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, risks, and uncertainties is contained in Dream Industrial REIT's filings with securities regulators, including its latest annual information form and MDA. These filings are also available on Dream Industrial REIT's website at www.dreamindustrialreit.ca. Your host for today will be Mr. Alexander Sannikov, CEO of Dream Industrial REIT. Mr. Sannikov, please proceed.
Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's first quarter 2026 conference call. Here with me today is Gord Wadley, our Chief Operating Officer, and Lenis Quan, our Chief Financial Officer. We started off 2026 with strong momentum, we saw that reflected in our solid operating and financial results. While geopolitical uncertainty and trade tensions persist, the industrial sector continues to demonstrate broad resilience, the execution on our core pillars is translating into tangible results across the business. The occupier markets in Canada are strengthening, we are seeing continued absorption, not only for small and mid-bay units, which we have observed for some time, but also more recently in large bay format. We're also encouraged by the activity in the European portfolio, are seeing robust occupier dynamics for infill mid-bay assets and multi-tenant light industrial properties.
These occupier dynamics inform our operating results as well as our capital allocation decisions. For the quarter, we delivered 9% year-over-year comparative properties NOI growth, driven by healthy leasing activity, leasing spreads, strong occupancy, and tenant retention. This strong pace of organic growth drove FFO to CAD 0.26 per unit, in line with our expectations and outlook we communicated last quarter. Most notably, our FFO per unit continued to grow year-over-year, even though we completed the disposition of the first tranche of assets to the DCI JV and used the proceeds to temporarily pay down debt. This gives us the opportunity to redeploy the capital towards our strategic growth initiatives. We are on track with the capital allocation plan we outlined at the beginning of the year.
Far this year, we have returned nearly CAD 100 million of capital to unit holders through NCIB activity. This activity is consistent with the targets we communicated when we announced the formation of the DCI JV. We also have a robust pipeline of acquisitions for DIR's on-balance-sheet program, with over CAD 500 million of opportunities in Canada and in Europe in exclusive negotiations and in various stages of due diligence. Over 85% of this pipeline is comprised of income-producing assets with a going-in cap rate of just over 6% and a mark-to-market cap rate of over 7%. We're also evaluating adding compelling development opportunities in our target markets for small and mid-bay industrial assets at yield on cost of just under 8%. Our existing development program is progressing well.
This quarter, we achieved substantial completion over a 125,000 sq ft built-to-suit expansion in the Netherlands that is already contributing over CAD 1.7 million of NOI on annualized run rate basis. Our strategic private ventures segment continues to provide us with a competitive edge, supporting the growth of our operating platform and revenue growth. So far this year, we closed on approximately CAD 130 million of acquisitions within our private JVs, including DCI JV's first acquisition beyond the initial portfolio. We have another CAD 250 million of acquisitions in exclusive negotiations for the account of our private ventures. Our power procurement program is also advancing. Our solar portfolio is expanding with multiple projects under construction, including a pilot project that includes a battery storage solution.
Our near to medium-term pipeline stands at over CAD 140 million with a target yield on cost of over 8%. On the data center initiative, we are in advanced stages of securing commitments on over 260 MW of power in the GTA with phased delivery over the next 2- 5 years. Concurrently, we're exploring opportunities to realize this progress on power procurement through joint ventures, development, or dispositions. Put together, we are encouraged by the progress we are making across the key drivers of the business. With that, I will now turn it over to Gord to discuss our operational highlights.
Thank you, Alex. Stepping back, we continue to see the Canadian industrial market hold up well from a macro perspective. While uncertainty has extended decision-making timelines in pockets of the market, Dream Industrial continues to perform well as demand for well-located, functional urban logistics spaces remains resilient and the new supply pipeline continues to moderate. On occupancy, we saw a meaningful improvement in Canada. Committed occupancy was 96.8%, up from 94.4% a year ago, driven by small bay lease up and recent development completions. Overall, committed occupancy across the total portfolio was 95.7%. Against that backdrop, we are encouraged by the operating results. We signed 1,800,000 sq ft of new leases and renewals, delivering a weighted average rental spread of 26.4% over expiring rents.
