Good afternoon, ladies and gentlemen. Welcome to the Dream Industrial REIT Third Quarter Conference Call for Wednesday, November 2, 2022. During this call, management of Dream Industrial REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond Dream Industrial REIT'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 also available on Dream Industrial REIT's website at www.dreamindustrialreit.ca. Later in the presentation, we will have a question-and-answer session.
To queue up for a question, press zero one on your telephone keypad. Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go ahead.
Good afternoon, everyone. Thank you for joining us today for Dream Industrial REIT's Q3 2022 Conference Call. Speaking with me today is Lenis Quan, our Chief Financial Officer, and Alex Sannikov, our Chief Operating Officer. For Q3 2022, we reported FFO per unit of CAD 0.22 for the quarter, led by strong CP NOI growth. Excluding CAD 1.1 million of lease termination fees and $1.7 million of one-off U.S. fund-related income recorded in the prior year, our year-over-year FFO growth was nearly 7%. Our pace of CP NOI growth continued to be robust and was 8.2% in Q3, led by Ontario and Quebec at 17% and 10% respectively. For the nine-month period, our CP NOI growth was 10%.
During the quarter, we leased a total of 457,000 sq ft of new expansions and achieved a yield on cost of approximately 7.7%. Our capital deployment activity remains focused on driving cash flow and NAV growth over the long term. Our near-term development pipeline totals nearly 2.8 million sq ft with a total cost of CAD 578 million. Based on our current expected unlevered yield on cost of over 6.4%, these projects are expected to add over CAD 30 million of NOI to our portfolio. During Q3 2022, we completed the previously announced acquisitions of two properties in Germany, totaling 276,000 sq ft for a total purchase price of CAD 37 million.
In October, we completed the acquisition of 217,000 sq ft situated on 10.7 acres of land in Etobicoke for CAD 66.5 million. The property is immediately adjacent to our existing asset at 161 The West Mall. This acquisition gives us control of over 21 acres with frontage on both Highway 427 and The West Mall. The best-in-class location allows for significant optionality in the future. Despite the macroeconomic environment, industrial fundamentals remain strong and have supported robust leasing momentum across our portfolio. Our portfolio is located in markets that are in close proximity to large population centers and present significant barriers to entry for new supply. With vacancy in the low single-digit range across our markets and replacement costs continuing to increase, we expect further upside in market rents.
We continue to see a long runway for industrial fundamentals, and our business is well positioned to outperform. I'll now turn it over to Alex to talk about our organic growth outlook and operations.
Thanks, Brian. Good afternoon. Leasing momentum in our portfolio remains strong, and we reported 8.2% year-over-year CP NOI growth this quarter. This was driven by a 4.5% increase in-place rents and a 0.8 percentage point increase in average occupancy. Year to date, our CP NOI growth has been 10%, which is at the upper end of our previous guidance of 8%-10%. We ended Q3 2022 with committed occupancy at 99%, essentially unchanged from the prior quarter. We continue to see strong levels of leasing activity across our key markets. Since the beginning of the third quarter, we have signed 2.6 million sq ft of leases across our portfolio at an average spread of 39%.
In Canada, we have signed 1.5 million sq ft of leases at a spread of 60%. We'll talk about some of the key highlights. In Montreal, we signed a 206,000 sq ft lease at a 55% spread. We achieved 4% contractual rent growth over the 5-year term. In the GTA, we signed a 180,000 sq ft renewal, where we were able to more than triple the rental rate with 4.25% annual steps over the 5-year term. We also signed a 10-year renewal with our largest tenant in Regina, totaling 275,000 sq ft with 2% annual steps. In Europe, the industrial leasing market remains robust, and we signed 1.1 million sq ft of leases during the quarter.
The largest lease was at a 600,000 sq ft building in France, where the tenant vacated upon lease expiry in Q3 2022. We identified in our underwriting last year that we would get the space back and that the in-place rent was above market. We already signed 80% of the building for 467,000 sq ft with a global logistics company, and the lease commenced in October. Although we achieved a rental rate above our underwriting, this new lease negatively affected our overall leasing spreads for the region. Excluding this deal, the average rental spread for our European leasing volume was nearly 6% for the quarter and 10.5% year-to-date.
