Dream Industrial Real Estate Investment Trust (DIRUN) Earnings Call Transcript & Summary

Welcome to the Dream Industrial REIT Second Quarter Conference Call for Wednesday, August 2, 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 differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Industrial REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Industrial REIT's Web site at www.dreamindustrialreit.ca. Later in the presentation, we'll call a question-and-answer session. [Operator Instructions]. 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 Quan, 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 6-month period. Our FFO per unit was $0.25 for the quarter, up 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 3 assets in the GTA for a total purchase price of approximately $126 million. In addition, the venture is in exclusive negotiations or under contract to acquire an additional 6 assets located in the GTA, totaling 900,000 square feet for approximately $234 million. Our net equity commitment toward these acquisitions is expected to be approximately $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 $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 rent 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 Man is broad-based. We see strong renewal activity, and we continue to field more requests from tenants considering expansions that we do from occupiers looking to reduce their footprint. In our portfolio, we have seen strong leasing momentum across our key markets. Since the end of last quarter, we transacted 1.4 million square feet of leases across our portfolio, achieving a rental spread of 47%. Within the Dream Summer JV since closing of the transaction, we completed our finalized terms on over 1 million square feet of leases at an average spread of 125% over prior year end. We continue to execute on our development pipeline and our progress is in line with expectations. At our 343,000-square-foot development and Balzac submarket of Calgary, we have agreed to terms on leases for 100,000 square feet at rental rates and in line with underwriting. We have substantially completed our 154,000-square-foot 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 buildings at terms that are in line with our underwriting and would support an unlevered yield on cost of above 7%. We're seeing strong leasing interest at our 436,000-square-foot project in Cambridge and our 209,000-square-foot redevelopment in Mississauga. Lastly, during the quarter, we commenced construction on our 390,000-square-foot redevelopment project in Whitby. And construction is also underway on our 650,000-square-foot greenfield development in Caltrate. 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 an 11.4% increase in European CP NOI due to a robust leasing momentum and CPI indexation across 90% of our portfolio. For the 6-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 remained 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-square-foot appetite development coming online and the vacancy at our 225,000-square-foot 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 and growth expectations to a 10% to 11% range. And the outlook for organic growth within our portfolio remains strong beyond 2023. We have over 6 million square feet of GLA maturing in Canada in 2024 and 2025, with approximately 75% of the space located in Ontario and Quebec. Currently, the average market rent for the leases maturing in Ontario and Quebec is approximately double being place rent. In Europe, we have 2.4 million square feet maturing over the next 2 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 $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 remained steady at $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 2 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 $500 million unsecured credit facility to 5 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 $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, our financing activities, and our ATM issuances, our liquidity will increase to over $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 NOI 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 $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.

[Operator Instructions] The first question comes from Mark Rothschild from Canaccord.

Looking at the acquisitions that you've done in Canada and 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 partner in the JV? Or are they driven from team and just how you're looking at the accretion of that versus what you're able to accomplish in other markets?

Thank you, Mark. So these are high-quality assets that are very much on strategy for both the IR and the Dream's 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 when they added property management and leasing fee revenue. So high level of metrics are, as Brian 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 6s on income-producing assets, which we think is compelling, and these assets have relatively short world 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?

Yes, in IRRs -- mid- to high-teen IRRs for core class standing assets in key established submarkets would be very challenging to achieve otherwise.

So are these numbers being achieved because of the fees earned or just that there are more attractive values in Canada?

Well, we commented on the prior call, 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. So the assets themselves produce sort of low teens IRRs on equity invested. And then with the IRRs additional fees, we get into mid- to high teens depending on the asset.

Okay. Great. And maybe just one more for Lenis. For the same property in Hawaii in Ontario, in particular, although I saw this comment, I think it 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 the 3 months and the year-to-date would be if we excluded expansions from the total CP portfolio. So it was 9.2% for the quarter and 10% for the 6-month period.

That's for Ontario or for the Ontario REIT?

That's total portfolio -- total comparative portfolio.

And can you break that out Ontario?

Yes, give me one second here. Ontario would have been 18% -- 18.4% excluding expansion.

The next question comes from Mike Markidis from BMO Capital Markets.

Great results. Thanks very much for the disclosure on the contribution from the expansions on us. So much appreciated. Just with respect to -- you guys are getting incredible leasing spreads. It sounds like in the near term, at least in Ontario and Quebec, that 90%, maybe even 100%, 110% you've been recently capturing is evident. How do you see the evolution of your embedded mark-to-market over the next 1 to 2 years, just given the normalization that you're seeing in the market from a market rent perspective?

