Earnings Call: Q4 2017

Feb 21, 2018

Earnings release

Good morning, ladies and gentlemen. Welcome to the Dream Industrial REIT Fourth Quarter twenty seventeen Conference Call for Wednesday, February 2138. 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 is 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 the latest annual information form and MD and A. These filings are also available in Dream Industrial REIT's website at www.dreamindustrialreit.ca. Later in the presentation, we will have a question and answer session. Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, you may begin. Good morning, everyone. Thank you for joining us today for the Dream Industrial REIT conference call, which is for the three months and year ended December 3137. Speaking with me today is Lenis Kwan, Chief Financial Officer of the REIT. On today's conference call, I will start off with a brief overview of our results, an update on our markets and our strategic growth initiatives. Lenis will then provide our financial highlights. We'll then be happy to field your questions. I'm delighted to join Dream Industrial REIT. In the past couple of months, I've spent my time getting up to speed on the properties, people and the day to day operations of the trust. Overall, the business is running well and is positioned well to capitalize on growth through increased rents, acquisitions and aggressive asset management throughout the four Canadian markets we invest in as well as The U. S. For 2017, I'm happy to report that DIR outperformed our FFO, AFFO, tenant retention and occupancy targets. We grew our AFFO by 3%, reduced our leverage to below 50% and raised $113,000,000 This was our first equity offering since 2013 and it was well subscribed. The Canadian economy remains very strong with overall industrial availability of 4.1% and a sixteen year low. New supply under construction remains limited at 14,000,000 square feet or only 0.8% of the market inventory. It is unlikely that the new supply will meet the continuing demand resulting from e commerce and other economic drivers fueling increasing demand for industrial space. Our leasing and management teams have done a tremendous job leasing 3,200,000 square feet throughout the year including commitments and retaining 80% of our expiring tenants to bring overall occupancy to almost 97% compared to ninety five percent one year ago. Our Western Canada assets have retained a very healthy occupancy rate closing 2017 at 95% occupied as those economies continue to recover from the significant recent commodity correction. Our properties are well positioned to benefit as Western Canada continues to recover. Eastern Canada experienced positive absorption and twenty seventeen year end occupancy is over 93%. Both Ontario and Quebec remain extremely healthy with occupancy at 99.796.3% respectively. In both of these markets, the trust has the opportunity to increase rents as tenant lease commitments renew. In the last four months, we have actively grown our portfolio in The U. S. The trust acquired 2,800,000 square feet of distribution and light manufacturing facilities in strong industrial markets in Memphis, Nashville, Orlando and Charlotte for a total purchase price of US151 million dollars representing a weighted average cap rate of 6.4% and a purchase price of approximately US54 dollars per square foot, which we believe represents a 10% discount to replacement cost of comparable properties in these markets. The assets are 100% occupied by a mix of large blue chip companies and medium sized enterprises including Nissan North America and Coca Cola Refreshments USA Inc. The acquired properties are all under triple net lease structures with contractual rent increases and have a weighted average lease term of six point seven years. The Dream and Pulse Corp acquisition teams continue their work to source new acquisitions in both Canada and The U. S. To identify opportunities that meet our investment criteria. Lenis? Thank you, Brian. Dream Industrial reported another quarter of strong portfolio performance and solid financial results. Our current portfolio continues to perform well and our operational and financial performance in 2017 has improved significantly. Diluted adjusted funds from operations or AFFO per unit for the the quarter was $0.02 $04 up 9.7% compared to $0.01 $86 in the same quarter prior year. Our AFFO has increased due to higher comparative property NOI, G and A savings and a one time cost that was incurred in the prior year, offset slightly by the timing difference between the November equity offering and when the capital was deployed. Diluted FFO per unit for the quarter was $0.02 $25 up 6.1% compared to $0.02 $12 for the prior year same quarter. Diluted AFFO per unit for the year increased 2.9% to $0.08 $13 compared to $0.79 for the prior year. Diluted FFO per unit for the year was $0.09 $05 compared to $0.09 $01 for the prior year. The increases in annual diluted FFO and AFFO were due to the same factors as the quarterly numbers. Comparative property NOI was strong, improving 2.3% from the same quarter last year and is up 1.7 for the full year, mainly reflecting higher average occupancy in Ontario. We maintained a healthy retention ratio for 2017 of 80.3% and have secured leases for 65% of our upcoming 2018 expiries compared to 53% this time last year. The value of our investment properties increased to $1,700,000,000 compared to $1,600,000,000 at the beginning of the year. The increase was largely as a result of the $95,000,000 in acquisitions completed during 2017. The Trust's payout ratio on a diluted FFO is a healthy 77.3% compared to seventy seven