We are in advanced negotiations with a prospect for the remaining 130,000 sq ft at a rental rate that is over 10% above the deal signed in Q3. In Dresden, in Germany, we leased our 241,000 sq ft expansion to two tenants, with the leases commencing in January 2023. There was significant interest in the space, and we were in advanced negotiations with four different tenants. We achieved an unlevered yield of 6.8% on our development, which is above our underwriting. With an essentially full portfolio and strong leasing momentum, the organic growth profile for DIR remains robust. We now expect CP NOI growth for 2022 to be above 9% compared to our prior guidance of in the 8%-10% range.
During the quarter, the value of our assets increased by CAD 43 million, primarily driven by higher market rents, increased values for properties appraised externally, and substantially completed expansions that are now leased. Driven largely by the increase in the asset values, DIR's NAV per unit increased to CAD 17.05, a 19% increase year-over-year. The current carrying value of our assets equates to just over CAD 170 per sq ft, which is supported by private market data points. While the cap rates are likely to increase modestly on the back of rising interest rates, we believe that the spread between in-place and market rents should offset the impact on capital values. We continue to see a significant disconnect between public and private market valuations.
For example, our current unit price implies a capital value of just about CAD 130 per sq ft on our income-producing properties, which is significantly below private market values, especially as our operating performance remains robust. In addition to CP NOI growth, we continue to see several drivers of NOI and NAV growth across our portfolio. We have made significant progress in our development pipeline and achieved strong unlevered yields on our recently completed projects. The 96,000 sq ft Phase 2 expansion at Marie-Curie in Montreal is substantially complete, and we signed a lease at a rate that is 30% higher than the rate we achieved on Phase 1 earlier this year. Overall, we achieved an unlevered yield of over 8.5% on both phases.
In Montreal, we signed a lease for 120,000 sq ft expansion expected to be completed next spring, which resulted in a yield on cost of over 8%. Over the next 12 months, we expect to complete construction on seven projects totaling over 1 million sq ft, and we are currently in various stages of negotiations and marketing for the balance of the space. We expect that these projects will be substantially leased prior to completion. Lastly, moving on to some of the other value drivers within our portfolio. We are executing on 15 solar projects across Canada and Europe that will add over 22,000 solar panels. We expect an overall capital outlay of CAD 12 million with unlevered yields on costs over 10%.
Q3 marked the first quarter that solar income came online, and we realized nearly half a million CAD from our completed projects in the Netherlands. We expect the run rate to increase materially in the coming quarters. Our U.S. property management and leasing platform continues to generate strong income. We have generated an operating profit of nearly CAD 3 million to date in 2022. Overall, we are encouraged by the operating fundamentals in our markets and the opportunities within our business to drive organic growth in NOI and NAV as we execute our active asset management strategy. I will now turn it over to Lenis, who will provide our financial update.
Thank you, Alex. Our financial results are strong and demonstrate the success of our strategic initiatives over the past several years. Diluted funds from operations, which was CAD 0.22 per unit for the quarter, 0.9% higher than the prior year quarter and 7% higher after excluding CAD 3 million of lease termination fees and one-time administration fees recorded in the prior year. The strong year-over-year growth was due to higher NOI from our comparative properties and property management income from the Dream U.S. Industrial Fund. We ended the quarter with leverage just above 29% and with CAD 346 million of available liquidity. In October, we upsized our unsecured facility to CAD 500 million with an additional CAD 250 million accordion, providing us with additional flexibility to capitalize on strategic investment opportunities.
Our near-term debt maturities are limited with around CAD 250 million of debt maturing in the next 15 months. With continued access to euro-denominated debt that is around 100 basis points lower than North American debt, we expect refinancing these upcoming maturities to have limited impact on our financial results. Our in-place rents are nearly 30% below market, which should continue to support healthy organic growth, offsetting any increase in interest expense from refinancing debt at higher rates.
We continue to expect FFO per unit for the full year 2022 to be in the range of our prior guidance, dependent on foreign exchange rates. Our strong and flexible balance sheet and significant opportunities of driving cash flow and net asset value continue to position us well to deliver strong operating and financial results. I will turn it back to Brian to wrap up.
