Good afternoon, everybody. It's after 4:00, we'll now call the meeting to order. My name is Vincenza Sera, I'm Chair of the Board of Dream Industrial REIT, welcome to our annual meeting. Let me introduce the management team, Brent Chapman, President and CEO, and Lenis Quan, Chief Financial Officer. I will act as chair of the meeting. Robert Hughes will act as secretary of the meeting. With the consent of the meeting, I appoint Daniela Munoz and Matthew Jamell of Computershare Trust Company of Canada as scrutineers for the meeting. We will now proceed with our formal business. I have an affidavit from Computershare as to the mailing of the notice of availability of proxy materials and the form of proxy. Our circular and other meeting materials were made available through the notice and access system.
I would ask the secretary to place the affidavit before the meeting to keep the affidavit with the corporate records. The scrutineers have advised that there are at least 2 individuals present who are shareholders or who represent by proxy unitholders who hold at least 10% of the votes attached to all the outstanding units. As a result, we have a quorum. I declare the meeting to be regularly called and properly constituted for the transaction of business. After our formal business is concluded, our management team will make a brief presentation. There will be an opportunity to ask questions. Please hold all questions that do not relate to the formal business of the meeting until that time. The first item of business is the presentation of the REIT's 2016 annual report, which contains the REIT's audited financial statements for 2016.
I note that the secretary has placed before the meeting a copy of the 2016 annual report. The next item of business is the election of trustees. As stated in our circular, 7 trustees are to be elected at the meeting. 7 nominees are named. They are Michael J. Cooper, J. Michael Knowlton, Ben Mulroney, Vicky Schiff, Leerom Segal, myself, and Sheldon Wiseman. Would someone please propose the nominees for election?
My name is Robert Schur. I nominate the individuals listed in the management information circular dated March 22nd, 2017, for election as trustees of the REIT to hold office for a term expiring immediately following the annual meeting of unitholders in 2018 or until their respective successors are elected or appointed or they otherwise cease to hold office.
My name is Travis Oakey, and I second the motion.
Thank you, Robert and Travis. Are there any further nominations? Since there are no further nominations, I declare the nominations closed. Based on the proxies received, I would mention that each of the seven nominees received a majority of votes cast in favor of their election as trustee. After the meeting, we will issue a press release with detailed voting results. Given the proxies received and as the number of persons nominated for election as a trustee is equal to the number of trustees to be elected, I propose with the consent of the meeting not to take a formal vote on the election of trustees. Therefore, I confirm that the motion has been carried and the seven persons who were nominated have been elected as trustees by acclamation.
I would also like to say on behalf of the board and management that we would like to thank Robert Goodall and Johan Koss, who are not standing for a re-election, for their service and contribution over the years. The next item of business is the appointment of auditors. The audit committee and the board have recommended the reappointment of PricewaterhouseCoopers LLP Chartered Professional Accountants as auditors. Can I have a motion?
My name is David Dowell. I move that PricewaterhouseCoopers LLP be appointed auditors of the REIT to hold office until the next annual general meeting of unitholders or until their successors are appointed and that the Board of Trustees of the REIT be authorized to fix their remuneration.
My name is Brian Lawrence, and I second the motion.
Thank you, David and Brian. The meeting will now vote on the motion. I propose to take the vote by a show of hands. All those in favor, please raise your hand. Any contrary? The motion is carried. PricewaterhouseCoopers LLP have been reappointed as auditors and the board authorized to fix their remuneration. This concludes the formal business of the meeting. If there is no further business, I would ask for a motion concluding the meeting.
My name is Mark Eskes. I move that the meeting be concluded.
My name is Joshua Linter, and I second the motion.
Thank you, Mark Eskes and Joshua Linter. All those in favor of the motion, please raise your hand. Contrary, if any. The motion is carried. Before I turn the podium over to the management team, as you know, the company recently issued a press release announcing that Brent Chapman, the CEO of the REIT, will be leaving in early 2018. The board would like to extend its sincerest appreciation to Brent for his leadership over the past few years and for his generosity in assisting with the transition going forward. Thank you, Brent. I now invite the management team to make a short presentation. After their presentation, we will have a question period. If you would like to ask a question, please come up to the microphone located in the middle of the aisle.
Thanks, Vin. Good afternoon, everyone. Welcome. Thank you for joining us today for our annual general meeting. Lenis and I will share the podium today. I'll provide an overview of the industrial markets and our portfolio. Lenis will cover off our financial performance. I'll wrap up with some direction on 2017. The Canadian industrial market is large, it's liquid, and has solid fundamentals. With 4.9% availability and less than 1% in new supply, the market should continue to be stable. The overall market numbers are very strong, but they vary on a regional basis. British Columbia is essentially the Vancouver area with 187 million square feet of space and 3.9% availability. We don't have a presence in Vancouver. Historically, Vancouver has been an expensive market to enter, with low cap rates, minimal product available, and high development costs.