point seven percent one year ago. We have grown our free cash flow per unit and lowered our payout ratio, while reducing our leverage and have enhanced our financial flexibility to execute on our strategic initiatives. During the fourth quarter, the Trust successfully completed a public offering and private placement for total gross proceeds of $113,000,000 and issued $12,900,000 in units. Net proceeds were used to repay the $19,400,000 of 6.75 percent debentures that matured on November 30 and to fund The U. S. Acquisitions, which closed in December 2017 and January 2018. Our debt to total assets ended the year at 49.5%, a decrease of three ten basis points when compared to 2016 with interest coverage of 3.3x and a weighted average term to maturity of three point eight years. At year end, we retained unencumbered assets of $113,000,000 with $123,000,000 of liquidity on our credit facility. Looking forward, we expect the strong performance to continue. Our properties are well positioned to benefit as Western Canada continues to recover and occupancy is up significantly in Eastern Canada. In terms of our growth strategy, we have the balance sheet flexibility to be net acquirers during 2018. Our investment criteria demand assets that would be above the average quality of our portfolio, portfolio, offer a good growth profile and be accretive to DIR. In terms of geography, we are open to opportunities in both The U. S. And Canada as long as the asset in question fits these investment criteria. Overall, on a comparative property basis, we expect NOI to be up about 2% this year, which should lead to FFO per unit growth in the low single digit range. Currently, approximately 50% of the forecast comparative property NOI growth for 2018 is through contractual rent steps and more than half of the remainder is through the full year impact of the increased occupancy in Eastern Canada. So we feel confident about that growth and we'll strive to do better. Within our portfolio, we are continuing to drive organic growth through continued contractual rental increases and increasing rental spreads, primarily in Ontario and Quebec. We believe this will result in 2% to 3% comparative property NOI growth beyond 2018. In addition, our well capitalized balance sheet is at its strongest since inception and we are well positioned to focus on strategies to improve the value of our business, which include growing organically and identifying asset recycling opportunities that can improve overall portfolio quality and generate higher net asset value growth. I will turn it back to Brian now to wrap up. Thank you, Lenis. Recent M and A activity in the Canadian REIT space has highlighted the significant value in owning sizable quality portfolios of commercial real estate including industrial assets. We believe this has positive implications for our net asset values going forward. Dream Industrial is well positioned to improve the value of the business by organic income growth, identifying asset recycling opportunities to improve overall portfolio quality as well as using the strength of its balance sheet for new investment opportunities that meet our investment criteria. It has been an exciting first six weeks and I look forward to discussing the company and our progress with the analyst community and our investor base. We would be happy now to take any questions. Thank And our first question comes from Fred Blondeau from Echelon Wealth Partners. Thanks and good morning. Good morning. I just wanted to further discuss The U. S. Strategy at this point. How big is your acquisition pipeline at the moment? And would you be open to buy more land at this stage? Sure, Fred. It's Brian Pauls here. We've got an acquisition pipeline in many states in The U. S. We're looking at opportunities in the markets we're in, the ones I mentioned earlier in Nashville, Memphis, Charlotte, Orlando, we're looking to expand in those markets. An example, we recently underwrote a portfolio in Jacksonville, Florida. It was an attractive portfolio, but as it got bid up in price, down in cap rate, we decided it was getting too pricey. So that was likely to go at 6% or below a 6% cap rate. So we decided to opt out of that. Now we are continuing to look for opportunities, leverage the relationships that we have in The U. S. Like the one that produced the previous acquisition. And so we're looking in all those markets. And you wouldn't buy more land at this point, right? We don't have vacant land in The U. S. We would look to expand some of the existing tenants we have. So we would develop within the properties that we already have if there is a new development opportunity that made sense that was kind of a pile on opportunity for that would be a complement to what we already have we'd look at that as well. We're really focused on accretion for the REIT when we look at new acquisitions in The U. S. And so that's part of our investment criteria we're looking at. Okay. And I was just looking at the price increase of industrial land in The U. S. Which more than doubled last year. And I guess at the moment you are benefiting from these conditions from a value standpoint, but do you think it could become an impediment to future accretive growth? I think it's rising replacement costs certainly. That's helping probably the overall value of industrial real estate, the stuff that we already bought. It's pretty competitive, so it's tough to buy new stuff. We do have dry powder and there are acquisitions we can do out there that are accretive, but they're hard work to find. Sure. And lastly, would you characterize construction activity in your U. S. Target markets at the