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Edited Transcript of DIR.UN.TO earnings conference call or presentation 7-Aug-19 3:00pm GMT

Q2 2019 Dream Industrial Real Estate Investment Trust Earnings Call

Toronto Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Dream Industrial Real Estate Investment Trust earnings conference call or presentation Wednesday, August 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian D. Pauls

Dream Industrial Real Estate Investment Trust - CEO, President & Trustee

* Lenis W. Quan

Dream Industrial Real Estate Investment Trust - CFO

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Conference Call Participants

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* Bradley Sturges

Industrial Alliance Securities Inc., Research Division - Equity Research Analyst

* Brendon Abrams

Canaccord Genuity Corp., Research Division - Analyst of Real Estate

* Chris Couprie

CIBC World Markets Corp. - Analyst

* Michael Markidis

Desjardins Securities Inc., Research Division - Real Estate Analyst

* Sam Damiani

TD Securities Equity Research - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Dream Industrial REIT Second Quarter 2019 Conference Call for Wednesday, August 7, 2019.

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 the actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Industrial REIT's filings with the 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. (Operator Instructions)

Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go ahead.

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [2]

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Good morning, everyone. Thank you for joining us today for the Dream Industrial REIT conference call, which is for the 3 and 6 months ended June 30, 2019. Speaking with me today is Lenis Quan, Chief Financial Officer of the REIT.

On today's conference call, I will start off with a brief overview of our strategic growth initiatives, followed by an update on our markets and operating results. Lenis will provide our financial highlights. We'll then be happy to field your questions.

We continue to make significant progress in enhancing the quality of our portfolio. Year-to-date, we have acquired approximately $350 million of assets in strong industrial markets and have added 4.3 million square feet to our portfolio. We have increased our footprint in existing markets, such as the GTA, Ottawa and Columbus as well as added other strategic U.S. markets through our acquisition of the Midwest U.S. portfolio earlier this year. Last week, on July 31, we completed the sale of our Eastern Canada portfolio, a significant milestone for the trust.

Over the past 2 years, we've increased occupancy by 470 basis points in the East, which resulted in strong comparative properties NOI growth of 11% in 2018. Following the stabilization of our assets in the East, we felt this was an attractive opportunity to recycle capital out of that market and add scale in our core markets that offer stronger future cash flow and NAV growth potential.

We continue to focus on improving portfolio quality and making our business safer, more valuable and more flexible. We continue to target investment properties that deliver above-average cash flow and net asset value growth over time. We currently have approximately $300 million of assets in our pipeline and are focused on redeploying the capital from our Eastern Canada region, primarily in Canada.

We have made our business safer by lowering our leverage and improving our liquidity. We're targeting leverage in the high 30s to low 40s range over the long term, which balances our priorities of growth and maintaining a strong balance sheet while growing our free cash flow and net asset value per unit.

Moving on to our markets. The Canadian national availability rate remained low at 3.1% with 5.3 million square feet of new supply being largely balanced by 4.7 million square feet of absorption during the quarter. Driven by low readily available supply, the national average net asking rent increased to $8.34 per square foot, making a 16% increase year-over-year. In our U.S. markets, demand for industrial real estate continues to be strong, both from tenants and investors. This has led to lower availability and higher property values. We believe that industrial fundamentals on both sides of the border will remain strong, providing us with opportunities to capture rental growth in our current portfolio.

With historically low availability rates in Ontario and Québec, we continue to expect rental rate growth in these markets to be robust. In Ontario, approximately 225,000 square feet of leases commenced during the quarter with an average spread of 20% over prior rents. On 947,000 square feet of lease commitments taking occupancy in 2019, we have achieved an average spread of 16% over prior rents.

In Québec, approximately 200,000 square feet of leases commenced during the quarter at an average spread of 18% over prior rents. In 2019, we had 722,000 square feet of lease commitments in Québec at an average spread of 14%.

Strong leasing activity, market rent growth and lower capitalization rates have led to increases in the value of our investment properties in these markets. Year-to-date, our investment property values have increased $68 million in Ontario and $14 million in Québec.

