Q2 2024 Dream Industrial Real Estate Investment Trust Earnings Call
Operator: Welcome to the Dream Industrial REITs second quarter 2024 results conference call on Wednesday, August 7th, 2024. Please be advised that all participants are currently in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero.
Operator: Welcome to the Dream Industrial Read Second Quarter, 2024 Results Conference Call on Wednesday, August 7, 2024. Please be advised that all participants are currently in list-know-me mode, and the conference is being recorded.
Welcome to the James Industrial REIT second quarter 2024 results conference call on Wednesday August seven 2024.
Unknown Executive: Thank you for that follow-up, Sumayya. Yeah, I think that's a fair observation. Some of the decline in occupancy being attributed to maybe a couple of larger spaces. In many cases, these spaces are demisable. And so we will, we'll work to reconfigure them to then respond to the demand that we see in the market.
Speaker Change: Please be advised that all participants are currently in listen only mode on the call.
Speaker Change: Is being recorded.
Operator: After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero.
Speaker Change: After the presentation there'll be an opportunity to ask questions.
Speaker Change: And the question queue you May Press Star then one on your telephone keypad.
Speaker Change: Should you need assistance during the conference call you May signal, an operator by pressing Star then zero.
Operator: During this call, management of Dream Industrial Read 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 Dream Industrial Read's 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 in Dream Industrial Read Spilings with securities regulators, including its latest annual information form and MDNA. These filings are available on Dream Industrial REIT's website at www.dreamindustrialreit.ca.
Operator: During this call, management of Dream Industrial REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Such 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's 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 in Dream Industrial REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are available on Dream Industrial REIT's website at www.dreamindustrialreit.ca. Your host for today will be Mr. Alexander Sannikov, CEO of Dream Industrial REIT. Mr. Sannikov, please proceed.
Speaker Change: During this call management of Dream Industrial REIT may make statements containing forward looking information within the meaning of applicable securities legislation.
Speaker Change: 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 rates control that could cause actual results to differ materially from those that are disclosed in or implied by such forward looking information.
Speaker Change: Additional information about these assumptions and risks and uncertainties is contained in dream industrial rates filings with securities regulators, including its latest annual information form and MD&A.
Speaker Change: These filings are available on dream industrial Reits website at Www Dream Industrial we don't see a.
Operator: Your host for today will be Mr. Alexander Seneca, CEO of Dream Industrial Read.
Speaker Change: Your host for today will be Mr. Alexander Senegal, CEO of Dream Industrial REIT. Mr. Tsakos. Please proceed.
Sumayya Syed: Okay, thanks for that. And then, just secondly, notice that the lease incentives jumped sequentially a bit this quarter. Looks like some early renewals were the driver, but how should we think about that figure going forward?
Operator: Mr. Seneca, please proceed. Thank you.
Alexander Sannikov: Thank you. Good morning, everyone.
Unknown Executive: Yeah, thanks. Thanks, Sumayya.
Alexander Senegal: Thank you good morning, everyone. Thank you for joining us today and for Jim Industrial REIT second quarter 2024 Conference call speaking with me today is Lantus Kwon, our Chief Financial Officer.
Alexander Seneca: Good morning, everyone. Thank you for joining us today for Dream Industrial Read second quarter 2024 conference call. Speaking with me today is Dennis Kwan, our Chief Financial Officer. In the second quarter, we continue to focus on executing our key growth on our key growth drivers. We reported 5% year-over-year comparative properties and a wide growth for the quarter, which drove FF4 per unit of 25 cents in line with our guidance. We have made good progress in our development leasing, with over half a million square feet of projects leased or conditionally at strong rents across Ontario and Alberta, including our recently completed Courtney Park redevelopment, which is now fully leased.
Alexander Sannikov: Thank you for joining us today for Dream Industrial REIT's second quarter 2024 conference call. Speaking with me today is Lenis Quan, our Chief Financial Officer. In the second quarter, we continue to focus on executing on our key growth drivers. We reported 5% year-over-year comparative properties and Y growth for the quarter, which drove FFO per unit of $0.25, in line with our guidance. We have made good progress on our development leasing with over half a million square feet of projects leased or conditionally leased at strong rents across Ontario and Alberta, including our recently completed Courtney Park redevelopment, which is now fully leased.
Unknown Executive: So yes, that's correct. The increase was due to some commissions payable on earlier renewals of some larger deals, so that's going to be a little bit lumpy. I would say, you know, just generally speaking, overall leasing costs on deals are relatively in line. They may have ticked up slightly, but not enough to offset, you know, healthy growth in starting rents and NERs as well.
Sumayya Syed: Okay, thank you. I will turn it back.
In the second quarter, we continued to focus on executing on our key growth drivers, we reported 5% year over year comparative properties NOI growth for the quarter, which drove a full per unit of 25 cents in line with our guidance.
Alexander Senegal: Made good progress on our development leasing with over half a million square feet of projects at least for conditionally at least.
Alexander Senegal: Strong rents across Ontario, and Alberta, including our recently completed quirky park redevelopment, which is now fully leased.
Alexander Seneca: We're executing on capital recycling to continuously upgrade our portfolio quality with the completion of 50 million of dispositions across Canada and Europe at above pre-sale-iferous values. With nearly 600 million of available liquidity and our marginal cost of debt declining by over 50 basis points since the last quarter, about our balance sheet remains strong.
Alexander Sannikov: We're executing on capital recycling to continuously upgrade our portfolio quality with the completion of 50 million of dispositions across Canada and Europe at above pre-sale IFRS values. With nearly $600 million of available liquidity and a marginal cost of debt declining by over 50 basis points since the last quarter, our balance sheet remains strong, starting with the broader market. The pace of demand across our industrial market has continued to normalize compared to 24 months ago.
Alexander Senegal: We're executing on capital recycling to continuously upgrade our portfolio quality was the completion of 50 million of dispositions across Canada and Europe.
Alexander Senegal: Above premium.
Alexander Senegal: Sale diverse values.
Alexander Senegal: With nearly 600 million of available liquidity and our marginal cost of debt declining by over 50 basis points since the last quarter about our balance sheet remains strong.
Alexander Seneca: Starting with broader market observations, the pace of demand across our industrial market has continued to normalize compared to 24 months ago. In addition, there has been some limited new supply delivered to the market, which, along with the rise in sub-lease options, has resulted in an uptick in availability. Based on the current sub-leasing pipeline we see in the market, we expect availability rates to continue trending upwards for the next quarter or two. Sub-leasing activity usually spikes in response to any economic disruption, but drops off fairly quickly as broader demand picks up pace. As such, we do not expect this particular supply driver to impact the market for the medium term.
Operator: This concludes the question and answer session. I'd like to turn the conference back over to Mr. Sannikov for any closing remarks.
Starting with broader market observations the pace of demand across our industrial market has continued to normalize compared to 24 months ago and.
Alexander Sannikov: Thank you, operator. Thank you everyone for your interest in Dream Industrial REIT. We look forward to reporting back next quarter.
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Alexander Sannikov: In addition, there has been some limited new supply delivered to the market, which along with the rise in sublease options has resulted in an uptick in availability. Based on the current subleasing pipeline we see in the market, we expect availability rates to continue trending upwards for the next quarter or two. As such, we do not expect this particular supply driver to impact the market for the medium term.
Alexander Senegal: In addition, there has been some limited new supply delivered to the market, which along with the ryzen sublease options has resulted in an uptick in availability.
Alexander Senegal: Based on the current sub leasing pipeline, we see in the market, we expect availability rates to continue trending upwards for the next quarter or two.
Sub leasing activity, usually spikes in response to any economic disruption, but drops off fairly quickly as broader demand picks up pace.
Alexander Senegal: As such we do not.
Alexander Senegal: Spec this particular supply driver to impact the market for the medium term.
Alexander Seneca: Current supply under construction represents only a minor fraction of existing market inventory, and we are seeing new construction starts dropping rapidly across our markets.
Alexander Sannikov: Current supply under construction represents only a minor fraction of existing market inventory, and we're seeing new construction starts drop rapidly across our market. With that, we expect our core operating markets in Canada and Europe will remain undersupplied in the context of structural demand drivers for industrial product over the next near to medium term, leading to low vacancy rates and upward pressure on rent. Over the last quarter, we saw high leasing activity in our development pipeline.
Alexander Senegal: Current supply under construction represents only a minor fraction of existing market inventory and we're seeing new construction starts dropping rapidly across our markets.
Alexander Seneca: With that, we expect our core operating markets in Canada and Europe will remain under supply in the context of structural demand drivers for industrial products over the next near to medium term, leading to low vacancy rates and upward pressure on rents.
Alexander Senegal: Was that we expect our core operating markets in Canada, and Europe will remain under supplied in the context of structural demand drivers for industrial product over the next near to medium term, leading to low vacancy rates and upward pressure on rates.
Alexander Seneca: Over the last quarter, we saw high leasing activity in our development pipeline. During the quarter, we completed our conditional on 150,000 square feet of project in Ontario and 400,000 square feet in Alberta. Our recently completed redevelopment project at Courtney Park in Mississauga is now fully leased to two tenants. We achieved an average starting rent of $21 per square foot and annual steps of approximately 4%. We expect this asset to contribute over $4.5 million to our annual NOI on a run rate basis with rent commencement in September 2024. During the quarter, we substantially completed our 20-acre project in Bolzac.
Alexander Senegal: Over the last quarter, we saw higher leasing activity in our development pipeline two during the quarter, we completed or are conditional on 150000 square feet of projects in Ontario, and 400000 square feet in Alberta.
Alexander Sannikov: During the quarter, we completed our conditional on 150,000 square feet of project in Ontario and 400,000 square feet in Alberta. Our recently completed redevelopment project at Courtney Park in Mississauga is now fully leased to two tenants. We expect this asset to contribute over $4.5 million to our annual NOI on a run rate basis with rent commencement in September 2024. During the quarter, we substantially completed our 20-acre project in Balzac
Alexander Senegal: Recently completed redevelopment project at <unk> Park in Mississauga is now fully leased to two tenants.
Alexander Senegal: We achieved an average starting rent of $21 per square foot in annual steps of approximately 4%.
Alexander Senegal: Expect this asset to contribute over four and a half million dollars to our annual NOI on a run rate basis with rent commencement in September 2024.
Alexander Senegal: During the quarter, we substantially completed our 20 acre project in Balzac. The project is comprised of two buildings and approximately 70% of the projects is leased or conditional or at least and we achieved an average starting rent of $12 a foot in annual steps of approximately 3%.
Alexander Seneca: The project is comprised of two buildings, and approximately 70% of the project is leased or conditionally leased, and we achieved an average starting rent of $12 a foot and annual steps of approximately 3%. We expect this stabilized project to contribute over $4 million of annual NOI on a run rate basis. Spread on contracted leases remains strong. Since the end of Q1, we have signed 2.4 million square feet of new leases and renewals at an average spread of 57%. In Canada, we signed 1.7 million square feet of leases at an average spread of 80%, including a 180,000 square foot tenant in the GTA who we renewed at a spread over 200%.
Alexander Sannikov: The project is comprised of two buildings, and approximately 70% of the project is leased or conditionally leased, and we achieved an average starting rent of $12 a foot and annual steps of approximately 3%. We expect this stabilized project to contribute over $4 million of annual NOI on a run rate basis, while spread on contracted leases remains strong. Since the end of Q1, we have signed 2.4 million square feet of new leases and renewals at an average spread of 57%.
Alexander Senegal: We expect the stabilized project to contribute over $4 million of annual NOI on a run rate basis.
Alexander Senegal: Spread on contracted leases remained strong since the end of Q1, we have signed two 4 million square feet of new leases and renewals at an average spread of 57% in.
Alexander Sannikov: In Canada, we signed 1.7 million square feet of leases at an average spread of 80%, including a 180,000 square foot tenant in the GTA, who we renewed at a spread of over 200. In Europe, we signed 800,000 square feet of leases at an average spread of 11%, and we have been able to realize solid rental steps on all of these. Our approach to prioritizing rental growth in our leasing strategy has proven to be rewarding despite the temporary temporary drag on auction. Our 100,000 square foot property in the GTA is a good example of this strategy. The previous tenant was paying mid-$14 rent and was terminated in Q3 2023.
Alexander Senegal: In Canada, we signed one 7 million square feet of leases at an average spread of 80%, including a 180000 square foot tenant in the GTA, who we renewed at a spread of over 200%.
Alexander Seneca: In Europe, we signed 800,000 square feet of leases at an average spread of 11%. We have been able to realize solid rental steps on all of these deals. Our approach to prioritizing rental growth in our leasing strategy has proven to be rewarding despite the temporary drag on occupancy. Our 100,000 square foot property in the GTA is a good example of this strategy. The previous tenant was paying mid $14 rents and was terminated in Q3 2023. A few months ago we received an offer in the $15 range, which we passed on, and recently signed an offer for a 5-year lease for 100% of the building at a rent of $18 a foot with 3.5.