The regional mix was approximately 1,400,000 sq ft in Canada at 33.1% average spreads and about 400,000 sq ft in Europe. In Toronto and the broader GTA, demand continues to be the most pronounced for well-located functional space, particularly in small and mid-bay. As Alex mentioned, over the past couple of quarters, we've seen meaningful absorption of larger units. Based on the pipeline we see, we expect this trend to continue in 2026. The improvement in absorption and the pace of leasing activity is resulting in stable to improving net effective rents and a shrinking gap between achieved rents and asking rents. In our portfolio, we saw healthy retention and strong mark to market on near term rollover, and leasing economics remained disciplined with stable incentives. Ontario comparative properties NOI grew 6.8% year-over-year.
Fundamentals in Western Canada are robust with low vacancies, solid demand, and demographic trends. We're observing continued rental growth. With our Balzac 20 development coming online and the lease up of several vacancies in Calgary, we transacted approximately 500,000 sq ft across our platform during the quarter and saw 100 basis point lift in occupancy. Western Canada comparative properties NOI grew 8.5% year-over-year. In Montreal, the market ultimately fared better than most expectations. While asking rents have moved down across the market, our achieved rents have remained higher, reflecting the quality and location of our portfolio and strong demand for well-functioning space. With the lease up of small bay vacancies, our Quebec occupancy improved, and Quebec comparative properties NOI increased 31.1% year-over-year. Looking ahead, our leasing pipeline in Canada remains healthy.
We have over a dozen new deals in advanced negotiations totaling over 700,000 sq ft. Decision-making timelines are longer than average, but our customers and prospective occupiers are showing resiliency and remain committed to their space requirements despite geopolitical uncertainty. Many of them are expanding organically and renewing to longer-term commitments in advance of the expiry. Further evidence of this is that we had 1,900,000 sq ft of remaining uncommitted expiries in 2026 as of Q1. We've already secured approximately 500,000 sq ft at an average spread of 38.2%, and we are in advanced renewal discussions on the balance. We expect that the retention ratio for the year will be consistent with our long-term average. In addition, we expect leasing spreads on our remaining 2026 rollovers in Canada to be in line with our Q1 results.
Over in Europe, the industrial sector remains supported by durable structural demand drivers. As inflation is likely to ramp up, our portfolio remains relatively insulated as the majority of our leases are indexed to CPI. At the portfolio level, European occupancy was modestly impacted this quarter due to the acquisition of a vacant value add asset in the Netherlands, which had approximately 80 basis point impact. We acquired this asset for its prime location and strong physical attributes and see meaningful value creation potential through planned upgrades, with a lease up expected by the end of the year and a stabilized cap rate of approximately 8%. Committed occupancy in Europe was 95% this quarter, and overall performance remained consistent with our expectations with 4.9% comparative properties NOI growth. Over the next few quarters, we expect to see some transitory vacancies in Spain.
Given the underlying strength of the market, we're confident in re-leasing prospects. Overall, our occupancy and NOI outlook for the business remain intact. Thank you, and I will now turn it over to Lenis to discuss our financial highlights.
Thank you, Gord. Our portfolio delivered comparative properties NOI growth of 9% for the quarter. The strong pace of organic growth allowed us to absorb a higher average cost of debt and to operate at lower leverage following the first tranche of our asset sales to the DCI JV, while continuing to deliver FFO growth. We delivered diluted FFO per unit of CAD 0.26 for the first quarter, 2% higher than the prior year quarter. In addition, the lease up of newly completed developments and property management income generated from our private ventures platform also contributed to our overall FFO growth. Our net asset value at quarter end was CAD 16.76 per unit, up from CAD 16.60 last quarter, reflecting stable investment property values and the impact of our NCIB activity.
The proceeds from the first tranche of asset sales to the DCI JV in early February were used to repay most of the outstanding balance on our credit facility. Consistent with the capital redeployment plan that we communicated in late 2025, we have completed CAD 97.2 million of unit buybacks through our NCIB program to date. To date in 2026 at an average price of CAD 12.95 per unit. We expect the second tranche of asset sales to the DCI JV to close mid-2026, with proceeds used to temporarily repay our credit facility until it is redeployed accretively. 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 the quarter with leverage at 36.8%, which was 160 basis points lower than year-end 2025. Our net debt to EBITDA ratio was 7.3x . As we deploy our available balance sheet capacity, we expect leverage to remain in the targeted mid to high 30% range and our net debt to EBITDA on a run rate basis to trend back towards the mid 7x range. Subsequent to the quarter, we repaid our CAD 200 million Series E debentures that matured on April 13th, 2026 by temporarily drawing on our credit facility. On April 21st, we closed on the issuance of our CAD 200 million Series H unsecured debentures at an all-in rate of 4% after swapping the proceeds to euros. The proceeds were used to repay the outstanding balance on our credit facility.
