Welcome to the Dream Industrial REIT second quarter conference call for Wednesday, August 2nd, 2023. 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 defer materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Industrial REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Industrial REIT's website at www.dreamindustrialreit.ca. Later in the presentation, we'll have a Q&A session. To queue up for a question, press Star and One on your telephone keypad.
Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go ahead.
Good afternoon, everyone. Thank you for joining us today for Dream Industrial REIT's second quarter 2023 conference call. Speaking with me today is Lenis Kwan, our Chief Financial Officer, and Alex Sannikov, our President and Chief Operating Officer. In Q2, DIR continued to execute on its core strategic pillars. Our operating and financial results reflect the success of our efforts and the quality of our businesses. We reported 11.4% comparative properties NOI growth for the quarter, and 12.3% for the six-month period. Our FFO per unit was CAD 0.25 for the quarter of 14% year-over-year, largely driven by CP NOI growth. Since the closing of the Summit transaction in February, we have made significant progress in integrating the Dream Summit portfolio and have started expanding the JV in our target markets.
The Dream Summit venture has acquired three assets in the GTA for a total purchase price of approximately CAD 126 million. In addition, the venture is in exclusive negotiations or under contract to acquire an additional six assets located in the GTA, totaling 900,000 sq ft for approximately CAD 234 million. Our net equity commitment toward these acquisitions is expected to be approximately CAD 25 million. Combined with the associated property management and leasing fees, we expect the income-producing assets to generate a going-in yield on equity of over 7.5%. There is further upside as we mark expiring leases to market rents that are approximately 40% higher than in-place rents. Overall, we expect DIR to achieve IRRs in the mid to high teens on these acquisitions.
Our private capital partnerships continue to generate a strong recurring fee stream that is expected to grow significantly over time. Year to date, our property management and leasing platform contributed CAD 4 million of net margins, double that of the prior year period. Looking forward to the second half of 2023, all of our growth drivers remain intact. We see a long runway for industrial fundamentals with sustained demand for industrial space, despite the challenging economic environment. The long-term outlook for organic growth within our portfolio is strong, with in-place rents significantly below current market rents, average contractual rental escalators, and an essentially full portfolio. I will now turn it over to Alex to provide additional color on our business.
Thank you, Brian. Good afternoon, everyone. Supply-demand dynamics in our core markets continue to drive increasing rents. Supply remains constrained, with immediate development pipeline of less than 2% relative to existing stock in our key markets in Canada. Occupier demand is broad-based. We see strong renewal activity, and we continue to field more requests from tenants considering expansions than we do from occupiers looking to reduce their footprints. In our portfolio, we have seen strong leasing momentum across our key markets. Since the end of last quarter, we transacted 1.4 million sq ft of leases across our portfolio, achieving a rental spread of 47%. Within the Dream Summit JV, since closing of the transaction, we completed or finalized terms on over 1 million sq ft of leases at an average spread of 125% over prior rents.
We continue to execute on our development pipeline. Our progress is in line with expectations. At our 343,000 sq ft development in Balzac submarket of Calgary, we have agreed to terms on leases for 100,000 sq ft at rental rates in line with underwriting. We have substantially completed our 154,000 sq ft ground-up development in Caledon. The building is over 40% leased, and we are in negotiations with several prospect tenants for the remainder of the building at terms that are in line with our underwriting and would support an unlevered yield on cost of above 7%. We've seen strong leasing interest at our 436,000 sq ft project in Cambridge and our 209,000 sq ft redevelopment in Mississauga.
Lastly, during the quarter, we commenced construction on our 390,000 sq ft redevelopment project in Whitby, and construction is also underway on our 650,000 sq ft greenfield development in Calgary. For the quarter, we reported 11.4% comparative properties NOI growth. In Canada, we achieved CP NOI growth of 12.1%, led by Ontario at 19% and high single-digit growth in Quebec. In Europe, we reported a 11.4% increase in European CP NOI due to robust leasing momentum and CPI indexation across 90% of our portfolio. For the six-month period, we reported CP NOI growth of 12.3%, driven by 13.3% in Canada and 11.9% in Europe.
