Q2 2023 Dream Industrial Real Estate Investment Trust Earnings Call
Welcome to the Dream Industrial REIT second quarter conference call for Wednesday August 2nd tiny tiny tree.
During this call management of Dreaming the show rate 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 is subject to a number of risks and uncertainties. Many of which are beyond dreams and as Joe reached concho that could cause actual results to differ materially from those that are just closed in or implied by such forward looking information.
Additional information about these assumptions and risks and uncertainties is contained in dream in Europe , those two rates filings with securities regulators, including its latest annual information form and M. D N a.
This violence are also available on dream industrial reached web site at Www Dreaming the show rate thoughts see a.
Later in the presentation, we will have a question and answer session to queue up for a question press star and one on your telephone keypad.
Host for today will be Mr. O'brien pulse seal off Dream and just your REIT. Mr. Pulse. Please go ahead.
Good afternoon, everyone.
Thank you for joining us today for Dream Industrial REIT second quarter 2023 Conference call speaking with me today is Mike Kwon, Our Chief Financial Officer, and Alex Santa Claus <unk>, our President and Chief operating officer in.
In Q2, and DIR continued to execute on its core strategic pillars, our operating and financial results reflect the success of our efforts and the quality of our businesses. We reported 11, 4% comparative properties NOI growth for the quarter and 12, 3% for the six months period.
Our <unk> per unit was <unk> 25 for the quarter up 14% year over year, largely driven by ICP NOI growth.
Since the closing of the summit transaction in February we have made significant progress in integrating the dream summit portfolio and I'm starting to expanding the JV in our target markets.
The dream some venture has acquired three assets in the GTA for a total purchase price of approximately $126 million.
In addition, the venture is in exclusive negotiations or under contract to acquire an additional fixed assets located in GTA totaling 900000 square feet for approximately 234 million our net equity commitment toward these acquisitions is expected to be approximately $25 million.
Combined with the associated property management and leasing fees, we expect the income producing assets to generate a going in yield on equity of over seven 5%. There is further upside as we mark expiring leases to market rents that are approximately 40% higher than in place rents.
Overall, we expect DIR to achieve IRR in the mid to high teens on these acquisitions.
Our private capital partnerships continued to generate a strong recurring fee stream that is expected to grow significantly over time year to date, our property management and leasing platform contributed $4 million of net margins double that of the prior year period looking forward to the second half of 2023, all of our growth drivers remain intact.
We see a long runway for industrial fundamentals with sustained demand for industrial space, Despite the challenging economic environment.
The long term outlook for organic growth within our portfolio was strong with in place rents significantly below current market rents average contractual rental escalators and an essentially full portfolio.
I will now turn it over to Alex to provide additional color on our business.
Thank you, Brian and good afternoon, everyone.
The supply demand dynamics in our core markets continue to drive increasing rents.
Fly remains constrained with immediate development pipeline of less than 2% relative to existing stock and extra markets in Canada.
Occupier demand is broad based we see strong renewal activity and we continue to feel more requests from tenants considering expansions and we do from occupiers looking to reduce their footprint.
And our portfolio, we have seen strong leasing momentum across our key markets.
Since the end of last quarter, we transacted, one 4 million square feet of leases across our portfolio.
Achieving our rental spread of 47%.
Within the dream Southern JV since closing of the transaction. We completed four finalized terms on over 1 million square feet of leases at an average spread of 125% over prior year.
We continue to execute on our development pipeline and our progress is in line with expectations.
343000 square foot development in Balzac Submarket of Calgary, We have agreed to terms on leases 400000 square feet at rental rates in line with underwriting.
We have substantially completed our 154000 square foot ground up development in Canada.
The building is over 40% leased and we are in negotiations with several prospects tenants for the remainder of the building at terms that are in line with our underwriting and would support an unlevered yield on cost.
It was about 7%.
We're seeing strong leasing interest at a 436000 square foot project in Cambridge, and 290000 square foot redevelopment in this saga.
Lastly, during the quarter, we commenced construction on our 390000 square foot redevelopment project and would be.