Thanks, Mike. We commented on the mark-to-market opportunity over the next 2 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. And what we've seen so far, including in 2023 is that the pace of market rent growth has been greater compared to contractual escalators. So that outlook beyond the next 2 years will inform kind of the view on ongoing mark-to-market opportunity in the business.

Okay. And maybe if I understand you correctly, then Alex, like you wouldn't expect that 37% 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's a fair assessment.

Okay. Great. Last one for me before I turn it back. A lot of activity obviously going on in Ontario through the Dream Summit JV. Realized capital is not 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 you could compare and contrast those markets to what you're seeing here, that would be great.

Thanks, Mike. So we commented on the financing rates. That's what we see in Europe right now for moderate LTV, nonrecourse mortgage financing. So that obviously informs the acquisition market as well. When it comes to opportunities, we're monitoring opportunities in Germany and Netherlands. We continue to be encouraged by the fundamentals in the market, 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 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 early to comment, we been monitoring what's happening in Europe. I'm 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 in -- within the JV structure that we have. But we're constantly more answering transactions and opportunities. So it's hard to predict how that will unfold. In terms of dispositions, we have -- we have done some dispositions to date in Europe, and we have a few in the pipeline that we'll continue pursuing. And lastly, I should have pointed out on acquisition, we just did one small acquisition in Germany immediately adjacent to something we already own in due, but it was small, small addition.

The next question comes from Brad Sturges from Raymond James.

Just on the revised same-property guidance there, 10% to 11%, can you remind me, that does include contribution from expansion activity?

Yes. As reported in...

Okay. And 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 at the top, but we can get back to you. It's less than 100 basis points in terms of the impact, but we can come back to you.

And 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 since the beginning of the year and some revised expectation in terms of leasing spreads on spaces that are coming out for the balance of the year.

No changes, I guess, to where you would be from like an occupancy point of view or a potential for transitional vacancy in any particular lease that might not be new?

No significant changes on that front. We commented a little bit on the vacancy. The only vacancy that -- only sizable vacancy in the portfolio that will impact same property NOI numbers is our property in Montreal. As far as future generator vacancy, we expect some space coming back to us in Spain in September, October, which again was factored into our guidance and what is when we expect the vacancy.

The next question comes from Kyle Stanley from Desjardins.

Maybe just sticking with some of the last little bit of Brad's question there. I'm just wondering, with the bulk of your leasing in the back half of the year kind of located in Europe, I'm just wondering, is there anything you're seeing there that would either be very positive in terms of your leasing discussions or something that maybe is of more concern you just mentioned, obviously being aware of the space in Spain coming back. So just curious on your thoughts for 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 continue 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 going to 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 going to 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 vacancy in Montreal. I know you discussed it last quarter in terms of balancing new development on the site or just releasing that current market? Have you made any decisions on that yet?

Not yet. 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-second asset. We bought an asset -- older assets that needed some refurbishment work in terms of the warehouse flooring, ceiling, lighting, dock doors. So we might do something similar with this property. So we are -- we have 3 tracks, I guess, that we're pursuing at the moment. First being has a leasing, second being kind of a larger refurbishment and significant intensification, and third being kind of middle -- in the middle these areas.

Okay. Great. Thank you for that. Just the last one, just looking at Calgary for a minute, I mean, we've heard a lot more positive commentary about the industrial market in Calgary. But the mark-to-market opportunity and the same property growth from that portion of your portfolio has been a little bit less robust. Does that primarily reflect elevated in-place rents? Or is that a little bit more related to 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 -- the more tenant rollover within the Calgary portfolio, Western Canadian portfolio in general. We have smaller tenants in Western Canada. So we see more of that rollover on a regular basis, some kind of regular transitory vacancy. And lastly, we continue to be very optimistic on Calgary and constructive on the market, but rental growth story there is just starting. And 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 3 years that is informing the spreads that we're achieving to date.

The next question comes from Himanshu Gupta from Scotiabank.

So just turning to balance sheet. So just wondering, what is your target leverage here? And is the plan to further use ATM in the near term to get there?

I'll start with the -- I'll start answering the questions. So 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 higher interest rate environment, some of the economic uncertainty, we think lower -- the lower end of that targeted range could likely be more ideal just given some of the uncertainty. I think in 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. And on the credit facility, how much balance will be left once you do those European makes your refinancing? How much credit balance we left?

