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

Good morning, and welcome, everyone, to DIR Investor Day 2024. We're excited to welcome our investors, analysts and business partners today. I think everyone in this room would agree that today, the markets are much more enthusiastic about real estate generally compared to, let's say, a year ago. We, as a management team, continue to be enthusiastic and optimistic about the industrial asset class and specifically DIR's business. We hope to convey to this excitement and enthusiasm to you all today. Today, we hope to address a lot of the topics and themes around our business that regularly come up in our meetings with investors and analysts. With that, we have an ambitious agenda to cover. We will start with an overview of the capital markets and the fireside chat with Michael Cooper. We will -- with the capital markets backdrop, we'll set the stage for the discussion today, followed by the perspective on the current state of the GTA leasing market by Colliers. We're then going to cover our long-term outlook on the industrial fundamentals as specifically focusing on the urban industrial asset class. We'll talk about how these fundamentals drive our investment strategy. And today's presentation is all about growth. And we are excited to share our outlook for growth of the business and the scale of our platform that opens up new opportunities for us, and which we are starting to pursue on a new initiative front for our occupiers. Lastly, we will illustrate how the organic growth revenue -- drives our -- and impacts our overall returns. Please hold your questions to the end of each session as we will have a brief Q&A. To start off, I would like to invite Peter Senst, President of Canadian Capital Markets at CBRE to provide a brief overview of the capital markets. For those of you who are not familiar with Peter, he leads CBRE's capital markets practice in Canada. And with this, Peter has live market insights into global capital flows and investor sentiment across all major asset classes. Peter will then facilitate a discussion with Michael Cooper, the Founder of Dream Group of Companies and Trustee of Dream Industrial REIT. Peter and Michael will focus on general trends in public and private capital markets and how global investors think about Canada generally, and Canadian industrial market in particular. Peter?

Great. Thank you very much, Alex. Good morning, everyone. Nice to be here with you. I've got a total of 5 slides to get us started. Now in my ideal world, it would have been 55, but I was cut back, and we wanted to keep this content to a limited number of slides. But here is a great way to start the day here. So I just flew in late last night from New York, a lot of meetings down there, Sunday through into Monday. This is what everybody is focusing on. This is what they think of when you think of Canada, the biggest investors in the world love to drill in this kind of data. They love to get an idea for what we're thinking. But when you look at the big drivers in the [ GD-7 ] this is where Canada stacks. So population growth, tick the box, feels very good. Maybe very aggressive. Some people would say. Our GDP growth, you can see where we stack up vis-a-vis the U.S., we were on top last year. So we pulled back a little bit there, but still incredibly positive. And then the employment growth, you can see again, so we're leading the way. So the biggest investors follow this data and it leads you to Canada. So when I look at a slide like this, 2017, '18, '19, those are the good old days. When you look at it, we could handle rate increases, what we couldn't handle was 500 basis points in such a short period of time. The relief is here, we're feeling it in our volumes. The Q3 stats that will come out of our company in terms of trading volumes, it's returning. We're seeing big deals industrial office around the world, multifamily. So we're just about to get into a more interesting period, I feel, and we just need a little bit of time just so we all see it, feel it and believe it. So how does this play out for industrial? Well, look where Canada stands, our biggest cities, Vancouver, Toronto, Montreal, you can see some of the strongest markets in North America, and that's going to continue to play out. When you look at our national average asking rates, this is the #1 question I get now, and it's all about, well, what's going to happen here. Well, we were selling our assumptions on the way up. So '21, '22, '23 you were having to underwrite, you are having to pay aggressive, aggressive returns. Now with this little adjustment, you get the chance to buy some software assumptions. I think this is a really good time we're buying different asset classes, but especially industrial. And this will be something, by the time we get to '26 and into '27 -- watch how strong Canadian industrial markets return to. So what's happening in the capital markets? You can see that the volumes have come off dramatically. So this is global where we've gone from $1.5 trillion down to $700 billion, a little bit of an increase, but you can see that significant drop. So here's where we'll end as we get into this next phase of the presentation. Canada is very different. So what we've taken is our Q2 data. We've doubled it to come up with a forecast for 2024. Q2 was incredibly strong. So this is something where we saw a lot of great trading activity, volumes picking back up, some of that had to do with capital gains. But this is something where, again, Canada is outperforming. You can see industrial at the bottom performing very well. So this is probably a great kickoff just to carry on into our next phase. But if you ask me how am I feeling about Canada real estate, especially industrial, optimistic positive, and I'm looking forward to 2025. Okay. All right. So fireside chat. So I think I get the privilege of speaking Michael, talking about different things. And one of the things I always like to talk about when we're -- with market leaders is just where do you see us in the cycle? What's it feel like? Does this remind you of prior periods, but how would you respond to that?

I've always heard that when people say this time is different, they're not very smart. I would say that for the last 25 years, everything has been very different than other cycles, and it continues. So I think right now, what we saw is the third quarter was really the switching point when everybody got it, that inflation is under control. We had COVID, that was crazy. People spent a lot of money, but we got through it, then we had inflation that everybody got into a tizzy. So it's been 4.5 years since the world shut down. And it's hard not to look at it and say things went way better than any of us could expect, even though everybody is totally bombed all the time. So I think that in the passage of time, people are going to say, we had this plague, the world shut down, the government stepped in, and there's a bit of inflation, but it settled down quite quickly, maybe even transient, and we got on with things. So I just think the last 90 days, you look on June 1 to September 30, interest rates are down by about 1/3. Inflation in Canada hit 2%. Clearly, people are more concerned about whether there's going to be 0 growth than they are about inflation picking up. The U.S. are down at 4.2% unemployment yesterday. The economy is growing pretty good. It looks like inflation is coming down. To me, it's like all of those basics look, better than imagined. So I think that what we've done is instead of having tremendous headwinds. Now we have tailwinds -- and what we got to sort out is -- if the long bond is going to be at 3.25%, the overnight rate is going to be 2.5% to 2.75%. Like when rates were 1% -- we always said when that mortgage comes up, it's going to be, let's say, 3.25%. We never said it was going to be 1%. When somebody bought a house and they got a 1.6% 5-year mortgage, they never said I'm going to roll it over at 1.6%, they said, might be 3%. So now the 5-year mortgage is just under 4% if you shop around. We can get apartment loans for 3.7%, commercial loans were under 5%. So I think what we've got to see is what do investors whether it's in the public markets, whether it's individuals or private equity firms and sovereign wealth firms, what return are they expecting from real estate? That's really unknown at this point. So I think the expected return, what the consensus is we're still trying to figure out. So right now, the REITs are trading below NAV. And the NAVs are a lot lower than they used to be. So it's nothing like frothy, but we are adjusting and it's looking more positive. And I think what we saw both in 2022 and again this year, is the guys in real estate, thought it was going to be good forever. Then they thought we would be bad forever. And the real estate guys have been really wrong. So it's not going to be good forever. And you can't sell condos at $1,800 a foot forever. Now the condo guys think it's going to be 5 years before you can sell a condo, I suspect it could be much quicker. I think the economy is likely to do pretty good. I think we struggled with a lot of the policies -- I don't know I heard capital gains before. Somebody is talking about that. It hasn't been through treasury board. It's not law yet, and we could have an election before it gets passed. Tremendous uncertainty about all these policies. All of this stuff together makes it hard to know. But I think the really interesting thing is if you look at the deals that Peter and his peers have done, it's almost all foreign money buying from Canadians. So Canada is registering as a place to invest. And it's -- we did a big deal with GIC, which they owned a couple of hotels here before, but that was a huge entrance into Canada. We meet with a lot of people. You've said before that a lot of the global investors that they're really curious about Canada. There's a lot of things happening with the pension funds where they're not the same pension funds that they were 3 or 4 years ago. So I think we're sort of entering into a new age. It's undefined. But I'd be stunned if it's not pretty positive.

It really feels like we had this run up to COVID, where real estate was really the best performing asset class. Then we had this COVID period. I just feel like in the last week alone, things have changed, our trading patterns and volumes are just picking up again. And it even goes into office. We've -- we're even doing Calgary office again, like it's shocking. So if that can happen, Industrial is a bit of a ... that's like that. All right. So when you think about industrial, you've got to track a lot of the key themes and you've got to plan for some of the variables in industrial. What comes to mind?

So like industrial has had everything going for it year after year after year. And it's been waves of things that are very supportive for industrial. So online shopping was a big driver. Onshoring was a big driver. Now there's a lot of policies that are really attractive to support industrial businesses from the federal government. So we've gone -- I mean, for most of my career, rents were $4.75. Like it didn't matter if it was the '80s, '90s, the odds, it was $4.75. And now we're looking at '18 to '22. And somebody says, "Oh, I think interest rates are off -- rental rates are off 1% from last year. Yes, they're up 300% in the last 10 years, and they're sticking. So what we're seeing is a bit of an adjustment, a pause, but it looks like the economy is growing. It looks like we need more logistics, we need more everything. I know you guys came up with some numbers, they were kind of the same. And I think they're below the trend line in vacancy. It's just not on fire like it was in 2019 to 2023. But how could it be that tight forever. So I think industrial is just settling in, but it's got a lot of positive attributes. I've never seen suburban office buildings being torn down to put up industrial buildings. That's kind of a change in priorities, but industrial is looking great.