Construction is also underway on our 650000 square foot Greenfield development in Calgary.
Yeah.
For the quarter, we reported 11, 4% comparative properties NOI growth in Canada, we achieved NOI growth of 12, 1% led by Ontario at 19% and high single digit growth in Quebec.
In Europe , we reported a 11, 4% increase in European C. P. NOI due to robust leasing momentum and CPI indexation.
Across our 90% of our portfolio.
For the six months period, we reported CP NOI growth was 12, 3% driven by 13, 3% in Canada and 11, 9% in Europe .
In place occupancy across our portfolio remains strong at 98% as we continue as we continue to execute on our strategy to maximize rental growth.
It compares to 98, 6% at the end of Q1 <unk>.
Slight decline is primarily due to our 154000 square foot Amazon development coming online and the vacancy at our 225000 square foot building near the Port of Montreal that we discussed last quarter.
Providing an update on our 2023 CPE NOI guidance, we are increasing our claims range III comparative properties in our high growth expectations to 10% to 11% range.
And the outlook for organic growth within our portfolio remains strong beyond train three.
We have over 6 million square feet of GLA and maturing in Canada in 2024, and 2025 with approximately 75% of the space located in Ontario, and Quebec.
Currently the average market rent for the leases maturing in Ontario, and Quebec is approximately double the in place rent.
In Europe , we have $2 4 million square feet maturing over the next two years.
The current average market rents for these European leases is only 10% higher than in place rents.
I will now turn it over to led us to talk about our financial highlights.
Thank you Alex our second quarter financial results are strong diluted SSO per unit was 25 cents for the quarter, 14% higher than the prior year quarter.
The solid year over year growth was primarily due to strong comparative copies NOI growth and property management income from our equity investments.
Our net asset value per unit at quarter end remained steady at $16 97.
During the quarter 106 million euros of European mortgages matured and were temporary temporarily refinanced using our credit facility.
As we mentioned in our press release, we have executed two term sheets with existing relationship lenders for over 150 million euros as new mortgage financings that are expected to close in Q3.
And thoughtfully executed a binding term sheet for 70 million euro refinancing to address the remaining 2023 maturities.
Based on current interest rates, we expect a weighted average rate of approximately four 8% on these new mortgages.
In addition, we received commitments to extend the maturity of our 500 million dollar unsecured credit facility to five years from November 2025 August 2028.
We continue to focus on maintaining a strong and flexible balance sheet with ample liquidity as we execute on our strategic initiatives.
Subsequent to the quarter end, we resumed our ATM program and raised $52 $5 million and used the proceeds to repay outstanding amounts on our credit facility that we're bearing interest at a rate of just under 7%.
This was accretive to our F O per unit run rate and allowed us to lower our leverage by nearly 70 basis points.
Pro forma pro forma our financing activities and our ATM issuances, our liquidity will increase to over $500 million.
We see the ATM and the lower cost equity financing tool, allowing us to manage volume and timing effectively.
When we look at the ATM funding, we are balancing net asset value per unit immediate and long term accretion to SSL and cash flows as well as leverage and liquidity.
Going forward, we will consider disciplined ATM issuances, if deployment opportunities are accretive to our cash flow and the returns on equity are compelling such as paying down debt contributing to our private capital partnerships and funding development projects, while balancing the overall impact on our NAV per unit.
Yeah.
Wrapping up with our outlook for the remainder of the year with our strengthening C. P NOI outlook and accretive capital deployment opportunities. We are comfortable increasing our 2023 <unk> per unit guidance to the high 90% range with lower leverage than what was assumed in our prior guidance.
Our S S little guidance remains predicated on current foreign exchange rate levels and interest rate expectations.
I'll turn it back to Brian to wrap up.
Thank you Lance it has certainly been an exciting first half of 2023 I would like to thank Alex for his leadership and growing role as well as lettuce and Bruce <unk> for their tireless efforts to drive performance for Dream industrial the team is well positioned to achieve significant milestones going forward.
I'd now like to turn it open it up for questions.
We will now begin the question and answer session.