In-place occupancy across our portfolio remains strong at 98% as we continue to execute on our strategy to maximize rental growth. This compares to 98.6% at the end of Q1 2023. The slight decline is primarily due to our 154,000 sq ft Abbotside development coming online and a vacancy at our 225,000 sq ft building near the Port of Montreal that we discussed last quarter. Providing an update on our 2023 CP NOI guidance, we are increasing our 2023 comparative properties NOI growth expectations to 10%-11% range, and the outlook for organic growth within our portfolio remains strong beyond 2023.
We have over 6 million sq ft of GLA maturing in Canada in 2024 and 2025, with approximately 75% of this space located in Ontario and Quebec. Currently, the average market rent for the leases maturing in Ontario and Quebec is approximately double the in-place rent. In Europe, we have 2.4 million sq ft maturing over the next two years. The current average market rent for these European leases is over 10% higher than in-place rents. I will now turn it over to Lenis to talk about our financial highlights.
Thank you, Alex. Our second quarter financial results are strong. Diluted FFO per unit was CAD 0.25 for the quarter, 14% higher than the prior-year quarter. The solid year-over-year growth was primarily due to strong comparative properties NOI growth and property management income from our equity investments. Our net asset value per unit at quarter end remains steady at CAD 16.97. During the quarter, EUR 106 million of European mortgages matured and were temporarily refinanced using our credit facilities. As we mentioned in our press release, we have executed two term sheets with existing relationship lenders for over EUR 150 million of new mortgage financings that are expected to close in Q3. We have also executed a binding term sheet for a EUR 70 million refinancing to address the remaining 2023 maturities.
Based on current interest rates, we expect a weighted average rate of approximately 4.8% on these new mortgages. In addition, we received commitments to extend the maturity of our CAD 500 million unsecured credit facility to five years from November 2025 to August 2028. We continue to focus on maintaining a strong and flexible balance sheet with ample liquidity as we execute on our strategic initiatives. Subsequent to the quarter end, we resumed our ATM program and raised CAD 52.5 million and used the proceeds to repay outstanding amounts on our credit facility that were bearing interest at a rate of just under 7%. This was accretive to our FFO per unit run rate and allowed us to lower leverage by nearly 70 basis points.
Pro forma, pro forma, our financing activities and our ATM issuances, our liquidity will increase to over CAD 500 million. We see the ATM as a lower cost, equity financing tool, allowing us to manage volume and timing effectively. When we look at the ATM funding, we are balancing net asset value per unit, immediate and long-term accretion to FFO and cash flows, as well as leverage and liquidity. Going forward, we will consider disciplined ATM issuances if deployment opportunities are accretive to our cash flow and the returns on equity are compelling, such as paying down debt, contributing to our private capital partnerships, and funding development projects, while balancing the overall impact on our NAV per unit.
Wrapping up with our outlook for the remainder of the year, with our strengthening CP NOI outlook and accretive capital deployment opportunities, we are comfortable increasing our 2023 FFO per unit guidance to the high CAD 0.90 range, with lower leverage than what was assumed in our prior guidance. Our FFO guidance remains predicated on current foreign exchange rate levels and interest rate expectations. I will turn it back to Brian to wrap up.
Thank you, Lenis. It has sure been an exciting first half of 2023. I would like to thank Alex for his leadership and growing role, as well as Lenis and Bruce Traversy for their tireless efforts to drive performance for Dream Industrial. The team is well positioned to achieve significant milestones going forward. I'd now like to turn it open it up for questions.
We will now begin the Q&A session. To join the question queue, you may press star, then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. The first question comes from Mark Rothschild from Canaccord. Please go ahead.