Our focus on driving occupancy in Western Canada has been successful with strong year-over-year comparative properties With NOI growth of 4.8%. While we continue to see some pressure on expiring rental rates, we are building in contractual rent growth into the leases, investing capital prudently. Notably, we were successful in leasing up a 48,000 square foot vacancy in Edmonton that was vacant since the second quarter of 2018 at attractive rents with contractual rent growth. We expect positive comparative property NOI growth from the West for the full year, driven by increased occupancy and contractual rent growth.

Our U.S. assets were 95.7% occupied at the end of the second quarter. On 190,000 square feet of lease commencements within the Midwest U.S. portfolio, we were able to achieve a 14% spread over prior rents. We have signed 371,000 square feet of leases expected to take occupancy in 2019 at an average spread of 21% over prior rents.

Tour activity on the 303,000 square foot space in Louisville continues to be strong. With the strategic location just off the I-65 Highway near the UPS Louisville hub, we are confident of filling this vacancy in the near term.

Overall, we have made our business safer and more valuable through active asset management and a disciplined capital allocation strategy. Our strategic initiatives have positioned us well for above-average free cash flow and net asset value growth over the long term.

Lenis will now provide our financial update.

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [3]

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Thank you, Brian. Diluted funds from operations or FFO per unit for the quarter was $0.20 compared to $0.21 in the second quarter of 2018. Higher FFO from strong comparative properties NOI growth and acquisitions was offset by lower average leverage as we have decreased our average leverage by 8% year-over-year in order to have a stronger balance sheet and added financial flexibility.

As Brian mentioned, we completed the sale of our Eastern Canada portfolio last week. As such, it is reported as discontinued operations for the second quarter and has been removed from our operating metrics. Comparative property NOI increased by 4.7% for the quarter, led by higher occupancy and rental rates in Québec, higher occupancy in Western Canada as well as higher rents in Ontario.

In our GTA and Québec markets, comparative property NOI growth for the quarter was strong at 5.6% and 7.2%, respectively.

The value of our investment properties, excluding the Eastern Canada region, increased to $2.3 billion from $1.9 billion at the beginning of the year. We acquired approximately $315 million of investment properties and recorded an $82 million fair value gain in the first half of 2019.

The fair value increase reflects strong leasing activity in Québec as well as lower cap rates in Ontario and on certain properties in the U.S. The trust's reported net asset value or NAV per unit increased by $0.50 or 4.7% to $11.04 since the beginning of the year. Compared to the second quarter of 2018, NAV per unit has increased by $0.99 or 10%. Our net debt to assets ended the quarter at 37.4%, and our net debt-to-EBITDA was 6.4x.

At quarter end, our liquidity was strong with unencumbered assets totaling $381 million and $88 million of availability on our credit facility.

Looking forward, we expect 2019 comparative properties NOI growth to be in the 3% to 3.5% range, which excludes Eastern Canada. We continue to transform Dream Industrial with the goal of high grading the portfolio and increasing the safety of our business with a strong and flexible balance sheet.

Our FFO this year will be lower, but as over the past 24 months, we have reduced leverage by more than 10% while growing our asset base by over $650 million and improving portfolio quality. Following the sale of the Eastern Canada portfolio, we expect leverage to be approximately 32%, with over $280 million of liquidity. As such, Q3 and Q4 FFO will be lower than Q2 until we reinvest the proceeds. As we execute on our $300 million acquisition pipeline towards the end of 2019 and early 2020, we expect our leverage to increase to approximately 40%.

We are targeting high-quality properties, largely in Canada, that are consistent with our investment criteria. At the same time, we intend to maintain a strong balance sheet, ample liquidity and flexibility by targeting leverage in the high 30s to low 40s over the long term.

We believe that this strategy will result in a significantly more stable portfolio with higher quality and stronger cash flow and NAV growth potential over the long term. We are excited about the positive outlook for internal and external growth for DIR.

I will turn it back to Brian now to wrap up.