Alexander Senegal: In Europe, we signed 800000 square feet of leases at an average spread of 11% and we have been able to realize solid rental steps on all of these deals.
Alexander Senegal: Our approach to prioritizing rental growth in our leasing strategy has proven to be rewarding. Despite the temporary a temporary drag on occupancy.
Alexander Senegal: Our 100000 square foot property in the GTA is a good example of this strategy.
Alexander Senegal: The previous tenant was paying mid $14 rents and was terminated in Q3 2023 a.
Alexander Sannikov: A few months ago, we received an offer in the $15 range, which we passed on, and recently, we signed an offer for a five-year lease for 100% of the building at a rent of $18 a foot with a 3.5% step. This new lease is expected to commence in Q3. While a patient approach to leasing is appropriate for some assets, we are evaluating all scenarios on an asset by asset basis for our 200,000 square foot property in the Port of Montreal.
Alexander Senegal: A few months ago, we received an offer in the $15 range, which we passed on and recently signed an offer for a five year lease for 100% of the building at a rent of $18 a foot with three 5% step this new leases expected to commence in Q3.
Alexander Seneca: This new lease is expected to commence in Q3. While patient approach to leasing is appropriate for some assets, we are evaluating all scenarios on an asset-by-asset basis. For our 200,000 square foot property in the port of Montreal, we were looking to achieve premium rents for a significant outside storage component. Based on the response from the market so far, we currently expect that intensification and reconfiguration of the asset to accommodate multiple tenants will result in stronger returns. As such, we are likely going to pivot towards intensifying and refurbishing the asset in the near term, as opposed to leasing as is.
Alexander Senegal: While patient approach to leasing is appropriate for some assets. We are evaluating all scenarios on an asset by asset basis.
Alexander Senegal: For our 200000 square foot property in the Port of Montreal, We were looking to achieve premium rents for significant outside storage component.
Alexander Sannikov: We were looking to achieve premium rents for significant outside storage components. Based on the response from the market so far, we currently expect that intensification and reconfiguration of the asset to accommodate multiple tenants will result in stronger returns. As such, we're likely going to pivot towards intensifying and refurbishing the asset in the near term as opposed to leasing as is. Another approach that we are increasingly exploring is user sales.
Alexander Senegal: The response from the market. So far we currently expect that intensification and reconfiguration of the asset to accommodate multiple tenants will result in stronger returns.
Alexander Senegal: Such we're likely going to pivot towards intensifying and refurbishing the asset in the near term as opposed to leasing is this.
Alexander Seneca: Another approach that we are increasingly exploring is user sales. We have seen significant demand from owner occupiers in many of our vacant buildings, both in DIR's Holy Own portfolio and in our private ventures. We are in discussions or have closed on over $100 million of user sales that prices representing a cap rate of approximately 5% on market rents for these buildings, which is a creative total of returns. As we communicated previously, we are increasingly focusing on opportunities to recycle capital out of non-strophicic assets into our core business and markets at a creative returns. During the quarter, we disposed of six non-foticic assets located in Regina at total proceeds of $42 million, representing a 12% premium over carrying value.
Alexander Senegal: Another approach that we are increasingly exploring is user sales.
Alexander Sannikov: We have seen significant demand from owner occupiers in many of our vacant buildings, both in DIR's wholly owned portfolio and in our private. We are in discussions or have closed on over $100 million of user sales at prices representing a cap rate of approximately 5% on market rents for these buildings, which is accretive to our total return. As we communicated previously, we are increasingly focusing on opportunities to recycle capital out of non-strategic assets into our core business and markets at a creative return.
Speaker Change: <unk> seen significant demand from owner occupiers and many of our vacant buildings, both in Dir's wholly owned portfolio.
Speaker Change: And in our private ventures, we are in discussions or have closed on over $100 million of user sales at prices, representing a cap rate of approximately 5% on market rents for these buildings, which is accretive to our total returns.
Speaker Change: As we communicated previously we are increasingly focusing on opportunities to recycle capital out of nonstrategic assets into our core business and markets at accretive returns.
Alexander Sannikov: During the quarter, we disposed of six non-strategic assets located in Regina for total proceeds of $42 million, representing a 12% premium over carrying value. The consideration included a two-year Vendor Take Back Mortgage totaling $29 million and bearing an interest rate of 6.5%.
Speaker Change: During the quarter, we disposed of six strategic assets located in Regina at total proceeds of $42 million, representing a 12% premium over carrying value.
Alexander Seneca: The consideration included at two-year, then to take back mortgage, totaling $29 million and bearing an interest rate of 6.5%. This effectively allows us to continue generating cash flow from these assets for the next two years, in addition to $12 million of proceeds up front. We are open to opportunities to sell our remaining Regina assets over time at compelling pricing metrics. As we recycle capital from these assets, our capital allocation priorities remain intact. With plans to reinvest the proceeds towards completing our existing development pipeline, executing on our solar program, and contributing towards our private capital partnerships, which are all accreted from a total return standpoint.
Speaker Change: The consideration including <unk>.
Speaker Change: Included a two year vendor take back mortgage totaling $29 million and bearing an interest rate of six 5%.
Alexander Sannikov: This effectively allows us to continue generating cash flow from these assets for the next two years, in addition to $12 million of Proviso. We are open to opportunities to sell our remaining Regina assets over time at compelling prices. We plan to reinvest the proceeds towards completing our existing development pipeline, executing on our solar program, and contributing towards a private capital partnership, which is all accretive from a total return standpoint. To date, in 2024, we have completed over $100 million of acquisitions in the Dream Summit venture. Calgary, and we are starting to explore opportunities in Vancouver.
Speaker Change: This effectively allows us to continue generating cash flow from these assets for the next two years. In addition to $12 million of proceeds upfront.
Speaker Change: We are open to opportunities opportunities to sell our remaining Regina assets overtime at compelling pricing metrics.
Speaker Change: As we recycle capital from these assets our capital allocation priorities remain intact.
Speaker Change: We plan to reinvest the proceeds towards completing our existing development pipeline.
Speaker Change: Executing on our solar program and contributing towards our private capital partnerships, which are all accretive from a total return standpoint.
Alexander Seneca: To date, in 2024, we have completed over $100 million of acquisitions in the Dream Sum adventure. We continue to focus on growing our industrial portfolio in strategic Canadian markets, such as Toronto, Montreal, Calgary, and we are starting to explore opportunities in Vancouver. Our business is well funded to pursue these initiatives on a leverage-neutral basis through existing liquidity and retained cash flow.
Speaker Change: To date in 2024, we have completed over $100 million of acquisitions in the dream Some adventure.
Speaker Change: We continue to focus on growing our industrial portfolio and strategic Canadian markets, such as Toronto Montreal caliber.
Speaker Change: Calgary and we are starting to explore opportunities in Vancouver.
Alexander Sannikov: Our business is well-funded to pursue these initiatives on a leverage-neutral basis through existing liquidity and retained cash flow. We expect that our results for 2024 will be consistent with the previously communicated outlook, and we continue to expect re-acceleration of same property NOI and FFO per unit growth into 2025. I will now turn it over to Lenis to discuss our financial highlights.
Speaker Change: Our business is well funded to pursue these initiatives on a leverage neutral basis through existing liquidity and retain cash flow.
Alexander Seneca: While the current environment is less certain compared to 24 months ago, all of our growth drivers remain intact. The demand for high-quality urban industrial space remains solid, and structural supply-demand drivers are intact. We expect that our results for 2024 will be consistent with previously communicated outlook, and we continue to expect re-exceleration of the same property NOI and FF4 per unit growth into 2025.
Speaker Change: While the current environment is less certain compared to 24 months ago, all of our growth drivers remain intact.
Speaker Change: Handful of high quality urban industrial space remains solid and structural supply demand drivers are intact. We expected our results for 'twenty 'twenty four will be consistent with previously communicated outlook and we continue to expect Reacceleration of same property NOI and <unk> per unit growth into 2025.
Lenis Quan: I will now turn it over to Lenis to discuss our financial highlights. Thank you, Alex. We're pleased with our solid financial results for the second quarter. We reported diluted FFO per unit of 25 cents for the quarter, driven by solid comparative properties NOI growth of 5 percent, and over 2.5 million of net fees generated from our property management and leasing platform. Our NAV per unit at quarter end was $16.73, a slight increase compared to the prior quarter primarily due to leasing activity driving higher market values in Canada, partially offset by higher cap rates in Europe.
Speaker Change: I will now turn it over to <unk> to discuss our financial highlights.
Alex: Thank you Alex.
Lenis Quan: We're pleased with our solid financial results for the second quarter. We reported diluted FFO per unit of $0.25 for the quarter, driven by solid comparative properties NOI growth of 5% and over $2.5 million of net fees generated from our property management and leasing platform.
Speaker Change: We're pleased with our solid financial results for the second quarter, we reported diluted <unk> per unit of 25 cents for the quarter driven by solid comparative properties NOI growth of 5% and over $2 5 million of net fees generated from our property management and leasing platform.
Speaker Change: Our NAV per unit at quarter end was $16 73, a slight increase compared to the prior quarter, primarily due to leasing activity driving higher market values, and Canada, partially offset by higher cap rates in Europe.
Lenis Quan: We continue to actively pursue financing initiatives to optimize our cost of debt and maintain a strong and flexible balance sheet with ample liquidity. During the quarter, we completed the refinancing of our $200 million Series B floating rate of benches with a new euro $153 million unsecured terminal. The new term loan bears interest at a rate of 4.01%, at approximately 50 basis points lower than the maturing rate. The Canadian equivalent is approximately $225 million, and the incremental 205 million of financing proceeds will be earmarked to repay our European mortgage maturing at the end of August, our last debt maturity for the year.
Lenis Quan: We continue to actively pursue financing initiatives to optimize our cost of debt and maintain a strong and flexible balance sheet with ample liquidity. During the quarter, we completed the refinancing of our $200 million Series B floating rate debentures with a new Euro 153 million unsecured term loan. The new term loan bears interest at a rate of 4.01%, approximately 50 basis points lower than the maturing rate. The Canadian equivalent is approximately $225 million, and the incremental $25 million of financing proceeds will be earmarked to repay our European mortgage maturing at the end of August, our last debt maturity for the year.
Speaker Change: We continue to actively pursue financing initiatives.
Speaker Change: Our cost of debt and maintain a strong and flexible balance sheet with ample liquidity.
Speaker Change: During the quarter, we completed the refinancing of our $200 million series B floating rate debentures with the new Euro 153 million unsecured term loan.
Speaker Change: The new term loan bears interest at a rate of 4.01% approximately 50 basis points lower than the maturing rate.
Speaker Change: The Canadian equivalent is approximately $225 million and the incremental 200, sorry, the incremental $25 million of financing proceeds will be earmarked to repay our European mortgage maturing at the end of August our last debt maturity for the year.
Lenis Quan: We ended Q2 with leverage in our targeted mid-30% range and net debt to EBITDA ratio of 8.1 times. With total available liquidity of approximately $600 million, we retained sufficient capital to execute our strategic initiatives, including funding our development pipeline and contributing to our private capital partnerships. In July, we extended the maturity data of our $200 million unsecured term loans by two years to match the associated interest rate swap. From February 2026 to March 2028, further enhancing our debt maturity profile.
Lenis Quan: We ended Q2 with leverage in our targeted mid 30% range and a net debt to EBITDA ratio of 8.1 times. With total available liquidity of approximately $600 million, we retain sufficient capital to execute our strategic initiatives, including funding our development pipeline and contributing to our private capital partnership. In July, we extended the maturity date of our $200 million unsecured term loan by two years to match the associated interest rate swap, from February 2026 to March 2028, further enhancing our debt maturity profile.
Speaker Change: We ended Q2 with leveraging our targeted mid 30% range and net debt to EBITDA ratio of eight one times with.
Speaker Change: With total available liquidity of approximately $600 million, we retain sufficient capital to execute our strategic initiatives, including funding our development pipeline and contributing to our private capital partnerships.
Speaker Change: In July we extended the maturity date of our $200 million unsecured term loan by two years to match the associated interest rate swap.
Speaker Change: On February 26th of March 2028, further enhancing our debt maturity profile.
Lenis Quan: No changes were made to the rate or any other substantive terms. Having completed these financing initiatives, we have effectively addressed all of our debt maturities for 2024. The debt markets have become more constructive, and recent changes in the underlying rates have resulted in our marginal cost of debt declining by over 50 basis points since the last quarter.
Speaker Change: Changes were made to the right or any other substantive terms, having completed these financing financing initiatives, we have effectively interest olive rate debt maturities for 2024.