Agenda question queue, you May Press Star then one on your telephone keypad, you'll hear tone and knowledge in your request if you're using a speaker phone. Please pick up your handset before pressing any case do.
To withdraw your question. Please press Star then two.
The first question comes from Mark Rothschild from Canaccord. Please go ahead.
Thanks, and good afternoon, everyone I'm looking at the acquisitions that you've done in Canada and in the joint venture can you, maybe just talk a little bit about strategically how youre thinking of acquisitions and balancing with the NCI be and to what extent. These acquisitions are driven more from.
The larger partner in the JV are they trip in from <unk>.
And just how you're looking at the accretion of that versus what you were able to accomplish in other markets.
Thank you Mark.
So these are high quality assets that are very much on strategy for for both D. I R N. The dreamtime adventure.
These assets are located in or GTA, Submarkets, and we think that the financial return metrics on these assets are very compelling.
Not only for the JV, but also for for DIR was they added a property management and leasing fee revenue.
So high level metrics are as Brian mentioned in his remarks in terms of the return on equity.
But the.
You can look at the assets from an Unlevered perspective, we expect a mark to market yields.
And the fixes on on.
Income producing assets, which we are which we think is compelling and these assets have.
Relatively short, while allowing us to capture that mark to market upside.
Our resulting in a high teens levered IRR, so on Jr's equity.
Are you not able to.
Get these types of Biomarkers and other markets.
Yeah high teen IRR in the mid to high Teen IRR just for our core plus.
Standing assets in key establish submarkets would be very challenging to achieve but otherwise.
So are these numbers being achieved because of the fees earned or it's just that they're more attractive values in Canada.
Well as we commented on the on the prior call we like the risk adjusted returns in Canada, and we continue to look for opportunities here, we think that the fundamentals of the market.
Our very strong along with a tailwind from a demographic trends that we see and key Canadian markets. So the asset themselves produce low teens IRR on a an equity investment and then with the IRS additions.
All fees.
So in this high teens, depending on the asset.
Okay, Great and then maybe just one more for Lantus mm for the St property in Hawaii and in Ontario in particular, although I saw this comments I think it was for other markets as well how much of the growth was driven by expansions versus core.
Core raising rental rates or occupancy.
We actually provide a we didn't provide a number on what our competitor properties NOI growth for the three months and year to date would be if we exclude the expansions from the total C. P portfolio. So it was nine 2% for the quarter.
And 10% for the six months period.
That's for Ontario or for the entire right.
And that's total total portfolio total comparative portfolio.
And can you break that down for Ontario.
Yeah, just give me one second here.
Yeah.
So yeah tons here it would have been 18% 18, 4% excluding expansion.
Okay perfect. Thank you so much.
Okay.
Yes.
Okay.
The next question comes from Mark Mike My Kid eats from BMO capital markets. Please go ahead.
Thanks, everybody I'm.
Good afternoon.
Great results and thanks very much for the two months of a scrubber on the contribution from the expansions on us is much appreciated.
Just with respect to you know you guys are getting incredible leasing spreads it sounds like in the near term at least in Ontario and Quebec.
Yeah about at 90, maybe even a 110%.
Recently, capturing as is evident.
How do you see the evolution of your embedded mark to market over the next one to two years, just given the normalization that you're.
They're seeing in the market from a market rent perspective.
Thanks, Mike we commented on the Mark to market opportunity over the next two years and our prepared remarks.
If you look beyond that its a mark to market is going to be driven by the.
Growth in market rents versus contractual escalators in the leases.
And what we've seen so far and including in 2023 is that the pace of market rent growth has been a greater compared to contractual escalators. So that outlook beyond the next few years will inform us.
The view on ongoing mark to market opportunity in the business.
Okay, and maybe if I understand correctly, the knowledge that you wouldn't expect that 37% embedded mark to market to change significantly.
Given that you don't have all your leases coming due in the near term is my hearing that correctly.
Does that sound fair.
Okay.
Right.
Last one for me just before I turn it back.