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [4]

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Thank you, Lenis. First half of 2019 has continued to be eventful and exciting for Dream Industrial, including the successful execution of our U.S. expansion, disposition of the Eastern Canada portfolio, improved operating results in addition to the S&P/TSX composite index and the FTSE EPRA NAREIT Global Real Estate Index.

Looking forward, we remain well positioned to continue to create unitholder value through organic income growth and by using the strength of our balance sheet for new investment opportunities that meet our investment criteria.

We'd now be happy to take any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And from IA Securities, we have Brad Sturges.

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Bradley Sturges, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [2]

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Brian, just in terms of your acquisition pipeline, $300 million that sounds mainly in Canada, just want to get a context of it, if you're seeing more opportunities from a portfolio perspective on the market? Or are these generally -- is it a mix of portfolios and single assets?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [3]

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It's a mix, Brad. We've seen portfolios that we've looked at. A lot of those have been bid up to very, very high prices, although we're looking at a number of portfolios that we'd like to pursue. We're also looking at one-off opportunities sourced by our people that are sometimes unmarketed and then some that are marketed. We are seeing a lot, and we're really focused in Canada. We're seeing opportunities in the U.S. as well. I don't want to say that we're not looking at any, but I would say our focus has been in Canada. We like our current portfolio mix, and I'm going to try to maintain that. It will go up and down as we go, but we're looking at a lot of opportunities in Canada right now.

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Bradley Sturges, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [4]

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Would that be more Toronto, Montreal or would you consider opportunities in Western Canada?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [5]

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Our primary focus is Toronto, Montreal, and we're looking at a lot of opportunities there, although we have seen some smaller one-off opportunities in Western Canada, which may fit with some recycling we're doing. So we're looking at those with the primary focus in Ontario, Québec.

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Bradley Sturges, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [6]

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And I think for the acquisitions completed this year, I think the cap rate was -- stayed at 5.9%. Is that for -- in terms of going in cap rate target, is that kind of similar type of going-in yield that you're looking to achieve on acquisitions going forward? Or should we think about that a little bit differently in the back half of the year?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [7]

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Yes. 5.9% would be a mix between U.S. and Canada. It's likely to be lower than that on the Canadian side of the acquisition.

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [8]

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And in addition, as we're growing in cap rate, Brad, we're also looking at the growth building within the portfolio opportunities to increase cash flow over the long term. So we're also looking at cap rate -- average yield over 5- and 10-year periods.

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [9]

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Yes. Going in, I think it's just one metric, Brad. We're looking at pretty steep rent increases in that growth over the term of the whole period for an asset.

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Bradley Sturges, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [10]

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And how would you characterize the sales price per foot today in Toronto, Montreal versus replacement cost?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [11]

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I think in most of Ontario, it's approaching replacement cost. We've seen opportunities that are still below replacement cost, but it's quickly getting there. Replacement cost is growing, I think, as we speak, it's growing every day. So it's a moving target, but it's going up.

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Bradley Sturges, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [12]

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Right. But the gap's shrinking, I guess?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [13]

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Yes.

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Operator [14]

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From Canaccord Genuity, we have Brendon Abrams.

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Brendon Abrams, Canaccord Genuity Corp., Research Division - Analyst of Real Estate [15]

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Just taking a look at the leasing spreads in Ontario and Québec, obviously really strong numbers year-to-date, 16%, 14% in Ontario and Quebec. I'm just trying to thinking about 2020, 2021, what's your expectation for renewal spreads kind of in the more near- medium-term those years? Like are these anomalies? Is that your expectation going forward? How are you thinking about maybe renewals over 2020 and 2021?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [16]

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So Brendon, I would say, the rental spreads that we've achieved in Ontario and Quebec have been very strong. But based on where we see the market today, and I think the market continues to change, it continues to be strong. I would say based on what we're seeing today, the rental spreads would be a little bit lower, probably low double digits in Ontario and a little bit lower in our Montréal market on a go-forward basis as well, but still a strong high single-digit, low double-digit numbers on the spreads going forward.