Absolutely, absolutely. So you mentioned earlier on some of this global capital looking at Canada. We spent a lot of time helping them come into Canada, but we see a lot of U.S. private equity. We see the global sovereigns coming in. Where do you see that going? How does that evolve? And what do you think is next?

So Canada is a relatively small market. We've had a lot of population growth. So I think we're about 1/8 the size of the U.S., like we used to be 1/10. I mean it's really amazing what's happened. The economy, I know we bitch about it all the time. We bitch about Canada all the time. It's really pathetic. But when you sort of step away and start looking at the attributes in Canada compared to the attributes elsewhere, it starts to look really good. So I think that the -- when we spoke to a sovereign wealth fund 10 years ago, they would say, well, you guys -- you have all these capital-heavy sovereign wealth funds or pension funds, and they own all of Canada, and they pay a lot of money. So we like Canada, but it doesn't make any sense to go there. And in the last few years -- and by the way, like the Canadian pension funds were all over the world buying a lot of stuff. They've all retrenched. I think they're struggling with how real estate fits into their portfolios. In fact, for a lot of -- for many years, the real estate group was treated differently from all the other groups. And like you have an Oxford, Cadillac Fairview or even you had them -- the real estate groups with their own boards. Now there's been changes almost every pension fund has new managers. In almost all cases, they're reporting into the Chief Investment Officer, just like stocks and bonds and everything else. So that's becoming really normalized. So real estate is becoming more of a normal asset class in the pension funds. The pension funds are fully invested, and they kind of don't have a lot of new cash that's going into real estate. It's hard for them to get cash out of the existing things. So that has opened up the whole world's eyes that Canada is investable and the pension funds are net sellers, not buyers. So I think everybody is paying attention. One of the things that's interesting is people are surprised to see how low interest rates are in Canada compared to other places. They're used to the U.S. plus something. And Canada is a U.S. minus something. So they're quite curious about that. It allows them to pay up and still get a decent return. But just like the public markets, everybody is trying to say, so is 11% good, is 13% good? Now you've seen a lot -- what are you seeing in terms of what the foreigners are wanting in Canada and also maybe pricing?

Well, I would start with geopolitical tensions, like the kind of thing we don't have to talk about is a Canadian, like there's not a lot of it going on here, but our Asian business has had disruptions. Our European business had disruptions. We've had capital markets disruptions in the U.S. where credit has been so tight. So when you look at it, you say, okay, well, Canada looks really good. And a lot of the biggest groups have never been here. They've been overinvested in other parts of the world. So this looks like the time because of what you just said, when the big Canadians, you're not bidding against them, once upon a time, we look like such a closed business. You couldn't get in. Canadians always won. This is the time where they'll come in, and you watch some of the next big deals that happened. But last year was a year of all billion-dollar deals. I think we're going to get back into that before long.

Yes, [indiscernible] was in the paper this weekend. I think it was [indiscernible] and they were talking about how they're not going to have their own private equity group in Europe. They're going to invest with others. And I think we're starting to see more opportunities for all players in real estate to partner up with pension funds in a way we did it before. So I think there's a lot of changes. And can you -- I mean, it's public like TPG has done a bunch of deals in Canada. GIC obviously has.

GPIF we put them into [ Vaughan ] mills. So I mean not many billion-dollar [mall ] sales last year. So it just -- it continues to go on, right? Like it's you're coming -- and if you're going to come to Canada you want to come for a small deal, you want something significant. So lots of activity, lots of time being spent and we'll just see what's the next lightning strike. So you invest in a lot of different asset classes and you're always looking at risk-adjusted returns. Where do industrial returns on a risk spectrum pan out versus the other asset classes?

Yes. We talk about it a lot. I mean, basically, we think you can do a lot, somewhere around a 6% cap or a 6% cap, reflecting a bit of rollover to market in the near term. And if we're using 3% growth, it's like a 9% unlevered IRR. And with current debt and we're only using 35% debt, you can still get to mid-teens. And that seems pretty attractive. Apartments are lower cap rates, lower interest rate, more debt, and they're probably 100 to 150 basis points behind industrial. And they're completely opposite in their nature. So tons of people need a place to stay. The apartments are going to be full. It's a question on the margin about the rents. Big risk is political risk in terms of are they going to change the rules, which could have a shock to the value of those buildings. Industrial doesn't have that. It's probably more of a market asset, but it ranks pretty high, on risk and return. So you got a higher return, and it's -- I'm not sure how to measure risk with apartments. The surprise in our portfolio is we're getting big rents on retail, especially like from grocery stores, from the -- it used to be that you got low rents from the acres and higher rents from the CRUs. Now we're getting really good rents from all the tenants, and it's very attractive. It's been surprising. We're building small ones all over the place, and they're very good. Office is -- it's -- there's just not as much known. So I don't know how you measure the risk of them. So I think industrial wins, and it's industrial Investor Day.

So -- wondering that happens. But if I was to stack the asset classes, I would say that industrial still sits at 1A, but multifamily clearly is coming to 1B. Food-anchored retail might be 1C, but everybody wants those 3 together. But industrial, for all the calls I would get for all the discussions I have, industrial is still the top. So here's an interesting one for you. So the disconnect between public and private valuations, how does that factor into the thinking on the Dream Office REIT DIR position?

So 1.5 years ago, we sold just under $200 million of DIR units that had a tax cost. And we used that to buy back stock, and that basically reduced the capital in office by like 40% or something at market. And I think our shareholders wanted to have less office, but there's -- it's the market -- like that was a way of us creating a buyer for stock. That worked out really well. We still have about another 13.5 million shares. What's not clearly understood is they have a 0 tax base. So just to make it simple, let's say it's worth $200 million. I know that at least 65% that we identify holders of Dream Office are taxable. And some of them are people, and it matters because on the -- if you sold $200 million of stock within Dream Office, and now I guess the capital gains rate is about 18%. So that's $36 million of tax that the owners would have to pay in a corporation, individual have to pay $70 million. Now we use it for our liquidity, so we have it on the line. So if we sold them all within the office REIT, we probably gain liquidity of, let's say, $80 million. But the whole -- if the stock was owned all by individuals, they'd have to pay $70 million to get $80 million of liquidity. So I'm not sure if anybody thinks about that, but that's on our mind very much. We very much like Dream Industrial. We think it's got -- we just talked about it, lower risk, higher returns than office, which is great. And in office, we're going to see how things go, but we have a lot of places we'd look for liquidity before we look at the industrial REIT units. And we kind of look at them like in case of emergency break glass. So I think that sometimes the investors have all their ideas about things and it's just sort of like that tax is brutal and Dream Unlimited owns 30% of the office REIT. So if we sold those, we got a cash tax bill. So we look for other ways to increase liquidity in Dream Office before we look at selling the DIR units. But I'm not sure if people were aware of what the tax issues are. And we've got that too with -- I'll give you an example. Adelaide Place, we bought for $212 million. It was a 7.2% cap and we committed to it in December of 2009. So it was up in value by a tremendous amount, way up. It could have been $650 million. Somebody says, let's say, it's worth $400 million. I'm just making up numbers, please don't divide it by 42 million -- by 17 million shares. But if we sold it at what would be a fair price today, our tax base is $212 million minus maybe $40 million in land. So there's $160 million of depreciable property. That's probably close to $100 million less. So let's say we sold it for $400 million. We'd have $80 million of cost base. We'd have we have $132 million of recapture, which is full ordinary income, plus another $150 million or $180 million of capital gains. So like the tax is driving a lot of stuff if you're actually a holder who's taxable. And I think people would be shocked how many of the owners of REITs are taxable. And I think if a management team is not looking at what happens to their shareholders when they make capital decisions, they're doing a disservice to their owners. There you go.

All right. I like that one. All right. So what are the dynamics in the public and private capital markets in Europe and the U.S. compared to those here in Canada?

You know what, they kind of move a like, but not at the same time. So Europe has been very strong for industrial this year, and they've acquired -- I think in Europe, they've done $10 billion of equity issues, $3 billion in industrial, and the values are strong. So I think that's pretty attractive. In the U.S., it's been going better. But again, I think like we saw it here. The private markets were much stronger than the public markets were for the last 24 months. And that's why you saw a lot of sales from public companies to private. Now we're getting closer to NAV. So it depends on the individual asset, what you're going to do with the asset, how you're going to manage the asset. It's not as clear which one is higher valued. And I think in the U.S., there's a real backup in the open-ended funds for liquidity, a lot of redemptions. So it looks like apartments are doing really well in the States. It looks like industrial is doing pretty good in most markets. But the issue there is you've got billions of dollars trying to get out of the open-ended funds. So that's hurting the private guys. I think the public guys are doing pretty good. But right now, it's not as obvious, like private is paying up for everything and public companies are trading like bad stuff. So I think it really depends on the market. But in Canada, I think the public markets have been near dead. There's been a couple of signs of life, but I don't think it takes a lot for that to change.

Yes. I think that's going to be 2025. Like I just feel it's all building into that kind of direction right now. And it doesn't matter whether I'm talking to high net worth global big institutions, open funds, like some of the funds are even trying to come back. And again, people saying, I've got capital I want to deploy.