moment now that industrial development activity is at an all time high in The U. S? Fred, I think it's a market by market answer. All of the markets we're in are quite healthy. All of them would have mid single digit vacancy rates. They do have development going on, but they've also got more absorption than they have supply coming on. So they're all healthy and continuing to get more healthy. The US is quite a large market compared to the Canadian market. There are many markets. It's a big pool to swim in. Think we'll continue to find opportunities that make sense for us. We're looking both in Canada and The US and we think we'll find accretive opportunities that will be a complement to what we have. But there it's hard work. It's competitive space out there. Yeah. Perfect. Thank you. I'll leave it there. Thank you. Next we have Mark Rothschild from Canaccord Genuity. Thanks. Thanks. Good morning. Brian, you you mentioned that you've been going through the portfolio in Canada as you progress as CEO. Can you maybe talk about are there any markets in Canada or any asset facing that you want to sell? Obviously, we sold a number of assets in year before you joined. But as you go through the portfolio, how much of the portfolio is property that you want to own for the long term? It's a good question, Mark. We're looking at it asset by asset. We're looking at which assets are probably worth more in the hands of others than they are in our hands. For example, we had an offer from a tenant within our portfolio who wanted to own their own building. And so those are opportunities that we probably would cycle out of. At the same time we're looking to replace those assets with either higher quality assets or better located assets or more accretive assets. So we're looking to recycle where we can, where we can make positive trades. Are there any markets in Canada where the REIT is currently operating that you would prefer not to be in? No. I think all the markets we're in are performing well. Some are performing better than others. Certainly Ontario's got record lows of vacancy, record highs of occupancy. Rents are poised to grow fast there. We think that's where we'd like more space. Western Canada has been relatively flat through the kind of commodity crisis it's experienced, but we know from history that that will rebound and so its current performance is less, although we're not you know, we like being there. And then my only other question just maybe just adding on to what Fred was asking, but there was definitely talk before you joined about doing more development in Canada. I was wondering if there's any progress on that, if there's any sites that maybe, through Dream Unlimited maybe, that you guys are partnering on, or any other sites that you see that you would want to get involved in on development? Mark, we're the short answer is yes. We're looking at opportunities all the time. The long answer is it's slow. It's hard to find good sites. It's hard to find good opportunities. We're working with Dream Unlimited on some potential development opportunities. At the same time, we're looking at just market based opportunities, maybe an off market piece of land or something that we can go buy that would be a complement to our portfolio because as prices if prices go beyond replacement costs we'd rather be building and we know that. It's not easy to find land. It's not easy to find well located appropriate land to build on, we but think it would be a great complement to our portfolio to have that. So we're looking for opportunities for that in Canada as well as in The United States. Okay, great. Thanks a lot. Thank you. Next we have Mike Markidis from Desjardins. Thank you and good morning. Lenis, quick clarification. I think you said on your comments that same property NOI growth was expected to grow at 2% to 3% beyond 2018. So is that an expectation for 2018 or is it just a sort of general trajectory towards a figure of that magnitude in later years? So for 2018 in my prepared remarks I had commented about 2% comparative property growth and broke down the components. We've got contractual rent stubs as well as some increases in average occupancy driving that for 2018. Our expectations in the future are we'll continue to be growing organically through our contractual rent steps and opportunities where we can increase occupancy. But I think what we're focused on driving the organic growth through our renewal increase in renewal spreads, rental spreads, particularly in Ontario and Quebec, so that we can drive further growth. And we're going to do we're going to see better organic growth from within our portfolio beyond 2018. Okay. That's great. Thanks. Now obviously you're seeing opportunities to maybe drive rents in the coming quarters specifically Ontario and Quebec and saw that your average in place estimate or your average estimate of market rents for the portfolio did increase a little bit versus the last quarter, 3Q specifically. Also notice that your total CapEx including your TIs and leasing costs came down notably in 4Q and were down a decent clip from the prior year as well on a full year basis. Do you expect that that trend will continue as well just given what you're seeing in the market? So you are correct. Our CapEx and leasing costs came in 20% lower in 2017 compared to 2016. I think for 2018 the leasing costs are actually subject to the nature of our units rolling over but I can say that our planned spending for 2018 is going to be flat compared to 2018. And I think that as the West and East markets are continuing to stabilize and the Ontario and Quebec markets are continuing to tighten, Part