We retain over CAD 600 million in total available liquidity. Combined with the growing cash flow generated by the business, we are well positioned to fund our strategic initiatives, including our development pipeline, power procurement program, and contributing to our private ventures. Our first quarter performance demonstrates the strength of our business, and we remain confident in our growth trajectory for the balance of the year. We reiterate our previously issued outlook across our key metrics, which as a reminder, were for the full year 2026, average in-place occupancy stable in the high 94%-96% range. For the first half of 2026, comparative properties NOI growth relatively consistent with our Q4 2025 growth rate.
For the full year, dependent on the timing of leasing, 2026 comparative properties NOI growth stronger than full year 2025 growth, which was 5.7%. Full year 2026 FFO per unit between CAD 1.08- CAD 1.10. With the deployment of proceeds from the second tranche sale to the DCI JV expected to be weighted towards the middle and second half of this year, we expect our quarterly FFO per unit run rate to accelerate accordingly. Our FFO growth expectation is predicated on current foreign exchange rates and interest rate expectations. I will turn it back to Alex to wrap up.
Thank you, Lenis. Dream Industrial's business is anchored by a functional, high-quality urban portfolio, supported by a diverse occupier base and increasingly meaningful new revenue streams. Together with the scale of our operating platform, this positions the business well for continued growth, and we expect to continue delivering strong results for our unit holders. We will now open it up for questions.
Your first question comes from the line of Mark Rothschild from Canaccord Genuity. Your line is live.
Thanks. Good morning. Alex, you made some comments about being encouraged by some things in Europe. Can we just talk about what's driving that improvement? Do you think that that's something we should see in better leasing spreads? Maybe just connected to that, is that connected at all to your confidence in buying a property that's vacant? If you could just expand more on what the timeline is for expected stabilization of that asset.
Yeah. Thanks, Mark. We continue to observe the strength from mid-bay infill industrial in core Western Europe and Netherlands and Germany. These are assets that are, you know, located in close proximity to major population centers such as Randstad, Ruhr region, et cetera. This strength is not new. We've seen that throughout 2025. You see that in our operating results, we see that translate into our continued ability to push rents beyond beyond business plan. We are seeing kind of these data points in our everyday leasing. When it comes to buying a vacant property, again, this is not new. If you recall, last year we bought an asset that was vacant in the Netherlands.
We stabilized that within two months of ownership at yields that exceeded our underwriting. This asset is in different sub-market in the Netherlands, but it's a sub-market that's equally strong, and the physical attributes of the assets are robust as well. We are pretty confident in our ability to lease this asset at yields that Gord quoted.
Okay, great. Thanks. That's all for me.
Thank you, Mark.
Your next question comes from the line of Sam Damiani from TD Cowen. Your line is live.
Thank you. Good morning, everyone. Great to see the outlook reiterated in full there. As you go out into 2027, I know it's early days, but any comments you can share in terms of target leverage level that you'd be wanting to run the REIT at, you know, post sort of redeployment of the proceeds of the sale into the DCI JV?
Hi. Thanks, Sam. I think we communicated that as we redeploy the proceeds that we expected on a net debt to EBITDA basis, that we would trend towards the mid-sevenths. That would be happening by the end of the year. It will. I think we would see that as we grow our EBITDA, you're gonna see that trend downwards into 2027.
Okay. That's helpful. Thank you. I guess just looking at the data center, sort of disclosure update there. I wonder if you could clarify with the megawatts, for the three sites totaling 260 MW. Like, what is the, what is the REIT's sort of net ownership in that 260 MW, and also the net ownership in the remaining 350 MW or so beyond that you've identified?
Thank you, Sam, for that follow-up. The vast majority of the 260 MW is on REIT's balance sheet. There's only one asset for about 15 MW capacity that is in the JV. Of the 600 MW, again, the majority is in the REIT's wholly owned portfolio.