Thank you, Lenis. Our strategic initiatives over the past several years have provided a strong platform for DIR to deliver robust organic NOI and FFO growth over time while upgrading portfolio quality through our development pipeline. We remain well-positioned to create value for our unitholders. We'll now open it up for questions.
Thank you. We will now begin the question-and-answer session. If you have a question, please press zero one on your touchtone phone. If you wish to be removed from the queue, please press zero, then two. There will be a brief delay before the first question is announced. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press zero and then one on your touchtone phone. We have a question from Mr. Mark Rothschild. Please go ahead.
Thanks. Good afternoon, everyone. Brian, you spoke about the difference in values and between private market and public markets. Can you maybe just expand on how the strategy for capital changes to the extent this goes on with the unit price trading well below NAV?
Sure. Thanks, Mark. I mean, what we're seeing is we are constantly underwriting. We're looking for opportunities. We're very aware of our cost of capital. We've got significant balance sheet strength to allocate to strategic initiatives or strategic opportunities or any distress that we might find. What we're finding is some of our best investment is in development. It's in our own properties and certainly through our organic growth. That's where we see some real opportunity and where we're gonna focus, although we're kind of always looking, you know, given the capacity we have.
While you may not need the capital now, do asset sales enter into the picture? Is it something you're considering with the different values?
Sure. I mean, I've mentioned before that we have a model evaluating all of our assets all of the time. I think, for example, we have gotten calls from users from some of our properties that may pay more than the market would pay for an investment property if they're gonna use it themselves, and we would certainly look at that. It's now probably one-off opportunities or one-off discussions within our team of what we might recycle rather than a. We're in the strategic markets we want, so we're not looking to necessarily exit certain markets or make some different kind of strategy exit like that. We are looking at one-off opportunities to continue to upgrade quality. Quality is what we're very focused on. Long-term growth, asset quality, it's why we are performing really, really well in uncertain times right now.
We're gonna continue to upgrade quality.
Okay, great. Thanks. Maybe just one more question. Clearly, the leasing spreads are quite strong in Ontario, Eastern Canada, and, you know, not bad, but just not nearly at that level in some of the other markets. Should we expect over the next year or two for this to be a somewhat similar range for what you can achieve, or will this converge at all?
Alex, you can talk about our outlook.
Well, when we look at Alberta, Calgary in particular, Mark, we see that rents are starting to rise, and so we expect that our spreads in Calgary will trend upwards over time. We're seeing the same in Europe. We are seeing rents are generally rising, so I expect that we'll be delivering strong spreads. Will they get to the Ontario level spreads? It might take some time, but we think that the trajectory is generally upwards.
Okay, great. Thanks so much.
Thank you. Our next question comes from Sam Damiani. Please go ahead.
Thanks, good afternoon, everyone. Just to follow on Mark's question, just wondering what your updated thoughts are on buying back units, just given, I guess, you're seeing the asset value continue to increase and have confidence that it's gonna continue to do so, and how you look at that gap to where the price is trading.
Sure, Sam. You know, I mentioned to Mark that we think some of our best investment is in our own properties through development, and that's a great place to allocate capital. That's where probably our highest priority is right now, allocating capital there. Alex, you may wanna add to that.
Yeah. Thank you, Brian. Sam, as you know, we disclose our expected yields on our development projects, which average to about 6.4% for the program. Obviously, that 6.4% number includes land, which is already owned. The incremental yield on incremental capital invested in these projects is much higher than 6.4%. In other words, not pursuing a development project has an opportunity cost of 8%-9%, depending on the projects. That's how we're thinking about them.
You're seeing that as a more favorable opportunity than buying back your own portfolio at whatever it is, a 6% cap rate today?
Yes.
Okay. Just on the interest rates, Lenis Quan, you mentioned about 100 basis points spread between North America and Europe. Was that on a swap basis or is that raising domestic Europe debt? I wonder if you just clarify what the absolute rates are right now.
Yeah.
Thank you.
Yeah, for sure. I think right now I'm looking between the unsecured and then unsecured in Canada and swapping to euros, it'd be about that 100 basis points different. Obviously if we were to look at the secured debt in Europe, the rates could be a little bit lower than that. We do have some options on that front. You know, they could be about 50 basis points even lower than what we're seeing on the swap. That would put you in the mid-4s to high-4s.