of our asset recycling strategies is to continue to upgrade our portfolio with higher quality, less capital intensive units. So we think that our overall costs will trend downwards. Okay. Last one for me before I turn it back. Brian, just wondering on a general comment just given your experience in The U. S. If you could comment if you've seen any step change in the competition for assets or acquisition environment in The U. S. Today versus say six to twelve months ago given the change in the yield curve? Mike, I think it's been competitive. It continues to be competitive. It's hard to gauge whether it's gotten more competitive or less competitive. The yield curve is certainly flat meaning that short term rates You're not paying that much of a premium for longer term rates. But we find that capital right now is still seeking yield. We find like the most desired real estate asset class is industrial right now. It's producing heavy competition throughout Canada and The U. S. But I think there's still good buys to have. We still think there's a lot of runway here. There's a lot of room for rents to continue to grow. When you look at where replacement costs are going with land and with construction, rents are likely to continue to grow. That's evidenced by the big capital transactions that are happening in the market with PyREIT. You can see where the big investors are expecting rents to go and we believe they're right. We believe we'll capitalize on the same kind of rising tide. That's it for me. Thanks very much. Thank you. Next we have Sam Damiani from TD Securities. Thanks and good morning everyone. Just to continue on the sort of market cap rate discussion, just wondering if you could specifically say, Brian, you did the acquisitions in The U. S. At a 6.4% cap rate. Could you replicate that acquisition on a same quality growth profile risk adjusted basis at the same cap rate today or in the next three months? Or do you think cap rates have moved one way or the other? Sam, it's a hard question to answer. They move up and down. It depends on the day. The portfolio we bought in the Southeast, Blackstone did not bid on. When they're in there bidding and some others are bidding, it can drive the price up and the cap rate down. If we can find portfolios like that off market with relationships that we currently have in The U. S, I think we can definitely replicate it. Those are you don't find those on every corner, but they're out there. And we continue to leverage those relationships and and leverage kind of market experience that both Dream has and Pulse Corp has to find opportunities that are unique that maybe others haven't found. So could we do that again? I think we could probably come pretty close. We thought we may have an opportunity in Jacksonville, but we're trying to stay quite disciplined to our criteria and our buy approach. So we're gonna keep looking. It's very competitive, but with the change in the yield curve, with the change in interest rates, sometimes it just depends on the day or the month of what opportunities are out there. But we have dry powder, and we're looking for opportunities and ready to grab them when they're there. Fantastic. And just sort of same question in Canada. You mentioned Blackstone and the Pyrenees transaction, obviously. If what's your expectation in terms of Blackstone's clarify, just I market is is quite quite tight just because there's it's a smaller market. There's fewer markets and fewer assets to choose from. So I think they and other institutions still have an appetite to grow within Canada. It's likely to push prices up, but it's also likely to push rents up. So I don't know if that answers your question, but I think they'll continue to buy. I think the of the same old players that are left in the market will continue to buy. We'd like to grow in Canada. We'd like to grow in The U. S. And we'll be looking to do so. Right. And it kind of feels like markets has been at a bit of an inflection point causing rents maybe to grow faster than they have in a long time. Is there a portion of the portfolio you see better positioned to benefit from that versus not? And does it maybe impact your view on what types of properties or markets to accelerate capital recycling? You bet. So the first part of your question, what markets are poised best to push rents? Ontario and Quebec, no doubt are in the best position. They have big demand generators. They have big catalysts for rent growth. They've got a lot of capital wanting to invest. Those two markets are probably poised the best of our portfolio to grow. The West and the East are likely to not grow grow as fast. Recycling will likely occur all over the portfolio. We've we've honestly looked at assets. I'm just getting up to speed, I've seen almost every asset. Some of them we've identified as as potentially good recycling assets, at the same time we want to do the best we can to marry those up with acquisitions that are accretive. Okay. Just two quick questions before I wrap up on the debt side. What are mortgage spreads today in Canada for five or seven year debt? And then I have one follow-up as well. Sure, Sam. So right now for five, seven and ten years in Canada, we're seeing about 3.9, four and four point two in Canada. The rates, as you know, ticked up a little bit over the last few months. Okay. Then, Lenis, your FFO guidance for low single digit growth, does that include any benefit for redemption of the convert of the last convert? We like as Brian had mentioned, we've got some dry powder following the equity offering. So we are contemplating some redemptions of our convertible debentures as you all