Thanks, and good afternoon, everyone. Looking at the acquisitions that you've done in Canada in the joint venture, can you just talk a little bit about strategically, how you're thinking of acquisitions and balancing with the NCIB, and to what extent these acquisitions are driven more from the larger impact? JV, or are they driven from Dream? Just how you're looking at the accretion of that versus what you're able to accomplish in other markets? Thanks.
Thank you, Mark. These are high-quality assets that are very much on strategy for both the DIR and the Dream Summit Venture. These assets are located in core GTA submarkets, and we think that the financial return metrics on these assets are very compelling, not only for the JV, but also for DIR, with the added property management and leasing fee revenue. You know, high level, the metrics are as Ryan mentioned in his remarks, in terms of the return on equity. But the, if you look at the assets from an unlevered perspective, we expect mark-to-market yields in the in the sixes on income-producing assets, which we, which we think is compelling.
These assets have relatively short walls, allowing us to capture that mark-to-market upside sooner, resulting in high teens levered IRRs on DIR's equity.
Are you not able to, get these types of IRRs in other markets?
Yeah, high-teen IRRs, mid to high-teen IRRs for core plus standing assets in key established submarkets would be very challenging to achieve otherwise.
Are these numbers being achieved because of the fees earned, or just that they're more attractive values in Canada?
Well, as we commented on the prior call, we, we like the risk-adjusted returns in Canada, and we continue to look for opportunities here. We think that the fundamentals of the market are very strong, along with tailwinds from demographic trends that we see in key Canadian markets. The assets themselves produce sort of low teens IRRs on on equity invested. Then kind of with the IR's additional fees, we get into mid to high teens, depending on the asset.
Okay. Maybe just one more for, for Lenis. For the same property in NOI and in Ontario in particular, although I saw this comment, I think was from, other markets as well. How much of the growth was driven by expansions versus, core raising rental rates or occupancy?
We actually provide, we did provide a number on what our comparative properties NOI growth for this three months and the year to date would be if we excluded expansions from the total CP portfolio. It was 9.2% for the quarter, and 10% for the six-month period.
That's for Ontario or for the entire REIT?
That's total, total portfolio, total comparative portfolio.
Can you break that down for Ontario?
Yeah, just give me one second here. Yeah, so Ontario would have been 18%, 18.4%, excluding expansions.
Okay, fine. Perfect. Thank you so much.
The next question comes from Mike Markidis from BMO Capital Markets. Please go ahead.
Thanks, everybody. Good afternoon. Great results. Thanks very much for the much disclosure on the contribution from the expansions on us. Much appreciated. Just with respect to, you know, you guys are getting incredible leasing spreads. Sounds like in the near term, at least in Ontario and Quebec, you know, that 90, maybe even 100, 110% that you've been recently capturing is evident. How do you see the evolution of your embedded mark-to-market over the next one-two years, just given the normalization that you, you're, you're seeing in the market from a market rent perspective?
Thanks, Mike. We commented on the mark-to-market opportunity with over the next two years in our prepared remarks. If you look beyond that, it's mark-to-market is going to be driven by the growth in market rents versus contractual escalators in the leases. What we've seen so far, including in 2023, is that the pace of market rent growth has been greater compared to contractual escalators. That outlook beyond the next two years will inform kind of the view on, on ongoing mark-to-market opportunity in the business.
Okay. Maybe if, if I understand you correctly then, Alex, like, you wouldn't expect that 30%, 7% embedded mark-to-market to change significantly, just given that you don't have all your leases coming due in the near term. Am I hearing that correctly?
That, that's a fair assessment.
Okay, great. Last one for me just before I turn it back. You know, a lot of activity obviously going on in Ontario through the Dream Summit JV. I realize capital is not, you know, ubiquitous for you guys today, but maybe if you could give us an update in terms of what you're seeing in the Netherlands specifically or your other European markets, just from a buy and sell perspective. Just maybe compare and contrast those markets to what you're seeing here, that would be great.