Like even when there's a house listed in your neighborhood and they ask like $100 and it doesn't sell so they raise it to $110. I think we're starting to see that a little bit from some sellers where they feel like I would have sold it 3 months ago at this price. I didn't sell it, but now I want a higher price. So there's a lot of price discovery going on. But generally, it's much more favorable than it's been.

All right. So let's move on here. So there's been some changes at the Canadian pension funds. So we've been referring to that. What are the implications for the real estate markets? How would you approach that?

Like you know when there's a house listed in your neighborhood, and they asked like $100 and it doesn't sell, then they raise it to $110. I think we're starting to see that a little bit from some sellers where they feel like I would have sold it 3 months ago at this price, I didn't sell it, but now we want a higher price. So there's a lot of price discovery going on. But generally, it's much more favorable than it's been.

All right. So let's move on here. So there's been some changes at the Canadian pension funds. So we've been referring to that. What are the implications for the real estate markets? What would you -- how would you approach that?

Yes, it's great. I think about this sometimes. I kind of think like how much new capital does Canada need for real estate for things to get fixed. And I think it's more than $20 billion. It's probably not $50 billion. And it sounds like a lot. It's not that much money. I mean these guys are big. So we did $6 billion with GIC. We did another deal with them. We've done deals with others. We're seeing other people do deals $1 billion, $2 billion. I wouldn't be surprised if we see a couple of big deals. So the foreigners are bringing the money and they're providing life to the flow of transactions. I think the issue for the pension funds is kind of what we're seeing a little bit with Dream Office. I mean, Commerce Court West, that's a tough one. Like a lot of these office buildings are tough. And I don't know what they hold them at. I don't know how they're going to sell them. Same with some of the big malls. The malls are expensive to keep current, the big ones. So I think that the industry could get better and better and better, but it doesn't fix the issue. So I think the pension funds have some work to do still. I think I think there's been some trades of scale. I think -- I don't know who it is, but it's public. I think it might have been [ HOOPP ] or somebody, they took 14% off of their values of real estate. So they are -- they're doing it over time, but they're grinding down the cost base, and we'll see when they let go. But I think it will get straightened out. I just think -- I worry about Peter because he spent many, many years dealing with the logical buyers of real estate in Canada. And now it's not those people. So I know people say terrible things, everything is horrible. There's a lot of people who have made a lot of money. And a lot of people like -- I don't know if you guys know who Westdale is, they had something called Fabricland where they sold cloth to people who made dresses since World War II. And they took the extra money. They started buying apartments in Canada. They bought a lot. And then when [ Bob Rae ] became premier, they decided they go to Texas. and they bought 30,000 apartment units there. That's the history of Canada. People have a business, they make some money, they put it into real estate. Now some guys could have a tech business and they decide to put a portion of that in real estate. So you're seeing there's a new group of buyers. And instead of them buying, let's say, a $10 million apartment building, these guys are buying $100 million assets. So the money in Canada for real estate is coming from different sources than it used to be. And then you got the foreign buyers and the same old same old haven't been that active. So I think the REITs may surprise in terms of their appetite to be acquirers in the next year or 2. I don't think you'll see a surprise from the pension funds, but I think you'll see a lot of -- who owns what in Canada is going to change. And to be blunt about it with our asset management business, we're trying to be an honest broker and put new money together with money that wants to get out. So I think that's going to be the theme over the next couple of years in Canada.

But I think it's unrealistic to think that every year is a good year. So in a business that's very cyclical, you've got to be prepared, you got to be ready for a tough year or 2. That's what we've gone through that -- like I think we're getting into a better stage. I do appreciate that you worry about me. That's very kind.

I do worry about you. You've got 2 roll indexes, now the old one and the new one. The old one you use for people who are sellers -- they used to be buyers.

Well, we're always looking for money. And again, I would just say that the level of capital commitments building again, it's a difference. So versus 2023 is like I can put you at ease. It's going to be okay.

Good. Now one thing that I think -- I don't know if you guys have reflected. I see a couple of analysts have made some changes. But for Dream Unlimited, which isn't that big a company, we're going to save $9 million of cash in interest for 2025 compared to what we thought we'd have to pay interest when we did our budget in 2024 for 2025. Now a lot of people's loans, they have a debt service coverage and interest rates come down, they can borrow more money. So I think we're going to see just at the very base case, companies are going to be spending a lot less money on interest and they're going to have a lot more borrowing capacity. That's a start. Now we may see that cap rates come in a bit to reflect that with the lower interest rates, you can get a pretty good return and still pay up a little bit. And the one we're waiting to see is what's going to happen in the housing market. And I remember hearing that last year, when somebody's mortgage came up on average in Canada, the monthly mortgage payment went up $600. This spring, it had been reduced to $300. I remember I said earlier, nobody has a 1.6% mortgage and thought that they would renew it at 1.6%. So I think that now we're probably down, let's say, $150 or $200 more a month. And that's what people expected when they bought the property 5 years ago. So that wall of mortgages in 2025 and 2026, it's not a wall. It's gone. So I think like we're getting through so many things. There's so much savings on so many different levels that I think that it's hard not to see why that wouldn't go into much better time. So I think that's really the takeaway, and it's happening for everybody at every level.

So I think we're getting close to the time allocation here. So why don't we end on one of the things we all talk about, one of the things we all hear about and it's AI and other tech, how it might be impacting real estate. So what is it that you see as the opportunity? What's the risk?

So I have a lot of friends in tech, and they're telling me all the time how dumb I am because real estate is not doing enough in AI. And they'll show me what they can do. And the answers they get for their questions are amazing. I say, okay. How much sublet space is there in Toronto? -- comes out in 2017, there was something. What's the big -- the data is so terrible in our industry that it is an enormous impediment for AI to do anything special. So I think that's -- I mean, I don't -- I can't even describe -- I got a buddy who for 25 years has had incredible data in a biotech business that commercializes medicine, okay? So they have data on every project they've done and what's gone good and what's gone bad. So he's able to take all of that information, and he uses AI as the project manager for all their projects. And because of the stuff that they've done and they have the data, it prompts everybody, have you done this, have you done this? It looks at the building hours compared to the time they put into it. It's amazing what they can do. We can't do that. We met with Microsoft a couple of weeks ago, and it's coming. It's coming. I think it's going to be very, very slow in real estate. I've heard some people say, oh, they use AI to look at their customers for apartments, and it helps them screen them a little better, maybe. We'll see. So I think there's a data issue. I think sort of on accounting, legal, I think there's a whole bunch of areas that as AI becomes better and real estate isn't any different, it's going to make a big difference. But I've kind of been shocked at how hard it is to use AI in a material way in our business yet. So it will come, but I think real estate doesn't have the information to use AI well as like some other industries do. So accounting, maybe legal, we'll see about Argus and how we do the modeling. Wouldn't it be amazing if AI does the modeling and everybody has exactly the same numbers.

Yes. Make my job a little tougher. You're going to worry about me for that one.

I worry about you for that one.

Anyway, I've really enjoyed that. Good luck with the day. And if there's any questions, I'm going to stay around and happy to answer any.

I think AI will be big. I just think it's going to take longer real estate than it will in other industries. Yes, if there's any questions, we're happy to answer any questions on any subject. Or we could exit right now.

And have the questions later. Thank you.

Wonderful. Thank you.

Thank you, Michael and Peter, for the insightful discussion. Before we invite our next guest speakers, I'd like to give a brief overview of Dream Industrial today and set the stage. Dream Industrial is one of the largest industrial platforms in Canada with $15 billion of owned and managed industrial real estate, representing 72 million square feet across Canada, United States and Europe. DIR's on-balance sheet portfolio totals $8 billion and with additional $7 billion being held within our private partnerships. And about 2/3 of our business is in Canada with the remaining 1/3 in Europe. We've grown our platform by roughly tenfold over the last decade or so through several strategic transactions over the past several years, most recently with the acquisition of Summit Industrial in partnership with GIC. While we continue to look for opportunities to accretively grow this platform through a combination of existing ventures, establishing new strategic partnerships and, of course, accretively growing our balance sheet. With the growth of our business, our management team has strengthened considerably. We operate a decentralized but vertically integrated structure with local operating teams who have deep knowledge of their respective markets. We have also built out bench strength in key disciplines across the industrial asset class, including development, asset management and most recently, adding our focus on managing our large customers across the business. Our senior management team is all in the room today, and they'll be available after the presentation for any questions on the local markets. More importantly, though, not only has our platform grown in size, it has also delivered solid returns and growth organically. This slide shows our track record of driving same-property NOI and base rents have been the main driver of NOI growth as we prioritize rental growth over occupancy, given occupancy always is a much easier lever for us to activate. Most recently, the strategy allowed us to continue growing our same-property NOI despite the negative pressure from occupancy rates, and we'll talk about occupancy outlook throughout the day. This NOI growth has translated into strong FFO per unit growth of 8% compounded average since 2022. The main question that we're focusing on today is on the screen is the near-term outlook for the business as we are looking to refinance $1.3 billion of debt in 2025 and 2026 at less than 1% interest rate. Our goal for today is to demonstrate how our business is well positioned not only to refinance this upcoming debt given our liquidity and access to capital, but also drive sustainable FFO per unit growth and cash flow growth over the near, medium and long term, providing attractive and secure returns to our unitholders. In Michael's words, our overall industrial market may not be on fire, but our business has lots of drivers and the opportunity set ahead of us is amongst the strongest in our history. And this outlook starts with our portfolio. Over 72 million square feet of industrial assets that we own and manage are located across key markets in Canada, Western Europe and the U.S.. We have significant scale in major urban centers, including 10 million square feet in Montreal, 7 million square feet in Calgary and 17 million square feet across key markets in Europe. The Greater Toronto area is our largest market. And to speak more about the GTA market, we have invited Graham Meader and Colin Alves from Colliers today. Colin and Graham are industrial market specialists focusing on leasing, tenant representation, land sales and investment sales. Their team is among the leaders in the GTA industrial, and they have consistently ranked amongst the top Colliers team in Canada and across all asset classes. They are here today to provide real-time insights on what they're seeing in the GTA industrial market, with a particular focus on the largest submarket in the GTA West. Colin and Graham.