may recall they are due at the end of twenty nineteen but are open for prepayment without penalty at par at any point between now and the maturity date. So we are contemplating a small partial repayment with some of our excess, some of the liquidity following the equity offering. And so they carry a coupon of 5.25. Exactly. Thank you very much. Thank you. Next we have Heather Kirk from BMO Capital Markets. Just moving to the Western Canadian portfolio, it looks like the occupancy kind of ticked down just sequentially this quarter and I'm just wondering if that's a sign of any kind of shift in the market and if you could just give us a sense of A, what that was related to and what your outlook is for rents and occupancy in the West? Just answering your question specifically on the West occupancy, we had a couple of departures of tenants in the fourth quarter in our in a couple of our smaller Mid Bay industrial units. So that's the part of the market in Calgary that has been held up quite strong. So we are not I mean it's just a matter of timing of releasing, nothing of a significant concern perspective. They were not driven by flex office units. So I think what we're seeing in Alberta is the industrial portion of the market is stabilizing and we believe that rents are bottoming out. There's still some rental rate pressure, but we do feel that they're bottoming out. As And we do those renewals, we are also building in rental growth through the contractual rent steps. And just in terms of the commentary around better rent growth, I'm just wondering in the MD and A, it looks like the market rents are only $0.10 higher in Ontario. Is that just conservatism? And can you just give us a sense of what your outlook is for rent growth there? It just seemed like a very modest spread given your positive commentary on the call. Yes. So when we derive our market rents, we do a combination of consulting with our leasing teams as well as getting information from our external appraisers. And I think, again, given that this was done in the fourth quarter and there's been some recent M and A activity in Ontario, that we would be a lot more bullish and a little bit more aggressive on pushing those market rents. Okay. And just in terms of your growth expectations, it sounds clearly like you want to expand particularly in The U. S. What kind of scale of acquisitions are you looking at? And can you just give us a sense of how you expect to fund that and what are your thoughts are on capital recycling versus potentially issuing equity at a discount to NAV? So in terms of our acquisition capacity on a leverage neutral basis compared to prior to our equity offering, we've probably got acquisition capacity of about $100,000,000 and that's also as I alluded to and Brian's mentioned as well, we're being very disciplined and we want to find assets that improve the quality of the portfolio and are financially beneficial to the REIT. I'm sorry I think was there a second part to your question Heather? Whether this is going to be like funded through I mean that's what you have existing and is that all you're planning on doing so there's no intention to come back for equity or what's your thoughts on I guess I'm just trying to figure out if you're doing acquisitions beyond the $100,000,000 Is this going to be funded through capital recycling or through coming back to the equity market? Correct. I think we want to be focusing on capital recycling and improving the quality of our assets and hopefully results in some benefits to the REIT and net asset value such that we can reduce our cost of equity. So that's really where we're going to be funding a lot of the acquisitions. Great. Thanks very much. Thank you. And next we have Carl Burton from Industrial Alliance. Hi, good morning. Most of my questions have been answered, but I was wondering if I could get some more guidance on same property growth going forward. So for 2018 the 2%, I think half of that's coming from contractual rental increases, so stuff that's already been contracted. The other half of that for 2018 is really being driven by higher average occupancy particularly in our Eastern Canada region. And I think that going so that comes to the 2%. I think going forward we're going to strive to do better. We're looking we're targeting up 3% beyond 2018. We would consider that sort of our stabilized run rate going forward. And part of that is adding to the mix is just driving organic growth through whether it's higher contractual rent steps, increasing the renewals particularly in the renewal spreads particularly in Ontario and Quebec? Do you have the guidance broken down by geographic region? For 2018 or? That's correct. '18. I would say so on the contractual rental steps are across the portfolio and then the average increase I think it's largely driven by the East. Okay. Thank you. Thank you. Next we have Pammi Bir from Scotia Capital. Thanks. Just maybe expanding on one of the earlier questions with respect to guidance. Can you maybe just provide a bit more color in terms of what you've underwritten or some of the underlying assumptions for acquisitions and asset sales in 2018? So for 2018, I think our we're targeting the so when we underwrite we're looking for about 2% annualized growth. It's somewhat similar to the organic growth within the core portfolio. And then in terms of cap rates I think it's something similar to what our U. S. Portfolio acquisition would have been. Sorry, Lanis. Can you just repeat the first part of your comment, the 2%? Well, you were asking sort of what kind of growth assumptions were in our underwriting model? Yes. No, just looking at the