Q4 2022 Dream Industrial Real Estate Investment Trust Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Dream Industrial REIT fourth quarter Conference call for Wednesday February 15th 2023. During this call management jobs Dream Industrial REIT may make statements containing forward looking information.
Formation within the meaning of applicable securities legislation.
Forward looking information is based on a number of assumptions and is subject to a number of risks and uncertainties. Many of which are beyond dream industrial reached control that could cause actual results to differ materially from those that are disclosed in or implied by such forward looking information additional.
Information about these assumptions and risks and uncertainties is contained and dream industrial Reits filings with securities regulators.
Its latest annual information form and MD&A. These filings are also available on dream industrial Reits website at Www <unk> Dream industrial REIT that's D. A.
Later in the presentation, we will have our question and answer session to queue up with your question. Please press star one one on your telephone keypad.
Your host for today will be Mr. Brian Pauls CEO of Dream Industrial REIT Mr. Paul. Please go ahead.
Thank you and good afternoon, everyone. Thank you for joining us today for Dream Industrial reach year end 2022 conference call speaking with me today is last Kwon, our Chief Financial Officer, and Alex <unk>, Our Chief operating officer.
122 was another strong year for industrial real estate, despite several macro headwinds during the year and the operating fundamentals of our markets have not skipped a beat and have continued to strengthen the outlook remains robust.
Vacancy across our Canadian and European markets remains at record lows, we have seen strong market rent growth in Ontario, Quebec, and in Europe , and Western Canada rental growth is starting to accelerate supply remains limited in all our markets with building restrictions and rising replacement costs.
We have significant growth opportunities embedded in our portfolio as in place rents are well below market.
Against this attractive backdrop in 2022, we delivered strong operating and financial results and completed a number of key strategic initiatives that enhance our growth trajectory going forward.
We reported nine 6% comparative properties NOI growth during the quarter and 10, 5% for the year, which was ahead of the guidance issued at the beginning of the year <unk> per unit was <unk> 23 in Q4 up 10% year over year, we reported <unk> 89.
The full year up 9% year over year also at the upper end of our guidance, we completed over half a million square feet of developments during the year at an average yield on cost.
Seven 5%.
Over the past three years, we positioned our business to have a strong and flexible balance sheet, allowing us to pursue strategic initiatives, while adding multiple drivers of growth across the portfolio our results and initiatives in 2020 to reflect this effort our portfolio quality is the strongest it's ever been following strategic reason.
Cycling out of low quality capital intensive and low growth assets in a modern logistics properties located in Toronto, Montreal, and some of the best markets in Europe .
Our portfolio has strong occupancy at nearly 99% with a balanced lease rollover profile, allowing us to focus on capturing upside while managing risk effectively.
We increased our average contractual rent steps across our Canadian portfolio to above two 5%.
Currently up from 2% in 2021, our European leases are largely indexed to CPI or development programs starting to contribute to our <unk> and NAV per unit. This year. We expect this contribution to grow as we complete projects in our pipeline.
We are pursuing value added projects across the portfolio ranging from refurbishing buildings to solar pains.
In addition to these organic growth drivers since 2021, we were actively focused on expanding our strategic partnerships with private capital markets. These partnerships allow us to grow the scale of our platform enhance the returns on capital invested through fee income and access investment opportunities that would be difficult for us.
To pursue otherwise without reliance on capital markets in 2021, we've seen in the U S Industrial fund and maintained at 25% share in the fund as it continued to add scale in the U S and improved asset quality as the property and leasing manager of the fund DIR earns pm and leasing fees.
Leasing fee the net margin on this fee business with $3 $6 million in 2022.
In April 2022, we formed a $1 5 billion developed the whole joint venture with a leading sovereign wealth fund to further scale, our Greenfield development program and increase our presence in the greater Toronto area and greater Golden Horseshoe area.
Through this partnership we will have access to high quality development opportunities in our primary markets. As these development projects reach stabilization will be earning leasing and property management fees enhancing our development returns further most recently the formation of Dream Summit's joint venture with GIC allowed us to.
