Good day, everyone, and welcome to the Dream Industrial Real Estate Investment Trust second quarter conference call for Wednesday, August 6th, 2025. Please be advised that all participants are currently in a 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 and then one on your telephone keypads. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. During this call, management of Dream Industrial Real Estate Investment Trust 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 Real Estate Investment Trust'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 Real Estate Investment Trust's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Industrial Real Estate Investment Trust's website at www.dreamindustrialreal.ca. Your host for today will be Mr. Alexander Sannikov, CEO of Dream Industrial Real Estate Investment Trust. Mr. Sannikov, please proceed.
Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial Real Estate Investment Trust's second quarter 2025 conference call. Here with me today is Lenis Quan, our Chief Financial Officer. In the second quarter, we delivered healthy operating and financial results supported by strong leasing spreads and healthy growth in CP/NOI. For the quarter, we delivered 4% year-over-year FFO per unit growth and 5% comparative properties NOI growth, driven by a 9.5% increase in in-place rents. Since the end of Q1, we have signed 3.3 million sq ft of leases at an average spread of 20%, which lifted our occupancy to 96%, 60 basis points higher than last quarter, and led to approximately 70% tenant retention.
We're actively executing on our capital recycling strategy to high grade our portfolio, completing $80 million of acquisitions on the REIT's balance sheet and $59 million through the Dream Summit Venture since the end of Q1. These investments were complemented by a $19 million non-core asset disposition in the Dream Summit Venture, with an additional $100 million in disposition pipeline. Our balance sheet remains strong with conservative leverage and ample liquidity. Our second quarter results underscore the strengths of our assets and the resilience of our business. Renewal activity across the portfolio remained healthy, and we are achieving our targeted rents. Leasing momentum on vacancies was strong through late Q4 2024 and into early 2025. While activity moderated between February and April amid trade disruption headwinds, since May, we have seen a notable uptick in activity, with RFP volume strengthening considerably in the past month.
Since the end of Q1, we signed leases for 1.1 million sq ft on vacant or newly developed space and successfully retained 2.2 million sq ft of previously uncommitted expires, driving occupancy gains across all regions. On the development leasing front, we continue seeing good traction. In the quarter, we signed a 78,000 sq ft lease at our redevelopment property located near the Port of Montreal, representing approximately 35% of space commencing in November. The lease signed with an existing tenant in our European portfolio now anchors our repositioning strategy for the asset. In Balzac, we signed a 53,000 sq ft lease for a 20 acre greenfield development, increasing occupancy to 76%. At the nearby 50 acre greenfield development, we secured a 108,000 sq ft lease, bringing occupancy to 62%. This last deal was driven specifically by shifting trade dynamics as the tenant transitioned from routing goods for the U.S.
to shipping directly into Canada, which prompted their expansion in Alberta and highlights how evolving supply chains are creating new leasing opportunities. Both leases are scheduled to commence in Q4, and we continue to see a strong pipeline at both sites, with leases in negotiation expected to push occupancy above 90% by the year-end. Additionally, we are engaged in various stages of negotiations on 1.7 million sq ft of space across developments within our wholly owned portfolio and private ventures in Canada. Overall, operationally, we are seeing encouraging trends in terms of leasing velocity, which combined with shrinking supply pipeline informs a constructive outlook on the occupier fundamentals in our key markets. Turning over to capital allocation, we are pursuing a balanced approach to deploying our retained cash flow and proceeds from dispositions while preserving balance sheet strength and flexibility.
We're actively executing on our capital recycling program and have observed increased interest in the private market, with demand translating into attractive pricing for our assets. In July, the Dream Summit Venture sold a non-strategic asset in Western Canada for $19 million, which was well above its carrying value. We have approximately $100 million of assets under letters of intent or in advanced negotiations with users and investors across our owned and managed portfolio, all at compelling valuations. We are reinvesting these proceeds into accretive opportunities that drive long-term cash flow and NAV growth. Earlier this quarter, we took advantage of the unit price volatility and repurchased 1.9 million units at a weighted average price of $10.42 under our NCIB program. During the quarter, we completed the acquisition of a 178,000 sq ft asset in the Netherlands for $19 million.