Industrial has been relatively resilient in Alberta. The availability has stabilized at 9%. Multi-bay industrial has been the most resilient, given the lack of new competitive supply. Alberta has been challenging for the past two years, but there is a definite feeling of optimism in the market that the worst is behind us. Saskatchewan, for us, is Regina, with 22 million square feet of supply. The market is mostly small, single-tenant, and multi-bay buildings. Regina has been stable, with vacancy dropping to 3.3% over the past year and minimal new supply. The industrial market in Manitoba is located in Winnipeg. With 4% availability, the market is stable. There traditionally have not been major swings. Ontario is the largest market in Canada, with over 1 billion square feet of space.
With about 800 million, Toronto, the GTA market, is the third-largest in North America, behind only Chicago and Los Angeles. Availability in the GTA is 3.3%, with less than 1% in new supply. The Ontario market has benefited from the low Canadian dollar exports to the U.S. and a strong auto industry. We see this trend continuing. The Quebec market is essentially the greater Montreal area, where we have a strong presence. Quebec has also benefited from the dollar in exports. Availability has been dropping and now at 6.8% in Montreal. The Halifax market in Nova Scotia has been the most challenging, with availability increasing to 11.8% over the past year. While leasing has been challenging in Halifax, we are seeing positive activity in our portfolio and are optimistic that the market has stabilized.
With under 5% vacancy and minimal new construction, the Canadian industrial market is in fundamentally good shape on the supply side. On the demand side, absorption of industrial space has been historically correlated to GDP growth, which is shown here going back to the year 2000. Overlaying the industrial absorption in orange shows how tightly the demand is correlated to GDP growth. 2015 is an anomaly when Target left the market. Looking forward, the projected growth for GDP in Canada is 2.6%, indicating increasing demand for industrial space in 2017. We've seen that the Canadian industrial market has solid fundamentals, and with that backdrop, let's take a look at the Dream Industrial portfolio. Dream Industrial is the largest pure-play Canadian industrial REIT with 16 million sq ft of space in 213 buildings. Our customer base is also highly diversified, with 1,305 tenants representing a wide range of industries.
Here's how our portfolio is spread across the country. We have 4 million sq ft in Alberta, with 3 in Calgary and 1 in Edmonton, producing a third of our NOI. We're a dominant landlord in Regina with almost 1 million sq ft, driving 7% of our NOI. Ontario is our largest region, with 5 million sq ft and a balance of multi and single-tenant buildings. Most of our assets are in the GTA, with a few properties in the KW, London, and Windsor markets. Our Ontario portfolio produces 27% of our NOI. We also have a large presence in Quebec, where most of our properties are in the Montreal market, and Quebec represents about a fifth of our NOI. With 2.6 million sq ft in Halifax, we are the largest industrial landlord.
Our portfolio is predominantly small-bay, multi-tenant buildings where we have almost 400 tenants that produce 14% of our NOI. Following the same template, let's take a look at the occupancy of our portfolio. Overall, we have 96% occupancy and an 86% tenant retention rate this year. On a regional basis, our Alberta portfolio continues to show resiliency with almost 97% occupancy. Regina has been resilient also at 98.5% occupancy. Ontario has been strong at 97%, and Quebec is performing well at over 97%. Halifax, with 90% occupancy, is a region with the most opportunity to increase occupancy and where we have aggressive leasing programs in place. Along with geographic diversification, our portfolio is also highly diversified in terms of property type and tenancies. Based on income, about two-thirds of our portfolio is in multi-tenant properties.
With these buildings, we have a large number of tenants, smaller average tenant size, and shorter lease terms. With these types of properties, we have credit and leasing risk spread across a high number of companies with no great exposure to any one tenant or building. The shorter lease terms and smaller tenants also provide more opportunity to increase rental rates. A multi-tenant portfolio, however, requires a strong platform to provide active, hands-on management and leasing. The other third of our portfolio is in single-tenant buildings. With these buildings, our average tenant is 10 times larger, and lease terms are 70% longer. With single-tenant buildings, we have less active leasing and generally lower ongoing capital costs. We like the balance between multi and single-tenant properties and the diversification and stability that our portfolio provides. With that, I'll turn the podium over to Lenis to speak to our financial overview.
Thanks, Brent. Brent has provided an overview of our well-diversified portfolio. Let's take a look at our performance. Starting with the high-level view of our assets, our portfolio is geographically diversified. This chart shows our net operating income distribution by province. As you can see, Alberta and Ontario each comprise about 30% of our total NOI, followed by Quebec and Nova Scotia. This diversity has provided stability through the challenging economic environment of the past two years. The average implied cap rates underlying our investment property values is 7%. Our values have been stable, and we believe that our investment property valuations are conservative relative to the strong demand that we are seeing in our markets and the values at which similar assets are being traded. In terms of our capital structure, we have improved our debt metrics over the history of the REIT.