You know a lot of activity, obviously going on in Ontario through the Dream Summit J B I realized capital is not yeah.
Ubiquitous where are you guys today, but maybe if you could give us an update in terms of.
What youre seeing in our in the Netherlands, specifically or your other European markets just for me.
Buying salt perspective, just if you could compare and contrast, those markets to what youre seeing here that would be great.
Yeah. Thanks, Thanks, Mike when we commented on the financing rates are.
What we see in Europe , right now for moderate LTV.
Non recourse mortgage financing.
So that's obviously in forums.
The acquisition market as well.
When it comes to opportunities, we monitor hanging up changes in Germany, Netherlands, we continue to be encouraged by the fundamentals in the market.
You know rising rents.
Steady demand.
Increasingly constrained supply and are we starting to see interesting opportunities that translate into from a levered IRR perspective, and again that low to mid teen range and.
Starting to see more and more opportunities like that.
Okay.
Could you actually maybe I would just say do you think based on what you're seeing is it reasonable to expect that.
You might transact in Europe are at some point later this year or is that not likely at this juncture.
I think it's early to comment we were monitoring what's happening in Europe , and monitoring what's happening in Canada and continuously comparing our opportunities are and where will we get better returns.
For the time being we get the best returns are in terms of the acquisition market and within the within the JV structure that we have.
Hum.
We're constantly more on certain transactions.
And opportunity so.
It's hard to predict how that will unfold.
In terms of dispositions.
Dispositions we have.
We have done some dispositions to date in Europe , and we have a few in the pipeline that will continue showing.
And lastly, I should should I pointed out on acquisition. We just did one small acquisition in Germany are immediately adjacent to something we already all in dusseldorf.
Small small small addition.
Understood. Thanks, so much for the color.
The next question comes from Brad Sturges from Raymond James. Please go ahead.
Got it.
Just on the the revised same property guidance there tend to 11% can you remind me does that that does include a contribution from expansion activity.
Yes, it's as reported.
Yes, I know I got it.
And if you were to exclude that on the same property guidance, what would that range be.
Let us get back to you on that but we don't have that number right off the top but we can get back to you.
Less than 100 basis points in terms of the impact that we can.
Can come back to us.
And then just with the revised the revision in the guidance is that more just based on what you've done this year to date or were there material changes to expectations for the back half of the year.
I think that what we've done for at the beginning of a sentence since the beginning of the year and some revised expectation in terms of our leasing spreads are on.
Spaces that are coming out for the balance of the year.
No changes I guess of where you would be from like an occupancy point of view or a potential for transitional vacancy in any particular lease that might not fitting.
No significant changes on that front are we come to that a little bit on that on the day you can see the only vacancy that oh only sizable vacancies in the portfolio that will impact same property NOI numbers is our property in Montreal.
As far as future transition toward vacancy, we expect some space coming back to us in Spain.
In.
September October .
Which again was.
Factored into our guidance and what is wrong long expected a long expected vacancy.
Okay.
I'll turn it back thanks.
Yeah.
Yes.
Our next question comes from Tayo Stanley from day Shotgun. Please go ahead.
Thanks, Good afternoon, everyone.
Maybe just sticking with some of those the last little bit of Brad's question now I'm, just wondering with the bulk of your leasing.
The back half of the year kind of located in Europe . I'm. Just wondering is there anything you're seeing there that would either be very positive in terms of your leasing discussions or something that maybe are more concerned you just mentioned, obviously being aware of the space in Spain coming back. So I'm just curious on your thoughts for European leasing in the back half.
No real change in terms of our outlook or our rent expectations.
Patients.
Or timing expectations with respect to those spaces. These are.
High quality units and we are continuing to be.
First by the leasing momentum, we see in Europe , engaging with a number of occupiers on expansion needs.
That particular space. So it was kind of a long expected.
Building is gonna be.
Targeted for a slight refurbishment to lighting to led to upgrade the floor previous occupier has been in this space for quite some time. So we want to upgrade the space to get the highest rent that we can so there's going to be a little bit of downtime on that one but that's in line with our expectations.