With approximately 80% of the space having rolled over, we are pursuing a value-add redevelopment strategy for the asset. We expect to stabilize the property at an attractive yield on purchase price of just under 10%. When factoring in the capital investment we anticipate making, the overall yield on cost we expect is 8.5%. In July, we acquired a 192,000 sq ft asset in Richmond Hill for $60 million, representing a 6% going-in cap rate. The asset is fully leased to four tenants, two of which are on long-term leases at market rents, with three to three and a half annual rent steps, while the remaining two offer strong mark-to-market upside as their leases roll. This positions the asset to deliver nearly 6% average annual NOI growth over the next five years.
Strategically located in a high-demand GTA North submarket, where we already have a sizable half a million square foot portfolio, this acquisition is a strong complement to our urban portfolio strategy. The GTA North submarket has performed consistently well, with low availability and strong barriers to entry due to high replacement costs. The attractive basis on this acquisition compares favorably to several inbound offers on our existing assets in the area. We remain focused on growing our private ventures as well. This quarter, the Dream Summit Venture acquired an asset in Oakville for $59 million, and we also recently entered into exclusivity on another opportunity and are actively underwriting additional deals.
On the development front, we are actively pursuing build-to-suit opportunities across our land holdings and excess land portfolio, and we have been adding scale to our solar program both in Canada and in Europe, with nine projects currently underway and over 80 projects in various stages of feasibility. With multiple growth drivers in place, the strengths of our portfolio, along with a conservative balance sheet, position us well to continue delivering resilient, long-term organic growth and strong returns to our unit holders. I will now turn it over to Lenis to discuss our financial highlights.
Thank you, Alex. Our business continues to deliver stable and consistent growth. We reported diluted FFO per unit of $0.26 for the second quarter, 4% higher than the prior year quarter. The solid year-over-year growth was primarily driven by comparative properties NOI growth of 5% for the quarter, led by 8% growth in Canada. In addition, lease-up of newly completed developments and fee income generated from our property management platform contributed to our overall FFO growth. Our net asset value at quarter end was $16.69 per unit, which has remained fairly stable this year. 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 ended Q2 with leverage in our targeted range and net debt to EBITDA ratio of 8.2 times. To date, we have effectively addressed approximately 70% of our 2025 debt maturities.
In July, we closed on the issuance of our $200 million Series G unsecured debenture at an all-in rate of 4.29%. We will swap the proceeds to euros at an effective rate of 3.73% starting December 22nd, 2025. The proceeds were partly used to repay the outstanding balance on our credit facility, with the remainder earmarked towards pre-funding our remaining $450 million maturity in December and for general trust purposes. We continue to evaluate several refinancing options to address the remaining debt maturity balance and are currently observing rates in the low 4% range in the Canadian unsecured market, with euro equivalent debt 60 basis points- 70 basis points lower. Including our recent $200 million bond issuance, we retain over $900 million in total available liquidity.
Combined with the growing cash flow generated by the business, we are well positioned to fund our value-add and strategic initiatives, including our development pipeline, solar program, and contributing to our private capital partnerships. Our second quarter performance highlights the resilience of our business, and we remain confident in our growth trajectory for the balance of the year and into 2026. We maintain the outlook for both 2025 comparative properties NOI growth and FFO per unit growth that was communicated in May. Over the past three years, we have grown our rents by over 9% compounded annually, while lower weighted average occupancy has offset some of this growth for the past nine quarters. Despite the occupancy pressure, we have reported healthy organic growth, and when our in-place occupancy stabilizes, we expect the business to produce even stronger NOI growth.
Our leasing commitments at the end of the second quarter represent 190 basis points of additional occupancy, which is a leading indicator of future in-place occupancy upside. We do not expect significant in-place occupancy pressures for the remainder of the year, and as such, we expect our CP/NOI and FFO growth to pick up for the second half of 2025. Looking ahead, we continue to expect a strong pace of FFO per unit growth into 2026. Our FFO growth expectations for 2025 and 2026 continue to be predicated on current foreign exchange rates, leverage levels, and interest rate expectations, as well as expected timing of the lease-up of our transitory vacancies. I will turn it back to Alex to wrap up.