Lenis Quan: Having completed these financing initiatives, we have effectively addressed all of our debt maturities for 2024. The debt markets have become more constructive, and recent changes in the underlying rates have resulted in our marginal cost of debt declining by over 50 basis points since the last quarter. Our outlook for the remainder of the year remains intact and in line with our previously issued guidance on comparative properties' NOI and FFO per unit. We continue to expect that our occupancy will trend upwards by the end of 2024. I will turn it back to Alex to wrap it up.
Speaker Change: The debt markets have become more constructive and recent changes in the underlying rates have resulted in our marginal cost of debt declining by over 50 basis points since the last quarter.
Lenis Quan: Our outlook for the remainder of the year remains intact and in line with our previously issued guidance on comparator properties NLI and FFO per unit. We continue to expect that our occupancy will trend upwards by the end of 2024. Based on the new leasing pipeline and timing of lease commencement for the third quarter, we expect in-place occupancy to decline slightly while committed occupancy to remain largely flat to slightly up compared to Q2 2024. Looking beyond 2024, we expect that the pace of organic growth within our portfolio will accelerate and will continue to exceed the pressure from higher interest rates, translating into sustained FFO per unit growth.
Speaker Change: Our outlook for the remainder of the year remains intact and in line with our previously issued guidance on competitor properties NOI and <unk> per unit.
Speaker Change: We continue to expect that our occupancy will trend upwards by the end of 2024.
Speaker Change: On the new leasing pipeline and timing of lease commencement for the third quarter, we expect in place occupancy to decline slightly while committed occupancy to remain largely flat to slightly up compared to Q2 2024.
Speaker Change: Looking beyond 2024, we expect that the pace of organic growth within our portfolio will accelerate and will continue to exceed the pressure from higher interest rates translating into sustained <unk> per unit growth.
Alexander Seneca: I will turn it back to Alex to wrap up. Thank you, Linus. We look forward to continuing executing on our targets and focusing on creating value for young holders.
Speaker Change: I will turn it back to Alex to wrap up.
Alexander Sannikov: Thank you, Lenis. We look forward to continuing to executing on our targets and focus on creating value for unit holders. We will now open it up for questions.
Louis: Thank you Louis.
Alex: We look forward to continue executing on our targets.
Alex: And our focus on creating value for unitholders, we will now open it up for questions.
Operator: We will now open it up for questions.
Operator: Certainly. We will now begin the question and answer session. To join the question, Q, you may press star then one on your telephone keypad.
Operator: We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star then 2.
Alex: Certainly.
Speaker Change: We'll now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
Kyle Stanley: Um, Lenis, I think I just missed kind of what you were saying on the occupancy side right at the end. So I just want to kind of clarify.
Operator: You'll hear a toilet acknowledging your request. If you're using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, press star, then two.
Speaker Change: Ellen acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing any key to withdraw your question Press Star then two.
Kyle Stanley: Our first question is from Kyle Stanley with Desjardins. Please go ahead. Thanks, morning, guys.
Speaker Change: Our first question is from Kyle Stanley with Desjardin. Please go ahead.
Kyle Stanley: Thanks, Good morning, guys.
Lenis Quan: Linus, I think I just missed what you were saying on the occupancy side right at the end. I just want to clarify what your confidence level is on regaining occupancy into year end in order to set up for 2025. If you can provide, I guess, be expected kind of exit occupancy for the year.
Kyle Stanley: Lennox I think I just missed the kind of what you were saying on the occupancy side right at the end. So just wanted to kind of clarify.
Kyle Stanley: What your confidence level is on kind of regaining occupancy into year end in order to set up for 2025 or if you can provide.
Speaker Change: I guess, you expected kind of exit occupancy for the year.
Lenis Quan: Thanks, Kyle.
Lenis Quan: Thanks, Kyle, and good morning. As we previously commented in May, we were expecting at the time that occupancy would decline into the mid-year and recover back up to the starting point for the year towards the end of 2024. And our expectation sort of remains intact. So we expect to see in-place occupancy slightly down for Q3, committed occupancy to be flat, maybe slightly up as of September, and a trend back up into Q4 towards the end of the year.
Chad: Thanks, Chad.
Lenis Quan: Good morning. As we previously commented in May, we were expecting at the time that occupancy would decline into the mid-year and recover back up to the starting point for the year towards the end of 2024, and our expectations remain intact. So we expect to see in place occupancy slightly down for Q3, committed occupancy to be flat, maybe slightly up as of September, and trend back up into Q4 towards the end of the year.
Chad: Thanks, Colin and good morning.
Speaker Change: As we previously commented in May.
Speaker Change: We were expecting at the time that occupancy would decline into the mid year and recover back up to date for the starting point for the year.
Speaker Change: Towards the end of 2024 and <unk>.
Speaker Change: Alright expectation sort of remains intact.
Speaker Change: So we expect to see him in place occupancy.
Speaker Change: Slightly.
Speaker Change: Slightly down.
Speaker Change: For Q3 committed occupancy to be flat, maybe slightly up in as of September and a trend back up into into Q4 and towards the end of the year.
Lenis Quan: I think one thing to point out about occupancy is that our portfolio is fairly diverse when it comes to rents that we generate for every square foot. So, for example, 400,000 square feet of vacancy are currently in Spain, roughly 1% of the total portfolio. Rents in Spain, both on a net basis and on a gross basis, are about a quarter to a third of what they are in the GTA. And so if you translate that vacancy into dollars, that's equivalent to about 100,000 square feet or 150,000 square feet in the GTA. So while we want to lease all of that space, some space contributes far more than others.
Lenis Quan: One thing to point out on occupancy is that our portfolio is fairly diverse when it comes to rents that we generate for every square foot. For example, about 400,000 square feet of vacancy, currently in Spain, roughly 1% of the total portfolio. Rents in Spain, both on the net basis and the growth basis, are about a quarter to a third of what they are in the GTA. So if you translate that vacancy into dollars, that's equivalent to about 100,000 square feet, 150,000 square feet in the GTA. So, while we want to lease all that space, some space contributes far greater than others.
Speaker Change: One thing to point out on occupancy.
Speaker Change: Is.
Speaker Change: Our portfolio is fairly diverse when it comes to.
Speaker Change: The rents that we generate or every square foot. So for example.
Speaker Change: That 400000 square feet of vacancy current base in Spain.
Speaker Change: Roughly 1% of the total portfolio.
Speaker Change: Rents in Spain, both on a net basis on a gross basis.
Speaker Change: A quarter to a third of what they are in the GTA.
Speaker Change: So if you translate that vacancy into dollars that's equivalent to about 100000 square feet to 150000 square feet in the GTA. So.
Speaker Change: Well, where.
Speaker Change: We want to lease all of that space, some some space contributes far far greater than that.
Speaker Change: Others.
Kyle Stanley: Okay, I appreciate that context. It's very helpful.
Speaker Change: Okay I appreciate that context, it's it's very helpful.
Kyle Stanley: You know, I think you kind of gave your outlook on the current state of the market and maybe not seeing availability peak for a few quarters. I mean, this past quarter is kind of for the broker reports; we did see absorption in Canada was quite soft.
Speaker Change: I think you kind of gave your outlook on the current state of the market and maybe not.
Speaker Change: Not seeing availability peaked for a few quarters I mean, this past quarter as kind of for the broker reports, we did see absorption in Canada was quite soft would you say your view, we've kind of on a market basis peaked on the negative absorption front or would you expect.
Lenis Quan: Would you say, in your view, we've kind of on a market basis peaked on the negative absorption front, or would you expect, you know, maybe some more significant negative absorption in the year and before, you know, the inflection point. Yes, in Canada, we measure availability rate, which includes subleasing activity. As we commented earlier, we expect that there's going to be more subleasing activity in the third quarter, potentially the fourth quarter based on at least the pipeline that we see in our portfolio and conversations with occupiers. And so, as that subleasing activity hits the market, it will impact the reported net absorption.
Speaker Change: Maybe some more significant negative absorption into year end before.
The inflection point.
Speaker Change: Yeah.
Speaker Change: Yeah. So in Canada, we measure availability rate, which includes some leasing activity as we commented earlier, we expect that theres going to be more sub leasing activity in the third quarter potentially the fourth quarter.
Speaker Change: He's on it.
Speaker Change: At least the pipeline that we see in our portfolio in conversations with.
Speaker Change: With occupiers and so as that sub leasing activity.
Speaker Change: Hits the market it will impact the reported net absorption so we expect availability.
Lenis Quan: So we expect availability to trend slightly upwards. We're not really seeing significant pressures on vacancy. So vacancy will likely remain consistent. My trend downwards as some of the new stock gets least, but the overall availability will likely trend upwards just based on the sub leasing activity.
Speaker Change: To trend slightly upwards.
Speaker Change: Not really seeing significant pressures on vacancy.
So vacancy will likely remain consistent.
Speaker Change: Trend downwards as are some of the new stock gets leased.
Speaker Change: But the overall availability will likely trend upwards, just based on the sub leasing activity.
Kyle Stanley: Okay, that makes sense. As we said, we expect that for the next quarter or two, we don't expect that this is going to be a long-lived trend. Okay, thank you for that.
Speaker Change: Okay that makes sense.
Speaker Change: Switching as we said we expect that for the for the next quarter or two we don't expect that this is going to be a long lived trend.
Kyle Stanley: Okay, thank you for that. Maybe just switching to Europe quickly for a second. You know, how is your European portfolio today? Would you say you're looking to expand it? Or would you consider monetizing some assets, maybe given what seems like a bit of an improving transaction environment?
Speaker Change: Okay. Thank you for that maybe just switching to Europe quickly for a second how are you thinking about the European portfolio. Today would you say you are looking to expand it or would you consider monetizing some assets, maybe given what seems like a bit of an improving transaction environment.
Lenis Quan: Maybe just switching to Europe quickly for a second, you know, how are you thinking about the European portfolio today? You know, would you say you're looking to expand it or, you know, would you consider monetizing some assets, maybe given what seems like a bit of an improving transaction environment? We're generally encouraged by what we see in Europe from a supply-demand perspective. We are seeing solid demand for urban well-located assets. And so we continue to look for opportunities to add to that segment of the portfolio. We wouldn't be opposed to maybe recycling capital out of some of our larger day product.
Alexander Sannikov: We're generally encouraged by what we see in Europe from a supply and demand perspective; we are seeing solid demand for urban, well-located assets. And so we continue to look for opportunities to add to that segment of the portfolio. We wouldn't be opposed to maybe recycling capital out of some of our larger bay products. We wouldn't be opposed to recycling capital out of markets such as Spain over time. There's nothing imminent in the pipeline, but we're definitely exploring opportunities like that.
Speaker Change: Were generally encouraged by what we see in Europe from a supply demand.
Speaker Change: Perspective.
Speaker Change: We are seeing solid demand for our urban.
Speaker Change: Urban well located assets and so we continue to look for opportunities to add to that segment of the portfolio.
Speaker Change: We wouldn't be opposed to maybe recycling capital out of some of our larger bay product, we wouldn't be opposed to recycling capital out of markets such as Spain over time.
Lenis Quan: We wouldn't be opposed to recycling capital out of markets that just stay overtime.
Lenis Quan: There's nothing imminent in the pipeline, but we're definitely exploring opportunities like that.
Speaker Change: There's nothing imminent in the pipeline, but we are definitely exploring opportunities.
Kyle Stanley: Okay, thank you. Just a quick last one.
Speaker Change: Okay.
Kyle Stanley: Okay, thank you. And just a quick last one. What are your views on a unit buyback program today, just given that the stock is trading at a pretty significant discount to book value? So curious how you're thinking about that amongst all of your other capital initiatives.
Speaker Change: Okay. Thank you and just a quick last one.
Lenis Quan: You know, what are your views on a unit buyback program today, just given you know, the stock is trading at a pretty significant discount to book. So curious on how you're thinking about that amongst all of your other capital initiatives. Thanks. So thank you for the show up. So we commented on that earlier this year, and the commentary generally stands that we have other immediate priorities for capital. Primarily, our development program, as we finish that and as we look at the availability of capital from either retain cash flow or sales proceeds, then we will look at all opportunities to deploy capital, including share buybacks.
Speaker Change: What are your views on a unit buyback program today, just given the stock is trading at a pretty significant discount to book. So curious on how youre thinking about that amongst all of your other capital initiatives.
Speaker Change: Thanks.
Alexander Sannikov: So thank you for the follow-up. We commented on that earlier this year, and the commentary generally stands that we have other immediate priorities for capital. Sales Proceeds. Then we will look at all opportunities to deploy capital, including share buybacks. But for the foreseeable future, i.e., the next quarter or two, we're going to focus on finishing our development program with the capital that we have.
Speaker Change: Thank you for the follow up.
We commented on that earlier this year.
Speaker Change: Commentary generally stance that we have other immediate priorities for capital.
Speaker Change: Primarily our development program as.
