Q4 2024 Dream Industrial Real Estate Investment Trust Earnings Call
Transcription by D FSS © FOSS- Wishwish
Speaker Change: Welcome to the Dream Industrial Reach fourth quarter conference call for Wednesday, February 19th, 2025.
Speaker Change: Please be advised that all participants are currently in listen-only mode and the conference is being recorded.
Speaker Change: After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0.
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 clean industrial reads 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 REITs filings with security-selective regulators, including its latest annual information form and MD&A.
Speaker Change: These filings are also 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: Thank you. Good morning, everyone. Thank you for joining us for Dream Industrial REITs year-end 2024 conference call.
Speaker Change: Speaking with me today is Lenis Quan, our Chief Financial Officer. In the room with us is Bruce Traversy, our Chief Investment Officer.
Speaker Change: DIR was successful in achieving its operating and financial targets for the fourth quarter and the full year of 2024.
Our results demonstrate the resilience of our business.
Speaker Change: We have a highly diversified occupier base, a functional urban portfolio designed to service a broad range of users, multiple drivers of organic growth, and a solid balance sheet.
Speaker Change: 2024 marked our fourth consecutive year of FFO per unit and free cash flow growth.
Speaker Change: Our average in-place rents increased by 7% in 2024. This growth in rents outpaced the pressure from lower occupancy, driving Comparative Properties' NOI growth of 4.6% for the full year.
Speaker Change: was signed over 7.3 million square feet of leases in 2024, exceeding 2023 in total leasing volume while achieving consistent spreads.
Speaker Change: This leasing momentum carried into the first quarter of 2025, with close to 2 million square feet of new leases signed or in advanced negotiations.
Speaker Change: Our in-place and committed occupancy was 95.8% at the end of the year, a 30 basis points increase from the prior quarter, with a healthy 75% tenant retention ratio in line with historical norms.
Speaker Change: We made significant progress on our development pipeline with substantial completion of four projects at an average expected yield-on-cost of 6.3%, adding more than 1.6 million square feet of high-quality space to our wholly owned and managed portfolio.
Speaker Change: We have increased our near-term development pipeline of projects in various stages of planning by 600,000 square feet, including several built-to-suit expansions.
Speaker Change: We continued with our program of high-grading our portfolio while maintaining disciplined capital allocation.
Speaker Change: Our property management and leasing platform generated more than $11 million in net fees for the year, over $2 million higher than 2023, and we expect our fees to grow as we add scale to our ventures.
Speaker Change: Turning to the occupier market, 2024 was a transitional year. Although the pace of rental growth continued to normalize following the height of the pandemic-driven leasing,
Speaker Change: In Canada, while availability rates are higher compared to 2022 levels, the absolute levels of vacancy are amongst the lowest in North America.
Speaker Change: Demand from small- to mid-bay users remained healthy, and we have seen growing interest from larger users in Q4 and into the first quarter of 2025.
Speaker Change: At the same time, the national construction pipeline has fallen by over 25 million square feet since mid-2023 as deliveries have outpaced new construction starts.
Speaker Change: The total supply currently under construction has slowed to the levels last seen in 2021 and 2022.
Speaker Change: Within our income-producing portfolio, rental spreads on contracted leases remain strong. From the beginning of 2024 to the end of January 25, we signed 4.5 million square feet of leases in Canada at an average rental spread of 55 percent, with an average annual escalators of more than 3 percent.
Speaker Change: Although the Montreal market has experienced several quarters of negative absorption, vacancy rates appear to have begun leveling off.
Speaker Change: New supply levels have fallen and we have seen an increase in interest from larger users since the start of 2025. We are currently in new leasing discussions on over 700,000 square feet of space across the Montreal portfolio.
Speaker Change: In Calgary, we continue to see healthy demand and we are making good progress on the lease-up of our 1 million square feet of new developments that came online in the Balzac sub-market.
Speaker Change: We're currently in negotiations on over 400,000 square feet of new leases for these projects.
Speaker Change: We have also seen an uptick in leasing activity in Edmonton, with over 300,000 square feet of new leases in advanced negotiations across the platform.
Speaker Change: The GTA market remains healthy with deep user demand for small and mid-bay facilities with multiple leasing data points, reinforcing our assessment of market trends as disclosed in RMDNA.
Speaker Change: In addition, we have successfully re-led over 500,000 square feet of unexpected terminations.