Thanks for the introduction, Alex. And thank you, Dream for including us in your Investor Day today. I'm Colin Alves and this is my business partner, Graham Meader. We're going to walk you through some of the GTA fundamentals and our observations from the trenches on a day-to-day basis. I'm going to kick it off with a couple of high-level observations, and then we'll jump into some of the more relevant data as we progressed through our slides. Michael mentioned tailwinds. It's no coincidence that that's what we've been picking up on over the last quarter or so in our market. 2023 was a year characterized as a transitional year a return to fundamentals. And I think on top of that, a reduction in tenant demand just because of some of the economic uncertainties, as we fast forward into 2024, we've seen a pretty consistent increase in tenant activity, demand and resulting leases, which I think is a positive sign as we close out this year. Average asking rents declined slightly Q4 last year and have followed suit the last couple of quarters. When I say slightly, it's about $0.25 -- $0.10 to $0.25 per square foot. We've seen an increase in renewal activity, and I think the important takeaway here is it's often short term. And I think this just speaks to tenants wanting to get a better sense of where the economy is headed so that they can make that growth decision in the next 12 to 24 months. Supply remains low in core locations. It's tough to find infill sites. There's been a return to core over the last 24 months, which has kept that supply extremely low. And as a result, rents have held extremely well. Spec construction, as it always had pre-pandemic is back to leasing generally post completion. We see about 10% to 15% pre-leasing activity on speculative construction. Sublease availability, although has increased, and we've heard a lot about that over the last few months, still remains below the 20-year average. We've seen the return of 3PLs, CPGs food and beverage, the large occupiers of space are now starting to take the lead and absorption and a return of big box requirements to the markets. And when I say big box, that would be 200,000 square feet and up in size. Amazon has been signing new leases throughout the U.S. And we're going to follow suit shortly. I suspect there'll be a large announcement of a GTA lease signed probably by the end of this year. And Prologis, who are a bellwether in our industrial market have been extremely active -- we're tracking about $800 million in acquisitions that Prologis are currently underway on, most notably the recent sale of the RONA leaseback of 1 million square foot distribution center in Milton. Above the bar, we're highlighting some of the recent transaction trends. Generally, I'd say landlords are aiming to maintain face rates -- by the reintroduction of inducements, whether it be cash allowances, free rent, fixturing periods, again, how our market had operated pre-pandemic. And with these new data points that we're tracking in the market, we're actually seeing a return to the land market. There's a number of sizable land transactions that are currently underway. Below the bar -- this is our spec construction pipeline. You'll see the market delivered 13.7 million square feet last year. Still got a bit of hangover space. But I can report that all of that, in general, is seeing very good activity. And with the return of these larger big box requirements, that 5.2 million square feet is shrinking probably weekly at this point. This year, the market delivered about 12.6 million square feet of new spec instruction, GTA wide. We saw some pre-leasing activity on that. And then as we look into 2025, we're tracking about 11 million square feet. And this is something that Graham and I are updating on a weekly basis. We're staying in direct contact with all the developers and landlords in the GTA market, so we can rely on those numbers. I think what's interesting to point out is if we look back to our January number, this was closer to 20 million square feet. So we've seen that drop off significantly. And it's a combination of delays at the planning level trying to secure your permits to move forward with the project. We've seen some pausing some waiting for rental rate data points to support the development to go forward. And historically, most product is delivered in Q4 of 2024. So some of that's going to probably slip into 2026. Here's a North American perspective, and we're looking at our major peer markets in the United States as well as the major Canadian markets. In terms of our overall inventory size, we ranked 6th, we were displaced by Dallas during the pandemic due to their impressive building boom. And if you tease out Northern New Jersey from Metro New York, we'd still probably sit in 5th place. Our vacancy rate year-over-year has moved slightly -- considerably less than most major U.S. markets, saving except for Chicago. Our average rent year-over-year, you can see as -- and again, this is based on Q2 stats, so these have changed slightly since Q3, but Q2, we basically remained flat, as I mentioned earlier. And we've got a conservative annual growth rate of 0.27%. And I don't think that's for lack of enthusiasm to develop. It's just the barriers to development in our city. And then the final column, our construction as a percentage of inventory really hasn't moved. We're sitting at 1.8%. We've never been above 2% in our market. We've always been a very conservative, very constrained market. And if you look at some of the U.S. markets -- if I was to rewind 24 months, most of them would be high single digits, right in the double digits. So significant supply increase in major U.S. markets. Overall, we suggest that Toronto has some of the strongest fundamentals in North America. This graph, we're looking at leasing and user sale activity. And you'll see today, we're currently sitting at about $355 a square foot on user sales throughout the GTA, we peaked roughly 2 years ago at just over $400 per square foot. And even with that decline, you'll see over the 2021 to 2024 period, sale prices are still up almost 80%. Very similar story on the leasing market. where we peaked just under $20 a square foot a couple of years ago, and we're now trending down towards, call it mid-18. But again, during that same period, 60% rent growth. The bottom line denotes availability. You can see we swept across the bottom, an all-time record low of 0.6%. In Q4 2021 -- and you can see a very gradual increase in availability to where we sit today at about 3.7%, which is still below our historical average of around 5%. So still some room to grow. Here's a historical and forward look at our speculative supply pipeline. And you can see, I think the important takeaway here is -- there's a lot of projects that are announced and talked about at the start of the year and whether or not they come to fruition is a bit of a different story, and I think that tells the story there with what's actually delivered as of Q4. Again, some projects fall into the following year for various delays -- some are absorbed early on with some pre-leasing activity. But I think you'll see here a lot of optimism in 2024 and 2025, and then some delays and again its mostly due to the challenges at the municipal level. And as we head into 2026, we start to see more normalized levels of spec construction. I'm going to turn it over to Graham.

Thanks, Colin. So here, we're talking about the GTA West. So the GTA West represents approximately 50% of the 850 million square feet of industrial square footage. And to Michael's point, I think the future for industrial is bright. Here is a good long-term view of the GTA profile. And we've seen steady compression in availability -- really over the last 15 years. I'd echo the time of COVID was a blip in time, like you had supply chain shortages, you had material delays, you had lack of entitled land and just all barriers against you to try to get space out of the ground. Couple that with just tremendous appetite. The supply chain was broken. We were ordering our product at home -- not at the retail stores, we had to get it to the consumer. So the likes of the peoples and others how to go out and execute on large industrial deals. And that brought our vacancy levels down to unsustainable level. We'd be out there on tour with clients asking them to find or they were asking us to find space, we couldn't find it. Like there just was no space to a that couldn't sustain. So sub 1%, we're announcing ourselves with supply coming out of the ground. As Colin mentioned in the previous slide, that's starting to balance. So that 5% availability rate that would put us on par with our 10-, 15-year average that doesn't concern us at all. We're starting to bring down our supply side. So that's going to bring down our availability rate, and we'll all start to level off our rental rates. I think long term, we're conservatively optimistic. We'll start to see rents climb for the back half of next year. We're also tracking very closely the sublet market. So over COVID, you'd go to your landlord, you'd asked a sublet the building the landlord would say, "We're not going to allow you to sublet the building and terminate your lease. And the reason why they terminate your leases, they would double the rent. So there were no sublets over that period of time. So when I see this uptick in sublet activity, that's not a worry for me. There's always been sublet offerings in our marketplace. It's about 15% of the overall total. We're now at about 5 million square feet in sublets, which, again, is something that we can deal with. We've seen pretty good demand as of late, some of the sublets with Amazon. They've been now using them. We've also seen a number of our 3PL, third-party logistics clients starting to take those spaces off the market. So the pace of those sublet offerings has started to slow down. A lot of our clients are starting to ask us about carbon zero. Colliers, we have our own carbon zero mandate to go carbon zero by 2030. Here are some household logos that you'd recognize with their carbon zero declaration. So approximately 40% of Fortune 500 companies are now -- have made a declaration to go carbon zero. This graph just shows it broken down by industry type. And if you look at the blue bars, that's pre-30 as their target. So technology, health care, bio, food and bev, all very high in terms of implementation on carbon zero. And so what of all this is the development community have to be prepared to start offering carbon zero buildings to accommodate these clients. There's going to be a turn to core and also a flight to quality. Another way we're looking at carbon zero is based on the geographics. So the darker shaded countries would be having the higher density of companies within that Fortune 500 base focused on carbon zero. So it's really being led by Scandinavia. It's being led by Western Europe and also largely by North America. This is our attempt to paint brush the market going east to west. So again, about an 850 million square foot market. So we're talking about a large geographic area. We track Oshawa kind of the Easterly boundary as far west as Burlington, Milton, Halton Hills is the West Re boundary, that comprises the 850 million square feet. We've also added in Guelph, KW, Cambridge in here as well as Hamilton, and moving east to west and kind of see the breakdowns of the submarkets. Again, the West represents about half of the market. You get into the inner parts of Toronto, there's been a flight there as well as a flight towards Durham region. You've got strong labor, you've got strong demographics, good transportation. If you're servicing Eastern Canada, getting a head start in the morning with driver logs is also important. So you're seeing more growth out and through that Durham region. You're getting some good growth in around Hamilton due to the labor attributes there and also lower costs. But overall, we're bullish pretty much right across the board, you're either going to be in the mid-teens to the high teens rent-wise, and we see that staying put. And this is really lacking modern construction of 100,000 square feet or larger.