Thanks, thanks, Mike. We commented on the financing rates. That's what we see in Europe right now for moderate LTV non-recourse mortgage financing. That obviously informs the acquisition market as well. When it comes to opportunities, we're monitoring opportunities in Germany, Netherlands. We continue to be encouraged by the fundamentals in the market. You know, rising rents, steady demand, increasingly constrained supply, and we're starting to see interesting opportunities that translate into from a levered IRR perspective, and again, that low to mid-teen range. And we're starting to see more, more opportunities like that.
Okay. Actually, actually, maybe I would just say, do you think, based on what you're seeing, is it reasonable to expect that you might transact in Europe, at some point later this year, or is that not likely at this juncture?
I think it's, it's early to comment. We're monitoring what's happening in Europe. We're monitoring what's happening in Canada and continuously comparing opportunities where we get better returns. For the time being, we get the best returns in terms of the acquisition market within the JV structure that we have. We're constantly monitoring transactions and opportunities. It's hard to predict how that will unfold. In terms of dispositions, we have done some dispositions to date in Europe, and we have a few in the pipeline that we'll continue pursuing.
Lastly, I should, should have pointed out on acquisition, we just did one small acquisition in, in Germany, immediately adjacent to something we already own in Dusseldorf, but it was a small, small, small addition.
Understood. Thanks so much for the color.
The next question comes from Brad Sturges, from Raymond James. Please, go ahead.
Hi there. Just on the revised same-property guidance there, 10%-11%, can you remind me, that does include contribution from expansion activity?
Yes, as, as reported, yeah.
Okay. If you were to exclude that on the same property guidance, what would that range be?
Let us get back to you on that, Brad. We don't have that number right off the top, but we, we, we can get back to you. It's less than 100 basis points in terms of the impact, but we, we can come back to you with the details.
Okay. Just the revision of the guidance, is that more just based on what you've done this year to date, or, were there material changes to expectations for the back half of the year?
I think it's, what we've done for the, at the beginning, since, since the beginning of the year, and, some revised expectations in terms of, leasing spreads, on, spaces that are coming up for the balance of the year.
No, no changes, I guess, to where you would be from, like, an occupancy point of view or, potential for transitional vacancy in any particular, lease that might not renew?
No significant changes on that front. We commented a little bit on the vacancy. The only vacancy that or only sizable vacancy in the portfolio that will impact same property and NOI numbers is our property in Montreal. As far as future transitory vacancy, we expect some space coming back to us in Spain in September, October, which again, was factored into our guidance and what is long, long expected, long-expected vacancy.
Okay. I'll turn it back. Thanks.
The next question comes from Kyle Stanley, from Desjardins. Please go ahead.
Thanks. Afternoon, everyone. Maybe just sticking with kind of the last little bit of Brad's question there. I'm just wondering, with the bulk of your leasing, you know, in the back half of the year, kind of located in Europe, I'm just wondering, you know, is there anything you're seeing there that would either, you know, be very positive in terms of your leasing discussions or something that maybe is of more concern? You, you just mentioned, obviously, being aware of the space in Spain coming back. Just, just curious on your thoughts for, you know, European leasing in the back half.
No real change in terms of our outlook or rent expectations or timing expectations with respect to those spaces. These are high-quality units, and we've, we're continuing to be encouraged by the leasing momentum we see in Europe. We're engaging with a number of occupiers on expansion needs, and that particular space was kind of long expected. The building is gonna be targeted for a slight refurbishment to upgrade lighting to LED, upgrade the floor. The previous occupier has been in the space for quite some time, so we want to upgrade the space to get the highest rent that we can. So there's gonna be a little bit of downtime on that one, but that's in line with our expectations.
Okay, thanks for that. You made mention of the, the vacancy in Montreal, and I know you discussed it last quarter in terms of balancing, you know, new development on the site or just re-leasing at current market. Have you, you know, made any decisions on that yet?