Speaker Change: Even though some of these terminated leases had been recently re-geared to market, the average releasing spread was still healthy at 20% with 8 months of downtime on average.
Speaker Change: We are also seeing larger requirements coming back to the GTA market, and we have completed one million square feet of large bay leases in our wholly owned and managed portfolio in Q4 alone.
Fundamentals in Europe remain solid, especially for urban mid-sized assets.
Speaker Change: Subsequent to the quarter end, we signed a new lease for our 140,000 square foot facility near Paris. This asset was one of the unplanned vacancies we were addressing in 2024.
Speaker Change: A new lease was signed at a spread of 12% relative to prior rents, despite the fact that prior lease had already been indexed by over 14% during the lease term.
Speaker Change: Additionally, we completed several other leases in Europe, increasing our committed occupancy by over 110 basis points this quarter.
Speaker Change: And currently, we are seeing an uptick in demand for expansions from our existing occupiers. Last week, we signed an early renewal with an existing 289,000 square foot tenant in our Dutch portfolio.
Speaker Change: The Senate is looking to consolidate the operations and require additional 120,000 square feet of space.
Speaker Change: will be pursuing this expansion on the neighboring site and will upgrade the existing asset at a combined yield on cost of 7% with an additional lease term of 10 years commencing after completion, which is expected in the first half of 2026.
Speaker Change: Similarly, in our private venture, we recently signed a 10-year lease renewal with a large global automotive occupier at a 340,000 square foot facility in the GTA. As part of the agreement, we'll be activating the site's excess land potential, expanding the building by over 100,000 square feet.
Speaker Change: For example, the GTA renewal will amount to approximately $100 million of net rent payments over the lease term.
Speaker Change: We intend to actively pursue these opportunities to enhance our portfolio while meeting our tenants' needs.
Speaker Change: Our wholly-owned portfolio includes over 180 acres of excess land that can facilitate built-to-suit and expansion requirements.
Speaker Change: And we have over 60 acres of undeveloped excess land across our private ventures that we can activate over time.
Speaker Change: Supported by Balance Sheet Strengths, we have been actively deploying capital into our private ventures.
Speaker Change: Since the beginning of 2024, we completed over 582 million of acquisitions within the Dream Summit Venture, which includes a 27.5 industrial outside storage site in Vancouver leased to a diverse range of users.
Speaker Change: and a portfolio of seven assets in the GTA totaling almost 1 million square feet that offer significant upside industrial outside storage opportunities and repositioning opportunities.
Speaker Change: Within our development JV, we acquired a 32-acre infill site located in Brampton.
Speaker Change: This site is shovel-ready and can support a 680,000 sq. ft. logistics facility demisable into 70,000 to 100,000 sq. ft. units.
Speaker Change: Broadly speaking, private market demand for industrial assets remains strong, with multiple data points across Canada and Europe supporting our assessment of value of our assets.
Speaker Change: Against this backdrop, we remain focused on the catalog recycling program.
Speaker Change: Additionally, we completed over $65 million of dispositions within our private ventures at an average price over $360 per square foot.
Additionally, we've made progress on our value-add initiatives.
Speaker Change: Our solar program now consists of 23 completed projects with 21 megawatt capacity, which generated $1.5 million of NOI in 2024.
Speaker Change: We are currently underway with an additional 60 projects undergoing feasibility.
Speaker Change: We also continue to pursue opportunities to convert some of our existing assets for data center users.
Speaker Change: We have submitted power applications on four sites totaling 200 megawatts. We expect to receive preliminary feedback from the respective utility providers in the second quarter of 2025.
Speaker Change: expanding a geographic presence, launching new private partnerships, and exploring new value-add initiatives.
while strengthening our balance sheet.
Speaker Change: Our portfolio by 80% is comprised of urban industrial assets, is well located and highly functional, providing us with significant repositioning opportunities to accommodate a more diverse user base over time.
Speaker Change: The limited supply of new urban product coupled with stated occupier demand continues to inform our constructive outlook.
Speaker Change: When assessing our near-term outlook, we need to take into account the ongoing uncertainty with respect to trade in North America and Europe.
Speaker Change: As we mentioned before, our occupier base is highly diverse. We have recently reviewed the trade exposure across the main tenants.