And here's who's leasing space. As I mentioned earlier, we've seen an uptick almost month-over-month pretty consistently throughout this year, on absorption of space. This chart here is showing you a combination of new spec leasing as well as second gen leasing. There's a number of companies that the room would probably recognize, and again, it's the return of the 3PLs, the CPGs, food & beverage and other household names that we would all be familiar with. You'll also see a fairly diverse geographic spread where there were some concerns in some of the peripheral markets earlier this year. That seems to be abating. We're seeing good leasing activity in Durham. We're seeing good leasing activity in Burlington, where there were some concerns about an oversupply situation, but we're starting to see that space absorbed. So all in all, a very good story.

On the food and bev side, we've got the third largest cluster, right, for North America. So that's been a pretty active sector. E-commerce has been tremendously at very busy sector. But I would also say we're -- Toronto is a big distribution hub, like we're the largest market, 2x as big as the next market, if you're setting up a distribution center in Canada, 100% -- it's like not 100%, high likelihood is going to be in Toronto. If you've got 2, and then it's a matter of Toronto plus maybe one in Western Canada, is that Calgary or is it Vancouver, but it's really an e-commerce distribution hub.

And to close it out, -- this page describes the activity levels we've been seeing on both the end user and capital markets on the buy-sell side. On the left-hand chart, I think the important and interesting takeaway, at least in my mind, is you saw very little sales volume. So a number of sales in the second column were very low during 2020 and 2021, obviously, some uncertainty in the economy. People didn't know where to peg values at that time. But you can see since then, it's been a very consistent growth story and just the number of sales and the total sales volumes. And even during the last couple of years, we've entered into a higher interest rate environment, it really hasn't slowed. And I think that speaks to the connection in our industrial sector and the GTA. The breakout on the top right-hand side of the page, denotes the profiles of these buyers. And you can see 2022, 2023 and 2024, overwhelmingly, it's the private capital markets that have been buying real estate. And that would be a combination of high net worth, private equity, family offices and so on. They have been extremely aggressive again, because they feel that this is an opportunistic sector to participate in. We've also seen a significant number of new entrants into the market from the investment community that never played in our space pre-pandemic. And then lastly, the bottom graph here is showing our total sales volume, which you can see a significant uptick over the last few years, a number of sales as well. And the average sale price, which is declined in lockstep with the increase in interest rates.

But if we see a decrease in interest rates, that should propel further increases on sale values as buyers start to purchase more and more demand for industrial product. I'd also say just finding access to land, the barriers on building makes those replacement levels extremely high. So buying existing, we can see that long-term trend continuing.

And that's it. Thank you very much.

Thank you.

Are there any questions, we'd be happy to answer.

[indiscernible] versus the U.S. market [indiscernible] mature that dynamic?

It's a great question. I think from a fundamental basis, the consumer spending levels in the U.S. are much higher. And I think that helps to drive rent growth in certain markets. If I was to put up a chart denoting where rents have either grown or fallen in the U.S., it's a complete mixed bag. It's all over the place, whereas 2 years ago, it was very consistent throughout every major market. So market-to-market dependent. And again, as I mentioned earlier, we just tend to be a more conservative market, both from levels and from a development perspective.

Yes, I think we a breather, and we will see rent growth again kind of late half of next year.

Colliers actually surveyed 200 industry professionals a couple of months ago, just to get their thoughts and forecasting as we head into 2025. And the consistent, I think response was that there will be rent growth. It could vary somewhere between 2% and 4%. And I think that's a pretty conservative outlook.

Do you expect to start growing in the second half of next year, do you see vacancy taking up the first half of next year as well?

Yes. I think Q1, Q2, during that time frame, we will see peak vacancy, and I think vacancy will start to decline after that. There are constraints in the development pipeline, as we've mentioned. And I think that with these economic tailwinds, we're going to continue to see greater and greater absorption levels as we close out this year.

Yes. We're getting a handle on our supply, right, big time. So I think that will level things out and that will level our vacancy and then we'll start to see rent growth for that last half of the year.

You guys mentioned that Amazon is back in the market. I guess, how deep is that demand? Is that a one-off transaction? Or is there more behind that?

Well, I think what we've observed over the last couple of months is they had about 1 million square feet of sublet space in the market, that's now off and they're using it. So that sort of kicked things off. They're in the market currently for about 800,000 square feet. And this would be net new space. So that transaction will likely take place in the next couple of months, we suspect. And they continue to survey the market for other requirements in different sites. So anywhere from 200,000 to 1 million square feet is where Amazon is currently doing their due diligence.

They're also looking at buying and building for themselves -- in certain spots.

What about like [ Temu ], have you seen any like Chinese e-commerce players coming to the market?

Typically through 3PLs, right? Their first entry into Canada is levering someone else's infrastructure and presence here. So we understand they're being serviced by a 3PL. And the requirement that Colin was mentioning, the 800,000 square footer that's also likely going to be a 3PL bid managing an Amazon requirement.

Thank you, Graham and Colin for your insights, and now we are on to the main part of the agenda. The market is understandingly focusing on the near term occupancy changes, changes in asking rents, the inflection point and that vacancy rate. And these metrics are important. However, as a long-term investor, what we are focusing on is structural supply and demand trends and how these trends affect the performance of our asset class in the private market context. Private capital markets and such as our private partners are also focusing on these trends, not just quarter-over-quarter, but over the long run. In the next few slides, we'll provide a perspective on some of these trends, and I will pass the discussion to Bruce, our Chief Investment Officer to focus on these drivers and our investment strategy.