Not yet. Both are still, both are still on the table, and then there's kind of an option in between those on the table as well, where it's a light refurbishment. Somewhat similar to what we did in Kitchener, at our 60 Steckle asset, where we, we bought an asset in, older asset, that needed some refurbishment work in terms of the, the warehouse flooring, ceiling, lighting, dock doors. We might do something similar with this property. We are, we have three tracks, I guess, that we are, we're pursuing at the moment.
Okay, thanks. Just-
First track being as is leasing, second being kind of a larger refurbishment and significant intensification, and third being kind of middle in the middle of the two scenarios.
Okay, great. Thank you for that. Just the last one, just, just looking at Calgary for a minute. I mean, we've heard a lot more positive commentary about the industrial market in Calgary, you know, the mark-to-market opportunity and the same property growth from, from that portion of your portfolio has been a little bit less robust. You know, does that primarily reflect elevated in-place rents, or is that, you know, a little bit more related to, you know, elevated new supply? I'm just trying to think about how we should think about Calgary going forward.
I think it's in-place rents. I think it's also, there's, there's more tenant rollover within the Calgary portfolio, Western Canadian portfolio in general. We have smaller tenants in Western Canada, so we see more, more of that rollover on a regular basis, kind of regular transitory vacancy. Lastly, we continue to be very optimistic on Calgary and constructive on the market, but rental growth story there is just starting. So we expect to see more rental growth over time compared to Ontario, Quebec, where we've seen quite a significant run-up in rents over the last three years. That is informing the spreads that we're achieving today.
Okay. Thank you for your answers. I'll turn it back.
The next question comes from Himanshu Gupta from Scotiabank. Please go ahead.
Thank you, good afternoon. Just turning to balance sheet, just wondering, what is your target leverage here? Is there a plan to further use ATM in the near term, to get there?
Hi, Himanshu. I'll start answering the questions. In terms of our target leverage, that has not changed. We've always been targeting sort of mid to high 30% range. Although, kind of given, you know, higher interest rate environment, some of the economic uncertainty, we think, you know, the lower end of that targeted range could likely be more ideal, just given some of the uncertainty. I think in the, the near-term usage of the ATM, as we've mentioned, was used to lower leverage by 70 basis points, and we were able to do that on an FFO accretive basis by repaying credit facility draws at 7%.
Okay. On the credit facility, how much balance will be left, once you do this, you know, European mortgage, refinancing? How much credit balance will be left?
We would expect it, it to be, say, less than CAD 50 million, approximately, on a pro forma basis.
Given that, you know, it is, you know, variable debt, will there be preference to, like, kind of, you know, use ATM or dispositions to pay down that credit facility?
Hi, Himanshu, this is Alex. As we commented on our in our prepared remarks, when we look at using the ATM going forward, we will balance various factors, including cash location, opportunities to deploy capital, whether it's in reducing debt, acquisitions or development, and balance that out with the impact from an NAV. That, that analysis is ongoing, and as we get the proceeds from financings and repay the facility and then kind of evaluate where the market is at, evaluate the interest rate environment at the time, then we will we'll go back to these factors that we've outlined to look at using the ATM further, if that's warrant.
All right. Thanks for the color. Then just turning to the European portfolio, I mean, your vacancy remains less than 1%. In fact, it's better than Canadian portfolio. Are you, are you also surprised by the resilience there? Is your portfolio, like, outperforming the broader markets there?
Thanks for the question. We in terms of comparing European portfolio and Canadian portfolio, it's not really kind of... The current occupancy numbers don't really paint the full picture, or you shouldn't be extrapolating anything from that. This is just a point in time, occupancy in both portfolios will fluctuate because we have multi-tenant portfolios in both regions, which is by design. We'll see some transitory vacancy in different regions from time to time. But overall, the occupancy remains strong in the portfolio, and in line with our strategy also to sometimes take a little bit of vacancy. It was, you know, targeted, and quantified debts, if you will, to then be able to capture the most in terms of market rents.