We would expect it to be less than $50 million approximately on a pro forma basis.

And given that it is variable debt, will there be reference to like kind of use ATM or dispositions to pay down that credit facility?

Hi, Himanshu, it's Alex. As we commented in our prepared remarks, when we look at using the ATM going forward, we will balance various factors, including cash flow accretion opportunities to deploy capital, whether it's in reducing debt, acquisitions or development and balance that out was the impact from NAV. So we -- 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'll go back to these factors that we've outlined to look at using the ATM further, if that's warrant.

Got it. And 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 also surprised for the resilience sale? And is your portfolio like outperforming the broader markets here?

Thanks for the question. 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 is just a point in time occupancy in those portfolios will fluctuate because we have multi-tenant portfolios in both regions, which is by design, will see some transitory vacancy in different regions from time to time. But overall, the occupancy remains strong in the portfolio. And this is in line with our strategy also to sometimes take a little bit of vacancy. It was targeted and quantified debt, if you will, to then be able to capture the most in terms of market rents. As far as our portfolio, performance relative to market, yes, the statistics in terms of Canadian occupancy levels are out there. And I think it's really been because the overall availability in the Canadian market relative to a lot that's in our portfolio is, again, not a perfect – not a perfect measure because the occupancy in our portfolio is informed by some -- a few region data points and also informed by our strategy to keep pushing the rents.

Okay. Fair enough. And maybe 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 moving volumes come down a fair bit in Canada and U.S. in the first half of the year. Are they -- are you seeing same kind of volume or lease volume adjustments in Netherlands and Germany as well?

Leasing volumes, you're referring to the broader market, or?

The broader market. Not just your portfolio, broader market, correct, yes.

Yes. So leasing volume in our business is frequently informed by the development pipeline, right? The more development is coming online to more decent volume, there is they're correlated because the market is full and so the new leasing volume is really driven by availability of space. So we're seeing tricky development pipelines across the board, and that's also informing some of the leasing dynamics, specifically in Canada 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 Green Summit joint venture. Question is how much land pricing has corrected in GTA from its peak last year?

We have seen significant corrections. Land pricing is difficult -- it was more difficult to compare – compare relative to standing assets because each site is idiosyncratic, and there could be site conditions that inform the price range any given project. And also, we haven't seen significant volume on land transactions in 2023. So when we look at new sites in the GTA, we would be generally targeting a yield on cost at around 7% when underwriting land. And we see opportunities at current prices that get us there. And it's really the range. It can be as low as $1.5 million acres to $2.5 million, $3 million and above $1 million depending on the site and the attributes.

The next question comes from Matt Kornack from National Bank Financial.

Hey, guys. Just wanted to quickly talk about the underwriting for the acquisitions that were done. You quoted the 7.5%, but 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? And then 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 market is not as significant. So it's not double -- it's around 40% is the mark-to-market opportunity. So the going-in cap rate on the standing assets 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. And then with regards to financing, you dealt with the mortgage maturities in Europe with secured debt. It seems like a reasonable rate of 4.8% given the underlying rate environment. But can you give us a sense, Lenis, as to where unsecured debt swapped into euros would be relative to that and why you went secured versus unsecured group at this point?

Yes. So CAD slot to euros is probably in the low 5s right now. I think we wanted to -- these assets were mortgages are already in place. We wanted to continue to diversify the funding sources. So there was -- there is still some incremental savings by keeping this secured. So we chose to keep that and maintain the relationships with our lenders over there. We've worked with some of them for several years within the broader Dream platform as well.

Okay. That makes sense. And then, 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 the direction and when the lease potentially would take place?

So Montreal, we expect to land in that direction in late Q3. So in September, we expect to land on the direction we pursuing, and that will inform obviously the timing of lease-up. For Abbotside, we expect a lease signed in the second half of '23. Our leases as we commented on our core. In June, the asset was designed for a multi-tenant structure, so 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 far as you can take it at this point? And is there any potential to sell assets, I guess, from DIR into Dream Summit? Or is that not something you're entertaining at this point?

With respect to the latter question, no, we're not understanding anything of that sort at the moment with respect to your former question, we have a few deals in the pipeline in Canada in terms of dispositions, and we're advancing them. As they progress, we will provide more color in our upcoming.

The next question comes from Gaurav Mathur from iA Capital Markets.

Congrats on a strong quarter. We're focusing on the acquisition pipeline. Out of curiosity, what's the seller profile like? And what's the bid-off spread that you're seeing for the product that's coming to market?