Thank you, Lenis. We are encouraged by the results this quarter and are optimistic as to the outlook for Dream Industrial REIT. Our business has significant embedded growth drivers, allowing us to continue delivering solid performance for our unitholders. We will now open it up for questions.
Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speaker phone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause for a moment as callers join the queue. Our first question today comes from Mike Markidis from BMO Capital Markets. Please go ahead with your question.
Thanks, operator. Good morning, everybody. Good to see the return of solid leasing after that stutter step in February through May. Just curious, you know, and also good to see the increase in committed occupancy and Lenis, keeping in mind your 190 basis points spread comment, but definitely a forward-leaning indicator. I guess two questions from my front. Number one, as we sort of progress through the rest of this year, do you think that that committed occupancy number can continue to inch higher? Number two, just in terms of the cadence of narrowing that gap, how should we be thinking of in-place occupancy sort of in Q3, Q4, and into the beginning of 2026?
Thank you, Mike. The leasing pipeline definitely is active. Committed occupancy is notoriously hard to predict, given it's really predicated on signing of leases. The pipeline remains healthy, and generally speaking, committed occupancy and in-place occupancy historically for us have been very close. This is probably one of the wider gaps that we currently have when compared over the last three to four years. We expect the gap between committed and in-place occupancy to narrow over time as signed leases come into effect. As the pipeline materializes, we expect our overall occupancy to stay within the long-term averages of that mid-90% range. Where we currently are is, I would say, in midpoint of our long-term averages.
Okay. If I ask you a different way, if I look at the average occupancy for the first half of this year, do you expect it to be the same in the second half or higher?
We expect the in-place occupancy to trend higher overall in the second half, and committed occupancy will likely trend up as well. It is hard to predict. Committed occupancy is much harder to predict.
Okay. Thanks for that. I'll move on to the next one. Just the North Toronto industrial, I guess the Staples Drive properties there. You know, attractive basis for the submarket. Looks like it's a strong NOI growth profile. Could you maybe give us a little bit of color? Because if I just do the math, it looks like maybe you guys are already in place at an $18 rent there. Just trying to get a sense of where market rents are for that node.
Yeah, the in-place rents actually are just a touch below $17 there. What gets the NOI higher, there's a strong ancillary income profile for the asset, fee income, and some other ancillary revenue that pushes the NOI yield towards 6%. There's also some steps in place, as we commented.
Right. Okay. As we think about that asset versus the Oakville asset that you had closed on, I think it was announced last quarter. When you guys are looking at the different capital stacks, what's the decision tree in terms of that asset in Oakville going into the JV and this asset going on balance sheet at 100%?
For this asset, what made it work on balance sheet and the reason we wanted to pursue it on balance sheet is the presence we have in the node. We think it's a strategic node for us. We already have a 1 million sq ft right within that node, not just the GTA North submarket. We have more in the GTA North submarket. Within the Richmond Hill node, we have already half a million square feet. We are generally pursuing an assembly strategy with our acquisitions, whether it's for our own balance sheet program or our private ventures. This was a strategic asset for DIR to pursue. If you look at the map, all of the assets that we have within Dream Summit are actually on the other side of the highway within the GTA North and more on the Markham side.
Dream Summit actually doesn't really have a big presence in Richmond Hill. It just made sense for DIR to look at it.
Park City, got it. Okay. Just last one for me. If we think about all the sort of initiatives you got on the go in terms of solar, just continued expansions, development, etc., what should we be thinking about in terms of an annual capital investment for Dream Industrial REIT, excluding any NCIB in, I guess, just recurring leasing expenses that are sustaining in nature?
Our solar program, we quantified that we're working through about a $100 million pipeline over the next three years. That pipeline could grow. There are a few initiatives we're pursuing in Canada specifically that might expand the pipeline. If they do materialize, it could be a significant expansion because we're pursuing more distributed generation opportunities. For now, we're working through our immediate pipeline. On the build-to-suit side, we're not looking to launch a lot of new spec projects except for perhaps one within our private venture. This is the infill site that we recently acquired. Build-to-suit opportunities will materialize as we land the various requirements out there. That is a bit harder to predict in terms of how much capital there will be at any point in time. We'll be updating the market, obviously, as we enter into build-to-suit agreements.
Okay. Great. Thanks for the answers. I'll turn it back.