We've reduced our leverage to 52.3%, and the weighted average base rate of our debt has declined to 3.81%. Our debt maturity profile is well-balanced. With CAD 98 million of availability in our credit facility, CAD 123 million of unencumbered assets, and up financing room on our upcoming mortgage maturities, we have sufficient liquidity to address our convertible debenture maturities in 2017 and 2019. We have an opportunity starting in 2018, to redeem our 2019 debentures, which currently carry interest at 5.25%, and replace them with lower-cost debt. For our unit holders, we have maintained a stable distribution and currently yield 8.2%. Looking at our operational performance, we have maintained an average occupancy rate of 94.2% since IPO, and our in-place rents have increased over this period, illustrating the stability and resiliency of our diversified portfolio. We started off 2017 with positive leasing momentum.
Our current committed occupancy of 96% reflects the positive leasing trend that we've seen over the past three quarters. In the first quarter of this year, we retained 86% of our expiring tenants, and to date, we have commitments or are in advanced stages of a negotiation for over 84% of our 2017 expiries. While we still have leasing to do, we are optimistic about the remainder of this year. In summary, our portfolio is well-diversified, stable, and is performing to our expectations. With that, I'll turn it back to Brent.
Thank you, Lenis. The past couple of years has been a volatile and challenging environment to navigate. Our focus has been on managing our portfolio and strengthening our platform. The industrial market is fundamentally strong, and our operating business is in solid condition. Looking forward, our goal is to add growth to the stability that Dream Industrial offers. We have four main initiatives focused on creating growth. With 96% occupancy, there's only so much growth that we can create organically. Having said that, our management team will always stay focused on maintaining our tenant base and driving revenue wherever possible within our existing portfolio. Given the tight markets and our high occupancy, we are hoping to see increased market rental rates. While our operations and leasing teams drive organic growth, we are working closely with the Dream Asset Management team on more strategic growth initiatives.
Over the past year, we sold properties worth about CAD 70 million that were transacted on an asset-specific basis. Going forward, we are taking a more strategic view of capital recycling to sell non-core assets in peripheral or declining locations at risk of functional obsolescence, are highly specialized in nature, or have lower potential for long-term cash flow and value growth. As we sell properties, we will be targeting reinvestment in core assets that will improve the quality of our portfolio, increase revenue, and lower capital expenditures. While strong investor demand in Canada for industrial is beneficial to our disposition program, it also presents challenges to acquire quality assets. We're pursuing several acquisitions in Canada and continue to source off-market opportunities through our platform and network of relationships.
While we remain opportunistic in sourcing deals in Canada, we are also pursuing an entry into the U.S. market that provides more diverse opportunities to acquire quality assets at attractive returns. The final component of our growth strategy is to enter the development business to add new product to our portfolio. We are working closely with the Dream Development team on development opportunities in Canada and in the U.S. That brings us to the end of our presentation. We have a stable portfolio managed by an outstanding group of over 100 professionals. Our team is excited to build the business and grow into new areas, and we all thank you for your continued support. We'll be here for a while. We're happy to chat one-on-one, or if anybody has any questions now, please go ahead.
Hi, I'm Paul Vernon from Burlington. Can we look at page three on the annual report? I understand that funds from operation and AFFO is more important in evaluating a real estate company than net income. Okay, that's fine. The line on the chart shows that you are underperforming the index, really. Slowly, as each year goes by, you have fewer properties, 219, 217, 213. The payout ratio is rising, I guess it has to, on fewer properties, FFO payout ratio and AFFO. Yet you are underperforming the index, and I don't see how that can change as long as you carry on with fewer properties. The question is there possibility to acquire another junior REIT, or is it much more probable that you'll be buying from private properties held privately? What's your outlook on that matter?
A lot covered off there. I think to answer your question at the end, it could be both. Certainly, we're entering a growth phase now, which is acquiring properties from wherever we can acquire them from, whether they're privates or other public companies. The capital, we actually paid down debt over the last year. As we were looking, we just didn't find suitable opportunities. What we covered at the end in terms of growing into other markets, into development, and being more strategic, is really to get to your point to build up the asset base and grow in that way.
Yeah. Okay, I see there's a new REIT called Nexus, and it is literally Montreal shaking hands with Western Canada Industrial Properties. It's just merged, and one is called Nobel REIT, and the other one is called I forget the name of it. These guys will know. What's the other one that Nobel is merging with? I forget it. It's literally making across Canada REIT-
Okay.
-to a reasonable degree. I don't think it has too much in Ontario or the Maritimes, but it has Western Canada truck service depots and Montreal industrial parks. Think about maybe-
It's good information