Increased scale in some of the tightest markets globally.
<unk> balance sheet into a high quality portfolio with significant embedded upside while generating immediate accretion to our <unk> per unit.
Subsequent to the transaction, we will co own and manage one of the largest portfolio of industrial real estate and <unk>.
Canada with 43 million square feet of high quality properties, primarily located in Ontario, and Quebec. We will also have exposure to over 6 million square feet of near term development projects in Canada.
Pro forma the Dream summit venture are co owned and managed portfolio will grow to over 69 million square feet across Canada U S and Europe with 46% of the GLA in Ontario, and Quebec up from 33% a year ago.
In addition to development upside, we believe that summits portfolio offer strong organic growth prospects.
While the mark to market potential in DIR as Canadian portfolio is strong at over 50%, we believe that the embedded upside because some portfolio is significantly higher.
Beyond the significant merits of the real estate itself, our programmatic JV with GIC provides an incredible opportunity to continue growing in our core markets at attractive economics to the REIT.
With the property management and leasing fee income, we expect the summit transaction to be one to two accretive to our <unk> per unit for 10 months in 2023.
We expect the accretion from the transaction to more than double over the next three to four years as we grow the NOI of the portfolio organically and is the property management and leasing fee stream increases with higher rents and income.
Overall, our outlook for 2023 and beyond remains positive as we continue focusing on executing on our growth strategies.
Our entire platform.
I'll now turn it over to Alex to talk about our operations.
Thank you Brian Good afternoon, everyone 2022 was an exciting year for DIR as we outperformed our leasing and portfolio management goals.
Tenant demand for industrial product remains robust across our markets.
During Q4, we transact at one 5 million square feet of leases across our portfolio, achieving a rental spread of nearly 60%.
More than half of these leases were in Ontario, and Quebec, where we more than doubled the rins.
For the year, we transact at seven to nine square feet at an average spread of over 30% and.
In Canada, we transacted $4 6 million square feet at an average spread of 47% led by Ontario at 87% and Quebec at 62%.
Montreal markets continued to display robust fundamentals and we expect rents to continue increasing.
Western Canada markets, particularly Calgary have performed well, we're starting to see accelerating rental growth as vacancy rate Titan and supply remains constrained.
Our asset management strategies have allowed us to drive 11% comparative properties NOI growth in Canada for 2022.
We expect this pace of organic growth in Canada to continue driven by strong contractual rent steps and mark to market of leases on rollover.
In Europe , the macroeconomic sentiment has improved considerably over the course of the year.
While industrial rents continued to increase segment with limited vacancy in new supply.
Our portfolio remains essentially full at over 99% occupancy as we transact at $2 6 million square feet of leases at a 7% spread to expiring rents.
These rental rate increases are above and beyond the CPI indexation that we captured on our European leases over the course of 2022 CPR.
CPI indexation had a significant contribution to a nine 2% CP NOI growth for the year.
We continue to see strong demand from occupiers for example in our portfolio alone. We are currently in discussions with several tenants in the Netherlands, France, and Germany regarding possible expansions on excess land totaling approximately half a million square feet.
We expect <unk> transfer ECP NOI growth in Europe to remain strong in the mid to high single digit range, driven by CPI rent adjustments and rent mark to market.
Overall, we expect our comparative properties NOI growing at 8% to 10% in 2023.
As Brian mentioned in his remarks, we achieved strong development yields on our initial slate of projects and outperformed our underwriting we have a number of projects that are currently underway in 2023 will be another active year on the development front.
We are in advanced stages of construction on our 155000.
Square foot ground up development in Canada.
We expect completion in mid 2023 and are currently engaging with prospective tenants.
We commenced construction for a ground up development project in Cambridge. This 440000 square foot building as part of our DTA land joint venture.
We expect to finish construction in the first half of 2024 and are forecasting yield on cost well above 6% before any property management and leasing fees.
We're currently underway on our redevelopment of a three building cluster on a 10 acre site in Mississauga into a 210000 square foot net zero designed state of the art logistics facility.