Cell profile areas, we're doing some sales and leasebacks. We're doing some deals with large institutional sellers who are looking to recycle capital or dealing with redemptions and want to then sell the most liquid assets. So 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 big depth for smaller tickets, especially. So we've seen some deals that we didn't win with as many as 15 bidders pursuing those assets.

Okay. Great. And just to your point on same sellers, which have redemption issues. Is that something that's spiked up over the last couple of quarters? Or is that just the historical loans?

There's no distress if that's what you're getting at. We see this being executed in an orderly fashion with its redemptions, whether it's just general mandates from capital providers. So it's pretty orderly and we're not seeing distress in Canadian markets.

Okay. And I think that could be the same for the European markets as well.

European markets are generally different in the sense of they're larger, there's more players. There's a greater range of capital structures and market participants. So we are seeing pockets of stress, we'll categorize that, primarily driven by financing costs and availability of debt at those costs. So debt service at 1% is very different than debt service at 4.5%. And so that will inform some of the sellers desire to transact. So it's not -- it's early to categorize that as distress or pockets of distress, but we're seeing some pockets of stress may be emerging with more motivated sellers over time.

The next question comes from Sam Damiani from TD Cowen.

First question, just on the -- on one of your comments at the beginning that Alex, about still feeling good request for expansion and that seem to you'll still exceed your inbound requests 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 6 months ago? Is that a trend at all?

Income broader market and the broader economy, we're seeing some. But as we mentioned, we're seeing far more tenants looking to expand and is looking to [indiscernible]. And also 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 6 months, but maybe 6.5 months ago. So 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 taking off new developments in the next 6 to 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 our development JV. Those look interesting, but we still need to complete our diligence on the assets and do technical attributes and planning, et cetera. So we continue to see development in the right markets for the right product as an attractive investment. And within the portfolio, we have a significant pipeline of expansion opportunities that we continue executing on across the board, including on DIRs on [indiscernible] portfolio within Dream Summit, we have significant opportunities that look very motel.

Next question comes from Pammi Bir from RBC Capital Markets.

Just coming back to the development and land pricing sort of discussion. Can you provide maybe some color as to where -- 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 were to go and buy or acquire some additional new end?

Thanks, Pammi. So if you look at construction costs, so the disclosure that we provide on our development pipeline could be a good indicator of roughly the ranges depending on the market. So we do disclose the GLA that we're building as well as the construction costs. So you will be able to get a sense of kind of construction costs by tradition. They do vary between Toronto, Montreal and Calgary. So that would be a good source for that. As far as land prices, as we commented, we see a range. So we're looking at something in the $1.5 million range, but we've seen interest opportunities in the $2.5 million range. And 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 appreciate your comments. But I think you mentioned dealing in the low 30% range in this environment. But again, given where the unit price is, I just wanted to clarify, do you see getting to that level again, using more so from using the ATM or from asset sales?

So 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 of the mid -- closer to mid-30s rather than high 30s is sort of is the targeted range. So I just wanted to clarify on that point.

Got it. And then just maybe coming back to the comments around dispositions. I think last quarter, you talked about in that $50 million range. 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 an achievable range. The level of interest that we see in terms of inbound required -- inbound offers that we've received is greater than that range. However, as we commented earlier, we still need to work through those sales don't negotiate the right price. So not every one of them will materialize likely. So that's -- so the range that we've indicated is still a doable range, but we can get more -- we have more opportunities that we are evaluating on that.

[Operator Instructions] The next question comes from Sumayya Syed from CIBC.

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?

So we see supply increasingly constrained in Europe. So we've previously commented that planning is a significant constraint in our core markets, such as Germany, the Netherlands, and France, and it continues to be the case, Visa planning is challenging. It 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, and European industrial development landscape. So all these factors lead to increasingly constrained development pipeline. And developers generally target to a high degree of pre-leasing especially merchant developers because that translates into construction financing being available and being priced attractively. And so generally, we see that developers are targeting to release to a greater degree compared to Canada, [indiscernible].

Okay. And then there was a fairly minor write-down in your European portfolio. Just curious about the drivers behind that and how that is based on transactions you've observed in the market.

Yes, as you should suggest it's very moderate in terms of write-down. It's -- yes, it is informed by the spreads that we think should be warranted in terms of the mark-to-market yields relative to financing costs. And while the observed transactions are limited, we think that that spread should be healthy and that informed that moderate correction and values.

This concludes the question-and-answer 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 the future. Take care.