Our next question comes from Frederic Blondeau from Green Street Advisors. Please go ahead with your question.
Thank you. Good morning. In terms of the same property in Hawaii and Europe, I was wondering if you could give us a bit more color on what you're seeing so far in the third quarter and for the remainder of the year.
Thanks, Fred. What we've seen on the same property NOI side in Europe is our portfolio has delivered very strong results in 2022, 2023, early 2024, where we've been delivering kind of double-digit same property NOI, mostly on the back of indexing a lot of our leases to CPI, which was kind of running higher in Europe. We've moved a lot of our in-place rents quite materially in Europe with that. The gap to market has narrowed a little bit, although we're seeing continuous rental growth in Europe. We expect that gap to market will widen again as that rental growth materializes. From here on out for the next 12 months, we expect to see some contribution from CPI and lease-up of various vacancies. We have some leases that we entered into that will commence in the first half of 2026. That will contribute to the overall CPI and NOI.
We expect it will be in the kind of low single-digit range, so kind of that 2.5%- 3.5% range for the next few quarters.
Okay. Got it. Thank you. I was also wondering if you had an update on this potential European JV you've been contemplating.
Thank you for the follow-up there. We're in active dialogue right now with one group on a potential greenfield venture that's a new program. We continue to be in dialogue with a number of investors in addition to that. The JV that we're negotiating right now is complementary to potentially a few other programs. There are a few discussions that are taking place right now that we're pursuing. At the same time, as with the deal in the Netherlands, we are recycling capital within the region and looking to pursue some tuck-in acquisition opportunities, if you will.
Okay. No, that's totally fair. Lastly, in terms of the $100 million under LOI, what would be the timeline for those to close? How do you intend to redeploy the capital? You briefly touched on it, Alex, but I was wondering if the NCIB is still on the table.
Yeah, no, very much is on the table, Fred. The timing of dispositions towards the second half of the year, we expect them to firm up. Some of them might close in the second half. Some of them might firm up in the second half, and then we'll see closing in the first quarter of 2026. As far as redeploying the capital, we continue to look at all opportunities in front of us, whether it's proprietary intensification opportunities such as intensifications or solar projects. We obviously look at the NCIB as a possible destination for capital, as well as some strategic and/or highly accretive acquisition opportunities.
That's great. Thank you for the color.
Thank you, Fred.
Our next question comes from Sam Damiani from TD Cowen. Please go ahead with your question.
Thank you. Good morning. I'll just echo, great to see the uptick in leasing activity this quarter. First question, just on market rents. You know, they've held in pretty steady over the last several quarters while the in-place rent has ticked up really nicely, obviously, with contributing that NOI growth. The market-to-market gap has narrowed a bit somewhat as a result. I'm just wondering, Alex, what's your view on sort of the evolution of market rents in your major regions over the next year or two?
Thank you, Sam. Sam, can you hear me okay?
I hear you fine.
Okay, great. When it comes to evolution of market rents, as I just commented in response to Fred's question, we are seeing continued rental growth in Europe for our infill mid-bay assets, especially in the Netherlands and in Germany. We generally maintain a constructive outlook on rental growth there. We expect that will continue. It obviously doesn't come through every quarter or every month. From what we experience and observe on the ground, the pressure on rents is ongoing, and we expect it will continue, especially given the absolute rent levels in continental Europe. When it comes to Canadian markets, we generally are continuing to observe moderate rental growth in Western Canada. Calgary rents are experiencing some upward pressure already. In the GTA and GMA, we haven't seen rental growth so far. As you know, we disclose our view of market rents in our MD&A every quarter.
For the last few quarters now, we haven't seen rental growth in the GTA and GMA. We expect that will resume as the market sees the overall availability rate trend downwards. When we look at some analysis of historical occupancy rates and rental rate developments, it really is, in our view, the direction of vacancy rates and availability rates in the market that informs the rental growth, not so much the absolute levels of availability rates and vacancy rates, which are, by the way, pretty healthy in both Toronto and Montreal. We expect that as those metrics trend downwards and plateau and trend downwards, we'll start seeing rental growth coming through in the GTA and GMA markets.