The rendering of this project is featured on the cover of our annual report we commenced the demolition of the current buildings in late 2022 and expect to finish construction in the first half of 2024.
We're already receiving strong tenant interest and with that we expect this project to deliver and unlevered yield on cost well in excess well in excess of 6% as well.
Including projects in advanced stages of planning, we have over $2 2 million square feet of active projects that are expected to be completed over the next 12 months to 30 months.
Incremental costs on these projects are expected to be approximately $350 million with a forecast yield on incremental capital of over 9%.
Through our Dream summit venture, we will get access to an additional 3 million square foot pipeline of projects currently underway, primarily located in the GTA in southwestern Ontario.
We also expect strong returns from these development projects and will be further that will be further enhanced through the leasing and property management fees.
To wrap up I wanted to highlight that over the past few years, we have curated the portfolio strategically with the goal of maximizing the organic growth profile of our business.
Our asset management strategies development and sustainability sustainability initiatives are all expected to be accretive to our returns and surface value from our assets.
This year's strong results showcase the level of organic growth that can be produced by our portfolio.
With the Dream summit venture, we are positioned to be one of the top three industrial landlords and managers in Canada across public and private markets.
We expect that this scale will allow us to be more efficient as we execute on our asset management and development initiatives and build strategic relationships with our tenants across the country.
I will now turn it over to led us to talk about our financial highlights.
Thanks, Alex our financial results are strong and demonstrate the success of our strategic initiatives over the past several years.
Diluted funds from operations was 23 per unit for the quarter, 10% higher than the prior year quarter for the full year, we recorded diluted <unk> per unit of <unk> 89.
Which was at the higher end of our initial guidance and up 9% year over year.
Strong year over year growth was due primarily to strong comparative properties NOI growth and property management income from the U S Industrial fund.
We ended the quarter with leverage of 31, 7% and with over $500 million of available liquidity.
Following the acquisition every 10% interest in summit.
We have successfully deployed capital to bring leverage to our targeted range in the mid <unk> percent with over $400 million of total liquidity.
We expect to maintain our leverage around this level with a slight uptick as we fund our development pipeline.
Our near term debt maturities are limited with around $270 million of European mortgages maturing this year.
We expect to refinance these mortgages with current market rates in the $4 25 to <unk> 75, or 75% range.
Our in place rents are nearly 40% below market, which along with newly developed projects coming online.
Should help to support healthy organic growth and offset any increase in interest expense from refinancing debt at higher rates.
Based on our competitive properties NOI and leverage guidance, we expect <unk> per unit for 2023 to be in the mid 90% range with.
With potential upside, we expect to provide further clarity in the upcoming quarters.
Our <unk> per unit growth for 2023 is being driven by competitive properties NOI growth and accretion from the summit transaction.
Our <unk> guidance is predicated on our current foreign exchange levels and interest rate expectations.
Overall, our strategic initiatives have allowed us to build DIR into a business that can generate sector, leading organic growth consistently.
I will turn it back to Brian to wrap up.
Yes, it's been an exciting start to 2023, and we continue to set an outperform ambitious targets. We are positioned to become one of the largest industrial platforms in Canada across both public and private markets. We are well positioned to capture the benefits of this scale and deliver strong results for all of our stake.
Holders.
We'd now like to open it up for questions.
Thank you we will now begin our question and answer session. If you have a question. Please press star one one on your Touchtone phone if you wish to be removed from the queue. You can also press star one one.
If youre using a speakerphone please pick up the handset first before pressing the numbers once again to queue up with your question. Please press star one one and we have our first question from Mark Rothschild with Canaccord. Please standby, Sir while I open your line.
Thanks, Dan.
Good afternoon, everyone.
Maybe just starting with <unk>.
<unk> last comment as far as positioned for continued strong organic growth.
Looking at the guidance for 2023, and the leasehold that you have is there any reason you shouldnt be able to do comparable rent growth or NOI growth for several years.
Thank you Mark.
So we provided guidance for 2023 at 8% to 10% the drivers that lead to this guidance remain intact for the portfolio and $3 24 and beyond.
So we don't we don't expect.