Thanks, Alex. Let's start with Canada, and we'll start with the supply side. Canada has always been a supply-constrained market, especially compared to the U.S. As you can see on the charts on this slide, the recent inventory growth in the top 6 U.S. markets has outpaced DIR's top 3 Canadian markets, which is Calgary, Montreal and Toronto by over 500 basis points or over 550 million square feet since 2019. Even with a modest increase in supply, industrial inventory per capita in Canadian markets has been essentially flat over the -- in the top 3 markets over the same period, well below the 10% increase we've seen in these 6 U.S. markets. Obviously, in terms of drivers for industrial demand, Canada has experienced the same trends as the U.S. You've got an increase in e-commerce. a focus on supply chain resiliency and even reshoring to some extent, especially lately. But when we started looking at the data, our expectation was that we would see a similar increase in industrial space per capita, and that's just not been the case. The fact that, that metric is flat in Canada supports our view that Canadian markets are not structurally oversupplied. Our robust population growth has continued to drive demand, and we have a very strong runway ahead as Canada continues to lead all G7 markets in terms of population growth and be near the top in terms of economic growth and structural constraints on supply and drivers of demand continue to impact the market dynamics. Most market participants focus on net absorption as a measure of demand. We think that net absorption is a metric that is most meaningful when viewed over longer periods of time. As in any given quarter or even a year, the numbers can be skewed considerably by things like the level of pre-leasing of new supply and perhaps the amount of subleasing. This slide sort of illustrates these long-term trends. For the 5 years leading up to the pandemic, the GTA market absorbed an average of 10 million square feet annually. Absorption spiked by close to 30% during the pandemic and immediately thereafter. And when higher interest rates dampened demand, there was an increase in sublease space coming to market as well as higher direct vacancy as new supply continues to be delivered. So traditionally, we see that when occupiers see their businesses slowing, they'll put some of that unused space on the market because it's essentially a free option for them. And as Graham and Colin commented, we're already starting to see some absorption and not just absorption, but the space being pulled back as demand increases. As you can see on this chart, when we remove the sublease availability from the equation, we see that net absorption of direct vacancy has actually remained positive for the past 18 months. The long-term trends remain key. With interest rate environment normalizing, occupiers are increasingly able to focus on the longer term and the ongoing impact of the key structural demand drivers. So we believe that the ingredients are there for GTA absorption to return to long-term averages. We see a similar trend in Montreal, albeit on a smaller scale. Most of the new space that has been built in Montreal in recent years is in secondary locations, and that's where there's now disproportionate levels of vacancy. And in Calgary, actually, as you can see, has remained resilient, distribution trends and strong demographics are driving that market and are expected to continue to drive demand there over the long term. Absorption is actually outpacing pre-pandemic trends and Calgary has really become I would say, the key Western Canadian distribution hub, taking some business away from Vancouver, but it's just locationally, it's in the right place, and it's got all of the elements that distribution hubs require labor, population within a certain drive time. Urban MidBay assets have always remained resilient during the current period of higher availability with only 30% of the availability, as you can see from this pie chart, in the GTA coming from units of under 100,000 square feet. Demand is still strong in that 50,000 to 150,000 square foot segment. And the segment has continued to perform as it has across the market, but also within our portfolio. And as Colliers guys from Colliers pointed out, recently, there if you look at their stats, a lot of the new deals in the GTA have been sort of clustered in that size range. That's where we see the most activity. Some examples of what we've seen in our portfolio. Earlier in Q3, we signed a new lease for a stand-alone 100,000 square foot asset in Burlington at $19.50 a square foot. And just last month, actually, we signed a new lease for our recent development on Abbot side in Caledon, just north of Brampton at 1850 with very strong steps, and that asset is now fully leased. And our renewal spreads in the segment are also strong. Here, you can see a couple more examples of deals that we signed in the past few months at 100% to 200% spreads over expiring rent. So these positive fundamentals drive transactional activity in the private investment markets as well. We're seeing several groups of active buyers. As Michael and Peter discussed, there is more global institutional capital focused on the GTA as a preferred destination for global capital. And that's targeting specifically industrial. We also see many private investors looking to reinvest profits from other sectors and businesses, as Michael mentioned, into industrial and logistics assets, and those deals are getting larger. And finally, as Colin Graham were discussing, there are lots of user investors looking to acquire midsized freestanding buildings at premium valuations just to house their businesses. They invest a lot in those businesses, and they they've been through the pain of rising interest rate -- or sorry, rising rental rates and a lot of them just don't want to deal with that. They just want to own the assets and they see that real estate is always a good long-term investment for them. So -- and I think it's important to highlight that this user sale phenomenon is sort of something that's unique to the urban industrial sector. That's where across real estate, you don't see as much of that, but certainly, urban industrial is where it's focused. So turning to Europe for a moment. We continue to view European urban industrial fundamentals as very attractive. Relative to North America, Europe offers lower rents with more upside, constrained supply and attractive capital values. Leasing -- speaking about sort of leasing velocity, European research is very focused on measuring lease take-up, which is just effectively new leasing plus any renewal activity in larger box logistics. It actually excludes any prenegotiated renewal options. So the data set is very narrow. But take-up for the first half of 2024 has been stable, actually 5% above the levels pre-pandemic from 2015 to 2019. And generally, they're only tracking prime rents for core purpose-built logistics. So when you're looking at the statistics that you might see from the major brokerages from Europe, that's what you're seeing. And those rents are up about 5% year-over-year. But JLL actually tracks urban logistics, European urban logistics versus big box rents. And here, you can see from this slide that urban logistics rents have outpaced big box rents over the past 10 years, which mirrors what we've been seeing in our own portfolio. In the European investment market, we are seeing increased M&A activity with over EUR 2 billion of deal volume year-to-date. And we're also now seeing more larger portfolios come out into the market. Significant liquidity is returning to the debt capital markets with over EUR 12 billion of unsecured bonds issued since the beginning of 2023. And over half of this was raised by industrial or logistics names. Finally, there's been over EUR 3 billion raised in the equity markets by industrial and logistics issuers since 2023. And I'm sure the bankers -- the investment bankers in the room are wishing they worked in Europe right now because it's certainly more active over there for now. Turning to our investment strategy. We're really focused on urban industrial assets, as you can tell. We define urban industrial as sort of well-located industrial assets situated in or very near to major urban areas. It's functional space suitable for a variety of uses, warehousing, light assembly, food preparation, a whole range of uses as well as last mile logistics. And one thing that it can also include, and we consider that it includes is industrial outside storage or IOS -- it's a bit of a growing subsector that's increasingly caught the eye of institutional investors. There's a lot of capital that's formed to -- that has been forming to invest in this sector. The assets -- what's interesting about the assets is they can often generate the same NOI as traditional industrial assets, but they -- obviously, because it's land and there's little or no buildings, there's very minimal CapEx or active property management required. And it's a covered land play, obviously. We like urban industrial because there's very limited new supply. Very few developers are building this. because it's really tough to make the development math work. It's expensive to build. The smaller the building, the higher the price per square foot. And even finding a suitable site is a challenge. It also appeals to a diverse range of tenants across many industry groups. Smaller units often command higher rents on a per square foot basis, and it's covered land play. Over time, many urban sites, as we've -- I think we've all seen around the city, often become well suited to repositioning or to accommodate more intensive or diverse uses. So a prime example of urban industrial within our portfolio is our Courtney Park redevelopment in Mississauga. And this is the type of asset that industrial people get excited about. What makes it so special? Well, it's 200,000 square feet, net zero carbon certified and targeting LEED gold. The asset has all the modern technical attributes, that urban logistics distribution and fulfillment users would look for with 40-foot clear height. It's got great shipping door ratio, functional truck court. It's flexibly designed. We can accommodate up to 4 tenants ranging from 40,000 to 200,000 square feet. It's well located next to very nearby 5 major 400 series highways. It's close to public transit, allowing employees to commute to the location effectively. And it offers the proximity to a large and diverse labor market, which is really critical as well as an enormous pool of B2B opportunities for tenants in the heart of the GTA industrial and logistics market. So this is where you want to be because that's where everybody is, all of your competitors and all of your suppliers and all of your consumers. These attributes get recognized in the leasing market. We completed the building in early '24. And soon after, we've leased it up to 2 tenants at $21 a square foot starting rents, 4% steps, $1 per square foot in an ancillary revenue. So these are amongst the highest rents achieved in the GTA for new construction in the whole -- in the entire year. Using -- if we just sort of use market comparables, the 6.6% unlevered -- sorry, 6% yield on cost translates into a high teens levered IRR for the project, even though cap rates are higher today than when we started the project in 2022. So Courtney Park is really our newest urban industrial asset, but we do own a lot of these assets. We estimate about 85% of our portfolio can be classified as urban industrial or urban logistics. And these assets are used by a wide range of tenants for distribution, light industrial, as we said, assembly. There's a whole range of users that like these assets. Here in the GTA, our urban logistics portfolio is significant and has a built-in mark-to-market of about 55%. In Montreal, the mark-to-market opportunity is similar. In Montreal is a smaller market and small to mid-bay definition sort of scale accordingly relative to the market. Most of our recent leasing activity there has been concentrated on units of 50,000 square feet and under. Our Montreal portfolio is really well positioned to accommodate the changing demand trends. And our Calgary assets are amongst the most urban in our portfolio. As you can see, they're quite heavily clustered in terms of location. the average mark-to-market in Calgary is not as high as in the GTA and the Montreal area, but we remain very constructive on the prospects for demographic and structural changes driving further rent growth there. We obviously like the Calgary market. And finally, in Europe, we're very focused on the key urban hubs in the Netherlands, Germany and France. We continue to see structural supply constraints in these markets. It can take years, maybe even decades to get the permission to build on greenfield sites. And in many of those markets, there's just greenfield development is almost no longer permitted. The -- rents are not high enough to justify supply, new supply as well. So especially for these smaller footprint buildings and multi-tenant assets. And we think that these -- all of these drivers collectively will lead to continued outsized rental growth.