Speaker Change: While many of our occupiers are participating in the broader supply chains, the direct cross-border trade exposure in our portfolio is limited.
Speaker Change: Market rents for our assets in Canada are 35% above in-place rents, providing both upside potential and mitigating any downside in the event of distress.
Speaker Change: We are also in active dialogue with over 300 of our key tenants in Canada.
Speaker Change: Through the course of these discussions, we again have not identified significant trade concerns.
Speaker Change: In fact, we've begun exploring opportunities with some of our occupiers to accommodate potential additional space requirements.
stemming from higher inventory levels.
Speaker Change: While trade uncertainty will inevitably lead to some volatility in the near term, we expect that one of the positive outcomes of this uncertainty will be reinforcement of supply chain resiliency, resulting in consistent and growing requirements for industrial and warehouse space.
Speaker Change: That said, we are factoring this near-term uncertainty into our 2025 outlook. We expect the pace of CP&OI to accelerate to 6% to 8% growth on a constant currency basis in 2025.
Speaker Change: Our CPNOI growth expectation is largely predicated on the timing of lease-up of our transitory vacancies.
Speaker Change: We expect the average occupancy for 2025 to remain relatively consistent with the current levels, with some expected fluctuations quarter to quarter. We expect average occupancy for 2025 to remain relatively consistent with the current levels, with some expected fluctuations quarter to quarter.
Speaker Change: I will now turn it over to Lenis to discuss our financial highlights.
Lenis Quan: Thank you, Alex. We ended 2024 with solid financial results, which demonstrate the strength of our business and our portfolio.
Lenis Quan: We reported diluted FFO per unit of $0.26 for the fourth quarter, which was 5.8% higher than the prior year quarter. For the full year, diluted FFO per unit was $1, representing a 2% increase year-over-year.
Lenis Quan: The solid year-over-year growth was primarily driven by strong comparative properties NOI growth of 3.3% for the quarter and 4.6% for the year. Early renewals of existing tenants, development leasing coming online in addition to the income generated from our property management platform.
Lenis Quan: The full year CPNOI growth was in line with the initial guidance for the year.
Lenis Quan: While the FFO per unit growth was on the lower end of our initial guidance issued last February as a result of unplanned lease terminations, which we discussed earlier, higher average cash balances throughout 2024 and lower average net leverage.
Lenis Quan: Our net asset value per unit at the quarter end was $16.79, slightly higher than the prior quarter.
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.
We successfully addressed our 2024 debt maturity.
Lenis Quan: In addition, we extended the maturity date of our $200 million unsecured term facility to March 2028, enhancing both our liquidity and debt maturity profile.
Lenis Quan: During the fourth quarter, DBRS confirmed our credit rating and improved the trend from stable to positive.
Lenis Quan: We ended 2024 with leverage in our targeted mid 30% range and net debt to EBITDA ratio of 7 times, nearly a turn lower than the prior year.
Lenis Quan: Our debt maturities for 2025 include $60 million of European mortgages, which we will be repaying at the end of February.
Lenis Quan: Our two remaining maturities are later in Q4 of 2025 and comprise our U.S. $250 million unsecured term facility and $450 million Series A debentures.
Lenis Quan: We are currently in advanced discussions for the early refinancing of the U.S. $250 million term facility on a blend and extend basis, which we believe would further strengthen the balance sheet and free up liquidity.
Lenis Quan: We currently expect to achieve a blended rate of approximately 3% on this facility while extending the maturity by 3 or 4 years.
Lenis Quan: We believe that this will further enhance our credit profile, positioning DIR stronger for a credit rating upgrade, which in turn will benefit our cost of capital for the remaining upcoming debt maturities.
Lenis Quan: We expect that this early refinancing would have a 1 to 1.5 cent impact on our 2025 FFO while increasing our FFO per unit in 2026 onwards by the same amount.
Lenis Quan: With growing cash flow generated from the business and total availability of liquidity of over $822 million, we retain sufficient capital to fund our value-add and strategic initiatives, including funding our development pipeline, solar program, and contributing to our private capital partnerships.
Lenis Quan: Our business is well positioned to continue delivering sustained FFO and free cash flow growth not just in 2025 but over the long term.
Lenis Quan: As we have communicated previously, we expect that CPNOI growth and FFO per unit growth will accelerate into 2025 and 2026 compared to 2024.