Underlying drivers to change.
Having said that we're not in a position to specifically guide to 2024 numbers, but I think your statement is accurate.
Okay, great. Thanks, and then maybe moving on to something else on the IRS cap rates they use.
To what extent is that based on transactions that have happened to our expectations and maybe just give a little more color on how you arrived at the increase in the cap rates this quarter the change.
Thanks Mark.
<unk> values in Canada are largely driven by transaction. So we have seen.
Fair bit of transaction evidence and Canadian markets.
Some of the upside captured in the quarter and Canadian values is driven by expansions being completed and.
As the yield on cost on these expansions as well over 7%.
We've captured some of the upside.
On development in the values.
In Europe .
However, we haven't seen as.
As much evidence so a lot of the.
As much transaction evidence and so.
The input from our appraisers.
<unk> largely based on incomplete data in.
More than one sentiment then.
Then the transactions evidence.
And that led to a mild correction in Europe that we recorded in the quarter.
Whereby the slight cap rate expansion was offset by market rent growth to some extent.
Okay, Great and you kind of answered part of my last question. My next question Jess.
Offsetting the cap rates, obviously, you have some operating income growth would you have the information let us maybe take this offline to back.
To breakdown the difference between rent growth at first as other positive factors such as completing development of positive yield.
Sir you mentioned break out break that does the component the moving pieces on the the value.
The higher cap rate, obviously negatively impacts value, but then you had.
A lot of that or almost all of it offset by income growth or other positive moves them value. So what I'm trying to understand is how much of that is from rent growth that maybe you didn't have in your Q3.
For us and that they have now versus value that was actually created from new development.
I think the components are in the MD&A, Mark and we can connect separately to walk you through that you can see the market around movements in the portfolio.
We disclosed we dispose in place.
Sure.
Cap rates are implied cap rates.
Our MD&A and we also disclosed prices per square foot. So all the ingredients are there. So we will be happy to walk you through that yes, okay great.
Mark the large part of the positive offset or driven by market rents given that we had about 600000 square feet of developers.
Developments coming online and that would be when the value creation would be recognized through the large component of the positive pieces coming from market rents.
Okay, great. Thanks, so much.
Thank you we have our next question from Kyle Stanley with Desjardin. Please standby while I open up your line for your question, we'll take just a moment.
Your line is now open.
Thanks, Good afternoon, everyone.
In your prepared remarks, you noted seeing an even greater mark to market upside within the summit portfolio I'm. Just wondering could you elaborate on that how do you expect to kind of capture that and.
Maybe where the differences within the summit portfolio that was acquired versus kind of a legacy DIR asset base.
Thank you Kyle we will provide more detail in terms of numbers as we close the transaction and.
Report on the combined portfolio over the coming quarters.
In terms of drivers.
Our portfolio has a short vault.
And.
It's a more multi tenant portfolio. So the thesis turn faster.
Scientists portfolio has longer volt, and they're more single tenant buildings and so.
Historically haven't been maybe turning slower so the embedded upside.
As is greater we believe we were.
Exposed to the same.
And the markets in terms of growing market rents.
As a function of longer world.
<unk>.
And some of its portfolio that embedded upside is now greater at this point in time, we believe.
Okay Fair enough, maybe just switching over to development I mean, let US you just mentioned the developments that came online during the year I am wondering can you disclose what the NOI contribution from the developments that were kind of substantially complete during the quarter was just trying to figure out how to model that going forward.
Yes, we disclosed that during the quarter.
If there really was only about I think about a $5 million contribution in <unk>.
Canada.
They were coming online throughout the year some of them have been substantially completed with occupancy starting in early 2023 as well.
Yes.
If you refer to our development table in the MD&A you will see that.
The total.
Cost uncompleted project is about $8 $80 million at seven 6% yield on costs. So if youre trying to model the year.
Two NOI going forward multiplying those numbers will give you a relatively accurate.
Accurate number.
Okay. I guess I was just curious on I guess was there maybe a half quarters worth of contribution in the fourth quarter.
We can follow up offline just on the timing I guess of the deliveries.