As far as our portfolio performance relative to markets, yeah, the statistics in terms of Canadian occupancy levels are out there. I think it's really been because the overall availability in the Canadian market relatives to occupancy in our portfolio is, again, not a perfect, not a perfect measure because the occupancy in our portfolio is informed by a few idiosyncratic data points, and also informed by our strategy to keep pushing the rents.
Okay. Okay, fair enough. Maybe, you know, just last question on Europe, and I know you have provided some color earlier as well. Just specifically, leasing volumes. I mean, we have seen leasing volumes come down a fair bit in Canada and U.S., you know, in the first half of the year. Are you seeing same kind of, you know, volume, or leasing volume adjustments in Netherlands and Germany as well?
Leasing volumes, are you referring to the broader market or, -
The broad market.
Okay.
Not just your portfolio, broader market, correct. Yes.
Yeah. Yeah, leasing volume in, in, in our business is frequently informed by the development pipeline, right? The, the more development is coming online, the more leasing volume there is. They're, they're frequently correlated because the market is full, and so the new leasing volume is really driven by availability of space. We're seeing tricky development pipelines across the board, and that's also informing some of the leasing dynamics, specifically in Canada and, and in Europe. As far as renewal activity and tenant demand for space, we haven't seen significant shifts in that regard, and we continue engaging with many occupiers in Europe as well regarding expansion needs.
Okay, fair enough. Just last question on the land pricing in GTA. I think, you acquired a 26 acre site, in Dream Summit, you know, joint venture. Question is, how much land pricing has corrected in GTA, from its peak last year?
We haven't seen significant corrections. Land pricing is difficult, is more difficult to compare, compare relative to standing assets, because each site is idiosyncratic and there could be site conditions that inform the price for any given, any given project. Also, we haven't seen significant volume on land transactions in 2023. When we look at new sites in the GTA, we would be generally targeting a yield on cost in around 7% when, when underwriting land. We see opportunities at current prices that get us there, and it, it, it really is a range.
It can be as low as CAD 1.5 million an acre to CAD 2.5 million, CAD 3 million, and above CAD 1 million an acre, depending on, depending on the site and the attributes.
Thank you. Fair enough. I'll turn it back.
The next question comes from Matt Kornack from National Bank Financial. Please go ahead.
Hey, guys. Just wanted to quickly talk about the, the underwriting for the acquisitions that were done. You quoted the 7.5, but I, I think you said 6% on a stabilized basis from a cap rate, unlevered cap rate standpoint. Does that imply kind of mid-4s going in? Could you kind of speak to that relative to, I think you have a higher mark-to-market opportunity in your existing Ontario, portfolio, but maybe a lower going-in cap rate, just your thoughts there?
Thanks, Matt. No, the going-in cap rate is actually higher than low 4s, because as you suggested, the mark-to-market is not as significant. It's not double, it's kind of around 40% is the mark-to-market opportunity. The going-in cap rate on the standing assets is, is higher than, it's kind of in the 5s, and the mark-to-market yield is in the mid-6s.
Okay. That's helpful. Thank you. Then with regards to financing, you, you dealt with the mortgage maturities in Europe with, with, secured debt. That seems like a reasonable rate of 4.8%, given the underlying rate environment. Can you give us a sense, Lenis, as to where unsecured debt swapped into euros would be relative to that and, and why you went the secured versus unsecured route at this point?
Yeah. CAD swapped to euros is probably in the low, low 5s right now. I think we wanted to. Like, these, these assets were, mortgages were already in place. We wanted to, you know, continue to diversify the funding sources. There is still some incremental savings by keeping this secured. We chose to, to keep that and maintain the relationships with our lenders over there. We've worked with some of them for several years, within the, the broader Dream platform as well.
Okay. No, that makes sense. Alex, I don't know if you can provide any incremental thoughts on the timing of the leasing in Montreal and Caledon. Obviously, Montreal will depend on the route you go, but do you have a sense as to when we should have some sense on, on the direction and, and when a lease potentially would take place?