Just handling the refinancing activity that you anticipate over the next 18 months or so, like how much of that could conceivably be done in Europe or swapped into euros?
Yeah. The mortgages we have maturing next year, they are all European mortgages. We would look to be able to replace that with European mortgages.
Perfect. Thank you. I'll turn it back.
Thank you. The next question comes from Kyle Stanley from Desjardins Capital Markets. Please go ahead.
Thanks. Good afternoon, everyone. You mentioned a little bit on your leasing strategy for new developments. I'm just wondering, you know, has there been a shift there at all? Is it still more lucrative to wait as long as possible before signing a deal on a new development, or would you rather have something locked in a little bit sooner just given, you know, the macro headwinds?
Yeah. Yeah, Kyle, it's Brian. We have started all of our development on spec. We're in very tight markets. Many tenants do not plan so far ahead, that it works to wait for a pre-lease. What we're finding is that the financial results on a pre-lease or a pre-negotiated deal when you haven't broken ground are not as good as if we're building into a market that has tremendous need for new supply. I think our execution's been better to basically build on spec. Sometimes tenants come when steel goes up, sometimes they come earlier or later, but basically prepare, be prepared to build entirely on spec and lease it, kind of build into a market and it's coming to us.
Alex, you can respond with what's happening on the ground, but he gave some examples in our opening remarks of our results of development, which have proven you know proven that the strategy's been working. Go ahead.
Yeah, Brian. We continue to see that tenants look to make space decisions in relatively short order. Tenants really start engaging on a project when you know steel is up and/or the building is enclosed. What we're also seeing is our leasing strategy and generally leasing strategy of this type allows us to mitigate any construction cost increases much more effectively compared to pre-leasing at a defined rate you know two years before when the building is done.
Okay, great. The 3PLs and e-commerce tenants have obviously been very active in taking up space in the last few years. I'm just wondering, you know, should you see a slight slowdown from those types of tenants? Are there enough tenants that have, you know, either been on the sidelines or priced out of the market in recent years that could kind of backfill that demand and, you know, any kind of negative absorption would potentially be mitigated by that?
What we are seeing from 3PLs is that they remain very active both in Canada and in Europe. We've done deals. In some of the deals that we talked about were with 3PLs. We also have some users directly taking space in our buildings, but there's a lot of 3PL activity as well, and these are global names who are very active. In markets like Europe, e-commerce still has a lot of runway and that continues to drive some of that activity. Generally we continue to see 3PLs being active.
Okay, thanks for that. I think just the last question is, last quarter you mentioned seeing some development projects in, you know, the nodes that you're currently operating in, maybe being put on hold. Could you elaborate on that? Are you seeing any more of that this quarter?
Yeah, we're starting to see more evidence of that or some of the data points that were more speculative when we made that comment last quarter are becoming more firm in terms of projects getting delayed. I don't want to get into the exact projects, but you know, examples would be markets like Southwestern Ontario. We're seeing some of the more merchant developers slowing down and putting projects on hold. Which is positive in terms of the health of the overall market and the positive story from our perspective. For rental growth, the development of that continues to happen is sponsored by well-capitalized players primarily in build-to-hold programs.
Okay, thanks. I actually lied. I did have one last quick question. Same property NOI growth in Quebec was still very strong this quarter, but it did slow a little bit from the second quarter. I'm just wondering what the driver of that slowdown was.
I don't think that there's anything that is in particular, you know. There's some idiosyncratic drivers. What I think we need to highlight and maybe emphasize with respect to same property numbers that you're looking at is when you look at the year-to-date numbers for nine months versus the current quarter, the same property pool is different. For example, when we issue guidance at the beginning of the year and then reiterate that guidance throughout the year, or comment on that guidance in any way, we would refer to the same property pool at the start of that particular year, so the start of 2022, in the case of this year's guidance.
When you look at Q3 2022, the same property pool in Q3 2021 is different because there were some acquisitions that were completed. That number will move around the quarterly number.
Okay. Okay, that's it for me. I'll turn it back. Thanks very much.
Thank you. Our next question comes from Himanshu Gupta from Scotiabank. Please go ahead.