guidance for the year, the low single digit FFO guidance, my question was really just some of the underlying assumptions with respect to acquisitions like what have you built in into that number relative to the $100,000,000 of acquisition capacity that you referenced? And then secondly from a disposition standpoint heavy model have you sort of do you expect to be or is there any dispositions in that guidance? So the assumption in the FFO, we've got this 2% comparative property NOI growth. We've kind of modeled more on a leverage neutral basis with including some of the acquisition capacity. And in terms of targeting the capital recycling, I think that's going to probably impact free cash flow. It would be would have been impact free cash flow more and net asset value more than FFO initially. Okay. And just maybe switching gears, going back to some of the commentary around M and A and positive implications for your NAV based on some of the deals that we've seen. Can you just expand on the positive implications for Euronav? Was that a reference to perhaps your cap rate assumptions? Or is it referring more to some of the commentary you made with respect to pushing rents a little harder? So the numerator versus say the denominator in your asset values? It's a good question. I think we are it implies two things. One is our implied cap rate is obviously much, much higher than what these trades are in the market. So that's true. The underlying asset value, the underlying property values are we see continuing to rise as a result of these trades. I think it's going to impact both of those things, the appraisals which will affect IFRS values on the ground as well as the market rents that Heather questioned about. Also we think it will impact our implied cap rate in the public markets. Any preliminary commentary on the potential impact on how you see kind of your cap rate moving over the next few quarters? Well, I'd say this. The market moves and it's not smooth, it's lumpy. So we see certainly we see net asset value going up. We see our cap rate going down. But some of this it moves lumpy as rollovers happen. We've contracted for 65% of our 2018 rollover right now. So as we can deal with the balance of what hasn't rolled yet as we continue to push rents, but it takes some time for this whole effect to kind of work its way into the system. Thanks. And just last one for me. Can you comment on the appetite from an investment standpoint? You've talked about capital recycling, but can you comment on how the market is for, say, multi tenant, smaller bay assets versus, say, some of your single tenant properties in Canada? Sure. To us it really doesn't matter whether there's one tenant in there or multiple tenants. It's a matter of the functionality of the property, how useful it is to not only the tenant that's using the space now but future tenants. So the smaller multi bay properties are usually the most utilitarian, meaning they're the most useful to the widest array of tenants. So those have tremendous value. Those values are going up. The replacement costs of those particular assets are rising faster than the big boxes. So we like that asset class. We have a lot of that and we think those values are going up. So we like that. We also like sprinkling some balance of product. Some of the stuff that we just purchased in The U. S. Is larger big bay distribution type space, but we think that complements our portfolio of smaller bay stuff well. That's great. Thank you very much. Thank you. And we have a follow-up question from Sam Damiani from TD Securities. Thanks. Just if I may, on the 2% NOI growth guidance for 2018, Lenis, do you expect that to be front or back end weighted? I'm just looking at sort of the Eastern Region, it sounds like being a key driver there. And the occupancy clearly picked up in the East over the course of 2017 from beginning to end quite a bit. So just wondering if that's going to drive the Yes. Seasonality It's probably more weighted to Q3 and Q4 where we're really going to see that come in. Even though the year over year occupancy was actually quite strong in the last half of twenty seventeen? Correct. Still think you're going to do there could be some refreement periods in the last half of the year that are rolling off. So we do see more of that pickup through the back half of the year. I think the first half of the year should be relatively stable. We do have the contractual rental increases occur throughout the year as well. But I think when we kind of pile on all the pieces together, you're going to see more of the growth in the second half of the year. And just finally, if I may, the leverage of the REIT does stand at sort of the top end of the range of the peers. I'm just wondering if there's a change in thought as to how Brian, how you see the REIT operating maybe two years out? Sure. Right now, we're at 49.5 percent debt. So I guess I wouldn't consider that top end of the range. We figure that's pretty healthy. Our target's been low 50s. Post closing, we're going to put some secured financing on The US assets that'll take us probably to 51%. As our as we see our NAV increasing, our our debt to NAV will obviously it'll go down by math. So we see that over the long term coming down in the short term being in the low 50s, which we see as reasonably healthy. It leaves us with dry powder to go capitalize on opportunities as we see them. Right. Okay. And just by topping the range, may have misspoke, but I meant of the peer group range. Most of your peers are lower. Okay, but that's helpful. Thank you very much. Okay, thank you. Thank you. And we have no further questions at this time.