Lenis Quan: In determining our expectations for 2025, we believe it's prudent to incorporate higher reserves than we typically do as a result of the uncertain trade environment.
Lenis Quan: We are expecting Comparative Properties NOI growth in the range of 6 to 8 percent.
Lenis Quan: We are also incorporating the impact of the potential early refinancing of our term loan in our outlook.
Lenis Quan: Putting this all together, we expect FFO per unit growth of 6 to 9% in 2025.
Lenis Quan: Equally as important is the outlook for 2026, which fully takes into account the upcoming debt maturities.
Lenis Quan: We currently expect at least a comparable rate of growth in 2026 in our FFO per unit.
Lenis Quan: Our FFO growth expectation is predicated on current foreign exchange rates, leverage levels, and interest rate expectations, as well as the expected timing of the lease-up of our transitory vacancies.
I will turn it back to Alex to wrap up.
Alex: Thank you, Lenis. Overall, our business is in solid shape and all of our growth drivers remain intact.
Alex: The successful execution of our core strategic pillars has provided us with stable and growing cash flow, which we continue to reinvest into our business.
Alex: These pillars will continue to inform our strategy as we navigate through the first quarter of 2025 and focus on delivering sector-leading total returns for our unit holders.
We will now open it up for questions.
Thank you.
Alex: 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.
Alex: If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2.
Speaker Change: The first question comes from Brad Sturgis with Dreamin Games. Please go ahead.
Thank you.
Hey, good morning.
Thank you. Thank you, Brad.
Speaker Change: Would the guidance also include or factor in any disposition assumptions at this point?
Thank you very much.
NAV, Pre-Cash Flow, or FFO basis.
Speaker Change: In terms of the blunt extent refinancing, I guess you're looking to do it ahead of the maturity, just what would be the assumption around potential timing?
Speaker Change: Correct, we're looking to do it early, in advance of the late November maturity. We'd probably look to do it late Q1, early Q2.
Speaker Change: And in terms of the, I think, the Euro-denominated maturity, I guess, what would be the assumed, or where is market interest rates today for that maturity?
Speaker Change: So all of the debt that's maturing in 2025 is Euro-equivalent debt. We would see current five-year rates in and around 4%.
Speaker Change: This blend and extend provides us the opportunity to achieve up to 100 basis points of savings off of that.
Thank you. Thank you.
Speaker Change: On the acquisitions announced within the summit, can you comment on going in cap rates or how do you think about pricing on those two deals, one in the GTA and one in Vancouver?
Speaker Change: On the Vancouver deal, we have quantified the cap rate in a press release, as you probably noticed, at around 6%, in fact north of 6% going in, with upside from mark to market.
Speaker Change: Partially as a result of the vendor's confidentiality concerns, however, the metrics are generally consistent with what you have seen from us for the Summit JV throughout 2024, both on going-in basis and on a mark-to-market basis.
Okay, sounds good. I'll turn it back. Thank you.
Good morning, guys.
We're also hearing that some of the
Retailers are pulling out from the market.
Speaker Change: With respect to the Quebec market, I'm not sure which retailers you're referring to, but perhaps the Amazon. Sorry, I'm referring to Amazon. The Amazon sees operations in Quebec. Yeah, so...
Yeah, so that's wildly...
widely documented, so we are in fact seeing
Speaker Change: First of all, we don't have Amazon Exposure in our Quebec portfolio.
Speaker Change: What we are seeing as a result of the Amazon announcement is an increase and uptick in large bay requirements broadly because some of this
Speaker Change: The second bit that is important to highlight with respect to the Amazon announcement that they're not looking to necessarily stop servicing the Quebec market, they're just stop looking to operate their warehouse facilities.
Speaker Change: and so the approximately 2 million square feet they have in the market will end up staying in the market, it's just going to be reallocated to other providers.
Thank you.
Speaker Change: Yeah, we've recently seen an uptick in the larger bit requirements.
Thank you. Just switching gears to Ural, I think the
Speaker Change: and last new leases or, I mean, this is a way to push for occupancy in Europe?
are achieved through tenants exercising their options.
Speaker Change: expiring rents because tenants exercise options, so it's it's it's a mix And it's not necessarily a reflection of changes in fundamentals in Europe one way or the other
Thank you, I'll turn it back.
Speaker Change: The next question comes from Himanshu Gupta with Scotiabank. Please go ahead.