Thank you, and good afternoon. Just looking on the acquisitions, the Etobicoke property for around CAD 67 million, a very recent acquisition. What was the pricing on this? Do you think the values have changed a lot in the last six months? Any color there?
Maybe I'll start with the color. As Brian commented, this is a very strategic site. It's immediately adjacent to a site we own. It allows us to assemble over 20 acres of land in a prime node at Highway 427 just north of Sherway Gardens. This could be a prime location for double-story warehouse. If this were to be an industrial node over time, there could be higher and better uses.
In terms of pricing metrics for this particular building, the price per sq ft was just around CAD 300 dollar mark and just around 5 cap going in yield with upside obviously as leases roll and as rents continue climbing up. The true merit of the deal was the land assembly and the strategic merit of having 20 acres in that location. Lastly, I would just add that there's a couple of assembly opportunities we're looking at within that node, much smaller than this deal to almost complete a block.
Got it. Alex, you mentioned around 5 cap rate. Are the in-place rents quite different from the market rents today on this property?
Yeah. The in-place rents are below market, and we continue to see that market rents are rising, especially in these locations.
Got it. Okay. Fair enough. Sticking to the valuation theme, but you know, moving continents. On European portfolio, your IFRS cap rate was adjusted around 25 basis points. I mean, was it enough, like, given the macro and given the cost of financing that just Lenis told us? Maybe can you elaborate in terms of what are you seeing in terms of asset value, pricing there?
Yeah. It's a good question. When we look at the European values, it's about EUR 100 per sq ft that these properties are at, which is, you know, a very low number compared to obviously what you see in North America. We continue to see rising rents there. Overall, we see that while there is upward pressure on cap rates maybe from rising interest rates, capital values are generally holding because the market rent growth offsets a lot of the pressure on going in cap rates, because at the end of the day, you look at the total return and the total return equation generally holds given the rising rents.
Okay. So far you're happy with that 25 basis point adjustment that kind of takes into account the new cost of financing and the market rent growth. Okay, when you
Yeah. It needs to be seen in the context of the market rents.
Okay.
Obviously, as you know, the leases in Europe in our portfolio in particular are indexed to CPI. We're getting a direct pass-through in-place rents, which is obviously if our rent steps in Canada are average just over 2.5%, obviously we're signing kind of in the fours as we do new deals. In Europe, we're seeing, you know, high single digits, in some cases double digits, adjustments contractually.
Got it. Thank you. You know, speaking of the rent growth profile here, CP NOI was, you know, very strong this year, almost 9% guidance. Any expectations for the next year, or what are the expectations for the next year, 2023?
As I mentioned, you know, we don't issue guidance at this time of year, but we will as always provide more context in February. We hope that all of the ingredients for our same property NOI performance and outlook are in our public materials, and that, you know, you can arrive at some directional conclusions with that.
Okay. Maybe just a follow-up there. What are you expecting on the European lease expiries next year in terms of the rental spread? Then I think not much is coming due anyways, next year, I think less than 1 million sq ft. Any discussions there?
We have nothing that is. This year, in 2022, we had this large 600,000 sq ft expire in France, as we talked about, that was a bit idiosyncratic in the sense that the space was over-rented to begin with. We underwrote it that way, but now that's leased and, you know, there's just a small pocket left, 400,000 sq ft, that we're in the process of backfilling, as we commented. When we look at 2023 rollover, there's nothing of that profile that sticks out, if that's a helpful color. We generally expect that our performance on leasing spreads and general leasing activity will be strong in Europe.
Got it. No, that was helpful. Last question, housekeeping. Current income taxes, I think, was higher in Q3 relative to previous quarters. Lenis, what is the run rate expected going forward? I mean, do you now expect higher income taxes in the Netherlands?
The higher income taxes are not from the Netherlands. We're active in other countries. It's actually coming from our Spanish subsidiaries. I would say for a run rate, I would take the average of the first nine months, and that'd kind of give you the quarterly run rate for the cash taxes on that basis.
Okay. That's fair enough. Thank you everyone, and I'll turn it back.
Thank you. Our next question comes from Gaurav Mathur from iA Capital Markets. Please go ahead.