Speaker Change: We finished that and.
Speaker Change: We will look at availability of capital from either retaining cash flow or sales proceeds then we will look at all opportunities to deploy capital and including our share buybacks.
Lenis Quan: But for the foreseeable future, i.e.
Speaker Change: But for the foreseeable future I E next quarter or two we're going to focus on finishing.
Lenis Quan: next quarter or two, we're going to focus on finishing a development program with the capital that we have.
Speaker Change: Finishing on development program was the capital that we have.
Operator: Thank you very much. I'll turn it back.
Speaker Change: Okay. Thank you very much I'll turn it back.
Mike Markidis: The next question is from Mike Markidis with the ML Capital Market. Please go ahead. Thank you. Good morning, everybody. Just starting off, your Alex, you mentioned that you know sublet activity in the market was picking up. But you also said that you're seeing it in your own portfolio.
Mike Markidis: The next question is from Mike Markidis with BMO Capital Markets. Please go ahead.
Speaker Change: The next question is from Mike Mckee DS.
Speaker Change: Emo capital market. Please go ahead.
Mike Markidis: Thank you. Good morning, everybody.
Mike Mckee: Thank you good morning, everybody.
Mike Mckee:
Mike Mckee: Just starting off your Alex you mentioned that.
Mike Mckee: Doublet.
Speaker Change: Activity in the market was picking up but you also said that youre seeing in your own portfolio. I was just wondering if you could give us a little bit more context, there in terms of where you might be seeing it and how material that maybe because it's not in your reported occupancy figures.
Lenis Quan: I was just wondering if you could give us a little bit more context there in terms of, you know, where you might be seeing it in how material that may be, because it's not in your reported occupancy figures. I would say picking up; I just want to clarify that. I think we just see a little bit more on the horizon. Obviously, we've seen probably most of it already in the market stats, but we're seeing probably a little bit more in the pipeline. So that kind of informs our outlook for the broader market. As far as what we see in our portfolio, we have a couple of pockets where we have third party logistics users who have maybe taken up more space and they currently need who are looking to optimize their footprints.
Speaker Change:
Unknown Executive: I would say picking up, I just want to clarify that I think we just see a little bit more on the horizon. Obviously, we've seen probably most of it already in the market stats, but we're probably seeing a little bit more in the pipeline. So that kind of informs our outlook for the broader market. As far as what we see in our portfolio, we have a couple pockets where we have third-party logistics users who have maybe taken up more space than they currently need and are looking to optimize their footprints. It's consistent with what I have been driving.
Speaker Change: I would say picking up I just want to clarify that I think we just see a little bit more on the horizon.
Speaker Change: Obviously, we've seen probably most of it already in the market stats.
Speaker Change: But we're seeing probably a little bit more in the pipeline. So that's kind of informs our outlook for for the broader market as far as what we see in our portfolio that we have a couple of pockets where we have.
Speaker Change: Third party logistics users.
Speaker Change: Who have maybe taking up more space than they currently need.
We're looking to optimize their footprints.
Mike Markidis: And, you know, it's consistent with what has been driving the availability rates going up in the market or a negative absorption, as I'll refer to. Got it. Thanks. Okay.
Speaker Change: And it's consistent with what.
Speaker Change: What has been driving.
Speaker Change: Availability rates going up in the market or negative absorption.
Speaker Change: Referred to.
Got it thanks, Okay, and then just on the in place occupancy I guess you guys started the year at 95 nine.
Lenis Quan: And then just on the in place occupancy, I guess you guys started the year 959. We're at 95 now. You think it maybe comes in a little bit, but you end the year, if I hear you correctly, sort of back where you started. So I guess rough math that would put you at an average of 9,550 or maybe slightly lower for this year. As you know, based on your comments on re-acceleration in 2025, sort of what kind of average occupancy increase are you expecting? Is it flatish to this year? Is it higher? Because I know you're getting high single digit on in place rent.
Speaker Change: We're at 95 now you think it maybe it comes in a little bit, but you end the year, if I hear you correctly sort of.
Speaker Change: Back where you started so I guess rough math that would put you at an average of $95 50, or maybe slightly lower for this year as you know based on your comments on Reacceleration in 2025.
Speaker Change: What kind of <unk>.
Mike Markidis: What is your average occupancy increase? Is it flattish to this year? Is it higher? Because I know you're getting high single-digit increases on in-place rents. So just curious about your thoughts there.
Speaker Change: Average occupancy.
Speaker Change: Increase are you expecting is it flattish to this year or is it higher because I know you're getting high single digit on in place rents. So just curious on your thoughts there.
Lenis Quan: So just curious on your thoughts there. Look, we know obviously you're guidance right now for 2025. Our portfolio generally operates in the kind of mid to high 90s occupancy and has operated multiple cycles. And so we don't expect the average run rate occupancy to change dramatically over time. And so it's a higher outlook for near medium term for occupancy is in that range. In addition to that, our development assets will will contribute to the occupancy, and these assets are let on a long-term basis, so that will contribute to the overall occupancy primarily into 2025. Right.
Speaker Change:
Unknown Executive: Look, we're not obviously issuing guidance right now for 2025. Our portfolio generally operates in the kind of mid to high 90s occupancy and has operated over multiple cycles. And so we don't expect the average run rate occupancy to change dramatically over time. And so our outlook for the near medium-term for occupancy is in that range. In addition to that, our development assets will contribute to the occupancy, and these assets are let on a long-term basis, so that will contribute to the overall occupancy primarily into 2025.
Speaker Change: Look we are we know obviously issuing guidance right now for 2025.
Speaker Change: Our portfolio is generally upgrades in the kind of mid to high <unk> occupancy and has operated over multiple cycles.
Speaker Change: And so.
Speaker Change: So we don't expect the.
Speaker Change: The average run rate occupancy to change dramatically over time.
Speaker Change: And.
Speaker Change: Our outlook for.
Speaker Change: Near medium term for occupancy is in that range.
Speaker Change: In addition to that.
Speaker Change: Our development assets will.
We will contribute to the to the occupancy in these assets are left on long term basis, so that will.
Speaker Change: Contributing to the overall occupancy primarily into 2025.
Unknown Executive: Right. Okay. And then on a same property basis, I guess, just given your comments, you don't actually need to see that you got a down year this year in terms of average occupancy, but next year, even if you're consistent with this year, we should see our same property NOI growth pick up.
Speaker Change: Right, Okay, and then on a same property basis, I guess I'm just given your comments you don't actually need to see.
Lenis Quan: Okay.
Lenis Quan: And then on a same property basis, I guess just given your comments, you don't actually need to see you're going to have down year this year in terms of average occupancy, but next year, even if you're consistent with this year, we should see us. Same property in my growth to go. Absolutely, and thank you for pointing this out. This has been the theme for 2024 that we've also tried to communicate to the market that our business is able to produce mid-single digits like-for-like NOI gross, despite downward occupancy pressure. As occupancy stabilizes or reverts back to mean, combined with spreads that we achieve believing on releasing and embedded contractual rent steps, we should see re-exceleration in these metrics.
Speaker Change: Got it down year. This year in terms of average occupancy, but next year, even if you're consistent with this year, we should see us same property NOI growth pick up.
Unknown Executive: Absolutely. And thank you for pointing this out.
Speaker Change: No absolutely and that thank you for pointing this out and this has been the theme for 2024 that we've.
Unknown Executive: And this has been the theme for 2024 that we've also tried to communicate to the market that our business is able to produce mid-single-digit, like-for-like, NOI growth despite downward occupancy pressure. And as occupancy stabilizes or kind of reverts back to mean, combined with spreads that we're achieving on releasing and embedded contractual rent steps, we should see re-acceleration in these metrics.
Speaker Change: Also try to communicate to the market.
Speaker Change: Our business is able to produce mid single digit like for like NOI growth, despite occupancy downward occupancy pressure and as occupancy.
Speaker Change: Babelize or kind.
Speaker Change: Kind of reverts back to mean.
Speaker Change: Combined with spreads that we are achieving on.
Speaker Change: Re leasing and embedded.
Speaker Change: Embedded contractual rent steps.
Speaker Change: We should see Reacceleration in in these metrics.
Mike Markidis: Okay, thanks, last one for the important fact, just on the increased demand you're seeing from occupiers and users and the disposition success that you've had here today. Would you say that VTBs are required to get these over the finish line, or is that sort of something that you're looking to extend just in order to minimize some of the delusion as you reinvest the proceeds? Would it come to user sales not at all? We are actually seeing no interest from these groups in vendor financing. They frequently have access to very efficient financing, either for the real estate itself or the business level.
Mike Markidis: Okay, thanks. Last one for me before I turn it back. Just on the increased demand you're seeing from occupiers and users and the disposition success that you've had year-to-date, would you say that VTBs are required to get these over the finish line, or is that sort of something that you're looking to extend just in order to minimize some of the dilution as you reinvest the proceeds?
Speaker Change: Okay. Thanks last one for me before I turn it back just on the.
Speaker Change: Increased demand youre seeing from occupiers in users and the disposition.
Speaker Change: So <unk> had year to date would you say that.
Speaker Change: B T B's are required to get these over the finish line or is that sort of something that you're <unk>.
Looking to.
Speaker Change: To extend just in order to minimize some of the dilution as you reinvest the proceeds.
Unknown Executive: When it comes to user sales, not at all. We are actually seeing no interest from these groups in vendor financing. They frequently have access to very efficient financing, either for the real estate itself or at the business level. These are typically old cash transactions. And, as we commented before, we're seeing strong pricing metrics there.
Speaker Change: When it comes to user sales not at all.
Speaker Change: Seeing no interest from these groups in vendor financing are they frequently have access to.
Speaker Change: Very efficient financing.
Speaker Change: For the real estate itself or the business level. So.
Lenis Quan: So these are typically all cash transactions, and as we come to the fore, we're seeing strong pricing metrics there. Okay, so would this be a one offer? Was it a DIR? Was it your choice to do the VTB? I mean, ultimately it's your choice, but was it driven by you or by the buyer in this instance?
Speaker Change: These are typically all cash transactions.
Speaker Change: And as we commented before.
Speaker Change: We're seeing strong pricing metrics there.
Mike Markidis: Okay, so would this be a one-off, or was it a DIR? Was it your choice to do the VTV? I mean, ultimately, it's your choice, but was it driven by you or by the buyer in this instance?
Speaker Change: Okay. So would this be a one off or was it a DIR.
Speaker Change: Was it your choice to do the V. T V. I mean, ultimately as your choice, but was it driven by you or by the by the buyer in Washington.
Lenis Quan: So there are two types of disposition. So there's the Regina sale where we did the VTB, and that was a combination of us being able to invest the cash flow and the vendor, the buyer looking for short term financing. So it was, if you will, a win-win. But that's specific to this Regina portfolio. The user sales that we commented on as well in our prepared remarks are in addition to that. So there's about a hundred million dollars of user sales that we are pursuing or have closed on both on DIR's balance sheet and in our private ventures.
Unknown Executive: So there are two types of dispositions. So there was the Regina sale where we did the VTB, and that was a combination of us being able to invest the cash flow and the buyer looking for shorter-term financing. So it was, if you will, a win-win.
Speaker Change: So there are two types of dispositions so there's.
Speaker Change: Regina sale, where we did the V T D and that was a combination of.
Speaker Change: Us being able to.
Speaker Change: Investing cash flow and the vendor buyer looking for shorter term financing. So it was if you will a win win.
Speaker Change: That's specific to this Regina portfolio.
Mike Markidis: But that's specific to this Regina portfolio. The user sales that we commented on as well in our prepared remarks are in addition to that. So there are about $100 million of user sales that we are pursuing or have closed on, both on DIR's balance sheet and in our private ventures. And there's no vendor financing in any of these deals.
Speaker Change: User sales that we commented on.
Speaker Change: As well in our prepared remarks.
Speaker Change: Or in addition to that so there's about $100 million of user sales that we.
Speaker Change: Our pursuing or have closed on.
Speaker Change: Both on <unk> balance sheet and in our private ventures, and there is no vendor financing in any of these deals.
Lenis Quan: And there's no vendor financing in any of these deals. Got it. Okay, so the hundred millions on top of the Regina portfolio got it. Okay, that's all right. Thanks. It's not all on DIR's balance sheet, though. Some of it isn't a private ventures. Understood.
Unknown Executive: Got it okay, so the hundred millions on top of the Regina portfolio got it okay, that's all right, thanks. It's not all on DIR's balance sheet though.
Speaker Change: Got it okay. So the 100 millions on top of the Regina portfolio got it Okay. That's alright. Thanks, it's not all on the <unk> balance sheet.
Unknown Executive: That's all right. It's not all on DIR's balance sheet, though. Some of it is in our private mail.
Speaker Change: Some of it isn't a private ventures.
Speaker Change: Understood. Thank you.