... In Montreal, we expect to land on the direction in late Q3, so in September, we expect to land on the direction we're pursuing. That will inform, obviously, the timing of lease up. For Abbotside, we expect a lease signed in the second half of 2023 or leases.
Okay.
Moving. As we commented on our core in June, the asset was designed for a multi-tenant, structure, so we're, we're, we're executing on that.
Sure. No, that makes sense. And last one, just with regards to capital recycling, you mentioned a few asset sales in Europe. Is there anything in Canada where you think you've taken it as, as far as you can take it at, at this point? Is there any potential to sell assets, I guess, from DIR into Dream Summit, or, or is that not something you're entertaining at this point?
With respect to the latter question, no, we're not entertaining anything of that sort at the moment. With respect to your former question, you know, we have a few deals in the pipeline in Canada in terms of dispositions, and we're advancing them. As, as they progress, we will provide more color in our upcoming results.
That's, that's helpful. Thank you.
The next question comes from Gaurav Mathur from iA Capital Markets. Please go ahead.
Thank you, and good afternoon, everyone. Congrats on a strong quarter. When you're, when you're focusing on the acquisition pipeline, you know, out of curiosity, what's the seller profile like? What's the bid-ask spread that you're seeing for the product that's coming to market?
The seller profile varies. We're doing some sale and leasebacks. We're doing some deals with larger institutional sellers who are looking to recycle capital or dealing with redemptions, and want to then sell their most liquid assets. We've, we've, we've seen quite a range. As far as the bid-ask spread, we've seen that narrow. We see the transaction market active again, and we see the depth for smaller tickets especially. We've seen some deals that we didn't win with as many as 15 bidders pursuing those assets.
Okay, great. Just to your point on seeing sellers which have redemption issues, is that something that's spiked up over the last couple of quarters, or is that just to historical norms?
There, there's no distress, if that's what you're getting at. We see this being executed in an orderly fashion, whether it's redemptions, whether it's just general mandates from, from, capital providers. It's, it's pretty orderly, and we're not seeing distress in, in Canadian markets.
Okay, and I think that would be the same for the European markets as well?
European markets are generally different in the sense that they're, they're larger, there's more players, there's a greater range of capital structures and market participants. We, we are seeing pockets of stress, we'll categorize it as that, primarily driven by financing costs and availability of debt at those costs. It's, you know, debt service at 1% is very different than debt service at 4.5%. That will inform some of the sellers' desire to transact. It's not, it's early to categorize that as distress or pockets of distress, but we're seeing some pockets of stress maybe emerging with more motivated sellers over time.
Okay, great. Thank you for the color. I'll turn it back to the operator.
The next question comes from Sam Damiani from TD Cowen. Please go ahead.
Thanks, and good afternoon, everyone. First question, just on the, on one of your comments at the beginning, Alex, about still fielding good requests for expansion and that seem to, you know, still exceed your inbound requests for, for reductions in space or contractions. Just curious, like, are you seeing, like, an increased amount of tenants looking for less space today than you might have six months ago? Is that a trend at all?
In the context of a broader market and the broader economy, we're seeing, we're seeing some. As we mentioned, we're seeing far more tenants looking to expand than tenants looking to shrink their footprints.
Okay.
Also, Sam, what's important to note here is our portfolio that we are managing and the number of data points that we have is roughly double compared to. Well, compared to not six months, but maybe six, 6.5 months ago. Obviously, we see more data points as a result of that.
Absolutely. Last question for me is just on the development pipeline. Like, is there anything holding you back from kicking off new developments in the next six months - 12 months? Are you still seeing good economics to justify that capital allocation?
We're still seeing good economics. We have a couple of sites in due diligence right now for for our development JV. Those look interesting, but, you know, we still need to complete our diligence on the assets and do technical attributes and and planning, et cetera. We continue to see development in the right markets for the right product as an attractive investment. Within the portfolio, we have a significant pipeline of extension opportunities that we continue executing on across the board, including on in DIR's, on downstream portfolio. Within Dream Summit, we have significant opportunities that look, you know, very compelling.