That's helpful. Thank you. Just on the lease terms that you're seeing with the increased volume, is there any change in tenants' sort of desire for shorter terms, more flexibility, or is this uptick in leasing volume a reflection of tenants looking to commit any longer yet?
We're not really seeing any sort of material changes to lease terms. We are continuing to pursue a whole range of lease terms from shorter-term, two to three year renewals, or in some cases, new deals to 10-year leases. The range is consistent with what we've been seeing for the last couple of years, and it really is driven by any given occupier's requirements and demands. One important point to highlight on the lease terms, though, and that goes back to the rental growth question, is we're continuing to see healthy escalators in Canada. We are averaging at around 3% or north of 3% on our new leasing and renewals, and that remains a consistent theme across the markets.
That's great. That's helpful, and I'll turn it back. Thank you.
Our next question comes from Brad Sturges from Raymond James. Please go ahead with your question.
Hey, good morning. Maybe just to circle back to the questions on dispositions, the $100 million in negotiation, could you just remind me or give a little bit of color around the split between what would be sold through the wholly owned portfolio and through the JV portfolio? Any comments around pricing expectations on, let's say, an exit cap rate, given your comments around your certainty, increased demand on the buy side, just curious to know what that could translate from a pricing perspective.
Yeah, thanks for that follow-up. The majority of the pipeline that we quoted, the $100 million, that's on balance sheet. We have a couple of assets there that are in the private ventures, but they're not material. We are looking at selective disposition opportunities within the private ventures, and that number might grow. The vast majority of the dollars that we quoted are on balance sheet. When it comes to disposition pricing metrics, the pipeline is primarily comprised of two categories of assets. They would be non-strategic assets in markets where we are not intending to grow. For example, we sold half of our Regina holdings last year, and we regard the remaining holdings in the market as non-strategic. We differentiate that from non-core. We're not looking to just exit these assets at any price.
We're really trying to maximize the proceeds and exit these assets at an accretive price from a cap rate perspective and overall total return perspective. Hence the non-strategic categorization. That's one category of assets, and the other category of assets would be more opportunistic sales where we like the assets and would regard them as strategic otherwise, but the pricing we are getting is highly compelling. We are engaging with the prospective buyers, and those buyers range from local investors to users. The pricing metrics there would be very different than obviously selling assets in Regina. To put numbers on that, the pricing metrics for something like Regina assets would be consistent with what we achieved last year. The user pricing, again, would be consistent with the user pricing that we have achieved last year on some of our dispositions, which was kind of sub-5% market cap rates.
Okay. That's helpful. In terms of just to maybe circle back to the GTA North acquisition, it sounds like there's a strategic reason why it's on balance sheet. I guess, is there any other opportunities to do more on balance sheet acquisitions through the wholly owned portfolio, or should this be more of a viewed as an opportunistic one-off deal that just made sense to pursue it this way versus the sum of JV?
Thanks for that follow-up. There will be opportunities over time. We're looking at a few opportunities across Canada and obviously Europe. There will be opportunities over time, but the bar is high for us to acquire on balance sheet. We want to make sure that the asset is either very strategic or offers very compelling returns given the various alternatives that we have for capital allocation that we discussed.
Okay. Last question, just on the Balzac projects in terms of the 300,000 sq ft , maybe I missed it in your preamble, but just the timing potentially of those leases commencing in terms of the occupancy if everything's executed.
The leases that we signed, just 160,000 sq ft of leases that we signed, will commence in the fourth quarter. The leases that are in the pipeline will be looking at commencement in Q1, early Q2 2026.
Perfect. Thank you.
Our next question comes from Himanshu Gupta from Scotiabank. Please go ahead with your question.
Thank you and good morning. On the Richmond Hill acquisition, just wondering, you know how competitive is the acquisition market today? Do you think institutional capital is net buyer or net seller in the current market, you know given the tariff uncertainty?
Thanks for that follow-up, Himanshu. Generally speaking, we are observing the acquisition market to be heating up. We're seeing more capital out there for marketed deals. We're generally seeing pricing pressure, upwards pricing pressure in terms of capital value, downwards pricing pressure on cap rates. I would say that generally speaking, we're seeing institutions being more net buyers than net sellers based on these emerging patterns. When it comes to the Richmond Hill acquisition, it was a narrowly marketed deal, which we tied up quite a few months ago now and we've been working directly with the vendor for some period of time.