Okay. Thanks for that you made mention of the vacancy in Montreal I know you discussed it last quarter in terms of balancing.
New development on the site or just re leasing at current market have you made.
It made any decisions on that yet.
Not yet both are still are still on the table and then there's a kind of an option in between there is on the table as well where it's at a light refurbishment somewhat similar to what we did in Kitchener 60 cycle asset when we bought an asset income.
Or older assets that need some refurbishment work in terms of the warehouse flooring ceiling lighting dock doors. So.
So we might do something similar with this property. So we are we have three.
Three tracks I guess, where are we pursuing at the moment.
Okay, Thanks, and just parse back being as it is leasing.
Second being kind of a larger refurbishment and significant intensification and third being minimal.
Minerals and the mills are serious.
Okay, great. Thank you for that.
Just last one just looking at Calgary for a minute I mean, we've heard a lot more positive commentary about the industrial market in Calgary.
The mark to market opportunity in the same property growth from from that portion of your portfolio has been a little bit less robust is that primarily reflect elevated in place rents or is that a little bit more related to you know elevated new supply I'm just trying to think about how we should think about Calgary going forward.
Yeah.
I think it's in place rents I think it's Oh so.
More tenant rollover within the Calgary portfolio Western Canadian portfolio in general we have smaller tenants in Western Canada.
We see more more of that rollover on a regular basis.
Regular transitory vacancy.
And lastly.
We continue to be very optimistic on Calgary and constructive on the market, but rental growth story. There is just starting and we expect to see more rental growth.
Overtime compared to Ontario, Quebec, where we've seen quite a significant run up in rents over the last three years that is informing the spreads that we are achieving today.
Okay. Thank you for your answers I'll turn it back.
The next question comes from he might shoot Gupta from Scotiabank. Please go ahead.
Thank you and good afternoon.
So just turning to balance sheet.
Wondering what is your targeted leverage here.
Is the plan to further use ATM the near term to get there.
Yeah.
Hi, I'm, Andrew I'll I'll start with the I'll start answering the questions. So in terms of our target leverage that has not changed we have always been targeting mid to high 30% range.
Although kind of given you a higher interest rate environment.
Economic I'm, certainly think lower the lower end of that targeted range and we could likely be more ideal I'm, just giving some of the uncertainty.
I think in the near term usage of the ATM.
As we've mentioned what's used to lower leveraged by 70 basis points, and we were able to do that on an accretive basis by repaying credit facility draw that 7%.
Okay.
And on the credit facility, how much balance would've been left once you do those in the European market as well.
So how much.
Yeah.
Yeah.
And we would expect that it should be.
I'd say less than 50 million approximately on a pro forma basis.
And given that you. It is innovative was that there'd be deference to like kind of going to use the ATM or distributions to pay down that credit facility.
Yeah.
Hi, Himanshu the salaries as we commented on our in our prepared remarks.
When we look at.
Using the ATM going forward, we will balance our various factors, including cash flow accretion.
Opportunities to deploy capital, whether it's and reducing debt.
Acquisitions or development and balance of that up as the impact from any of these.
That analysis.
Is ongoing and.
As we get the proceeds from financings and repay that facility and then evaluate where the market is that evaluate the interest rate environment at the times and we will.
Well, we'll go back to these factors that we've outlined to us to look at using the ATM.
Further the best part.
Alright, thanks for the color.
And then just turning to the European portfolio I mean, they can see that means less than 1%.
In fact, it's better than paid input for you are you are you also surprised by the resilience and Israel.
As your portfolio like outperforming the broader market.
Thanks for the question.
In terms of kind of comparing European portfolio and Canadian portfolio.
Not really.
Really Uh huh.
The current occupancy numbers don't really paint the full picture.
Or you shouldnt be extrapolating.
From that.
It's just a point in time our.
Occupancy in those portfolios will will fluctuate because we have multi tenant portfolios in both regions.
By design, we will see some transitory vacancy in different regions from time to time.
Overall occupancy remains strong in the portfolio and.
This is in line with our strategy also to sometimes take a little bit of vacancy.