Thank you. That's great. Congrats on the great results and, raised guidance. Great to see. I'll turn it back.
Thanks, Sam.
The next question comes from Pammi Bir from RBC Capital Markets. Please go ahead.
Thanks. Hi, everyone. Just coming back to the development and land pricing sort of discussion, can you provide maybe some color as to whether maybe you're starting to see overall development costs stabilize? And as well as to maybe where all-in costs are for sites in the GTA, if you, if you were to go out and buy or acquire some addition new land?
Thanks, Pammi. If you look at construction costs, the disclosure that we provide on our development pipeline, it could be a good indicator of roughly the ranges, depending on the market. We, we do disclose the GLA that we're building, as well as the construction costs. You, you will be able to get a sense of kind of construction costs by jurisdiction. They, they do vary between Toronto, Montreal, and Calgary. That, that would be a good source for that. As far as land prices, as we commented, we see, we see a range, we're looking at something in the CAD 1.5 million range, but we've seen interesting opportunities in the CAD 2.5 million an acre range.
There are trades, especially to users, at significantly higher numbers than that.
Okay. I want to come back to the ATM for a second, and I do appreciate your comments. I think you mentioned, you know, ideally being in the low 30% range in this environment. You know, again, given where the unit price is, I just wanted to clarify, do you see getting to that level, you know, again, more so from using the ATM or from from asset sales?
Pammi, just to clarify on the leverage target comment, our targeted range is at mid-to-high 30s, and I had just stated that in this environment, being on the lower end of that range, so not low 30s, but probably more the mid, closer to mid-30s rather than high 30s, is sort of the targeted range. Just wanted to clarify on that point.
Got it. Just maybe coming back to the, the comments around dispositions. I, I think last quarter you talked about kind of in that CAD 50 million range. Is, is that still the thinking based on some of the stuff that you've highlighted, maybe in Canada and in Europe, or is there possibly more than that?
It's still, still an achievable range. The level of interest that we see in terms of inbound require, inbound, offers that we've received is greater than that range. However, as we commented earlier, you know, we still need to work through those sales to negotiate the, the, the right price, so not every one of them will materialize likely. The range that we've indicated is still a doable range, but we do get more, we have, we have more opportunities that we're evaluating than that.
Thanks. I'll turn it back.
Once again, if you have a question, please press star then one. The next question comes from Sumayya Syed from CIBC. Please go ahead.
Thanks. Good afternoon. Just wondering if you can give an update on the outlook of supply in your main European markets, how that looks in terms of historical context, and also, where pre-leasing stands?
We see supply increasingly constrained in Europe. We've previously commented that planning is a significant constraint in our core markets, such as Germany, Netherlands, and France, and it continues to be the case. Obviously, planning is challenging and takes time. There's significant opposition to new industrial development in most municipalities. In addition to that, the financial constraints are now more significant in terms of cost of debt, availability of construction debt, exit cap rates, for merchant developers, who is the dominant group in European industrial development landscape. All of these factors lead to an increasingly constrained development pipeline.
Developers generally target to be to a high degree of pre-leasing, especially merchant developers, because that translates into construction financing being available and being priced attractively. Generally, we see that developers are targeting to pre-lease to a greater degree compared to Canada, let's say.
Okay. There was a fairly minor write down in your European portfolio. Just curious about the drivers behind that, and that was based on transactions you've observed in the market?
Yeah, as you suggested, it's very moderate in terms of write down. Yeah, it is informed by the spreads that we think should be warranted in terms of the mark-to-market yields relative to financing costs. While the observed transactions are limited, we think that that spread should be healthy, and that informs that moderate moderate correction in values.
Thank you. Back to you.
This concludes the Q&A session. I would like to turn the conference back over to Mr. Brian Pauls for any closing remarks.
We'd like to thank everybody for your time today. We look forward to speaking in, in the future. Take care.