Got it. Thank you. If I look at the pricing, you know, like $300 per foot, call it $18 rent, does this justify new construction? Do you think at this price the math works for backing increase in construction starts at this price?
From our perspective, it doesn't. We think we estimate replacement costs for this asset to be kind of in the mid-$300s per foot range. One thing you need to take into account is that this is not a large bay asset. This is a small to mid-bay facility, multi-tenant, and that is expensive to build. This node still has very expensive, relatively expensive land if you can find it. Replacement costs are higher. Generally speaking, at mid-$300s a foot, we're not really seeing new construction making sense given what we are targeting on our spec development program is at around 7% yield on cost, and the current rent levels don't quite get us there. That's one of the reasons why we're seeing new construction starts declining and the overall construction pipeline in a market like GTA shrinking.
Okay. Thank you. Turning to maybe Lenis here on 2025 guidance FFO, is it similar to what you mentioned on the last call, like mid-single digits on FFO quoting this year?
Yes. There's been no change in our outlook for FFO per unit. I think we had mentioned that it would come in in and around the lower end of that previous range that was communicated.
Okay. In your guidance, that $250 million debenture is still remaining. Are you assuming it gets done now, or should we assume the impact mostly in 2026, that $250 million, which is still remaining to be done?
Yeah. That's maturing in December. Most of the impact will be in 2026. There might be one month impact in our estimates for 2025.
Okay. I mean, I was asking basically, will there be a chance of early repayment, as you were saying, you know you are excluding various debt financing opportunities?
Yes, I mean, potentially, there could be, given it's later in the year. Depending on where we would look to transact, it would have pretty nominal impact on the remainder of the year for 2025.
Okay. You know EUR is turning to be stronger than probably what you guys would have thought of. Is that helping? Is there an upside case to the guidance, or do you think that the impact is already being reflected in your guidance now?
We are reflecting a rate similar to where we are, maybe just slightly below in terms of the levels of EUR. There's also the USD, the US dollar impact, which is a smaller impact. That's sort of in and around current levels.
Okay. Thank you. I'll turn it back.
Our next question comes from Kyle Stanley from Desjardins Securities Inc. Please go ahead with your question.
Thanks. Morning, everyone. Just going back to the European JV commentary from earlier, you mentioned dialogue with a few other investors in addition to that greenfield venture. Would you consider vending in some of your on-balance sheet assets as well as part of a potential JV?
Thanks, Kyle. Yeah, we would consider it at obviously the right price and the right metrics. We generally would be open to some conversation like that.
Thank you. I think last quarter you highlighted the potential of maybe just over $300 million of dispositions within the portfolio. Obviously, you've got roughly $100 million under LOI. Do you see the opportunity for that $100 million to expand towards that maybe $300 million number that you had discussed last quarter, or how is that evolving?
We very much do. Generally speaking, the disposition pipeline is larger than the $100 million we quoted. $100 million is more advanced in terms of LOIs or PSAs being in place.
Okay. Thanks for that. Maybe just one more, maybe two pieces here, but just your kind of conversations with tenants on leasing over the last little while. Clearly, there's been a lot of volatility in kind of trade negotiation. Just curious how much that is impacting or delaying or pulling forward activity. There was an expectation maybe there would be a deal in place in Canada between Canada and the U.S. by July 21st, and then obviously that was pushed out to the 2nd, and we kind of still sit here somewhat in limbo today. I'm just curious how much are you seeing maybe RFP activity pick up in advance of a potential positive outcome and then maybe adjust given what's actually happening in the market. Just trying to understand how tenants are thinking here.
We generally are not seeing a direct correlation today between a pending trade agreement and the leasing activity. The RFPs that are in the market are there regardless of a trade deal. Occupiers who are looking to sign new leases or renew in place generally are making obviously some assumptions regarding the trade situation, but are moving forward with decisions. What we are continuing to see is that the conversion timelines are longer. From an initial inquiry to a signed lease, those timelines are longer. They are compensated by the overall size of the pipeline that is continuing to build. Hopefully, as these decision timelines compress, we'll just see a stronger pace of even a stronger pace of leasing velocity.
