feet, we intend to knock down the building and 400000 square feet roughly so again thats a development development opportunities. So both of these.
On our radar for a long time and disclosed in our development pipeline.
Got it.
Just on coming back to that a typical acquisition whats the remaining lease term on that space.
Yes, the lease term is pretty short.
It's <unk>.
Less than two years.
Allows us to capture some upside pretty.
Pretty quickly.
Got it Okay and then just just one last one.
Regarding the.
The disclosed incentive fee payable I think it's 250 million Bucks if I recall I think this is the first time, you've actually disclosed the amount. Although you can certainly calculated over the past few years.
Is there any particular rationale for perhaps providing that disclosure this quarter.
Hi, Paul it's on us.
Yes, there was.
The 10th year anniversary of DIR. This year. So there is there is a date within the original asset management agreement.
And so since we've passed that that key date in there.
As you mentioned all the pieces were in our disclosures to be able to calculate the fee, but we've just started to under disclosed assumptions in there provided the number for the readers.
And so presumably that you will continue to provide that or is it just sort of it is just for this quarter because of the expiring.
Alright, yes, it'll be in our quarterly disclosures going forward.
Okay, Alright, I will turn it back thanks, so much.
Thank you for any questions. Please questions. Please press zero one. The next question comes from Matt <unk> from National Bank Financial. Please go ahead.
Hey, guys.
Just with regards to the at least in France.
Did that.
Came in ahead of your underwriting.
Pro forma can you give us a sense as to how market rents moved in the market relative to your expectation over over I guess the last year.
It came in.
We didn't underwrite significant rental growth.
When we.
Acquired that Omega portfolio.
As we commented back in 2021.
Our investment thesis for Europe .
It has been.
Throughout 2000 22021.
Our underwriting didn't have to include significant outsized rental growth for us to achieve the returns that we need it.
And that were compelling in Acacia.
So.
Dave.
So that's kind of one data point and the other data point is yes, it did exceed our.
Our underwriting and our.
Our growth expectation. So it was kind of in the mid single digit range.
In terms of the gross relative to <unk>.
Two underwriting in the summer of 2020.
One.
Okay, No that makes sense and then I guess it doesn't sound like there's any similar type properties in 2023, but are there other leases in that portfolio or other aspects of the European portfolio that would have above market rents or is it I guess theres, a 7% mark to market opportunity.
Across the portfolio is that kind of how we should.
Think of modeling.
At this point.
Yes, I think Thats I think thats right.
This was a fairly large building.
So it is a fairly large buildings.
Expiry that was somewhat unique in that portfolio.
And then I guess lastly on that front.
Is the expectation that industrial rents would grow at higher than inflate I mean, they've been growing at higher than inflation by a pretty significant magnitude in Canada.
The same would be true in Europe , and that we would see a continuing widening spread notwithstanding notwithstanding capturing the CPI increases and then maybe as a secondary and then last question to that.
How much is left to capture of the current increase in CPI.
Just through I guess the mechanism of the leases the anniversary dates like how much of the sort of 10%.
If we captured at this point.
Yes, so starting with the second question most of our lease anniversary at the beginning of the year.
So we've captured.
In.
In 2022, but then we will see more in 2023.
Some of the leases.
As you know have hurdles, especially in Germany. So those hurdles can be met at any point.
Harder to predict.
When it comes to the rental growth relative to inflation.
We have seen certainly this year in Europe that rental growth has been.
It has been higher than inflation, because it's driven by supply and demand.
Primarily.
It's difficult to project that.
But what our outlook generally is the rental growth will remain.
Strong so.
It's difficult to predict the supply demand dynamics, what we're seeing is that supply is generally shrinking.
<unk> remains strong and so if that equation holds combined with inflation it should lead to rental growth that is above inflation.
We're not banking on that but that's kind of.
Reasonable to expect.
Okay.
That's fair enough. Thanks, guys congrats on the quarter.
Thank you.
Thank you.
Have no further questions currently.
Turn the call back over to Mr. Paul.
In your remarks.
We'd like to thank everyone for your time today, we look forward to speaking again soon and in the meantime, please take care.
Thank you. This concludes today's conference. Thank you for participating you may now disconnect.
Okay.
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