Thanks, Bruce. Another reason we like urban industrial is because it offers significant possibilities and optionality for alternatives and for alternatives uses in many cases, better uses, more valuable uses for our assets, all while generating solid and growing cash flows. In other words, the term gets used all the time, covered land play. And here are some of the uses we are currently working on. We have selected several sites for feasibility where we're looking to secure additional power and realize upside through either powered land or power shelf strategies. We will discuss our data center approach in a minute. In addition, we have 2 million square feet of temperature-controlled facilities. These assets command higher rents and are rarely built or almost never built on a speculative basis. And with our significant land holdings, we see good opportunities to add to this part of the portfolio. The urban locations that we have make our assets good candidates for residential and mixed-use intensification -- which we expect to result to value creation as we make progress on these entitlements. And we also evaluate several uses -- several sites for self-storage primarily in Canada. And in certain cases, we're looking at partial sell storage conversion opportunities as part of broad refurbishment and repositioning. Our access to the shared services platform, at Dream enhances our ability to pursue some of the as in many cases, we have colleagues who specialize in these asset classes on a Development side, Asset Management or Private Partnerships. So let's talk about data centers in more detail. We talked about AI today. It's a rapidly growing business globally and has been one of the key focus areas for us in terms of finding higher and better uses for our sites. This slide shows the spectrum of data center opportunities, starting from powered land. And for those who are less familiar with terminology, we'll reiterate it a little bit. So [ powered land ] is referred to sites that have been prepared for data center development. These sites have procured the necessary power to accommodate hyperscaler and AI needs Data center facilities was basic structure, including power and utility infrastructure, both without the interior fit-out -- are referred to as power shells and the complexity and the operational intensity scales up significantly from there to fully fitted facilities. We are approaching data centers an opportunity to surface value for our industrial properties. As such, we're currently focused on evaluating sites within our portfolio that have the potential to accommodate the level of power load needed by modern operators and end user market. If we are successful, this provides the most flexibility not only has data center candidates, but also as industrial uses because there are more industrial uses, the more power you have to your facility. The powered land strategy also has low capital requirements. And once we complete our powered entitlement phase or get through the powered land stage, we would evaluate the opportunity to pursue the development of power shells on a build-to-suit basis, joint venturing with operators or selling sites to users of the profit and reinvesting that capital in our core business. Building turnkey fully fitted out data centers is not in our scope. We have selected 30 sites for feasibility and further due diligence with input from commercial and technical advisers based on a set of criteria, including the potential for additional power and planning restrictions. The sites on our short list are located in Canada and key markets in Europe. One market you won't see on this slide, for example, is Montreal. While Quebec has exceptional power that is clean, it's -- and relatively inexpensive, the market is currently constrained for power, and we'll continue monitoring opportunities in this market over time. Here are GTA sites that we have selected for further due diligence. For reference, we have overlaid the existing data centers highlighted in blue compared to our sites in orange. In many cases, we've been approached by end data center users looking to buy these assets from us. And while we are open to engaging in these conversations, we continue advancing our power procurement work as we expect this will create value over time. In the meantime, these assets are highly functional industrial buildings that will continue producing strong cash flows. Our standard leases, as a reminder, have demolition and redevelopment clauses, enhancing our optionality to pursue these opportunities. On this slide, we're providing illustrative returns for data centers in our portfolio, which demonstrates why we are investing resources in this opportunity. On flow chart to the left, we reiterating our decision or value creation tree from industrial to powered land to powered shell. And the assets you see on the page is a functional cluster located on an 11-acre site in Etobicoke across the street from an existing data center leased to a global hyperscaler. The economics are interesting. As an industrial use, this building is expected to do great with strong upside in rents, leading to mark-to-market yield of roughly 6% on current carrying value. Under the powered Shell model, we expect significant capital requirements of approximately $100 million. These capital investments would translate into NOI potential of over $15 million or $11 million incrementally. The significance -- or this results in about 11% yield on cost on that incremental capital, i.e., $11 million incrementally on NOI over $100 million of investment. And the significance of these numbers is twofold. On the one hand, this demonstrates the value creation potential each site has as we make incremental progress. On the other, the scale of the opportunity could be significant. If we are successful on even a few sites, we can open up the possibility to deploy over $0.5 billion of capital at highly accretive yields, leading to over $50 million of incremental NOI. And for context, our Q2 NOI run rate was approximately $350 million annually. We'll continue to refine our approach, and we'll look forward to providing more color on this work stream as we advance. And while data centers is an exciting field and can capture one's imagination, our core business is much simpler but equally as exciting. Over the past several years, we've been focusing on establishing an organic growth model for the business that has multiple drivers. This allows the business to be stronger, more resilient and ensure that we, as a management team, have multiple levers to pull at the same time. And some of the alternative uses we talked about earlier will enhance our possibility for growth in the future. So we've grouped our growth drivers into 4 key areas: organic growth of our core portfolio, our development program that started only a few years ago and is already providing a significant boost to our overall NOI. Industrials not only has strong prospects for alternative uses, but also has great potential for ancillary revenue and the list of opportunities that we have in front of us keeps growing. And lastly, our private partnerships is a relatively new business for us also, but is already producing strong results. So let's start with the organic growth embedded in the portfolio. Many of you know that we have significant mark-to-market potential. This slide quantifies the leases scheduled to mature until the end of 2026 and the impact of these leases and the impact of leases that were recently signed that will take effect in Q3 '24 onwards. We estimate that rolling these leases to market without any assumptions for market rent growth could translate into $50 million of incremental NOI by the end of 2026 relative to the Q2 2024 run rate. And going back to the earlier question about debt maturities and pressure from interest expenses, we will demonstrate later that this driver alone is expected to exceed the pressure from interest expense. Now contractual rent growth is an increasingly meaningful driver for us. Only as recently as 2 years ago, contractual rent growth for our portfolio was 2% on average in Canada. Today, the average rent in our Canadian business at 3%, and that number keeps growing as we sign new leases at higher escalators. We've just shown you a few examples at 3.5% to 4% annually. Our European leases are indexed to CPI, which is market standard for euros for Europe. Those that are not have contractual escalators. While CPI is market standard, we're exploring opportunities for higher rent steps similar to the GTA. And just at the end of August, Sjoerd and his team, who is in the room, signed a new lease in the Netherlands for a temperature-controlled facility for 100,000 square feet at top rents in the market, arguably above top rents in the market that have been achieved, well above expiring rents and 3.5% or 3.75% contractual escalators for 5 years, which well above the outlook for inflation for Europe, which again highlights the demand for urban assets in Europe, but also the value of temperature-controlled assets. So with that, our entire rent roll compounds with this growth, which adds up to a very significant number over time. And we estimate by the end of 2017, this driver alone will contribute another $17 million to our net rents. occupancy has been top of mind for a lot of investors and analysts. And when we look at our portfolio, occupancy has remained consistently strong over a very long period of time, fluctuating between 95% and 99%. What's also noteworthy is our retention ratio has remained strong and consistently high, and it's a metric that we focus on and hope to keep strong, especially as we build these long-term relationships with our customers. That said, in a multi-tenant portfolio like ours, we will always have turnover and transitory vacancy. As such, a range of 96% to 97% is a good long-term run rate for our business. Our current in-place occupancy is on the lower end of that range. And we -- as we're focused on rent levels and rental growth, but we expect occupancy to revert to mean over time. Here, we're illustrating the impact of 100 basis points gain in occupancy, i.e., to the lower end of that long-term run rate, which could translate to $6 million of incremental NOI over the Q2 2024 run rate. We note that while this driver is significant, it's far less impactful compared to our mark-to-market opportunity and the impact of rent steps. Turning to our next pillar. Our development program is relatively young. We have started actively pursuing development opportunities only 3, 4 years ago. Today, this program is already producing results as we continue enhancing -- and we continue enhancing the quality of our portfolio. Completed projects are contributing $8 million of NOI annually. Most of these projects got started on spec and are now 100% leased. Our substantially complete projects are 60% leased. And as we finalize leasing, we expect $11 million of NOI from these assets. It's important to note also that all of these leases for new developments have contractual escalators and market-leading contractual escalators, which will compound over time. Here are projects underway. We have 1.2 million square feet in the near-term pipeline to be completed by the end of 2026. And these projects are expected to contribute another $16 million to our NOI. Two of these projects are currently under construction. The third project is fully zoned and is scheduled for construction start in early '25. What's important and exciting to note is that we have a substantial land bank primarily comprised of excess land, which can accommodate another 3 million square feet of density. This land bank is wholly owned on DIR balance sheet, and our private partnerships have similar intensification opportunities. The yield on cost on these projects is stronger as land value is embedded in the current carrying value for their respective income-producing assets. Over time, we can realize yield on incremental capital of over 8%, leading to $20 million to $30 million of NOI potential. We're actively pursuing a number of opportunities on these sites already, including, for example, an active build-to-suit negotiation for Bodegraven in the Netherlands at an 8% yield on incremental capital. Let's put it all together. Our near-term pipeline could translate in $27 million of incremental NOI by the end of 2026. Our medium- to long-term pipeline is expected to double this number for up to a total of $60 million of NOI contribution from our development. And this, again, is on land that we already own. Now turning to ancillary source of revenue. Ancillary source of revenue is one of the reasons we get excited about this asset class and get excited to get to work every day. Our business is becoming much more fun and exciting than leasing a warehouse for 5 years and then seeing your tenants 5 years later to renegotiate the lease. And 3 revenue models we are showing here are just among the few that we are exploring currently. Solar is an established program for us. We already deployed significant capital into this and are generating returns, but we've just scratched the surface of what's possible in our portfolio. EV charging is an area that is coming, and we are starting deploying capital at highly compelling returns, currently primarily for the passenger vehicles of our tenants. We see even larger opportunities down the line as fleets of our customers get electrified or buildings themselves get electrified and combining this with solar enhances the return substantially. Urban footprint that we have in key cities allows us to explore other possibilities. We're currently in the feasibility stage on approximately 50 sites to set up a joint venture with a specialized cell tower operator. The returns are very compelling. And what's interesting is that this does not interfere in any way with the existing use of the sites and alternative uses for the sites in many cases. On the next few slides, we'll talk about solar, which is the most advanced work stream for us. Solar power is an initiative that aligns our sustainability goals with producing attractive returns. The revenue model differs by country, in many cases, differs by province. In Canada, we started in Alberta, where we sell power to our tenants and the buildings so projects are sized to the power needs of our users. We agreed to a rate with the tenant based on current market plus annual contractual escalators, which in Calgary averaged at 4%. And not only is this providing good returns, it leads to positive interactions with our tenants. This directly facilitates their business and adds renewable power at predictable prices. We expect that this model will allow us to strengthen our relationship with these occupiers and enhance our retention prospects even further. In the Netherlands, we sell power to the grid with a guaranteed minimum rate. And with that, we target an unlevered yield on cost of 8% to 10% on this capital. We are also exploring opportunities to enhance this revenue further through battery storage, virtual power purchase agreements, selling renewable energy credits and obviously, EV charging that we talked about earlier. And this opportunity is not just a hypothetical. We have 22 projects completed or underway, which could generate 22 megawatts of power. With $25 million of invested, we are generating an 11% yield on cost on projects completed to date. Now the exciting part is our medium-term pipeline. We've identified another 150 megawatts of additional solar capacity in our portfolio. And these are just projects that screen favorably today vis-a-vis the roof age, regulatory environment and demand for power in the building. So the list could grow over time. And for these projects, we see an opportunity to deploy over $200 million of capital at very attractive yields, which could lead to another $20 million of NOI potential over time. Well, last but not least is our private partnerships. This business has grown significantly again over the last 3 years. Not only is this providing an accretive source of new revenue for us, it allows us to continue to add scale to our business well beyond what DIR could do on its own. Our co-investors are like-minded. They have long-term outlook and are amongst the most sophisticated global investors. And our ongoing interactions provide a unique and different perspective on the markets where we operate, which is highly valuable for us. Now these benefits are hard to quantify, so the page is clearer numbers. DIR currently generates $10 million of margin on a run rate basis from this business. And the numbers are material, especially when put in historic context. And the revenue model is also highly scalable. Property management revenue grows as underlying businesses deliver organic growth. Leasing revenue has a direct correlation to market rents and that we achieve on new leases and renewals. And lastly, the partnerships of the -- and the underlying vehicles can scale materially over time without requiring significant capital from DIR. Our platform is another tangible benefit of pursuing the private capital model. Together with our private partners, we manage one of, if not the largest industrial platform in the country. The entire portfolio at 100% comprises over 400 buildings, spanning 45 million square feet with 3,000 acres of land, primarily urban land and 10 million square feet of development potential, some of which is in active construction or in preconstruction phases. And this scale allows us to think differently, but also provide differentiated offering to our occupiers, hopefully unlocking new opportunities, not only in the investment market, but also operationally. One key area of growth that we've identified as we look at the scale of our business as our major customers. These are occupiers who can benefit from partnering with landlords with significant scale and national presence. The slide highlights a few key names of a much larger list of multinational and multi-location occupiers who together have over 25 million square feet across our portfolio. And many of these groups have much larger footprints in Canada, creating opportunities for consolidations and strategic partnerships. What we did is we started a new initiative earlier this year. We're designing a program primarily targeting these groups. Kim Hill, who joined us with the Summit transaction, has experience in industrial and great relationships across the country is leading this program. What we're doing here is looking to work with our major occupiers on an occupier to landlord basis as opposed to location-by-location basis. This includes standardizing our leases with them so that new leasing decisions are faster and cheaper. We're looking to leverage our scale to drive development opportunities, leverage our expertise for customized sustainability and building retrofit solutions, and we expect that this will allow us to build long-term relationship and improve our retention ratio with these groups and drive new business opportunities. We are already seeing early signs of early wins and early results from this program. For example, we are currently working with a major European occupier who is with us across 3 locations in Canada. Their footprint in the country is well over 1 million square feet, and they are looking to build strategic partnership with an industrial group that has national presence to potentially consolidate their operations. We're currently exploring a build-to-suit opportunity for them in Western Canada and consolidation opportunity for them in Montreal. I know that Kim and I are both very excited of what this program could become, and we will report back as we make progress. With the Summit transaction, we have created one of the leading industrial teams in Canada, merging best practices from both businesses and creating stronger growth opportunities for our key talent. Our team is now comprised of 150 dedicated professionals across all key disciplines within our asset class, focusing on driving value for our customers and results for our stakeholders. With that, and in the spirit of saving best for last, I will turn it over to Lenis for a financial overview or also known as the part that everyone has been waiting for.