Problem.
Last question and that is also on the table as well.
Okay.
Can reconnect.
Okay. Thank you.
But just looking for your view on private investment volumes.
On the industrial side in Canada in Europe in the year ahead, I mean, obviously it seems like we saw a decent amount of transaction comps in Canada, but would just be curious on your thoughts on kind of what happened in the market and the year going forward in both Canada and in Europe .
If you expect dream to be active on the external growth side.
We expect to be active through our programmatic JV with.
In the Dream the Dream some adventure.
We continue targeting.
Key markets in Canada for that venture being Toronto Montreal.
And we.
We think that the underlying fundamentals are strong.
With low vacancies.
Low new supply and rising rents and a lot of the.
Properties that.
Come for sale have embedded mark to market upside so.
That's the type of product.
Product that we're targeting and.
We expect to be active.
As to the market activity, it's hard to hard to predict.
We have seen a reasonably strong level of activity in Canada.
Recently so.
Nothing that points to that slowing.
Based on our conversations with market participants.
Okay. Thank you I will turn it back.
Thank you we have our next question from Brad Sturges with Raymond James Please standby, while I open up your line.
Please go ahead.
Hi, there.
Just to go back to the to the guidance for a second 95.
No.
What would that.
For fee income what would you what range should we be thinking about in terms of.
Fee income for the REIT.
Even the partial contribution, but some upon but I will call the U S fund as well.
Thanks, Brad we're not in a position to disclose specifically the fee income for confidentiality purposes.
So as we report on the combined property management and leasing fee business.
Including the U S.
Fund property management business, then you will be able to separate the two.
Potentially so but at this point, we cannot really comment specifically on the fee levels.
We refer you back to the.
Accretion guidance that Brian mentioned in his remarks.
Combined with the cost of funding that we have disclosed in our announcement press release.
As well as your estimates of the going in cap rate.
We can back into the margin on that business.
In approximate terms.
Okay no problem.
Just thinking about capital allocation for this year.
No.
How do you think about.
Your best use of capital right now would it be.
Obviously, you've got a decent sized development program.
<unk> source of capital for now or do you see a return to.
<unk> on the acquisition side as your cost capital stabilized in <unk>.
Bruce.
We continue to see opportunities organically in the business within the development pipeline.
The value add capital that we're investing in our portfolio, whether it's solar or refurbishment or other value add initiatives.
And.
We have.
A programmatic component to the dream Simon venture debt.
We're very excited about and those are great avenues for us to grow.
Externally.
Two.
Would part of the capital allocation would be additional contributions to the new.
Existing JV fund that you have.
Yes, so as we disclosed in the announcement press release for the June tonnage venture that there is a programmatic element too.
To that JV and so we we intend to.
Grow together.
With.
With GIC with our partner.
In our target markets.
Do you have a any.
Any guidance around how much.
Additional equity that you would expect too.
But potentially deploy not just that that fund but.
We'll grow in the U S fund.
The development fund as well.
We think that.
The equity deployment is going to be opportunity driven.
We don't usually guide acquisitions, whether it's on balance sheet acquisitions or any other.
Deployment of capital initiatives other than whats organically.
Is embedded in the business such as our development pipeline. So.
As we as the year progresses, we will be providing more color on opportunities that we see to deploy capital accretively.
Yeah, Okay. Thanks, a lot I'll turn it back.
We have our next question from Matt <unk> with National Bank financial please standby, while I open your line for you.
And your line is now open.
Yeah.
Just a quick follow up to Brad's line of questioning there would you anticipate maybe contributing some of your existing wholly owned assets.
The joint venture and then either use that capital to buy additional assets within that joint venture or in the development.
Thank you, Matt nothing like that is contemplated at the moment, Okay fair enough.
And then on the G&A front.
Linda I don't know if you can give us a bit of additional color as to what we should run.
Pretty stable on a percent of.
Revenue or NOI basis.
This year.
Is that a good kind of margin to use going forward or is there any incremental cost that we should assume.
23.