Operator: Thank you.
Guarabh Mather: The next question is from Guarabh Mather with Green Street. Please go ahead. Thank you and good morning, everyone. Just from the current in place occupancy pressure. Can you provide some more color on what kind of tenant is driving this in Canada versus Europe? And then, as you expect the occupancy to move up in the fourth quarter, again, what tenant type is driving that on both sides of the pond? We are continuing to see pretty broad-based trends when it comes to demand. We've seen some manufacturing users, active traditional distribution needs, continuing to see strong activity from the food and beverage sector, which is significant for us, as you know.
Gaurav Mathur: The next question is from Gaurav Mathur with Green Street. Please go ahead. Thank you.
Speaker Change: The next question is from glass Mathur with Green Street. Please go ahead.
Gaurav Mathur: Thank you and good morning everyone. And just on the current in-place occupancy pressure, can you provide some more color on what kind of tenant is driving this in Canada versus Europe? And then as you expect the occupancy to move up in the fourth quarter, again, what tenant type is driving that on both sides of the pond?
Glass Mathur: Thank you and good morning, everyone.
Glass Mathur: And just on the current in place occupancy pressure can you provide some more color on what kind of tenant is driving with some Canada versus Europe and then as you expect the occupancy to move up in the fourth quarter again.
Speaker Change: Tenant type is driving that.
Speaker Change: On both sides of the pond.
Unknown Executive: We are continuing to see pretty broad-based trends when it comes to demand. We're seeing some manufacturing users, and active traditional distribution needs. So that's generally what we see as far as the...
Speaker Change: We are continuing to see pretty broad based trends when it comes to <unk>.
Speaker Change: <unk>.
Speaker Change: We've seen some.
Speaker Change: Manufacturing users active traditional.
Speaker Change: Distribution needs.
Speaker Change: Continuing to see strong activity from <unk>.
Speaker Change: Food and beverage sector, which is significant for us as you know.
Lenis Quan: Third party logistics users are on balance and giving back space, although we continue to see these groups active both on new leasing front and on call of sub leasing front or in discussions to give back space. So that's generally what we see. As far as the occupancy outlook, it isn't formed by active discussions that are taking place; otherwise, that are being exchanged, et cetera, et cetera. Okay, thanks.
Speaker Change: Our third party logistics users are.
Speaker Change: On balance.
Sure.
Speaker Change: Giving back space, although we continue to see these groups active.
On new leasing front and on call, it sub leasing front or or or in discussions.
Speaker Change: To give back space.
Speaker Change: So that's.
That's generally what we see as far as the.
Speaker Change: Occupancy outlook is informed by active discussions that are.
Speaker Change: Taking place.
Speaker Change: LOI that are being exchanged.
Speaker Change: Et cetera et cetera.
Gaurav Mathur: Okay, thanks. And just lastly, you have about 870 million of Euro-denominated debt that's coming due through 2024 and 2025. Now, that's at quite a low weighted average interest rate. How are you thinking about the refinancing mix ahead? And what sort of spreads are you currently seeing in the market?
Speaker Change: Okay. Thanks, and just lastly, you have about 870 million of euro denominated debt thats coming due through 'twenty, four and 'twenty five now that's sort of.
Lenis Quan: And just lastly, you have about $8.7 million of euro-denominated debt that's coming due to 24 and 25. Now that's quite a low weighted average interest rate.
Speaker Change: Quite a low weighted average interest rate how are you thinking about the refinancing makes ahead and what sort of spreads are you kind of fixing of the market.
Lenis Quan: How are you thinking about the refinancing mix ahead and what sort of spreads are you going to be seeing in the market? Thanks. So the debt maturities for 24 have been addressed. And for 2025, we've included in our disclosures those that are maturing towards the end of the year. Obviously, our beyond 2024 outlook for FFO growth is informed by this as well, because, as I mentioned, they don't mature till the very end of 2025, being November and December. So current, our current outlook is, and we'll provide more information.
Unknown Executive: Thanks. So the debt maturities for 24 have been addressed, and for 2025, we've included in our disclosures, those are maturing towards the end of the year. You know, obviously, our beyond 2024 outlook for FFO growth is informed by this as well. Because, as I mentioned, they don't mature till the very end of 2025, which is November and December.
Speaker Change: Thanks, So the debt maturities for 24 have been addressed.
Speaker Change: And for 2025, we have included in our disclosures those are maturing towards the end of the year.
Speaker Change: Obviously, our beyond 2024.
Speaker Change: <unk> growth is informed by this as well.
Speaker Change: Because as I had mentioned they don't mature until the very end of 2025 in November and December.
Unknown Executive: The current, you know, our current outlook is, and we'll provide more information. We have an investor day coming up in October, where we will provide some more color regarding our outlook beyond 2024. But current interest rates, as we've mentioned in our prepared remarks, have come down about 50 basis points or so in the last quarter. We're currently looking at Euro equivalent debt at around 4% for five-year terms, which is typically what we would refinance at. So that's what the typical rates that we're seeing today are. But again, these ones don't take effect until the end of 2025. And we're just focused on our organic growth drivers. We're continuing to grow NOI.
Speaker Change: So current and current outlook is and we'll provide more information.
Speaker Change: The information, we have an investor day coming up in October where we will provide some more color regarding our outlook beyond 2024.
Lenis Quan: We have an investor day coming up in October where we will provide some more color regarding our outlook beyond 2024. But current interest rates, as we've mentioned in our prepared remarks, have come down about 50 basis points or so in the last quarter. We're currently looking at Euro equivalent debt in and around 4%, for five-year terms, which is typically what we would refinance at. So that's what the typical rates that we're seeing today are. But again, these ones don't roll till the end of 2025. And we're just focused on our organic growth drivers. We're continuing growth and OI because we do believe that the growth from our organic on our operations will take the pressures from higher interest rates.
Speaker Change: But our current interest rates.
Speaker Change: As we mentioned in our prepared remarks have come down about 15 basis points or so in the last quarter. We're currently looking at euro equivalent debt at around 4% or five year terms, which is typically what we would refinance that so that's.
Speaker Change: So that's what that typical rates that we're seeing today are but again. These these ones don't roll until the end of 2025.
And.
Speaker Change: Just focused on our organic growth drivers.
Speaker Change: Continuing to grow NOI.
Speaker Change: Because we do believe that the growth from.
Speaker Change: From our organic.
Speaker Change: In our operations.
Speaker Change: Pace the pressures from higher interest rates.
Guarabh Mather: Okay, thank you for the color. I'll come back to the operator.
Speaker Change: Okay. Thank you for the color I'm coming back to the operator.
Matt Kornack: The next question is from that cornec with National Bank Financial. Please go ahead. Hey guys, just with regards to the end users that are buying out, can you give us a sense as to the depth of that market? And what type of assets are they, are these tenants typically looking to occupy and in what geographic location?
Speaker Change: The next question is from <unk> with National Bank Financial Please go ahead.
Unknown Executive: Hey guys, just with regard to the end users that are buying assets, can you give us a sense as to the depth of that market and what type of assets these tenants are typically looking to occupy and in what geographic location?
<unk>: Hey, guys just with regards to the end users that are buying out but can you give us a sense of the depth of that market and what type of assets are they are these tenants typically looking to occupy and in what geographic locations.
Unknown Executive: Thank you for this question, Matt. We were generally encouraged by the depth that we are seeing. The $100 million that we commented on are active discussions, or rather, advanced discussions. There are many other discussions taking place. We generally see these groups active in Toronto and Montreal.
<unk>:
Lenis Quan: We thank you for this question, Matt. We were generally encouraged by the depth that we're seeing. You know, the $100 million that we commented on are active discussions or advanced discussions, rather. There are many other discussions taking place. We generally see these groups active in Toronto, Montreal, with more activity perhaps in Toronto. And these buyers are focusing on mid-sized freestanding assets. They don't have to be New York and be older vintage, functional, well-located. But freestanding assets are obviously preferred without other tenants.
Speaker Change: Thank you for this question that we were generally encouraged by the depth that we seeing.
Speaker Change: The $100 million that we commented on our active discussions or advanced discussions rather there are many other discussions taking place.
Speaker Change: We generally see these groups active in Toronto and Montreal.
Speaker Change: Was.
Speaker Change: More activity, perhaps in Toronto.
Speaker Change: And.
Speaker Change: These buyers are focusing on mid sized freestanding assets they don't have to be.
Speaker Change: <unk> can be older vintage functional well located.
Speaker Change: But freestanding freestanding assets that are obviously preferred without other tenants.
Matt Kornack: Makes sense.
Speaker Change: Okay makes sense and then on your kind of outlook for occupancy I understand you're not providing guidance.
Lenis Quan: And then on your kind of outlook for occupancy understanding, not providing guidance, but you noted mid to kind of high 90% occupancy historically. Should we infer that kind of 97% or so is where he thinks this portfolio should be on a stabilized basis, or will just fluctuate between those two guidelines, with rent growth being kind of the ultimate goal. Yeah, so if you look at our disclosure over the last 10, 12 years, the portfolio has averaged 96, 97% consistently. And we don't expect this environment should fundamentally change that trend. If you look at Summit historic disclosure, which is also a significant component of what we operate, this is consistently in that range.
Speaker Change: But you you noted mid to kind of high 90% occupancy historically.
Speaker Change: Should we infer that kind of 97% or so is where do you think this portfolio should be on a stabilized basis or or will it just fluctuate between those two guidelines with rent growth being kind of the ultimate goal.
Speaker Change: Yeah. So if you look at our disclosure.
Speaker Change: Over the last 10 12 years.
Speaker Change: The portfolio has averaged 90, 697% consistently and we don't expect that.
Speaker Change: This environment should fundamentally change that trend.
Speaker Change: If you look at it.
Speaker Change: Some its historic disclosure, which is also a significant component of what we operate this is consistently in that in that range.
Lenis Quan: Maybe a little bit higher, kind of 98% range over the long term for summit, but we expected to settle in that 96, 97 again as we are prioritizing rents across the business.
Speaker Change: A little bit higher.
Speaker Change: And the kind of 98% range over over the long term for summit, but we expect it to settle in that 90 697 again as we are.
Speaker Change: Prioritizing rents across.
Speaker Change: Across the business.
Lenis Quan: And then on the Montreal property near the court, appreciate the update there can give us a sense. I don't know if you have these numbers or if you've thought about it, but the capital deployment that would need to go into that repositioning and a potential return that you'd be getting on that capital. We will provide an update on that perhaps next quarter or kind of towards the end of the year. Perhaps premature to comment on that specifically, but the idea for this site is to activate the land holdings that we have and position the assets to benefit from mid-day demand that we have.
Speaker Change: Okay.
Speaker Change: And then on the Montreal properties near the Port I. Appreciate the update there can you give us a sense I don't know if you have these numbers or even thought about it but the capital deployment that would need to go into that repositioning and the potential return that you'd be getting on that capital.
Speaker Change #100: We will provide an update on that.
Speaker Change #101: Perhaps next quarter or kind of towards the end of the year.
Speaker Change #100:
Unknown Executive: and perhaps premature to comment on that specifically, but the idea for this site is to activate the land holdings that we have, and position the asset to benefit from mid-day demand that we continue to see across the board. As we have previously commented, Montreal is a small market compared to Toronto. Therefore, what we see is that
Speaker Change #102: Perhaps premature to comment on that specifically.
Speaker Change #103: But the idea for this site is too.
Activate the land holdings that we have.
Speaker Change #103: The.
Speaker Change #103: <unk> the assets to benefit from.
Speaker Change #103: Mid day demand that we continue to see.
Lenis Quan: We continue to see, across the board, that we have previously commented Montreal is a small market compared to Toronto. And therefore, what we see is that if in Toronto, the most of the demand that we currently see is in that 50 to 150,000 square foot range, it is smaller in Montreal. So call it 25 to 75. And so we want to make sure that the assets as well positioned needs to be the demand patterns that we see. So we would want it to make sure we would want to make sure it's multi-term. and multi tentable as we pursue this intensification and refurbishment.
Speaker Change #103: Across the board as we have previously commented Montreal is a small market compared to Toronto and therefore, what we see is that.
Speaker Change #103: In Toronto, the most of the demand of wood.
Speaker Change #103: Currently season that 50 to 150000 square foot range.
Speaker Change #103: Smaller in Montreal, So call it 25% to 75, and so we wanted to make sure that the assets is well positioned vis vis the demand patterns that we see so we would want to make sure we want to make sure that it's multi tenant.
Speaker Change #103: Tenant to bolt.
Speaker Change #103: As we pursue this intensification and refurbishment.
Matt Kornack: That makes sense.
Speaker Change #104: That makes sense and then just a last one quickly for me and I don't know if Venezuela, you can answer it.