Okay, great. Maybe just one last quick one. I mean, market rents seem to be stable. Alex, you've spoken fairly confidently about the trajectory sort of evolving over the coming quarters. Has anything changed in your, in your outlook, sort of here we are three months later?
So far, Sam, we're seeing data points that support the outlook of market rents, broader market rent growth in Canada, resume in second half of 2026. Again, we're seeing evidence of that happening already in the West. Seeing pockets of that happening in the GTA. Less on the asking rents, but more on the achieved rents. We hope that as we continue the pace of absorption coming through, that this is gonna come through in the headline metrics that many market participants are focusing on.
Great. Thank you. I'll turn it back.
The next question comes from the line of Brad Sturges from Raymond James. Your line is live.
Hey, good morning. Just, you know, looking at the Cambridge and Whitby projects, I think you noted that you're in active discussions for 500,000 sq ft there. Just curious how far along would those potential discussions be? Do you have any line of sight, I guess of if the leases were executed, where and when occupancy and maybe rent payments could commence?
Thanks, Brad. For one of the properties we're in the LOI stage with a couple of prospective tenants. The other one we're seeing some good interest through tours.
Okay. Call it early days still. In terms of, just, you know, you're progressing towards closing the second tranche on the CPP JV, and I'm sure the focus is on that for now, but I guess what would be the appetite from CPP from your point of view in terms of expanding that JV beyond what's been committed to date?
Just wanna go back to the previous question, in, on your takeaways there. It's, it's a bit more advanced than sort of initial stages, just on the leasing inquiries. Switching gears to the second question. As we commented in our prepared remarks, we've acquired already our first asset with the DCI JV from from the market. We have a good pipeline of additional assets that we're evaluating. As far as vending in assets into that JV from balance sheet, there's no active discussion. As we've always commented with respect to our private ventures, generally, opportunity to have a dialogue is always there if it's strategic for both both parties.
I appreciate the clarification there, Alex. I guess it's just more, a little bit too early to comment beyond what you just provided there on the leasing front. Is that?
Right.
Yeah. Perfect. Then just any update, I guess, on the European JV opportunity? I know you've been working towards that, but if there's anything new you'd like to share at this point.
Nothing that we can share at this point. We're making progress there and, you know, as that advances, we'll provide an update, but nothing imminently to comment on. Again, just to reiterate, formation of a European JV will be part of build out of our private strategic private venture business, which is gonna be in addition to all the ventures and all the private capital partnerships that we have today. When we communicate our outlook for 2026 or 2027, and I believe when, you know, broadly market is modeling our business, these additional growth drivers are not certainly not in our outlook. We don't believe that they're in the broader markets outlook.
This is all gonna be in addition to what we currently have in front of us.
Perfect. I appreciate that color. I'll turn it back.
Your next question comes from the line of Kyle Stanley from Desjardins. Your line is live.
Thanks. Morning, everyone. Maybe just going back to the kind of reiteration of the outlook for the year. Obviously, very strong quarter in Q1 with the 9% same property NOI growth. For the first half of the year, you've kind of highlighted maybe roughly above 8% and, you know, maybe in the 6%-ish range on the full year. Just wondering, you know, given the strong start to the year, like why you maybe see that slowing into the balance of the year to kind of hit that lower full year guidance number.
Hi, Kyle. Thanks for that question. You know, you're correct in your observations. I think, you know, as we progress through the year, there's, you know, there's a significant amount of leasing that is still assumed and forecast to happen. Certainly, as we progress through the year and those are committed, we will revisit the guidance or the outlook.
Okay.
Sorry. Yeah.
Okay. That's fair. I think it was in the prepared remarks, you know, a leasing pipeline of roughly 700,000 sq ft. Would that be a combination of new and renewals?
It is, Kyle. It's a combination of both. More for new deals, though. It's more skewed towards new deals.
Okay. Thank you. Just turning over to kind of your leasing spreads this quarter. Obviously, the 66% spread in Ontario, highest it's been in a little while. You know, really good to see that occurring. What's the driver there? You know, is it strength in the market? Is it just mix of leases turning? Would just love to understand, you know, what drove the increase again.