I would say it's a good it's a good run rate in terms of the percentage of NOI is in that 10% to 11% range of NOI. That's a good run rate for 2023.
Okay perfect.
And then on.
You mentioned that you've crossed two two and a half have been geared at two 6% embedded rent escalators.
<unk>.
In the existing portfolio can you give us a sense of are you still on top of these sort of 100% rent increases putting through three and 4% annual escalators on top of that.
Thank you, Matt, Yes, what we typically see in the GTA.
We're targeting 4% to four five in some cases, 5% annual escalators on top of the current market trends.
Well okay.
And then last one with regards to.
Just looking out a bit further on the debt maturity profile.
There was a bit of financing to be done in 2025, do you anticipate being opportunistic around that or waiting and seeing kind of where the euro interest rate environment goes and given where rates are between Europe and Canada.
And just your general thought on the financing side of the business at this point.
Yes, Thanks, Matt.
I mean, I think 'twenty.
Given how volatile the markets were in 2022 2025, it does seem like.
There are a lot could happen between now and then let's just say.
But yes, we are constantly monitoring and yes. If there is an opportunity we opportunistically would certainly look to do that I think our focus obviously right now is in the near term.
I think I had mentioned in the prepared remarks, just addressing the near term maturities in Europe , So thats quite the focus but.
And we don't see any issues on refinancing the European mortgages on that front, but.
But we'll be opportunistic and continue monitoring to see if we can extend the debt maturity stack further out.
In terms of where we're seeing rates I think that was the second part to your question.
I would say for the European mortgage as I had mentioned the rates in that range of foreign at quarter, four and three quarters percent for European mortgages.
The which is the most attractive rate of financing that we're seeing right now for.
European swapped, we'd probably be somewhere in that.
25 to 50 basis points higher.
Cleveland rates on an unsecured basis in euros.
Okay. That's very helpful. Great. Thanks, guys and congrats on continued stellar results.
Thank you we have our next question from Gaurav Mathur with IAA capital markets. Please standby while I open your line for you.
And your line is now open.
Thank you and good afternoon, everyone. A couple of quick question that my end.
So firstly as 2023 year olds forward can you discuss how the return profile may have changed when you're thinking of the capital allocation decision between acquisitions and development and potential unit buybacks.
Thank you Rob.
Look we've consistently pointed out that.
From a return profile the opportunities within the business such as our development pipeline provide.
We believe the highest risk adjusted returns.
In terms of what we what we see as we mentioned in our prepared remarks, when we think about allocating incremental capital to our development program.
Were looking at generating close to 9% if not over 9% yield on that incremental capital, which we think is very compelling and these opportunities are.
Proprietary to us so we think that that's an advantage.
When it comes to the acquisition.
Opportunities.
We mentioned to Brad's questions, we continue monitoring opportunities across.
Across Canada, we think that our.
Dream, some adventure allows us to generate enhanced returns through property management and leasing fee income.
Which is and which is going to be compelling going forward when we evaluate opportunities together with our partner.
When it comes to buybacks.
As we communicated previously we.
Absolutely are open to that and we're monitoring relative opportunities between buybacks and the development pipeline in terms of the risk adjusted returns and.
The impact on financial.
Leverage and financial flexibility and.
And as well as any other strategic opportunities that are available to us.
Okay. Okay, Great and then just lastly on the development pipeline and especially the specs that loveland.
Any concerns on leasing softness in the markets that you're targeting over the next one to 18 months or is it.
Is it steady and strong.
Thank you <unk>, we don't have any specific concerns on leasing.
We always communicated that to the way we have organized our development pipeline as we don't pursue very large project.
On spec we tried to pursues are.
But we would call bite sized project.
They were right for the Submarkets.
The buildings that we try to build out our flexible.
So we don't need to lease them to a single occupier, if thats not the demand in the market. So all of the product that we're building is subdivided though.
We are engaging with occupiers already on some of our developments that are targeted for delivery in 2024. So we're seeing demand and we're encouraged by the level of interest.
Okay, great. Thank you for the color I'll turn it back to the operator.