Thank you, and good afternoon, everyone. Firstly, just focusing on the European portfolio, do you think that we have gone through most of the price discovery mechanism that most industrial markets in Europe have seen? Or do you think there's still more to come?
Gaurav, I'll attempt to answer your question. I'm not sure I understand it fully. When we think about fundamentals in Europe, we think that the rental growth is accelerating. You know, to some of the comments that we made about slowing down supply, very much applies in Europe. As we commented before, our experience is that in Europe, we see more merchant developers generally, and so many of these players are slowing down in terms of putting out new product or repricing existing projects. That leads to more rental growth generally, and rising rental levels. We see that. When it comes to pricing mechanism or price discovery mechanism, you know, as you know, there are competing forces.
Where you've got rental rates growth, rising interest rates certainly a factor. Overall, the data points that we've seen so far point to, you know, stable capital values. I think it's a new phenomenon in Europe in terms of accelerating rental growth.
Okay, great. Just, switching the lens here to the development pipeline, has the pressure on construction costs subsided in any manner, or is that still proving to be a deterrent across most markets, you know, thereby causing projects to be delayed?
We're starting to see that the overall construction cost is stabilizing. There's some elements that continue to rise. Roofing, for example, is still kind of on an upward movement as a cost item, generally. Some other cost positions that have been rising over the last 12-24 months have stabilized to some extent.
Okay, fantastic. Just lastly, look, you know, the REIT has a robust development pipeline. They're very strong market opportunities as well. If I may ask, what will prompt you to consider an NCIB down the road, especially given where the units are currently trading at?
Yeah, Gaurav, I'll jump in and then kick it back to the team as well. You know, I mentioned before that we're focused on right now investing in our own properties, making them better, building very good, best-in-class buildings on land, much of the land that we already own. That's where our capital is being allocated. We will.
Mm-hmm.
Kind of review this as we go, but right now we're seeing opportunities within our portfolio that are very accretive, very attractive, and probably the best use for our funds. We are watching the market very closely to see if there's any opportunities that would be very strategic or opportunistic for us. Right now, that's where we have prioritized our capital.
Okay. Thank you for the color, Brian and Alex. I'll turn it back to the operator.
Thank you. Our next question comes from Pammi Bir from RBC Capital Markets.
Thanks. Hi, everyone. Maybe just coming back to the broader backdrop, leasing does seem to be, again, fairly strong. I'm curious, you know, can you comment, are there any signs of maybe early softness or early signs of weakness that, you know, from a demand standpoint in any particular markets or any even particular user types?
I'm just curious if you're seeing if any of your European tenants or other markets are facing some cost pressures, you know, that may limit the ability to push through some of the leasing spread that you've been getting.
Yeah, Pammi, we're looking every day. We're looking every day very closely for distress, for chinks in the armor, for any kind of signs of weakness. You know, Alex Sannikov mentioned a lot of what we're seeing. We're signing a lot of leases. We sign a lease. If you take all the leases divided by the days of the year, it's probably a lease a day. We're seeing real-time data. We are not seeing distress on the ground. We're not seeing rents back up or any kind of softness in demand. Alex Sannikov, I'll let you add any color to that.
Thank you, Brian. You know, Pammi, I think we would point to the leasing activity that we recorded very recently. Most of these deals that we talked about, whether it's our large deal in France, the lease up on Rothenburg, some of the deals that we did in Montreal or the renewal, 200,000 sq ft renewal in Toronto, those are very, very recent deals. We didn't sign them, you know, in May, and they're coming kind of online now. These are all signed in August, September, October. These are recent data points that hopefully point to the operating fundamentals that we're seeing.
Got it. No, it's, that's helpful. Just in terms of next year's lease maturities across the portfolio, is there anything, any larger vacancies or anything that you expect to get back that you know at this point is gonna be coming back, or is it still, too early?
It's still too early. The one property that we're definitely getting back, and that's on our redevelopment list, is that if you look at our development disclosure, our development table, you will see a project in Montreal, Quebec, under planning. That property we're getting back and then but we're excited about the opportunity because that allows us to intensify the site. It's a very centrally located property. That's the one we're getting back, but it's gonna be a development asset. Other than that, we are not seeing anything that would be substantial. I should correct myself, as well. The one that you see, the Whitby asset as well on the redevelopment list. That again was always identified as a redevelopment property.