It was.
Targeted and quantified that's if you will to then be able to capture the most in terms of market trends.
As far as our portfolio performance relative to market.
Yeah, the statistics in terms of Canadian occupancy levels.
R.
Are out there and I think it's really then.
It's kind of the overall availability in the Canadian market relative to occupancy in that portfolio is again not a perfect.
Perfect measure because a D a.
Occupancy in our portfolio is informed by a few idiosyncratic data points and also informed by our strategy to keep pushing the rents.
Okay, Okay fair enough and maybe just last question on Europe , and I know you provided some color on that as well.
Just specifically leasing volumes.
We have seen this as volumes come down a fair bit in Canada and U S. A in the first half of the Oh.
I'd be are you seeing the same kind of volume.
Leasing volume adjustments in there.
And so in Germany as well.
Leasing volumes are you referring to the broader market.
Or are you talking about.
I'm not just you all but about a month ago.
Yes.
Yes.
Yeah.
Yes, it was leasing volume in our business is frequently informed by the development pipeline the more developments coming online to more of a decent volume there is a.
Did they frequently correlated because.
The market is full and so the the new leasing volumes really driven by availability.
So are we seeing tricky development pipelines are across the board and that's also informing some of the leasing dynamics, specifically, Canada and in Europe .
As far as renewal activity and tenant demand for space, we haven't seen significant shifts in that regard and we continue engaging with many of your buyers in Europe as well regarding our expansion needs.
Okay. Just last question on the land pricing in J D I think.
You acquired a 26 acre site zoom somebody.
Is that true.
Question is how much land prices have corrected and Judy from its peak last year.
[laughter].
We haven't seen significant corrections land pricing is difficult it was more difficult to compare.
Compared.
Relative to the standing assets, because each savings Cts exotic and there could be site conditions that inform the price for any given and.
And then given a project and also we haven't seen significant volume on Oh land transactions in 2023.
So when we look at our new sites in the GTA are we would be generally targeting a yield on cost at around 7%.
When when underwriting land and we see opportunities at current prices that get us there and.
It's really the range it can be as low as one and a half million acre two two and a half three and above.
Depending on depending on the site and the atrophies.
Thank you Yeah fair enough.
Yeah.
The next question comes from Matt <unk> from National Bank Financial. Please go ahead.
Hey, guys.
Just wanted to quickly talk about the underwriting for the acquisitions that were done.
The seven and a half, but I think you said, 6% on a stabilized basis from a cap rate unlevered cap rate standpoint does that imply kind of mid fours going in and then could you kind of speak to that relative to I think you have a higher mark to market opportunity in your existing Ontario portfolio, but maybe a lower going in cap rate.
Just your thoughts there.
Thanks, Matt I know the going in cap rate is actually higher than most horse.
Because as you suggest in the Mark to market is not as significant as on double.
Around 40% is the mark to market opportunity. So the going in cap rate on the standing assets is higher than it's kind of in the fives.
The mark to market yield is in the mid sixes okay.
No. That's helpful. Thank you and then with regards to financing them.
You dealt with the mortgage maturities in Europe with with a secured debt, but it seems like a reasonable rate of four 8% given the b under our underlying rate environment, but can you give us a sense as to where unsecured debt swapped into euros would be relative to that and why you went the secured.
Unsecured groups at this point.
Yeah, So CAD slot T. L. A is probably in the low low fives right now I think we wanted to like these these assets where mortgages were already in place and they wanted to continue to diversify the funding sources.
There is still some incremental savings by keeping the secured.
So we chose to keep that and maintain our relationships with our lenders over there. We've we've worked with some of them for several years I E within the broader chain platform as well.
That's enough that it makes sense and then Alex I don't know if you can provide any incremental thoughts on the timing of the leasing in Montreal in Caledon, Obviously, Montreal will depend on the route you go but do you have a sense as to when we should have some sense on on the direction and when the lease.
Actually would take place.
In Montreal, we expect to land on the direction and in late Q3. So in September .
The land on the direction we are pursuing.