Okay. That makes sense. The kind of follow-up to that, which I'm assuming the answer will be quite similar, is you don't see necessarily a risk that, as we push into 2026 and maybe we approach the USMCA renegotiation, there would be any real change to end-user demand for space? Just expectation that what we're seeing this year is probably consistent with what you could see next year?
It obviously is a very dynamic situation. It's hard to predict. What we are observing is that, again, the occupiers who are in the market today are moving forward with their requirements with the full appreciation of ongoing uncertainty regarding trade. There are occupiers who are not in the market yet, who, let's say, were in the market for a new space in the fourth quarter of 2024 and are not yet back because of the continuing uncertainty. If the environment becomes certain, we expect that would be net positive. If the environment becomes worse, that might be neutral to slightly negative. It is a dynamic situation.
Yeah. Fair enough. I appreciate how difficult it is to forecast this. That's it for me. I'll turn it back. Thanks.
Thank you, Kyle.
Our next question comes from Mark Rothschild from Canaccord. Please go ahead with your question.
Thanks. Maybe just one for me. This is following up partially on a question from Fred, but also your comments, Alex, in regards to unit buybacks. I understood from your words that it was more reflective of maybe just a surprisingly large dip in the market not so long ago that you bought back units. Is that a fair way to interpret your words as far as capital allocation between buybacks and putting money to other uses such as development or acquisitions?
When it comes to the capital allocation priorities in front of us or capital allocation opportunities in front of us, at a certain unit price, the buybacks rise to the very top of the list. That informed the May buybacks. They remain on the list, and we look at all the opportunities in front of us relative to the capital that we have and evaluate each one of them. Again, buybacks is not a risk-free undertaking from our perspective, and we want to make sure that we're pursuing a balanced approach.
Just following up on that, is there any way you can maybe quantify for us how you look at the buybacks as far as the return that's needed and compared to the return that you would get on acquisitions?
We look at the overall total return. We're looking at the leverage-adjusted total return. In the case of an acquisition, you're acquiring a liquid asset. In the case of a buyback, you are actually shrinking the liquidity pool. You try to layer on some opportunity costs when evaluating buybacks. There's no absolute level, if that makes sense. It's all relative based on the kind of capital availability and the opportunities that we have at that time.
Okay, thank you so much.
Thank you.
Our next question comes from Matt Kornack from National Bank Financial. Please go ahead with your question.
Thanks, guys. Just quickly, on the Quebec portfolio, it seems like there was a pretty big step change in Q2 versus Q1 with a positive inflection on same property NOI growth, but also I think there was like an 8% increase in in-place rents. Is there something to that? I know you did the lease in the Port of Montreal, but I don't think that's taken effect yet. If you could give any color as to what would have shifted there.
There was a large renewal that we completed last year that kicked in this year, and that renewal is not fully in the numbers, so there's a little bit more contribution from it in the coming quarters. When it comes to leasing activity, generally, we've observed a bit of a pickup in Montreal in the second quarter when it comes to smaller to mid-sized footprints, so 30,000 sq ft- 50,000 sq ft footprints. We've seen a pretty healthy volume of leasing activity. We're continuing to see slower leasing activity for larger footprints, so 150,000 sq ft plus is still slower. Fortunately, though, most of our portfolio is demisable into smaller units, so we remain pretty active when it comes to our new leasing pipeline in Montreal.
You mentioned that the tenant that is occupying that 35% is a tenant that you have in the European portfolio. Did the discussions come through the property that you have in Europe, or was it just completely coincidental?
It wasn't coincidental at all. This sort of highlights the benefit of scale and global footprints. This is an occupier that we have in the Netherlands. It's actually a Canadian company, but we didn't have them on our Canadian portfolio. We recently completed a build-to-suit expansion for them in the Netherlands, and that relationship led to this expansion in Montreal with us.
Interesting. Last one for me. Leasing costs did tick up in the quarter, but you seem to have done more volume. Is that just a volume issue, or is there also kind of a bit of incremental creep on leasing costs given the state of the market?
It's definitely the volume, and that large Quebec deal that commenced this quarter is part of that. That's a $0.5 million sq ft renewal that we completed last year, so that's part of it.