We're gonna get the property is 200,000 sq ft. The tenant is 200,000 sq ft. We intend to knock down the building and build 400,000 sq ft roughly. That's a development opportunity. Both of these have been on our radar for a long time and disclosed in our development pipeline.
Got it. Just on coming back to that Etobicoke acquisition, what's the remaining lease term on that space?
Yeah. The lease term is pretty short, which is less than two years and allows us to capture some upside pretty quickly.
Got it. Okay. Just one last one. Regarding the disclosed incentive fee payable, I think it's CAD 250 million. If I recall, I think this is the first time you've actually disclosed the amount, although, you know, you can certainly calculate it over the past few years. Was there any particular rationale for perhaps providing that disclosure this quarter?
Hi, Pammi. It's Lenis. Yeah, there was it's the tenth-year anniversary of DIR this year, so there was a date within the original asset management agreement. Since we've passed that key date in there, it. I mean, like you, as you mentioned, all the pieces were in our disclosures to be able to calculate the fee, but we've just started to, you know, under the disclosed assumptions in there, provide the number for the readers.
Presumably that you'll continue to provide that, or is it just sort of this, just for this quarter?
Yes.
Because of the expiry?
No, no.
All right.
Yeah, it'll be in our quarterly disclosures going forward.
Okay. All right. I will, I'll turn it back. Thanks very much.
Thank you. For any questions, please press zero one. The next question comes from Matt Kornack from National Bank Financial. Please go ahead.
Hey, guys. Just with regards to the lease in France, you noted that it came in ahead of your underwriting pro forma. Can you give us a sense as to how market rents moved in that market relative to your expectation over, I guess, the last year?
It came in. We didn't underwrite significant rental growth when we acquired that Omega portfolio, as we commented back in 2021. Our investment thesis for Europe has been throughout 2020 and 2021 that you know, our underwriting didn't have to include significant or outsized rental growth for us to achieve the returns that we needed and that were compelling and accretive. That's kind of one data point. The other data point is, yes, it did exceed our underwriting and our growth expectations. It was kind of in the mid-single-digit range in terms of the growth relative to underwriting in summer of 2021.
Okay. No, that makes sense. I guess it doesn't sound like there's any similar type properties in 2023, but are there other leases in that portfolio or other aspects of the European portfolio that would have above market rents? Or is it, I guess there's a 7% mark-to-market opportunity across the portfolio. Is that kind of how we should think of modeling it at this point?
Yeah, I think that's right. This was a fairly large building, or it is a fairly large building, certainly. A large expiry that was somewhat unique in that portfolio.
Okay. I guess lastly on that front, is the expectation that industrial rents would grow at higher than inflation? I mean, they've been growing at higher inflation by a pretty significant magnitude in Canada, but the same would be true in Europe and that we would see a continuing widening spread notwithstanding capturing the CPI increases. Maybe as a secondary and last question to that, how much is left to capture of the current increase in CPI, just through the mechanism of the leases, the anniversary dates? Like, how much of the sort of 10% CPI have we captured at this point?
Yeah. Starting with the second question, most of our lease anniversaries are at the beginning of the year. We've captured the rent in 2022, but then we'll see more in 2023. Some of the leases, as you know, have hurdles, especially in Germany, so those hurdles can be met at any point. It's harder to predict. When it comes to the rental growth relative to inflation, we have seen certainly this year in Europe that rental growth has been higher than inflation because, you know, it's driven by supply and demand, primarily. It's difficult to project that. What our outlook generally is that the rental growth will remain strong.
It's difficult to predict supply/demand dynamics. What we're seeing is that supply is generally shrinking. Demand remains strong, and so if that equation holds combined with inflation, it should lead to rental growth that is above inflation. We're not banking on that, but that's kind of reasonable to expect.
Okay. No, that's fair enough. Thanks, guys. Congrats on the quarter.
Thank you.
Thank you. We have no further questions currently. I will turn the call back over to Mr. Pauls for closing remarks.
We'd like to thank everyone for your time today. We look forward to speaking again soon. In the meantime, please take care.
Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.