Thank you as a reminder, if you have a question. Please press star one on your Touchtone phone. Our next question is from Pommy birth. Please standby while I open your line.
Your line is now open.
Thanks, Hi, everyone.
With respect to the guidance.
Guidance for the year, the mid 90% range I think you mentioned with potential upside is there something specific that you were referring to or had in mind that could drive that upside whether it's seeing property NOI your fees or developments or was it more just a general statement.
No I think.
As the year progresses, and we execute on the leasing I think we'll have a bit more certainty around what the NOI is going to look like and what that rental spreads.
Upside on that front will look like throughout the year. So that's really what it's referring to.
Got it and then just with your pro forma leverage.
Post this.
Summit portfolio acquisition with.
It kind of being your target range, what are your thoughts with respect to maybe recycling some capital.
Either in the existing portfolio or any of the other stomach properties.
Thank you for that question.
Absolutely the capital recycling is.
On the on our radar.
<unk> started that as you would've seen in our press release this quarter.
We completed a couple of small dispositions in Europe .
At a premium to carrying value.
And there's a few.
Dispositions like that.
Across the portfolio that we are currently evaluating.
We always communicated that we have a pool of assets that we consider non strategic.
And.
Where we would consider dispositions for the for the right price at the right time.
We are gradually executing on that.
And with that and with these assets.
Got it across the portfolio or.
More specific to Europe or anything you can share there.
Yes, it's primarily smaller assets assets that came with various portfolios.
Assets that we don't think really belong in the business going forward again. This is the reason we call them non strategic as opposed to non core is that they are performing assets.
Were not disposing them, because we're trying to.
Deal with risk.
Per se, but we are we think it's not really.
Of course of the portfolio going forward because.
The business has grown considerably some of these buildings require attention and capital and we think our attention on capital are better spent elsewhere.
Okay and is this maybe possibly in the $50 million to $100 million range for the year or.
As there are no specific sort of.
Figure that you have in mind at this point.
It could be in that range timing will be challenging to predict.
We re engaging on some potential.
Opportunities.
It could be in that range.
Okay.
And then just lastly.
With respect to the same property NOI just wanted to clarify are you assuming sort of stable occupancy at these levels with.
The vast majority of that that 8% to 10%.
Property guidance.
Being driven by predominantly from real.
Releasing or higher rents.
That's right, yes, we're not assuming significant occupancy gains.
Got it.
One last one just with respect again coming back to the summit deal can you remind us.
The cost of debt that you are underwriting in that.
As we communicated in an announcement press release, we are assuming the.
The existing debt.
No I meant just in terms of the your equity funding of that transaction.
<unk> call I think you've upsized you've upsized.
The term loan I think it was is it still coming in at around 4%.
Yes, that's right there is a few components to it but I think on.
The blended rate of the components.
Well its 4% incrementally from the announcement date.
Got it okay. Thanks, very much I'll turn it back.
Thank you once again, if you have a question you can enter the queue by pressing star one one we have our next question from Mike <unk> with BMO capital markets. Please standby.
Alright, thanks, everybody I'd actually put my hand down, but now that I've got you.
I will go ahead.
I know youre reluctant to give specifics on the on the fee business and I get that I was just wondering if you could.
Help us just in terms of how you guys think about it I know, there's a base management fee and then there is.
Leasing fees et cetera, et cetera, but high level.
Do you guys look at it in terms of.
Yes.
Boost your unlevered yield on on the on the acquisition by a certain number or range of number or do you kind of look at it is.
A consistent ongoing because I know, it's lumpy, but more of a.
On a gross revenue basis I was just hoping you could give us a little bit of guideposts in terms of how to think about that going forward.
Yeah. Thanks, Mike Yeah, we think of it as more of a consistent.
Revenue.
Stream.
As we communicated in the prepared remarks.
Referring to Brian's remarks.
We.
We expect that that fee stream is going to scale as the as the income of the portfolio scales as well.
As you know the market standard property management fees are tied to gross rental revenue of the properties and so as we mark leases to market his corn gross rental revenue and NOI of the portfolio growth.
The property management fee stream will scale with that.