Lenis Quan: And then just a last one quickly for me, and I don't know, Lenis or Alex, you can answer it. After you get through this year of development, spend, I think, next year you probably generate in the order of 90 million according to our model of free cash loan. Is there a preferred destination for that? Or are you looking at dreams on additional development and buy back kind of equally? We're looking at all of these opportunities available to us in terms of deploying capital. And, you know, market environment is highly dynamic, and it's hard to comment on capital allocation priorities six to twelve months out.
Speaker Change #105: After you get through this year of development spend I think next year, you probably generate in the order of $90 million. According to our model of free cash flow.
Speaker Change #105: Is there a preferred.
Destination for that or are you looking at the dreams summit.
Speaker Change #106: Additional development.
Speaker Change #107: Buyback kind of equally at this point.
Speaker Change #108: We're looking at all of these.
Speaker Change #108: We're looking at all of the.
Speaker Change #108: Opportunities are.
Speaker Change #108: Available to us in terms of deploying capital.
Speaker Change #108: And.
Speaker Change #109: Market environment is highly dynamic and so it's hard to comment on.
Speaker Change #109: Our capital allocation priorities are six to 12 months out, but we will keep up.
Lenis Quan: But we will keep updating investors on how we think about that every quarter.
Speaker Change #109: Updating investors on how are we thinking about that.
Speaker Change #109: Every quarter.
Operator: Thank you.
Speaker Change #110: Fair enough thanks, guys.
Bradley Sturges: The next question is from Brad Sturgis with Raymond James. Please go ahead. Hey, good morning. I guess a lot of discussion around the arc scene, and I apologize if I missed it, but based on what you're seeing today, what's your expectations around? Market rents and Toronto, Montreal; I guess there has been a little bit of a pull back in that, but how are you thinking about where market rents go? And would that narrow the rent market opportunity a bit from albeit pretty healthy levels still today?
Speaker Change #110: The next question is from Brad Sturges with Raymond James. Please go ahead.
Brad Sturges: Hey, good morning.
Brad Sturges: I guess a lot of discussion around the occupancy and I apologize if I missed it but.
Brad Sturges: Based on what Youre seeing today, what's your expectations around market runs rents in Toronto Montreal.
Speaker Change #112: I guess, there has been a little bit of a pullback in that book because how are you thinking about where market rents go in and.
Speaker Change #113: That narrowed.
Speaker Change #114: Rent mark to market opportunity a bit from albeit pretty healthy levels still today.
Lenis Quan: Thank you, Brad. We expect that market rents that we are achieving on our leases will remain consistent with our disclosure. As you know, we measure market rents for our assets differently compared to what you see from market reports. So when you look at market reports, what's measured market rent is the asking rent for available space. When we report market rents in RMDNA, these metrics reflect weighted average market rents for every building in our portfolio. And as you would have seen from our disclosure, market rents remained largely consistent from Q2 to Q1 to Q2 and throughout the year, which is a different compared to what you see from market reports from the brokerage community, and this is a reflection of how these market rents are measured.
Brian: Thank you Brian.
Speaker Change #116: We expect that our market rents that we are achieving on our leases will remain consistent with our disclosure.
Brian: Yeah.
Speaker Change #117: As you know we measure our market rents for our assets differently compared to what you see from market reports. So when you look at market reports.
Speaker Change #118: What's what's measured market rent is the asking rent for available space when we report.
Speaker Change #119: Market rents in <unk> DNA.
Speaker Change #119: These metrics reflect weighted average market rents for every building in our portfolio and as you would have seen from our disclosure market rents remained largely consistent from Q2 to.
Speaker Change #119: From Q1 to Q2.
Speaker Change #119: Throughout the year.
Speaker Change #120: Which is fabs.
Speaker Change #120: Different compared to what you see from a market reports from.
Speaker Change #120: From the brokerage community.
Speaker Change #120: And then this is a reflection of how these market rents are measured and so we expect for the next quarter or two that market rents will remain consistent.
Lenis Quan: And so we expect for the next quarter or two that market rents will remain consistent as we measure it, so within our RMDNA reporting. And in the near medium term, we continue to expect upward pressure on rents as a kind of demand pattern stabilized, as sub-leasing activity normalizes. And as we continue to see a supply vacuum sort of building in the market into 2025 and 2020.
Speaker Change #120: <unk>.
Unknown Executive: As we measure it, so within our MD&A reporting, and in the near-medium term, we continue to expect upward pressure on rent.
Speaker Change #120: As we measure it so within our MD&A reporting.
Speaker Change #120: <unk>.
Speaker Change #120: In the near and medium term, we continue to expect upward pressure on rents.
Speaker Change #120: Kind of demand patterns stabilize.
Speaker Change #120: Sub leasing activity normalizes and.
Speaker Change #120: As we continue to see supply.
Speaker Change #120: <unk> sort of building in the market into 2025 and 2026.
Lenis Quan: I'm building on that based on what you've achieved today on the development, leasing that plus, I guess, your expectations for demand to recover next year or in the coming quarters. I guess you're still pretty comfortable in achieving your targeted or your estimated development yields that you disclosed again this quarter. Yeah, that's exactly right. And the leasing that we've done with about half a million square feet that we've announced that are either done or very close to done. These rents and yields are consistent with our disclosure.
Speaker Change #120: And building on that based on.
Unknown Executive: you know what you've achieved to date on the development leasing that Plus, I guess your expectations for demand to recover next year or in the coming quarters are still pretty comfortable with achieving your targeted or your estimated development yields that you disclosed again this quarter.
Speaker Change #120: What you've achieved to date on the development.
Speaker Change #120: Leasing that.
Speaker Change #120: Plus I guess your expectations for demand to recover next year.
Speaker Change #120: In the coming quarters, I guess, youre still pretty comfortable in achieving your targeted or your estimated development yields.
Speaker Change #120: You disclosed again this quarter.
Speaker Change #121: Yes, that's exactly right and the leasing that we've done with about half a million square feet.
Speaker Change #122: We've announced.
Speaker Change #123: Are either done or.
Speaker Change #123: There are close to done.
Speaker Change #123: These rents and yields are consistent with our disclosure.
Bradley Sturges: Okay, just maybe switching gears. I want to touch on; it sounds like, on the acquisition side, you'd be open to looking at opportunities at Vancouver. I just want to get some thoughts on, I guess, your return expectations there are the opportunities that versus some of the existing markets like Toronto, Montreal that you're already in today. We think Vancouver is a great market for industrial. It has significant barriers to entry from new supply perspective, and it's certainly key market in Canada. From a total return perspective, we expect to see comparable total returns to other markets where we are already active.
Speaker Change #123: Okay.
Speaker Change #124: Just maybe switching gears.
Speaker Change #125: I wanted to touch on.
Speaker Change #126: It sounds like on the acquisition side you'd be open to looking at opportunities in Vancouver.
Speaker Change #127: I just wanted to get some thoughts on I guess your return expectations, there the opportunity versus some of the existing markets like Toronto, Montreal that you're already in today.
Speaker Change #128: We think in Vancouver.
Speaker Change #129: It is a great market for industrial.
Speaker Change #130: It has a significant barriers to entry from a new supply perspective.
Speaker Change #131: And it's certainly a key market in Canada.
Speaker Change #132: From a total return perspective.
Speaker Change #132: Expect to see comparable total returns to other markets.
Speaker Change #133: We are already active.
Lenis Quan: The composition of total return may be slightly different in Vancouver compared to a market like Calgary or the GTA, but overall, on a total return basis, we expect it will be consistent with other markets.
Speaker Change #133: The composition of total return may be slightly different in Vancouver, compared to a market like Calgary or the GTA bundle.
Speaker Change #133: Overall on a total return basis, we expect it will be consistent with <unk>.
Speaker Change #133: Other markets.
Lenis Quan: I assume you'd be open to doing it, I guess, through individual asset purchases, but is there a medium-term, long-term target in terms of if you do enter the market, what's the appropriate scale to operate there? In Vancouver, officially? The assets that we have on our radar are less management and sense of inter-traditional sense, so these are not, let's say, small-day multi-tenant assets that require constant presence in the market. As we think about entering the market, we are definitely aware of operations that we'll need to maintain there and how we would run the assets. So the assets that we are looking at are well positioned in the non-regard and that will create a good starting point for us to build operating presence in the market.
Unknown Executive: I assume you'd be open to doing it, I guess, through individual asset purchases. But is there a medium-term and long-term target in terms of if you do enter the market, what's the appropriate scale to operate there in Vancouver efficiently?
Speaker Change #134: I assume you'd be open to doing it I guess through individual asset purchases, but is there a.
Speaker Change #135: Our medium term long term target in terms of if you do enter the market what what's the appropriate scale.
Speaker Change #135: Operate there.
Speaker Change #136: In Vancouver efficiently.
Speaker Change #136:
Unknown Executive: The assets that we have on our radar are less management-incentive in the traditional sense. So these are not, let's say, small-bay, multi-tenant assets that require constant presence in the market. So as we think about entering the market, we are definitely aware of operations that we'll need to maintain there and how we would run the assets. So the assets that we're looking at are well positioned in that regard and will create a good starting point for us to build an operating presence in the market.
Speaker Change #137: The assets that we have.
Speaker Change #136: On our radar.
Speaker Change #137: Our.
Speaker Change #138: Less management incentive in the traditional sense. So these are not let's say small bay multi tenant assets that require constant.
Speaker Change #138: Presence in the market so as we think about entering the market.
Speaker Change #138: Yes.
Speaker Change #138: We are definitely.
Speaker Change #138: Aware of.
Speaker Change #138: Operations.
Speaker Change #138: There will need to maintain there and how we would run the assets so the.
Speaker Change #138: The assets that we're looking at.
Speaker Change #138: We're well positioned to non regard and.
Speaker Change #138: We will.
Speaker Change #138: Create a good starting point for us to build operating presence in the market.
Bradley Sturges: Okay, please go on. I'll turn it back.
Speaker Change #139: Okay. Thanks, a lot I'll turn it back.
Himanshu Gupta: The next question is from Heman Shu, Dr. Let's go to the bank, please. Go ahead. Thank you, and good morning. So can you comment on the leasing done in Ontario in Q2? Was there anything related to 2025 as well? There's been a couple of deals done for late 24 or 25 in Ontario. We've done a large deal in Quebec relating to 2025 for about 400,000 square feet. Generally speaking, six to nine months out, with the exception of that in Quebec, please. Okay, okay. Alex, I think you mentioned also 180,000 square feet down that 200% spread.
Himanshu Gupta: The next question is from Himanshu Gupta with Scotiabank. Please go ahead.
Speaker Change #139: The next question is from Himanshu Gupta with Scotiabank. Please go ahead.
Himanshu Gupta: Thank you and good morning. So can you comment on the leasing done in Ontario in Q2? I mean, was there anything related to 2025 expiring?
Himanshu Gupta: Thank you and good morning.
Himanshu Gupta: So can you comment on the leasing done in <unk> in Q2.
Speaker Change #141: Was it anything related to 2025 its filings.
Alexander Sannikov: Thank you, Himanshu. There's been a couple of deals done for Lake 24 or 25 in Ontario. We've done a large deal in Quebec relating to 2025 for about 400,000 square feet, generally speaking, six to nine months out, with the exception of that Quebec.
Speaker Change #142: There's been I think you can monitor theres been a couple of deals done for late 'twenty, four or 25 and in Ontario, We've done.
Speaker Change #143: Large deal in Quebec.
Speaker Change #143: Relating to 2025.
Speaker Change #145: But 400000 square feet.
Speaker Change #145: Okay.
Speaker Change #145: Generally speaking.
Speaker Change #145: Six to nine months out with exception of that curve equities.
Himanshu Gupta: Okay, okay. And Alex, I think you mentioned also 180,000 square feet down at 200% spread. I mean, is there anything specific to this property to get that kind of, you know, rental spread?
Speaker Change #146: Okay. Okay.
Speaker Change #147: Let's see what I think you mentioned onto 180 cousins could've done that 200 person.
Fred: Fred I mean is.
Lenis Quan: Is there anything specific to this property to get that kind of rental spread? Nothing specific other than the expiring rent was relatively low, and we were able to capture the market rent that we expected to achieve, which is in the high teens range, and that resulted in the spread. And as we come to before, spreads will fluctuate from one quarter to another based on expiring rents.
Speaker Change #149: Is there anything specific to this property to get that kind of you know.
Speaker Change #149: Correct.
Speaker Change #149: Nothing specific other than the expiring rent was relatively low and.
Speaker Change #150: We were able to capture the market rent are we.
Speaker Change #150: Expected to achieve which is in the high teens range and that resulted in the spread and as we commented before spreads will fluctuate from one quarter to another based on expiring rents.