Yeah. Thanks, Kyle. As Sam observed in his question that, you know, market rents have remained relatively steady in our disclosure this quarter, we haven't seen dramatic changes in market rents. The spreads are really informed by the composition of space rolling and, you know, the quality of the space that is rolling. That's what drove the spread. The market rent situation in our portfolio didn't change dramatically.
Okay. Fair enough. Just last one for me. In your leasing discussions today, is there a premium for sites that have elevated existing power capacity? You know, just trying to think through that maybe there is a higher and better use for what traditionally would've been, you know, an industrial facility, you know, transitioning towards data center. I'm just wondering if that's something that's happening in your leasing discussions where you have an ability to ask for higher rent given an existing higher power capacity.
What we're seeing in that regard is, it doesn't necessarily drive data center demand, but it drives a broader demand from a more diverse pool of occupiers, including defense occupiers, are attracted to higher levels of industrial power. In certain cases, having higher level of power makes it easier to kind of convert a site for data centers. But it's, it's less of a driver in the day-to-day leasing. It's mostly just appealing to a broader range of occupiers.
And certainly when you have-
Okay.
When you have more demand for the space, that sort of indirectly creates upward pressure on rents.
Okay. That makes sense. Thanks for that. I'll turn it back.
The next question comes from the line of Himanshu Gupta from Scotiabank. Your line is live.
Thank you, and good morning. You mentioned around CAD 500 million of, you know, acquisitions under exclusive negotiations. Can you elaborate, you know, like which markets, you know, quality of assets or timeline? Then also, you know, how much is on the balance sheet versus on the joint venture?
Thanks, Himanshu. Just to kind of reiterate. CAD 500 million is on balance sheet. We have another CAD 250 million in exclusive negotiations for the joint ventures. That's that CAD 250 million is in addition to the CAD 500 million. It's not part of the CAD 500 million. As far as the on balance sheet assets, we are looking at product that is very consistent with what you've seen from Dream Industrial. These are mid-bay assets predominantly, in core locations in Canada, in Europe, in markets that, you know, we've talked about with our unit holders over the past few years.
Going in cap rate is just around 6% with mark-to-market potential that takes us to over 7%. Included in that is some development opportunities for small and mid-bay assets at a yield on cost of around 8%.
Got it. This is helpful. You know, thanks for clarification. CAD 500 million all on balance sheet. In terms of timeline, like Q2, Q3, or over the rest of the year?
You know, some are gonna be closing over the next, you know, a couple of months. You will see probably most of them closing in, kind of in around second half, more likely towards Q3, but timing is, you know, not exactly certain.
Got it. The mix between Canada and Europe, I mean, I think you mentioned kind of both regions. Is there preference here, Canada versus Europe?
We have to, you know, some acquisitions to Canada. A significant chunk of the pipeline is in Europe as we also communicated in our broader capital allocation outlook at the beginning of the year. We're seeing more of a pipeline in Europe. Not the entire pipeline is in Europe, but a significant chunk is in Europe.
Got it. Okay. Thank you. Then maybe just to follow up there, I mean, obviously quite a bit of acquisitions here in the market here for, are you seeing like, you know, change in valuation trends or cap rate compared to six months or one year?
Nothing material. We're seeing, you know, around the edges there's possibility of that, but we haven't seen material changes over the last six months. There are competing forces at play. We've seen obviously interest rates impact some occupier or some buyers' underwriting. On the other hand, we've seen more capital generally looking for industrial opportunity both in Canada and in Europe. There are competing forces at play, and as a result, we haven't seen material changes to cap rates.
Yeah. Maybe I should clarify, you know, more on the Europe side, I mean, given the geopolitics and war, still nothing, no change in trends in Europe, so far?
We didn't see material changes in trends in Europe so far.
Okay. Fair enough. Thank you, and I'll turn it back.
Your next question comes from the line of Fred Blondeau from Green Street. Your line is live.
Thank you, and good morning. Just one question from me. Focusing on the GTA, I was wondering, given the extended leasing timelines, can you comment on how much free rents are required to attract tenants today, and how this quantum of free rent may have changed over the last, call it, over the last 12- 18 months?
Thank you, Fred. We have seen free rents sort of stabilizing. We haven't seen free rents increasing over the last two quarters. If anything, we're starting to see trends that support kind of or point to incentives generally declining and free rents as part of that declining marginally. Usually we're talking on a new lease about two months of free rent on a five-year deal. In the context of a renewal, this is, you know, highly bespoke, so it ranges from no free rent to, again, maybe two months of free rent depending on the circumstances. Overall, as we said, we're seeing NERs improving in the GTA on a year-over-year basis.