In addition, the leasing fees are tied to the rents achieved on.
On lease rollover of new leases. So directly is connected to the to the market rent levels from that perspective.
Okay, and what would the terms again without getting into the specifics because you do have disclosure for the U S funds over the last three or four quarters with the terms of.
Be similar to the U S property.
Thanks for that question, Mike as we communicated we will try to provide as much disclosure as we can without.
Reaching any confidentiality.
Provisions.
We communicated previously and the announcement press release of the fees are.
Our set of market levels.
Okay Alright.
Gotcha Gotcha.
Reluctance there, okay and just last one and then this is not hopefully not a sensitive but.
When you guys go from gross to net or is that just simply an allocation from your existing opex just trying to think about that.
Going to the grocery to the net.
Yes makes deducting, yes, gross revenues includes base rent and recoveries.
And then the NOI would be deducting operating expenses.
Oh, no sorry, just again I was just talking about the fees because you have it as a net fee contribution, but there's obviously a gross component to that so I'm. Just wondering if that's just an allocation of your existing opex or if there is this how that all works.
No its distinct distinct business.
Sure.
We're modeling and when we are communicating.
Doug.
Accretion from the.
The joint venture that takes into account the expenses that win.
<unk> currently so it's a net margin.
Okay got you okay. Thanks, very much great quarter murdered market certainly likes thanks a lot.
Just as a reminder, if you have a question you can enter the queue by pressing star one one. Our next question is from Sam Damiani with TD Securities. Please standby, while I open your line for you.
You are now open.
Thank you good afternoon, and congratulations on a great finish to the year.
Just one question for me is just on what's like what's the biggest change <unk> seen in the leasing markets in your in your core regions.
Over the last year, what industries are looking for more space, what industries might be contracting.
Theyre, obviously up in a big way in the last year.
Change in the tenants' willingness and ability to pay these higher rents.
And what's been the biggest impact from inflation higher interest rates and the economic uncertainty.
Thank you.
Thank you Sam.
So when we think about Europe . For example, we mentioned in our remarks that we are engaging with a number of occupiers across three countries.
Expansion opportunities those occupiers are all from very different.
Sectors.
When we look at our new leasing volume in Europe .
We've seen significant three PL demand.
Dan.
New leases with end users we've done deals with.
Tenants engaging in.
Electric car manufacturing.
Apply chains so.
We would say that the demand is pretty diverse and we havent seen kind of any specific.
Group outperforming.
There has been some news of <unk>.
E Commerce, driven pure e-commerce, driven demand being slower.
What we see in our business is that it's very hard to separate e-commerce from the.
The broader supply chains, given a lot of the occupiers that we deal with.
Engaging in E Commerce, one way together.
In Canada for example.
Switch gears, we have been pleasantly.
Not necessarily surprised but encouraged by the developments in Calgary.
We're starting to see accelerating rent growth.
Vacancy levels are pretty low.
And Calgary is really becoming a.
A strong alternative for western Canada in terms of being a distribution hub.
That is affordable.
Relative to other markets in the west.
<unk>.
Occupiers confined space so.
Certainly seen that.
In Canada when it comes to new demand again, when we look at our diverse.
Tenant base.
We haven't seen any particular group of tenants.
Outperform or do better worse or significantly better than others.
We've done deals again with three pls with end users with manufacturers.
Throughout the year.
In terms of the tenants' willingness to.
To pay rents, obviously, it's a negotiation.
However.
Tenants come to these negotiations you are very well informed of the alternatives.
And in the market.
And.
Fill location.
The the labor.
<unk> that these tenants employ.
As well as the access to major transportation corridors.
<unk> the key drivers for a lot of the occupiers.
Thank you that's helpful. Thank you.
Just to confirm Sam nothing further.
That's it for me thank you.
So much thank you Sir.
We have no further questions in queue I will now turn our call back over to Mr. Paul <unk> for closing remarks.
Thank you so much for participating today.
Please take care and we'll talk soon.
Thank you. This concludes today's conference call. We thank you for participating you may now disconnect.
Okay.
Okay.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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