Lenis Quan: Okay, Senna. And then the broader market, and thanks for the discussion so far. So do you expect losing demand to recover by the end of the year or more like next year? And what could drive that if the confidence is demanding back in Q4? There's a number of ways to measure demand. And so one way to measure demand is just a level of activity. And so we generally see levels of activity are pretty healthy. We continue to see RFPs. We continue to see tours. And so that there's lots of activity in the market. What's creating pressure on availability is primarily the subleasing activity.
Speaker Change #150: Okay, Oh, yeah.
Speaker Change #151: And then you in the broader market.
Speaker Change #152: Thanks for the discussion so far.
Speaker Change #153: Do you expect leasing demand to recover.
Speaker Change #154: End of the year or more like next year.
Speaker Change #155: And what could drive that you know if the confidence is.
Speaker Change #155: Demand come back in Q4.
So there's a number of ways to measure demand and so.
Speaker Change #156: One way to measure demand is just the level of activity.
Speaker Change #155: So.
Speaker Change #155: We generally see levels of activity are pretty healthy.
Speaker Change #155: We continue to see Rfps.
Speaker Change #155: We continue to see.
Speaker Change #155: Tours and so theirs.
Speaker Change #155: Lots of activity in the market.
Speaker Change #155: What what's creating pressure on availability is primarily into sub leasing activity. So we don't expect that that will last for very long.
Lenis Quan: So we don't expect that that will last for very long, as we commented before. We are aware of some pending subleases that are not captured in the market stats. And so extrapolating from that, we expect availability to trend upwards into Q3, perhaps slightly into Q4. And the sound is demand that we're talking about the activity when it comes to tours or RFPs is taking a bit longer to materialize. Decisions that are taking longer. And so we expect that it will reach an equilibrium into Q4 where groups will start making decisions. And again, subleasing activity will normalize or come down to effectively zero.
Speaker Change #155: As we commented before we.
Speaker Change #155: We are aware of some.
Speaker Change #155: Pending some leases that are not captured in the market stats.
Speaker Change #155: So extrapolating from that we expect our availability to trend upwards into Q3, perhaps slightly into Q4.
Speaker Change #155: And.
Speaker Change #158: So on the demand that we're talking about the the activity.
Speaker Change #158: When it comes to tours Rfps.
Speaker Change #158: Taking a bit longer to materialize decisions are taking longer and so we expect that it will kind of reached an equilibrium into into Q4, where.
Speaker Change #158: Groups, we will start making decisions.
Speaker Change #158: And again.
Speaker Change #158: Sub leasing activity will.
Normalized <unk> come down to effectively zero.
Lenis Quan: And then we expect kind of availability rates to trend downwards from there. Again, we're not seeing new supply on the horizon, so we don't expect new supply will be a big driver of availability into 2025. So it really will come down to existing availability and pressures from sub leases and versus pressure from New Group's looking for first days. And then, you know, sub-leaving. Is it mostly a GTA problem or, you know, you're singing like Montreal as well? We're seeing that across the board. And I would say that we see that in the GTA seed, Montreal a little bit in Calgary.
Speaker Change #158: And then we expect to kind of availability rates to trend downwards from there.
Speaker Change #158: Again, we're not seeing new supply on the horizon. So we don't expect the new supply will be a big driver of avail.
Speaker Change #158: Availability into 2025.
Speaker Change #158: So it really will come down to the existing availability and a prayer.
Speaker Change #158: Pressures from sub leases and versus.
Speaker Change #158: Pressure from.
Speaker Change #158: New groups looking for space.
Speaker Change #159: Got it Okay, and then you know sub leasing is it mostly a DTA problem are.
Speaker Change #159: Seeing in like Montreal.
Speaker Change #159: Okay.
Speaker Change #159: We're seeing that across the board.
Speaker Change #159: And I would say that we see.
Speaker Change #160: We see that in the GTA seed material a little bit in Calgary.
Lenis Quan: So it's not a GTA phenomenon, per se. Okay, okay.
Speaker Change #160: The GTA.
Speaker Change #160: Ta phenomena.
Speaker Change #160: Jay.
Speaker Change #160:
Speaker Change #161: Okay. Okay.
Himanshu Gupta: Thank you. So just turning to FFO guidance, you know, mid-single digit code. Lenis, like what effects do you assume for Eurocats? And do you already assume, like, occupancy, recovery, Q4 in your FFO life? Yeah, so, you know, as we commented, I think all those factors would be baked into our expectations. So, in terms of the FFO, I mean, if you want to be more precise, I think we would say consensus is probably a good base case estimate. Okay. And so the effects, what about the Eurocats assumption in your model? We're assuming it's close to our current levels, maybe a little bit stronger CAD.
Speaker Change #161: So just turning to <unk> guidance.
Speaker Change #162: Mid single digit code.
Speaker Change #162: Like what FX <unk> for <unk>.
Speaker Change #163: And do you already assume like occupancy was up in Q4.
Speaker Change #163: That's helpful.
Speaker Change #163: Yes, so as we commented I think.
Speaker Change #164: All of those factors would be baked in to our expectations.
Speaker Change #165: So in terms of in terms of the S. S. L. I mean, if you wanted to be more precise.
Speaker Change #166: I think we would we would say consensus is probably a good base case estimate.
Speaker Change #166: Okay and FX.
Speaker Change #167: So what about the euro assumption in your model.
Speaker Change #168: And we're assuming it.
Speaker Change #168: Close to current levels, maybe a little bit stronger CAD.
Himanshu Gupta: Okay. And it includes rent from the, you know, from Cozmy Park and the Bowser, I guess, whatever the leasing done so far. That's right; when they come online during Q3, as they start coming online during Q3. Okay.
Speaker Change #168: Okay.
Speaker Change #169: And it includes event from the you know from cooking Park.
Zach Kathryn: Zach Kathryn.
Speaker Change #171: The leasing done so far.
Speaker Change #171: That's right when they come online and during Q3 as they start coming online during Q3.
Speaker Change #171: Okay.
Himanshu Gupta: Thank you so much.
Sam Damiani: I'll turn them back. Thank you. The next question is from Sam Janiani with Kitty Cohen. Please go ahead. Thanks. Good morning, everyone. I guess Alex or Lenis, the comment about NOI growth, you know, picking up and overcoming interest expense to produce FFO growth in 2025.
Speaker Change #171: So much.
Turning back.
Speaker Change #171: Thank you. The next question is from Sam.
Speaker Change #172: <unk> with TD Cowen. Please go ahead.
Unknown Executive: Okay, fair enough.
Sam: Thanks, Good morning, everyone.
Unknown Executive: So, in terms of the FFO, I mean, if you want to be more precise,
Speaker Change #172: Sure.
Speaker Change #172: I guess, Alex who lend us the comment about NOI growth.
Speaker Change #174: Picking up and overcoming interest expense to produce <unk> growth in 2025.
Lenis Quan: I don't know how much more specific you can get, but would you extend that comment into 2026 as well in terms of FFO growth being positive? Thank you, Sam. Generally, we would. And that's what, when we say that what we're working on is ensuring that NOI growth outpaces pressure from the interest expense line. And we're not just focusing on 2025; as you know, we know MSC significant pressure, significant additional pressure into 2025 from interest expenses going up because our maturities are in November and December. 26. Okay.
Speaker Change #175: I don't know how much more specific you can get but would you extend that comment into 2026 as well in terms of <unk> growth being positive.
Speaker Change #174: Yeah.
Sam: Thank you Sam.
Speaker Change #176: Generally we would and that's.
Speaker Change #177: When we say that where.
Speaker Change #177: Well, we're working on is ensuring that our NOI.
Speaker Change #177: NOI growth outpaces pressure from interest expense line.
Speaker Change #177: We're not just focusing on 2025 as you know, we're not going to see significant pressure.
Speaker Change #177: We can additional pressure into 2025 from interest expenses going up because our maturities are in November and December but that comment is primarily <unk>.
Speaker Change #177: Aiming at 2026.
Unknown Executive: Okay, and it includes rent from the, you know, Courtney Park and Balzac as well, whatever the leasing done so far.
Speaker Change #177: Okay.
Lenis Quan: And, you know, again, thank you for the sort of detail on the plans on the Montreal port. Beyond that, do you anticipate adding more to the active development pipeline from a greenfield perspective in the near term? Thank you for that follow-up. We are looking at development opportunities, more infill mid-day assets in the GTA for the account of some of our private ventures. We also have our site in Brampton that is in pre-construction phase right now, and we are advancing pre-development and work there. So, we will evaluate towards the end of the year whether we will start going vertical on that site in 2025.
Speaker Change #177: And.
Speaker Change #178: Again, thank you for the detail on the plans on the Montreal Port beyond that.
Speaker Change #179: We anticipate adding more to the active development pipeline from a greenfield perspective.
Speaker Change #179: In the near term.
Speaker Change #179: Thank you for that Bob.
We are looking at development opportunities more infill.
Speaker Change #179: Mid Bay assets in the GTA.
Speaker Change #180: For the account of some of our private ventures.
Speaker Change #180: We also have our.
Speaker Change #180: Site in Brampton that is.
Speaker Change #180: As in pre construction phase right now and.
Speaker Change #180: We are advancing pre development work there so we will evaluate.
Speaker Change #180: Towards the end of the year, whether we will.
Speaker Change #180: Start going vertical on that site in 2025.
Lenis Quan: Again, that site sits in one of our private ventures. Perfect.
Speaker Change #180: Again that site is it sits in one of our private ventures.
Speaker Change #180: Perfect.
Lenis Quan: Thank you, and I'll turn it back.
Speaker Change #181: Thank you and I'll turn it back.
Pammi Bir: Next question. It's from Pammi Bir with RBC Capital Markets. Please go ahead. Thanks. I just wanted to come back to the market rent commentary, and I guess the earlier commentary on the same prop and NOI growth accelerating next year. Does that comment about next year's acceleration of organic growth? Does that assume stable market rents or possibly moving up? It assumes stable market rents, Pammi.
Speaker Change #181: The next question is from Tami Barron with RBC capital markets. Please go ahead.
Speaker Change #181: Thanks.
Tami Barron: I just wanted to come back to the market rent commentary and I guess.
Earlier commentary on the same property NOI growth accelerating next year does your does that comment about next year is an acceleration of organic growth does that assume stable market rents or.
Speaker Change #183: Or possibly moving up.
Speaker Change #184: It assumes stable market rents by me.
Pammi Bir: Okay. And then I'm not sure if you provided this, but roughly how much of your portfolio is being sub-leased on the sub-lease market at the moment? We have not commented on that specifically. It's not a significant portion, but we have not commented on that specifically, and we wouldn't have that metric readily available.
Speaker Change #183: Yes.
Speaker Change #185: And then I'm not sure. If you provided this but roughly how much of your portfolio is it is being sub leased or on the sublease market at the moment.
Speaker Change #185: Yeah.
Speaker Change #186: We have not commented on that specifically.
Speaker Change #185:
Speaker Change #187: It's so significant portion.
Speaker Change #185: Oh.
Speaker Change #185: Yeah, we haven't commented on that specifically and.
Speaker Change #185: We wouldn't have that metric are readily available we can.
Lenis Quan: We can come back to you, or come back to the market next quarter if it's a material metric for investors to take into account. I just curious if you think it's maybe roughly in line with where broader market levels are, more or less. Yes, the sub-leasing is about a third to 40% depending on the market of the overall availability, and in our portfolio, in many cases, when occupiers look to get rid of the space and sub-leasing is important for them to maintain the financial health of the underlying business, we would rather engage in proactive termination discussions against the termination penalty and then get the space back directly, so we can then benefit from the market and achieve better rents.
Speaker Change #185: Back to you or come back to the market next quarter if if.
Speaker Change #185: If it's a material material metric to for investors to take into account.
I was just curious if you think it's maybe roughly in line with where broader market levels are.
Speaker Change #188: More or less.
Speaker Change #189: Yes, it's a sub leasing is a about a 3rd% to 40% depending on the market of the overall availability.
Speaker Change #189: And.
Speaker Change #189: In our portfolio in many cases.
Speaker Change #189: When occupiers look too.
Speaker Change #189: Getting rid of the space.
Speaker Change #189: Sub leasing.
Speaker Change #189: Important for them too.
Speaker Change #189: Just to maintain financial health of the underlying business.
Speaker Change #189: We would rather engage in proactive termination discussions.
Speaker Change #190: Yes, its termination penalty and then get the space back directly. So we can then benefit from the from from the Mark to market and.
And achieve.
Speaker Change #190: Better rents as you know in Canada the standard lease.
Lenis Quan: As you know, in Canada, the standard lease does not allow for occupiers to profit from sub-leasing. It creates an imbalance between the objectives that our occupiers have, which is what we have, so we would prefer to work with the termination practice terminations of all of excess space against the termination penalty. And this is partially what's reflected in our occupancy for the year, where we've worked with some of our occupiers to take back space against the termination penalty. either a penalty or extending their remaining premises, things like that.