Thank you and good morning.
Speaker Change: On CPNOI guidance of 6 to 8 percent, just to confirm, you assume flat occupancy on year-over-year basis and all the growth comes from the rental spreads?
Speaker Change: And then just on the occupancy side, do you expect any ramp-up during the year from Q4 levels?
Speaker Change: Yes, the CP&OI guidance is predicated on relatively flat average occupancy for the year. We do expect occupancy to go up as the year progresses, but generally that's not baked into the guidance, if you will.
Speaker Change: Okay, fair enough. And then the CP growth, NOI growth, mainly, I mean, similar to last year driven by Ontario and Quebec, and maybe, you know, like low to mid single digit for Western Canada and Europe. Fair to say that?
I think that's generally consistent, yes.
Thank you.
Speaker Change: I'm now talking 25 FFO guidance. I think you mentioned six to nine percent growth.
Speaker Change: And then 2026, also you mentioned very comparable 6 to 9 percent. Did I hear correct? I mean, some guidance for 2026 as a for growth as well. Yes, and we said at least comparable.
Speaker Change: Okay, okay, that's fantastic. Last question I would say on Europe side and I know you provided some commentary.
Speaker Change: on the 25 leases already in the bag, I mean already done. What's the expectation for the remaining half, I mean in terms of getting it done and then the rental spread, you can achieve on that?
Thank you very much.
to Europe.
Speaker Change: Yeah, yeah, no, no, within Europe, which market I meant. There's 200,000 cases. The unit that is coming back to us is in Germany. We expect to see good rental spread on that when we re-tenanted.
Speaker Change: Sorry, just a last follow-up here, would you say like Germany is probably the weakest within the European exposure you have among all the markets?
Speaker Change: No, not at all. I think it's really a location-driven exercise and assessment.
Speaker Change: We have some units that we are renegotiating in France at amongst the highest spreads we've achieved in Europe over the last four years that we've operated there.
Speaker Change: In Europe, this occupier serviced the Russian market from that facility and they no longer need that space, so it's not really relating to the German economy in any way.
Okay, fair enough. Thank you, and I'll turn it back.
Kyle Stanley: The next question comes from Kyle Stanley with Desjardins. Please go ahead.
Thanks. Morning, everyone.
Kyle Stanley: It seems like your outlook is definitely a little bit more positive today than it's been over the last few quarters. I'm just wondering, you know, what's changed in the market, especially over the last maybe quarter or two that's resulted in occupancy beginning to firm up and, you know, the more elevated level of leasing that we've seen you guys complete?
Kyle Stanley: I think this is consistent across industrial landlords and certainly a reflection of the urban nature of our portfolio. As we've consistently commented throughout 2024, we've seen
Kyle Stanley: Partly driven by the delay in making leasing decisions by some of the occupiers.
Kyle Stanley: of at least 12 months, and now some of these decisions, well, they cannot be postponed for too much longer. So we're seeing some of that, and that's materializing in our portfolio.
Speaker Change: Since you provided kind of the initial disclosure on the data center opportunity at the Investor Day, has anything changed, the strategy evolved a bit? You know, I'm just curious if there's, you know, any prospects for a powered shell deal at this point, anything else that you can provide on that front would be helpful.
Speaker Change: Thank you for that follow-up. Yes, we are definitely looking to submit more applications and pursue more opportunities. We're not necessarily going to wait for these to materialize.
Speaker Change: We have consistently seen inbounds from users, mostly relating to acquisition of sites and we are also engaging with
Speaker Change: potential joint venture partners, but these are early stage discussions as to how we could execute on the opportunity once we advance the power procurement.
Speaker Change: Okay, thank you for that. And then just the last one, you know, I think you've provided previous disclosure or discussions surrounding the potential for maybe a European JV to enhance, you know, the REITs presence there. I'm just wondering if there's any updates you might be able to provide in discussions at this juncture.
Thank you. Bye-bye.
Speaker Change: We are in active dialogue with a couple of groups. If this dialogue advances,
Bye.
Speaker Change: driving the our strategy in Europe it's we think it's additive
Speaker Change: But our strategy in Europe remains intact. We continue recycling capital, continue to pursue on balance sheet acquisitions And we think that this a potential JV will will enhance our growth prospects further And that there are some ongoing conversations
Speaker Change: Okay, no, that makes sense. Very quick last one, you know, thank you for the the added 2026.