That is a function of, you know, stronger absorption and declining vacancy rates.
A couple of months, that would be less than six months, of course, right?
Sorry, Fred, can you repeat that?
Yeah. I was just saying, when you say a couple of months, that would be less than six months, of course, correct?
Less than six months, correct. Yes.
Yeah. Perfect. Thank you so much.
Thank you, Fred.
Your next question comes from the line of Tal Woolley from CIBC. Your line is live.
Hi, good morning. Just wondering, can you characterize like the industries or tenant types where you're seeing kind of like the best interest and demand right now?
Hi, Tal. It's Gord. We're seeing the bulk of our tours from various 3PLs in the market. Alex touched on defense. We're seeing more interest from federal government and Crown corporations as well too, taking stock of our inventories. We've been taking a lot of questions from them. The bulk of our tours have been predominantly from 3PLs in the market.
You know, we're starting to see with the price of oil having shot up here, although fingers crossed, it's retreating. You know, we've seen some pressure on a lot of transportation companies, whether it's airlines, freighters, that kind of stuff. Any concerns on the tenant side, you know, just as we enter into sort of an era of higher oil prices?
Very topical question, Tal. We are in conversations with a lot of our occupiers about how this impacts their business. What we have observed is that the pace of activity didn't really change over the last couple of months as we've seen oil prices increase, and that is informing our, you know, resiliency commentary. In this environment, closer in locations do become much more relevant to these occupiers because to save on freight, which is very consistent with the thesis we've been articulating over the last few years about urban industrial. You know, that is again playing out right now.
Okay. Lastly, you know, we talked a lot on the call here about, you know, types of assets you might be interested in. I'm just wondering where they're coming from and, you know, have, you know, we haven't really seen a lot of take privates in the public space, but I'm just wondering if, you know, given where some of the industrial REITs are trading globally, like are you seeing opportunities to, you know, approach some of these companies, looking for other individual assets or portfolios?
Thanks for the follow-up. Look, we see a broad range of vendors out there in the market. There's all sorts of drivers that lead to potential transactions, you know, finalization of business plans, you know, end of fund life, broader capital recycling. We're pretty happy with the pipeline that we have in front of us. There's lots to execute on. We'll always look for off-market opportunities, whether it's with the groups that you just summarized or with others. We continue to look for those opportunities across our target market.
Okay. That's great. Thanks very much, everybody.
Thank you.
As a reminder, if you'd like to ask a question during this time, you may simply press star followed by one on your telephone keypad. Your next question comes from Matt Kornack from National Bank Capital Markets. Your line is live.
Hey, guys. Just looking at third-party stats, Toronto or the GTA, I should say, seems to be getting the lion's share of absorption. Can you give us a sense as to why this market in particular is doing so well? Maybe on the other side, Montreal, it seems like you're outperforming the market. How are you kind of winning away tenants maybe from others or getting new tenants in the market?
Yeah. Thanks, Matt. Maybe starting with Montreal, our portfolio in Montreal is predominantly small and mid-bay. That segment of the market is healthy in Montreal. We're seeing rents in the mid-teens, escalators, kind of on the either end of three. That theme is consistent, and we haven't seen sort of a material change in that theme over the last couple of years. It is continuing to 2026, and that is what's driving our results. When it comes to the GTA market, look, it's the largest market in the country and the most diverse market in the country. We have obviously seen a bit of a pause in the GTA as interest rates spiked in 2023, inflation spiked.
There was a lot of occupiers in the GTA market that were, let's say, on pause with their expansion needs and some occupiers who took more space than they needed, you know, in 2021, 2022. That space came back to the market. We saw a bit of a supply delivery in 2024. What we're seeing now is that the pent-up demand is coming through and there's gradual absorption of that new supply, including in the big boxes, which is encouraging. Again, that's not a significant part of our business, but it's encouraging to see.
Maybe looking south of the border as well. I mean, there's increasing confidence, I think, in the U.S. around guys taking space in large amounts. But you mentioned a hesitancy. Do you think we need to get past kind of USMCA negotiations at least to have a little bit of certainty before you see that flood of interest appear maybe on a broader basis? Are you even having those discussions around trade with your tenants at this point?