Speaker Change #190: Does not allow for occupiers to profit from sub leasing so it creates sort of a bit of imbalance.
Speaker Change #190: Between in terms of the objectives that.
Speaker Change #190: Our occupiers half versus what we have so yeah, we would prefer to work with.
Speaker Change #190: Termination.
Speaker Change #190: <unk> terminations of excess space against the termination penalty and this is partially what's reflected in our occupancy for the year, where we've.
Speaker Change #190: Worked with some of our occupiers to take back space against.
Speaker Change #190: Either.
Speaker Change #190: Is there a penalty or.
Speaker Change #190: Sure.
Speaker Change #190: Extending the remaining.
Speaker Change #190: The lease on the remaining premises.
Speaker Change #191: Things like that we've pursued these kinds of options for some of our primarily in our private ventures that we haven't done a lot.
Lenis Quan: We've pursued these kinds of options for some of our primarily in our private ventures. We haven't done a lot within the GIR portfolio, but we've had a few cases within our private ventures.
Speaker Change #191: Within the DIR solely owned portfolio.
Speaker Change #191: We've had a few cases within our private ventures.
Pammi Bir: Right, that's helpful.
Speaker Change #192: Got it that's helpful.
Lenis Quan: Just on the development pipeline, what's your sense of getting the balance of the Balzac properly step, and then I'm curious what type of interest you're getting on the Cambridge site as well, beyond I think the 15% that's already done. So starting with Cambridge, so we are pursuing a multi-tenant strategy there. We've released one pocket already, and we are in discussions with a number of occupiers who are looking for about 100,000 square feet on average, and so it will take about four of those deals to materialize for the property to be fully leased. We are encouraged by the level of activity, and we think that our property's very well positioned relative to other options that are available in that node from a location perspective and just the physical attributes of the building.
Speaker Change #193: And then just on the on the development pipeline, what's your sense of getting the balance of the bottleneck.
Speaker Change #194: Property leased up and then I'm curious what types of what type of interest you're getting on the Cambridge studies as well beyond I think the 15% that's already done.
Speaker Change #195: So starting with Cambridge.
Speaker Change #195: So we are pursuing a multi tenant strategy there.
Speaker Change #196: We leased one pocket already and we're in discussions with <unk>.
Speaker Change #196: Number of occupiers, who are looking.
Speaker Change #197: For about 100000 square feet on average.
Speaker Change #197: And so it will it will take about.
Speaker Change #197: Four of those deals to materialize for the property to be fully leased.
Speaker Change #197: We are encouraged by the level of activity and we think that our properties are very well positioned.
Speaker Change #197: Relative to other options that are available in that node.
Speaker Change #197: From a location perspective, and just the physical attributes of the building.
Lenis Quan: Perspective it offers obviously older modern specs, 40 foot clear height, and excess trailer storage, and various other attractive attributes.
Speaker Change #197: Perspective, it offers obviously older modern specs.
Speaker Change #197: Foot clear height.
Speaker Change #197: And.
Speaker Change #197: Excess trailer storage and there is other.
Speaker Change #197: Attractive attributes.
Lenis Quan: When it comes to Balzac, did there two development projects as you know? So for the 350,000 per foot project, on the 28th site, we've seen a strong activity at $12 range rents. We are targeting users ranging from 26,000 square feet to 100,000 square feet, and this is where we've seen most of the demand. With the conditional deals that we commented on earlier and in our press release, the front building is fully leased, and the back building has about 80,000 square feet available, and so we're working with a number of occupiers to fill that. Again, the building was designed to be multi-tenant and demised, and so that's the demand we're responding to.
Speaker Change #197: When it comes to.
Speaker Change #197: Zach.
Speaker Change #197: Did the two development projects as you know.
Speaker Change #197: So for the.
Speaker Change #197: Two three.
Speaker Change #197: 350000 square foot project.
Speaker Change #197: On the 20 acre site.
Speaker Change #197: We've seen strong activity at a call it at $12 range rents.
Speaker Change #197: We are targeting users ranging from 26000 square feet to 100000 square feet and this is where we've seen most of the demand.
Speaker Change #197: Was the conditional deals that we commented on earlier and in our press release.
Speaker Change #197: Front building is fully leased.
Speaker Change #198: And the bank building.
Speaker Change #198: It has about 80000 square feet available and so where we're working with a number of occupiers to.
Speaker Change #198: To to fill that again the building was designed to be multi tenanted and demised and so that's that's the demand we are responding to we generally are seeing.
Lenis Quan: We're generally seeing very healthy levels of activity in Western Canada. We're not seeing that activity to translate into significant pressure on rents just yet, because availability is kind of attached higher in Calgary compared to, let's say, Toronto. But the sheer level of demand is relatively healthy, and for our larger development, we're in a very advanced discussion with one user to take one of the buildings fully, and the second building is available, but we expect that to be leased before or shortly after.
Speaker Change #198: Very healthy levels of activity in Western Canada.
Speaker Change #198: We're not seeing that activity to translate into significant pressure on rents just yet because availabilities.
Speaker Change #198: As a kind of a touch higher in Calgary compared to let's say Toronto owners.
Speaker Change #198: But the.
Speaker Change #198: The sheer level of demand is.
Speaker Change #198: Relatively healthy.
Speaker Change #198: And for our larger development.
Speaker Change #198: We are in very advanced discussions with one user to take.
Speaker Change #198: One one of the buildings fully and <unk>.
Speaker Change #198: Second building.
Speaker Change #198: <unk> is available, but we expect that to be.
Speaker Change #198: Leased.
Speaker Change #198: Before or shortly after completion.
Lenis Quan: Completion. Got it.
Speaker Change #199: Got it.
Operator: That is a very good caller. Thanks, Alex.
Speaker Change #199: Very good color, thanks, Alex and I will now turn it back.
Operator: I will turn it back.
Speaker Change #199: Okay.
Operator: Once again, if you have a question, please press star, then one.
Speaker Change #200: Once again, if you have a question. Please press Star then one next question is from Mr. Myers with CIBC. Please go ahead.
Sumayya Sayard: The next question is from Sumayya Sayard with CIBC.
Sumayya Sayard: Please go ahead. Thanks. Good morning. Just following firstly on the occupancy discussions. Obviously, the drop there was as expected.
Unknown Executive: Okay, okay.
Unknown Executive: Thanks. Good morning, everyone. I guess Alex or Lenis will make the comment about NOI growth.
Mr. Myers: Thanks. Good morning, just following firstly on the occupancy discussion obviously the drop there was as expected.
Unknown Executive: Thank you Sam. Generally, we would, and that's why when we say that what we're working on is ensuring that NOI growth outpaces pressure from the interest expense line. We're not just focusing on 2025, as you know, we're not going to see significant pressure or significant additional pressure into 2025 from interest expenses going up because our maturities are in November and December, but that comment is primarily aimed at
Lenis Quan: And you did talk about demand from various user types, but would it be fair to say that that drop in occupancy was more of a meaningful impact to your larger assets versus the smaller and mid-based stuff? Thank you for that follow-up, Sumayya. Yeah, I think that's a fair observation. We've seen some of the decline in occupancy being attributed to maybe a couple of larger spaces. In many cases, these spaces are demisable, and so we will work to reconfigure them to then respond to the demand that we see in the market.
Mr. Myers: And you did talk about demand from various user type, but would it be fair to say that that drop in occupancy was more of a meaningful impact to your larger assets versus the smaller and mid pissed off.
Unknown Executive: Okay. And, you know, again, thank you for the sort of detail on the Montreal port plans. Beyond that, do you anticipate adding more to the active development pipeline from a greenfield perspective?
Unknown Executive: Thank you for that follow-up. We are looking at development opportunities, more infill mid-bay assets in the GTA for the account of some of our private ventures. We also have our site in Brampton that is in the pre-construction phase right now, and we are advancing pre-development work there. So, we will evaluate. Towards the end of the year, whether we will start going vertical on that site in 2025. Again, that site sits on one of our private ventures.
Speaker Change #202: Thank you for the follow ups.
Speaker Change #202: Yes, I think Thats fair.
Speaker Change #204: Fair observation we've seen.
Speaker Change #204:
Unknown Executive: Perfect. Thank you. And I'll turn it back.
Speaker Change #205: Some of the decline in occupancy being attributed to maybe a couple of larger.
Speaker Change #205: Spaces.
Speaker Change #205:
Speaker Change #205: In many cases these spaces the demise of <unk> and so we will we will work to.
Speaker Change #205: Reconfigure them to death.
Speaker Change #205: To respond to the demand that we see in the market.
Sumayya Sayard: Okay, thanks for that.
Unknown Executive: And then, I'm not sure if you provided this, but roughly how much of your portfolio is being subleased or on the sublease market at the moment?
Speaker Change #206: Okay. Thanks for that and then just secondly noticed that.
Unknown Executive: We have not commented on that specifically. It's not a significant portion. But we haven't commented on that specifically. And we wouldn't have that metric readily available. We will come back to you or come back to the market next quarter if it's a material metric for investors to take into account.
Lenis Quan: And then just secondly, notice that the lease incentives jumped sequentially in your year a bit this quarter. Looks like some early renewals were the target. How should we think about that figure going forward? Yeah, thanks.
Speaker Change #206: Lease incentives jumped sequentially and year on year I bet this quarter.
Speaker Change #207: Like some early renewals were what the dial, but how should we think about that figure going forward.
Unknown Executive: You know, I'm just curious.
Speaker Change #208: Yeah. Thanks, Thanks, Matt So yes, that's correct. The increase was due to some like commissions payable on earlier renewals of some larger deals.
Lenis Quan: Thanks, Maya. So yes, that's correct. The increase is due to some commissions payable on earlier renewals of some larger deals. So that's going to be a little bit lumpy. I would say just generally speaking overall leasing costs on deals are relatively in line. They may have ticked up slightly, but not enough to offset healthy growth in the starting rents and any ours as well.
Unknown Executive: You know, I'm just curious if you think it's maybe roughly in line with where broader market levels are.
Unknown Executive: Yes, subleasing is about a third to 40% depending on the market for overall availability. And, you know, in our portfolio, in many cases, when occupiers look to get rid of the space, and subleasing is important for them to do so
Unknown Executive: four of those deals to materialize for the property to be fully leased. We are encouraged by the level of activity and we think that our property is very well positioned relative to other options that are available in that node from the location perspective and just the physical attributes of the building. It offers obviously old and modern specs, 40-foot clear height and Access Trailer Storage, and various other attractive attributes.
Unknown Executive: When it comes to Balzac, there are two development projects, as you know, so for the 350,000 sq. ft. project on the 20-acre site. We've seen strong activity at $12 range rents. We are targeting users ranging from 26,000 sq. ft. to 100,000 sq. ft., and this is where we've seen most of the demand. With the conditional deals that we commented on earlier and in our personal lease, the front building is fully leased, and the back building has about 80,000 sq.
Unknown Executive: ft. available, and so we're working with a number of occupiers to fill that. Again, the building was designed to be multi-tenanted and demised, and so that's the demand we're responding to. We generally are seeing very healthy levels of activity in Western Canada. We're not seeing that activity translate into significant pressure on rents just yet because availability is kind of a touch higher in Calgary compared to, let's say, Toronto, but the sheer level of demand is relatively healthy.
Unknown Executive: For our larger development, we are in very advanced discussions with one user to take one of the buildings fully, and the second building is available, but we expect that to be leased before or shortly after.
Unknown Executive: Got it. That is a very good caller. Thanks, Alex. I will turn it back on.
Speaker Change #209: So that's going to be a little bit lumpy.
Speaker Change #210: I would say just generally speaking overall leasing costs on deals are relatively in line. They they may have ticked up slightly but not enough to offset a healthy net healthy growth in the starting rents and any areas as well.
Sumayya Sayard: Okay, thank you.
Okay. Thank you I'll turn it back.
Operator: I will turn it back.
Operator: This concludes the question-and-answer session.
Sumayya Syed: Once again, if you have a question, please press star then one. The next question is from Sumayya Syed with CIBC; please go ahead. Thanks. Good morning.
Mr. <unk>: This concludes our question and answer session I would like to turn the conference back over to Mr. <unk> for any closing remarks.
I'd like to turn the conference back over to Mr. Santa Claus for any closing remarks. Thank you, operator. Thank you, everyone, for your interest in Dream Industrial Reach. We look forward to reporting back next quarter. ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶
Sumayya Syed: Thanks. Good morning. Firstly, on the occupancy discussions, obviously, the drop there was as expected, and you did talk about demand from various user types, but would it be fair to say that that drop in occupancy was more of a meaningful impact on your larger assets versus the smaller and mid-based offers?
Mr. <unk>: Thank you operator, thank you everyone for your interest in Dream Industrial REIT, we look forward to reporting back next quarter.
Mr. <unk>: Okay.
Mr. <unk>: [music].