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Brendon Abrams, Canaccord Genuity Corp., Research Division - Analyst of Real Estate [17]

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Right. Okay. That's helpful. And then just in terms of Western Canada, maybe I missed it, but I'm not sure if you disclosed it for the quarter or year-to-date, are you still seeing slightly negative spread? Or is it fund out?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [18]

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Yes, that's correct. For the year-to-date, it's about negative 6%. And we probably see that trend to continue, maybe a little bit lower in the single digits, but I think overall, the leases are rolling off higher rents. What we're doing is building in contractual growth. In the West, we've also seen an uptick in occupancy. So we believe that uptick in occupancy will have -- will lead to NOI growth, which more than offsets the rolling down of the rents going in over the next 18 months.

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [19]

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Brendon, just to add to Lenis' comments, that market continues to improve, and we see rental rates in general across the whole market continuing to improve. There's new construction and higher rents, I think that rising tide will raise all the boats. So I think our rents will continue to improve and the gap from our spreads will continue to shrink.

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Brendon Abrams, Canaccord Genuity Corp., Research Division - Analyst of Real Estate [20]

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Right. Okay. That's very helpful. And just in terms of maybe is there an update on the Louisville property that you acquired as part of the Midwest portfolio?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [21]

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Yes. I mentioned, Brendon, in the opening remarks, we've got a lot of tour activity on that. It's not leased right now, but we're confident and optimistic we'll have that leased in 2019.

And with the activity we have, that market is still quite strong, the Louisville market. And so it's a matter of finding the right fit and the tenant, but we've got a great location, we get a lot of activity on that and we have a number of tenants interested, and we're optimistic about the short-term results.

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Operator [22]

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From CIBC, We have Chris Couprie.

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Chris Couprie, CIBC World Markets Corp. - Analyst [23]

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Just want to turn back to the acquisition pipeline. Are you contemplating any development properties in your pipeline? Or is that something that you're actively looking for?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [24]

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Chris, we're actively looking forward. I think we've stepped up our efforts in this regard. We're looking at developments on both sides of the border. We looked at and pursued a number of opportunities. We don't have anything secured at this point, but we are actively looking at development. It'd be a good complement to our overall acquisition strategy. So we're confident in the acquisition strategy. We're excited about the pipeline we have on that side. We're also very optimistic on adding development. It's a longer lead item than obviously buying income property, but we think it'd be a very good complement to get very high-quality assets. And it would be a good way -- be a good complement to our portfolio. So we're diligently pursuing that on both sides of the border and are expecting that in medium term we'll have some development that we're working with.

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Chris Couprie, CIBC World Markets Corp. - Analyst [25]

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And if you were to consider probably development type property, what type of spread to kind of market cap rates would you be looking for on the development...?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [26]

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It's probably 50 to 75 basis point spread in new development yields to the cap rate returns. Cap rates -- it's an indicator of market, but it is -- it's only one metric. You got to know what the market rents are, what the rents are in a particular asset, whether that cap rate is an accurate reflection of the market. So when you got below market rent, a lot of times the cap rates are very low. So comparing cap rates to development yield isn't always apples-to-apples. But there's probably a 50 to 75 basis point spread between buying and building.

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Chris Couprie, CIBC World Markets Corp. - Analyst [27]

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Right. Got it. And then just going back to Lenis' comments on FFO, I think you said that Q3 and Q4 should be lower than Q2, all else -- excluding acquisitions, was that correct?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [28]

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Yes, that's correct.

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Chris Couprie, CIBC World Markets Corp. - Analyst [29]

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Okay. And then how should we think about maybe -- predict these things, but in terms of the timing of acquisitions maybe for the balance of the year? Any help there?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [30]

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Yes. We're -- we'll have acquisition through the balance of the year and into 2020. I would say, we will have deployed a lot of our -- some of our capacity this year and some into 2020. I think the dust will settle with our leverage and acquisitions probably sometime early to mid-2020.

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Operator [31]

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From TD Securities, we have Sam Damiani.