Speaker Change: guidance disclosure. I'm just curious on your view with occupancy for 2026. Would you expect a similar level of occupancy maybe as what you've provided for 2025? Or do you actually do you expect to see a bit more lease up to get to your 2026 guidance number?
Thank you.
Speaker Change: As we commented, we do expect the occupancy to ramp up through the year. The outlook is generally informed by rental growth, not necessarily by occupancy gains, whether it's 25 or 26.
Speaker Change: Our portfolio is very multi-tenant. As you know, our top ten tenants account for just around 11% of our rent roll. And with that...
Speaker Change: Certainly no constraints to get to higher levels than that, but we will always have some
Speaker Change: turnover in our portfolio. So to consistently stay at 98 or 99% will be difficult. We may get to that point at any given quarter, but it's unlikely to stay there for a prolonged period of time.
Okay, thank you for that. I will turn it back.
Speaker Change: The next question comes from Sumayya Saeed with CIBC. Please go ahead.
Speaker Change: Thanks, good morning. I wanted to follow up on the occupancy guidance discussion and just
Speaker Change: Just curious why there's no or little improvement expected given your positive commentary, Alex, on just on demand trends and interest from large users, or did you just want to be a bit more conservative at formulating the guidance?
Alex: Thank you for the follow-up, Sumaya. Yes, it is the latter. And I think we want to emphasize that occupancy is less of a driver when it comes to our outlook for 2025 or 2026. We are certainly in the business of leasing space and we are aiming to...
Alex: At least all of it. We do expect occupancy to ramp up, but that's not what is necessarily the main driver behind our outlook.
Speaker Change: Okay, got it. And then just on the market rents that you disclosed, I think they showed their first quarter of moderating a little bit. Do you expect that this trend would continue or do you see market rents as stable from here on out?
Speaker Change: We generally see market rents as stable. I think some of the fluctuation or the moderation you're pointing to is relating to dispositions.
Speaker Change: As we sell assets, the mix changes and the average changes as well. So it's not necessarily that we are reducing our like-for-like market rent assessments. It's the mix as well.
Speaker Change: Okay and then just lastly on the Vancouver acquisition the 6% going in cap rate it's pretty attractive compared to I guess
Speaker Change: brokers that had cap rates on the HIFORs. Is that higher because of the outdoor storage component? And then for any future acquisitions in Vancouver, is your intent to look for similar assets?
Identify that in our acquisition program.
Speaker Change: We pursue those opportunities, they're very rare and hard to come by, and we think they offer attractive economics.
Speaker Change: Yeah, the iOS nature of the asset is part of it, there are very few dedicated iOS strategies in Canada. It's also a sizable asset, so at $140 million.
Speaker Change: Not as many groups are able to kind of pursue something like that, so these factors combined are informing the cap rate.
Thank you. I'll turn it back.
Speaker Change: Hi guys, I appreciate that you've taken some conservatism in your forecast, but can you give us a sense
Speaker Change: If Trump decides that the best way to make Canada the 51st state is to be nice to Canadians or gets hit with reality in terms of where inflation will go if he does put tariffs in place, what a more normal or optimistic scenario would look like on your organic growth?
Speaker Change: a reasonable target and we'll update the outlooks throughout the year. There are many moving parts in the business. We're executing on a lot of different strategies that we're trying
Speaker Change: are all contributing to our FFO Outlook. So the execution of some of these initiatives, whether it's solar, a list of some of the developments, will inform the 25 Outlook. I think what's important is the...
Medium term, which is capturing 26 as well.
Speaker Change: and we wanted to specifically highlight that we don't expect that, you know, the re-acceleration in 25 is going to be, is going to end there. We expect the pace to continue as we execute.
We're using 2%.
Okay.
Speaker Change: It sounds like there may be some opportunities if there is trade around for higher inventories.
Maybe the Port of Montreal becomes more important in diversifying.
Speaker Change: relationships from a trade standpoint outside of the US. But can you give us a sense, are you in any nodes where there's auto components that would be impacted or other businesses that would be more US destined? And is that taking place in a product that is ...
Speaker Change: similar to what you own, or is it something with a special purpose and wouldn't be comparable anyways?
Speaker Change: We do have some exposure to the auto sector, it's around 6% of DIR's balance sheet, there's some exposure to the auto sector within the Summit Venture, but as we commented in our prepared remarks...