Okay. Great. Thanks for the color.
Our next question comes from Pammi Bir from RBC Capital Markets. Please go ahead with your question.
Thanks for the color around leasing, but maybe just getting a little bit more granular. Can you talk a little bit about where you are seeing, like what are some of the tenant segments where you've seen a pickup in the activity versus, Alex, you did mention that you know some tenants are still holding back or delayed, but just curious if you could provide a bit more context on the ones that are moving forward.
Pammi, just to follow up on the tenants who are delayed, we've seen lots of occupiers in the market in the fourth quarter of 2024 looking for new facilities across a Canadian footprint. Some of these occupiers are still on hold following the kind of the trade dynamic escalating. They're not yet back to the market, which is, from our perspective, helpful because we've seen a pretty healthy pickup in leasing activity already, and that's without some of these requirements participating in that activity, if you will. When it comes to tenant categories that are active, we're seeing 3PLs pretty active. That's primarily driven by many end users rethinking their supply chains, and 3PLs is an easy way for many of them to address the changes to their supply chains. We've seen quite a bit of activity from 3PL groups. We've seen food and beverage pretty active across our portfolio.
Maybe surprising for some listeners, we've seen very healthy volume from automotive groups, and that's across Canada. We did a deal with an automotive group in Calgary. We have a few deals that we've done in the GTA and a few more in the pipeline. We have seen quite a bit of activity from automotive groups as well.
Okay. Got it. That's helpful. Just maybe switching gears to Europe, the in-place occupancy did drop from Q1, but the committed is in pretty good shape. Just curious, was that drop? I think you'd mentioned there was a couple hundred thousand square feet in Germany last quarter that was not going to renew in Q2. Was it mainly that, or were there some other factors there as well?
There's that. That's 200,000 sq ft . We have a good pipeline for that asset with a couple of groups engaging with us. There's also one more deal in France where we renewed the in-place tenant, but we are pursuing somewhat of extensive refurbishment for them, including building solar panels over a car park and refurbishing the space for them. That's about 100,000 sq ft . That got committed this quarter, but they will not be occupying the space during construction, and they'll reoccupy the space in early 2026.
Okay. Last one for me. I think you'd previously indicated that for 2026, that you expected same property NOI and FFO growth to sort of replicate the levels that you expected to hit in 2025. I know you're not providing guidance, but you know has your thinking or your view changed at all based on maybe what's happened thus far this year?
No, it hasn't. As Lenis Quan commented in her prepared remarks, our outlook for 2026 remains generally intact.
Great. Thanks very much. I'll turn it back.
Thank you, Pammi.
Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Tao Woodley from CIBC Capital Markets. Please go ahead with your question.
Hi, good morning. The euro is probably, I think, at a 15-year high relative to the Canadian dollar. You've been talking about how indexation increases and stuff like that on rent are slower than they have been in the past. I'm just wondering, has there been any thought to maybe crystallizing some of that value in Europe and then redeploying the proceeds elsewhere into other regions where returns are maybe more attractive or even your own stock?
We are recycling capital within Europe. We've sold some assets earlier this year and redeployed into our pipeline, which is generally across our footprint. As far as monetizing a larger component of the portfolio driven by FX rates, generally, this is not something that we are kind of thinking about. We are thinking about it more from an asset perspective as opposed to currency. Obviously, our European cash flow is then translating into a higher contribution to our overall results.
Okay. In development, here in Canada, we've obviously seen it start to slow. Do you feel like that's a function of cost to build are too high, or just the industry is slowing because they see availability rising?
It's a combination of factors from our perspective. The costs are still elevated, but more importantly, the overall costs, and that includes land, construction costs, development charges, are effectively not high enough relative to rents, where you're not really solving to attractive enough yields on cost to pursue new projects on spec. Obviously, we've seen a rising availability rate in some Canadian markets, and that is informing perhaps just the risk component of the equation for some developers.
Okay, thanks very much, everyone.
Thank you.
Ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Mr. Alexander Sannikov for closing comments.
Thank you for your interest and support of Dream Industrial REIT. We look forward to reporting on our progress next quarter. Goodbye.
This brings to a close today's conference call. You may now disconnect your lines. We thank you for participating and have a pleasant day.