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Sam Damiani, TD Securities Equity Research - Analyst [32]

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Just on to the last question, do you have a more specific sort of range of acquisitions that you would close by the end of Q3 over both the Ottawa property, which I guess is closed already?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [33]

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Can't give you specific timing on that, Sam. I'd say we are looking at a lot of opportunities. We're excited about the opportunities we have to look at. There's also more product coming in the fall that we know of. So we expect to have acquisitions in the balance of 2019 that will close this year, and then we'll have some coming into 2020. But I would say it would be lumpy, just where the opportunities come.

But certainly, in Q4, we'll have closings and into 2020, we'll have closings, but it's -- I can't tell you specifically how much of our pipeline will close this year.

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Sam Damiani, TD Securities Equity Research - Analyst [34]

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That's fair. That's helpful. And just your comment, Brian, about the use of pipeline and representing higher-quality assets that, I guess, some of the existing portfolio. What metric are you focusing on there? Is it tenant quality, lease term, location, physical height whatever? I'm just wondering what you're going to be focusing on if the...

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [35]

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Yes, all of the above. I mean functionality, quality of tenancy, but really quality of the real estate. We're looking at tenancy and quality of tenants, but we're really focused on the functionality of the property, its location, its clear height, its truck court, long-term value of the property, is kind of how we gauge quality. So we are looking at upgrading with every acquisition, with every trade we do and every recycle. We want to go up the quality scale with properties that will fill up first and empty out last as cycles come and go and where we can push rents as much as we can in a rising market.

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Sam Damiani, TD Securities Equity Research - Analyst [36]

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So are you maybe a little more open to adding some assets with some leasing exposure to capture that market upside? Is that sort of what I'm hearing?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [37]

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Yes.

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Sam Damiani, TD Securities Equity Research - Analyst [38]

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Or you're looking at the long term?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [39]

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I think we look at leasing exposure, we look at potentially shorter walls, particularly in Ontario and Québec, we have shorter walls, we'd see that as an opportunity.

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Sam Damiani, TD Securities Equity Research - Analyst [40]

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Okay. Just looking at the IFRS fair values, I mean the cap rates that are disclosed for Q2, there's almost 100 basis points between Québec and Ontario, and Ontario, of course, as you know, includes a little bit of London. I mean given the fundamentals there, the rent growth that you're seeing, NOI growth and what not, how do you view that 95 basis point spread? And how that might migrate going forward?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [41]

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Well, I think the GTA market, -- I think the Montreal market is starting to follow -- Montreal leasing market is starting to follow what's happening in the GTA. So I think as we see the continued market rent growth and a lot more investment activity in the Montreal market, if that shows cap rates coming down in the Montreal market, I think we'll probably see it following closely behind the GTA market in that regard. The way we calculate our IFRS values is somewhat backwards looking because we're using appraiser information. So it may not be capturing through the latest trades that are happening in the market.

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Sam Damiani, TD Securities Equity Research - Analyst [42]

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You would see perhaps Montreal cap rates coming down relative to Toronto over the next year or 2?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [43]

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Yes.

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Operator [44]

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(Operator Instructions) From Desjardins Capital, we have Mike Markidis.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [45]

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Just with respect to Ontario and Québec, the leasing spreads have been quite similar for your 2019 program. And I think, Brian, in the past, you've noted that in Ontario, you're willing -- you'd almost like to take some near-term vacancy in order to capture higher spread, which you guys have actually done when you look at the prior year. But in Québec, you guys are sitting at sort of almost a full year committed number. I'm just curious as to if that's intentional? Or if that's just a product of recent activity? And do you see yourself going forward in Quebec trying to push that vacancy number a little further in order to capture higher spread?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [46]

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Mike we're pushing rents. We're going to continue to be very aggressive. I think it's a function of the market. We -- it's nice to have lease -- space to lease at all times, and we're going to continue to push rents to the point where we generate a little bit of vacancy. So that's the strategy in both markets. It's not different for Ontario or Québec. So I think -- I don't know if I'm answering your question. Other than we're pushing rents, we're going to continue to be aggressive. As we do that, we may see a little bit of vacancy. It's -- I think we're full because of just the timing of the renewals and the fact that we've been able to retain our tenants. But the tenants don't have a lot of options. They end up staying where we're at. If you look at our spreads, they're quite high. We'd love to continue to push those and continue to be leaders in market rent.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [47]