And.
That will inform all of you see the timing of lease up for avid signed a we expect a lease signed.
In the second half of 'twenty three.
Our leases.
Okay.
As we commented on our tour in June the asset was designed for multi tenant structure. So we're we're executing on that.
Sure no that makes sense.
Last one just with regards to capital recycling you mentioned a few has it sells in Europe is there anything in Canada, where you think you've taken it as far as you can take it at this point and is there any potential to sell assets I guess from D. A R into dream summit or is that not something you're entertaining at this.
Great.
With respect to the latter question no we're not entertaining anything of that sort at the moment with respect to your former question. You know we have a few deals are in the pipeline in a in Canada in terms of dispositions and advancing them shall we.
As they progress and we will provide more color I mean.
Yeah.
Okay.
That's helpful. Thank you.
Yeah.
Yeah.
The next question comes from Gaurav Mehta from <unk> capital markets. Please go ahead.
Thank you and good afternoon, everyone. Congrats on a strong quarter.
We are focusing on the acquisition pipeline you know.
Out of curiosity, what's the seller profile like <unk>.
And what's the bid ask spread that you've seen for the product that's coming to market.
Selling profile varies we redoing some sale and leasebacks are we're doing some deals.
Deals with a large institutional sellers.
Who are looking to recycle capital or dealing with redemptions.
And one of them sell their most liquid assets. So we've we've seen quite a range as far as the bid ask spread a we've seen that narrow we see the transaction market.
Active again, and we see bids depth for smaller tickets.
Especially you so we've seen some deals that.
We didn't win.
With as many as 15 bidders.
Pursuing those those assets.
Okay, Great and just to your point on some sellers, which have a redemption issues is that something that's spiked up over the last couple of quarters or is that just sort of historical norms.
Okay.
It did.
Theres no distress, if that's what you're getting at we see this is being executed in an orderly fashion.
It's redemption. So it's a just general mandates from from capital providers.
Yeah, it's pretty orderly and we're not seeing distress.
And in Canadian markets.
Okay, and I think that's going to be the same for the European market as well.
European markets are generally different and it says it is in their larger there's more players are there or something.
Greater range of capital structures, and our market participants.
So we were seeing pockets of stress as little categorized that are primarily driven by our financing.
Costs and availability of debt at those costs. So as you know debt service at 1% is very different than that's where it was at four and a half.
And so that will inform some of the sellers a desire to transact.
So it's not it's early to categorize that as distress or pockets of distress, but we're seeing some pockets of stress maybe emerging.
There's more motivated sellers overtime.
Okay, great. Thank you for the Pollo I'll turn it back to the operator.
The next question comes from Fang Jin Miami from T D. Cowen Pease go ahead.
Thanks, and good afternoon, everyone first question just on the.
What are your comments at the beginning that Alex about.
Still feeling good requests for expansion and it seem to you will still exceed your inbound requests for reductions in space or contractions. I was just curious what are you seeing like an increased amount of tenants looking for less space today than you might have six months ago is that a trend at all.
Yeah.
And in part because of a broader market and the broader economy. We're seeing we're seeing some but as we mentioned we've seen far more tenants looking to expand in tenants looking to.
Shrink their footprint.
Okay and also.
It was what was important to note here is that our portfolio that we are managing.
Managing and a number of data points that we have is roughly double.
Compared to what compared to about six months, maybe six six and a half months ago. So I'm, obviously, we see more data points as a result of that.
Absolutely.
Last question from me is just on the development pipeline like is there anything holding you back from kicking off new new new new developments in the next six to 12 months that you're still seeing good good economics to justify that a couple of allocation.
We're still seeing good economics, we have a couple of sites are in due diligence right now.
For our development JV and it does look interesting.
We'll need to complete our diligence on the assets and do technical attributes and are planning et cetera.
So we continue to see development in the right markets for the right product.
Attractive.
Investment and within the portfolio we.
Having a significant pipeline of expansion opportunities that we continue executing on.
Across the board, including Yeah.
Yeah. It was on balance sheet portfolio within Dream summit.