Speaker Change: when we look at the sectors we have exposure to and then, in turn, how these sectors are exposed to trade.
Speaker Change: And so when we put all of that into the analysis, the interim conclusion that we have is the exposure within our portfolio is limited, but, you know.
Speaker Change: Obviously, we have close to 50 million square feet of space in Canada across the platform and our occupiers are participating in broader supply chains.
Speaker Change: transitory vacancy. Can you speak to who that was and how quickly you think you can release it? I know you mentioned that there is potential upside on the lease, but what would that look like?
Speaker Change: We have a prospect tenant with whom we are in advance.
Speaker Change: negotiations presently, so we expect to backfill that in early 2025.
Okay, perfect. Thanks, guys.
The next question comes from Sam Damiani
Sam Damiani: Thanks and good morning everyone. First question just on the the outlook for 2020-2025, the 68% same property guidance
and 25 without those reserves.
Sam Damiani: That factors in some of our additional reserves, and similar to what Alex explained, it's probably on the upper end of the guidance would sort of reflect less reserves.
Sam Damiani: Okay, that's helpful. And then your comments on 2026, you know, also very helpful.
Speaker Change: What kind of same property and why growth were you looking at behind that that FFO growth expectation?
Speaker Change: We expect it to be to stay kind of consistent if not higher behind kind of what informs a 26 outlook again, we As you know, we typically don't provide this outlook two years out but given the
Speaker Change: increased focus from investors on 26 and the upcoming Maturities debt maturities that are at the end of 25. We want to highlight that we don't expect growth to moderate and will obviously be providing more details on 26 outlook
This time next year.
Thank you very much.
Speaker Change: Yeah, sure. So, current, say, five-year Euro equivalent debt is in and around 4%.
Speaker Change: So that's sort of what our base case is for refinancing debt towards the end of the year. We've kind of assumed, you know, consistent...
Speaker Change: rate levels, interest rate levels. We are looking to early refinance as part of the prepared remarks I had alluded to this. We are looking to early refinance about half of that with the term facility.
Speaker Change: through a blend and extend structure and targeting or expect that we could achieve up to 100 basis points savings on the face rate through that.
Got it. Thank you very much. I'll turn it back.
Thank you, Sam.
Speaker Change: The next question comes from Pammy Burr with RBC Capital Markets. Please go ahead.
Pammy Burr: Does the low-end of the FFO and same-property NOI guidance assume the full tariff scenario or the worst-case outcome on that, or just if you could clarify?
and how occupiers behave.
Pammy Burr: So, it's not explicitly tied to tariffs, it's just broader uncertainty, if you will, that we are factoring in, in the ranges that we are.
Pammy Burr: Quoting and it's not like the 9% of a full guidance takes into account absolutely zero reserves if that's not the case.
Pammy Burr: But we think that this is a reasonable outcome, or a reasonable range of outcomes we could expect vis-à-vis pace of leasing.
Pammy Burr: I tend to focus on the trade environment, in particular in North America.
Speaker Change: Got it okay that's that's helpful. Just on the on the Brampton development site that was acquired and I apologize if you if you did mention this but can you talk about the plans there and is this a site that maybe you would look to proceed speculatively on?
Speaker Change: Yes, so we're looking to develop it on a speculative basis. We are designing a 680,000-square-foot facility that is, as a base case, comprised of two buildings, each demisable into...
Speaker Change: units are very consistent with, let's say, Courtenay Park, just larger. We already have interest from occupiers ranging from the full facility to 150,000 square feet.
Speaker Change: and this is an urban infill mid-bay product that we are designing here and we expect to achieve around 7% yield on cost based on this demise scenario.
Speaker Change: To get power fully procured might take more than this year, but as we advance through this process, then we can start engaging either with occupiers on a built-to-suit basis or users on a sale basis as the...
Speaker Change: Visibility into power materializes. So the execution part of the strategy can be done in parallel with the power procurement.
Got it. Thanks very much. I will turn it back.
Speaker Change: Once again, if you have a question, please press star then 1.
Speaker Change: Thank you for your interest and support of Jim Industrial REIT. We look forward to reporting on our progress next quarter. Goodbye.
Speaker Change: This brings to close today's conference call. You may now disconnect.
April 30, 2020