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Okay. And then just looking at your in-place versus market rent estimate for Québec, you're, again, in that sort of mid-teens level. And I think Lenis indicated that perhaps in the next year or 2, you're expecting that to come down to the high singles. What's driving this? How do we think about the fact that your -- on average your in-place versus market rent estimate for Québec is almost comparable for today?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [48]

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So Mike, the -- I would say we have probably a little more upside on the multi-tenant than our single-tenant properties in Montreal. So I think that's probably why it's averaging out. And I think as we continue to see the strong leasing market in Montreal, we'll continue to reevaluate what we show as market rents.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [49]

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Okay. That's fair. Just given all the activity you've had in terms of adjusting your leasing strategy in Canada and Western Canada in particular, in terms of trying to get, I guess, greater contractual bumps built in and the stuff that you bought in the U.S., do you have an estimate today where you're -- on average, your average annual escalator would be in your portfolio today?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [50]

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Its at 2%, and that's actually up from the 1.5% about a year, 18 months ago?

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [51]

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Okay. So 2% would be...

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [52]

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That's totally across the entire portfolio.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [53]

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Okay.

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [54]

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We see it a little bit higher in GTA in the U.S., probably -- maybe a little bit higher than 2% in Québec and a little lower in the West.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [55]

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Okay. With the Eastern Canadian sale, there will be some frictional cost there. Do you have a ballpark of sort of what's the transaction costs when you think about just commissions and debt breakage, even a little small, might be in aggregate?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [56]

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I don't -- I would say the -- I think the net proceeds approximate IFRS before transaction costs, but our U.S. came with the transaction costs themselves, I think it's...

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [57]

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Yes, I mean, the $271 million was the gross figure of -- if we just forget -- if we just look at the frictional costs you're incurring, what that might be?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [58]

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It's probably about $3 million to $4 million.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [59]

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$3 million to $4 million?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [60]

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Yes.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [61]

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Great. Last one before I turn back. Just at a pretty -- I don't know if you want to call it impressive or not, but I'll call it impressive move to the downside on the rate environment in the last very recent term. I was just wondering if you could give us an update on where you're seeing that market at 10-year money, I think it was 3.17 subsequent quarter? I mean just sort of how that's all evolving as we speak?

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [62]

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Yes, that's right. That was for an Ontario mortgage with collateral in Ontario. Right now, where we're seeing in Canada, it's for 5- to 10-year rates, we're looking at 3 to 3.1 in Canada and in the U.S., probably up 3.25 for 5- and 10-year money.

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Operator [63]

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We have a follow-up from Sam Damiani.

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Sam Damiani, TD Securities Equity Research - Analyst [64]

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Just 2 quick ones here. Any further dispositions expected in the near to medium term besides obviously Eastern Canada? And also on the same-property NOI growth for the year, were there any other changes to the number besides excluding the Eastern Canada portfolio?

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [65]

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Sam, let me start with the recycling question and I'll let Lenis answer the same-property question. We have -- the short answer is yes. We do have a number of properties we are looking at recycling. They are one-offs in, I would say, every region, we have some that we've identified that may be quite valuable that we could recycle into other more long-term whole kind of assets. We're kind of just looking at those -- the timing of those and marrying them up with some of our acquisitions. So short answer is, yes. We'll continue to do recycling. It won't be near to the scale of the Eastern portfolio.

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Lenis W. Quan, Dream Industrial Real Estate Investment Trust - CFO [66]

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And on the comparative property NOI, the change from the prior guidance is the exclusion of the East. The Québec is also performing a little bit better than we had originally expected. But the largest variation is really just the exclusion of the Eastern Canada portfolio in those numbers.

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Operator [67]

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And we have no further questions at this time. We'll now turn it back to Brian Pauls for closing remarks.

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Brian D. Pauls, Dream Industrial Real Estate Investment Trust - CEO, President & Trustee [68]

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Thank you, everyone, for your time today. We look forward to speaking to you soon.

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Operator [69]

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Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.