We have significant opportunities that Luke.
Very compelling.
Thank you that's great congrats on the great results and raise guidance great to see I'll turn it back.
Thanks, Tim.
The next question comes from Amit <unk> from RBC capital markets. Please go ahead.
Thanks, Hi, everyone.
Coming back to the development and land them.
Pricing sort of discussion can you provide maybe some color as to where that's whether maybe you're starting to see overall development cost stabilized and and.
As well as to maybe where all the costs are for our first site and the G E.
You were to go out and buy or acquire some additional anyway.
Thanks, Tommy so.
If you look at construction cost are so the disclosure that we provide on our development pipeline it could be a good indicator of roughly the ranges depending on the market. So we do disclose the GLA that we are building as well as the construction costs. So you are you will be able to get a sense of Oh.
Construction costs are by jurisdiction are big they do vary between.
Toronto, Montreal, and Calgary, so that that would be a good source for that.
As land prices as we commented we see it we see a range. So we were looking at something in a new and a half range, but we've seen a interesting opportunities and then two and a half million an acre range.
And there are trades are especially to users.
Definitely higher numbers than that.
Okay.
I want to come back to the ATM for a second and I appreciate your comments.
But I think you mentioned the idea of being in the low 30% range.
Ironman.
But again, given where the unit prices I just wanted to clarify do you see getting to that level.
You know again using more so confusing I E T M ore from from.
From asset sales.
So Tom just to clarify on that the leverage target comment or targeted range is that mid to high thirties and I have just stated that in this environment being on the lower end of that range, so not low thirties, but.
Probably more than mid closer to meet their needs rather than high thirties. AR is sort of is the targeted range. So just wanted to clarify on that at that point.
Got it and then just maybe coming back to the comments around dispositions I think last quarter you talked about.
We've got $50 million range is that still the thinking based on some of the stuff that you've got an idea that maybe in Canada and in Europe or is there.
Cost me more than that.
It's still there's still an achievable range are the level of interest that we see in terms of inbound require our inbound.
Offers that we've received is greater than that range.
However, as we commented earlier.
We still need to work through those sales don't negotiate.
The right price so not every one of them will materialize more likely so that's so did the range that we've indicated is still at a doable range, but we do get.
More we have we have more opportunities.
Are you, adding or not.
Thanks, I'll turn it back.
Once again.
If you have a question please press star.
Alright and one.
The next question comes from my end.
From CIBC.
Right.
Thanks. Good afternoon, just wanted to see him I give an update on the outlook up supply in your main European markets, how that looks in terms of the historical contacts and also where pre leasing stance.
Okay.
So we see supply increasingly constrained in Europe . So we've previously commented that planning is a significant constraint in our core markets, such as Germany, the Netherlands, and France and it continues to be the case are you planning a.
It is challenging and takes time.
There's significant opposition to new industrial development and most municipalities.
In addition to that.
The financial.
Financial constraints are now.
More significant in terms of our cost.
Cost of debt.
The ability of construction debt.
Exit cap rates are.
For merchant developers, who is the dominant group in our European industrial development landscape.
So all of these factors lead to an increasingly constrained our development pipeline.
And developers generally target to be a to a high degree of pre leasing are especially merchant developers because that translates into construction financing being available and being priced attractively and so generally we see that our developers are chugging to pre lease to a greater degree compared to.
To cancel it.
Yeah.
Okay, and then there was a fairly minor write down any all European portfolio, just curious about the.
What was behind that and that was based on transactions you've observed in the market.
Yes as you just suggested it's very moderate in terms of write down it's.
Informed by the.
But the spreads that we think should be warranted.
In terms of the mark to market yields relative financing costs and while the absorb transactions are limited Oh, we think that that spread should be healthy and it does inform that moderate moderate correction and values.
Thank you and back to you.
Yeah.
Okay.
Okay.
I would like to turn the conference back over to Mike.
All right.
Any closing remarks.
We'd like to thank everybody for your time today, we look forward to speak isn't in the future take care.
Yeah.
Yeah.
Yes.
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