There's very few any discussions with our occupiers that were kind of centered around trade at the moment, including renegotiations of USMCA. We haven't seen that impact occupier sentiment. As to whether there's added demand, should there be more certainty around USMCA, it's likely the case, but we don't really have empirical evidence to sort of support that claim. It seems right, or it remains to be seen. If anything, it's gonna be net, additive to what we're seeing already.
Okay. No, that's fair. Maybe just lastly, in terms of, again, the sense of urgency as Toronto and other markets kind of see availability peak here, do you think that inspires guys to make decisions in advance of kind of, supply maybe becoming more constrained here as we would expect, given kind of normal absorption levels in Toronto and other markets?
Do, are you referring to occupiers moving faster?
Yeah. Just trying to get in ahead of potentially a tightening market.
Yeah. Look, that's a possibility. We're already seeing some of that with some occupiers where occupiers are looking to do blend and extends and/or secure early renewals for 2027 and 2027 onwards lease expiries and in many cases, asking for longer lease terms.
Okay. Perfect. Thanks, guys.
Your final question comes from the line of Pammi Bir from RBC Capital Markets. Your line is live.
Thanks. Good morning. Maybe just coming back to Matt's question. Trying to reconcile the comments earlier about extended lease time, lease timelines, I think that was made in the opening remarks, versus, you know, some tenants looking to do some early renewals to blend and extend. Can you just clarify that? Like, is it taking longer to get lease deals done or not really?
It's taking longer to get new lease deals done. To fill vacancy or new developments, taking still longer. You know, to give you an example, some of the LOIs that Gord referred to, we've been in discussions with this group for, you know, close to six months. You know, this is not new. We commented on that last quarter and probably the quarter before. Normal timelines would be half of that. The decision timelines for new space are still longer. At the same time, retention ratios are consistently high because, you know, still occupiers are looking to stay in place.
Some of them may feel that now is a good time in the market, going back to Matt's comment and question, to secure space for longer, given the supply pipeline in the GTA broadly is declining and market is looking like it's turning the corner from an occupier standpoint. Some occupiers are thinking that securing renewals for longer.
Okay. Got it. Just, again, maybe sticking with that theme. These for the extended timelines on new deals, is this more skewed to Canada or have you seen that start to play out in Europe as well? Maybe it already was, I guess.
Generally would be skewed to Canada. In Europe, you know, we haven't seen sort of changes to new leasing timelines dramatically. You know, for bigger boxes, the timelines have been relatively long for a couple of years, and that didn't really change up or down. Again, small and mid-bay, we're seeing pretty solid pace of demand.
Okay. Just in terms of the, I guess the capital coming back for the DCI JV transaction, you know, you've been obviously pretty active on the NCIB. You're at the low end of your, I guess CAD 100 million- CAD 200 million initial target. How are you feeling about, you know, additional buybacks at this stage? Or is the thinking maybe perhaps to keep more dry powder for that pipeline of acquisitions you cited?
Look, we'll evaluate, obviously the NCIB activity will be a function of the unit price accretion to FFO and NAV that we achieve from NCIB relative to opportunities that we see on the acquisition side. We'll continuously evaluate this as we see movements in the unit price and as we compare that to the acquisition opportunities in front of us.
Got it. Okay, just the last one. On the, I guess the first tranche of assets that were sold in the quarter to that JV, was the pricing or the cap rate on that pretty much in line with the overall portfolio or was this much of a difference?
The cap rate on the second tranche would be a bit lower overall. Obviously we'll provide the details as we close the tranche, but it's gonna be a bit lower than the first tranche.
Okay.
The cap rate overall is in line with what we quoted.
Right.
That's the metric that is the most relevant. How it's broken out by tranches is informed by, or the cap rate by tranches is informed by occupancy primarily of the assets that are in each tranche.
Got it. Thanks very much. I'll turn it back.
That concludes our question and answer session. I would now like to turn the conference back to Mr. Sannikov for any closing remarks.
Thank you for your interest and support of Dream Industrial REIT. We look forward to reporting on our progress next quarter. Goodbye.
This brings today's meeting to a close. You may now disconnect.