Thanks, Alex. So throughout this morning's presentation, we've discussed the industrial market, our investment strategy, key growth drivers of the business, along with our platform. And what provides the foundation that enables us to execute on these strategic initiatives is a strong balance sheet, which takes us back to the question -- I'm sorry, leverage was 36% as of the second quarter of 2024, which is within our targeted mid-30% range. Our other key credit metrics are listed along the bottom, which all show that our current BBB mid credit rating is well supported. In August, we upsized our unsecured revolving credit facility to $750 million and extended the maturity to August 2029. So available liquidity is currently over $750 million plus another $250 million available on our accordion option. So now we'll go back to the question that was raised earlier. Can our historical FFO growth continue over the next few years as DIR refinances $1.3 billion of debt that's maturing in 2025 and 2026. So let's illustrate how we expect to achieve this. With an investment-grade credit rating and a portfolio that's 2/3 based in Canada and 1/3 in Europe, we have the ability to borrow on a secured or unsecured basis in Canadian dollars or in euros. Here are the various debt funding options available to us. We have strong long-standing relationships with secured and unsecured lenders in Canada and Europe who want to grow their exposure to Dream and to the industrial asset class. The debt capital markets have been very active in Canada. There has been strong investor demand for recent REIT issuances leading to tighter credit spreads, making pricing even more attractive. We believe we're well positioned to address our upcoming maturities. The $1.3 billion of debt maturing over the next 2.5 years is all euro-denominated debt, comprised of a euro mortgage, a euro equivalent unsecured term loan with a relationship bank and a euro equivalent unsecured bonds. The weighted average interest rate of this debt is 81 basis points. Our marginal cost of debt has declined significantly over the past year. Euro debt remains cheaper than Canadian debt, currently by 40 basis points. And the incremental euro debt is currently 3.9% for 5 years and about 130 basis points lower than 12 months ago. The 1-year forward curve is currently pricing in a further 40 basis points decline in the 5-year euro rates. So let's assume a midpoint of 3.75% as our marginal cost of debt. By the end of 2026, we expect that the incremental annualized NOI achieved from executing on our growth drivers to outpace the incremental interest expense from refinancing these debt maturities. To recap the growth drivers, we've listed them here, but they do say a picture is worth a thousand words. So here, we have showed at the end -- as at the end of 2026, the incremental annualized interest expense, assuming the $1.3 billion of debt is refinanced at 3.75%, which is about $38 million. This is sized against the incremental annualized NOI potential at the end of 2026. You can see how significant the rent mark-to-market opportunity is at $50 million, which alone outpaces the incremental interest. On top of that, the contractual escalators and indexation, assuming 2% CPI in Europe is expected to add $17 million annually by the end of 2026. Assuming a 100 basis points increase in occupancy, that would add an additional potential $6 million. Substantially completed and underway development projects when stabilized are meaningful contributors with $23 million of NOI potential. And this is not assuming anything from the project under planning or anything from our excess land bank. An incremental solar revenue from scaling up could add a potential additional $5 million. So as you can see, there is plenty of buffer over our incremental interest expense, and we are not using aggressive assumptions. In fact, there is additional upside that's not being factored in here, such as adding more solar projects, accessing additional intensifications within our assets, assuming above 0 market rent growth in our markets, and Graham just stepped out, but I think he was alluding that there is some expectation of perhaps market rent growth returning late latter half of 2025. But we've not assumed for now 0 market rent growth in these numbers and no inflation in Europe. And we also haven't assumed any growth in our private capital partnerships. So we believe the business is well positioned to continue growing FFO after refinancing the $1.3 billion of debt maturing in '25 and '26. Over the past several years, we have upgraded portfolio quality while growing our FFO. As such, our FFO payout ratio has declined to 70%, resulting in growing our retained cash flow after distributions. In addition to growing retained cash flow, we are opportunistically recycling capital. We've completed or are in advanced negotiations on $100 million of dispositions so far this year in the REIT -- across our platform. We would be open to selling nonstrategic assets in our non-core markets at premiums to carrying value and where we expect the future potential returns to be lower than alternative opportunities for that capital. User sales are a unique opportunity to the urban industrial asset class, and these are typically midsized freestanding buildings in urban markets. We have seen user premiums in the 30% range on a per square foot basis, which translates into mark-to-market cap rates below 5% with no leasing costs or downtime. With our significant liquidity, growing retained cash flow and our potential disposition proceeds, let's discuss how we're thinking about capital allocation. We have just over $100 million left to spend on our development projects currently underway, where the yield on incremental capital is over 10%. This is our top capital allocation priority for the near term. Future intensifications in our solar program can produce over 8% unlevered yields. So we would like to do more of this as well. Co-investing with our private partners is compelling as our returns are enhanced by the property management and leasing revenues earned. We evaluate the merits of unit buybacks when we have capital to deploy. While the short-term math works when trading at a discount to NAV, we must also focus on maintaining our balance sheet strength, liquidity and flexibility for the long term. On-balance sheet investment opportunities are evaluated with a focus on accretion to free cash flow and how they enhance the quality of the portfolio while maintaining balance sheet strength and liquidity. And lastly, returning additional funds to unitholders via distribution growth could be a use of capital. And here, we want to ensure that we continue to grow our retained cash flow after distributions and continue the progress on reducing our FFO payout ratio. As we have grown the platform and established and executed on our strategic growth pillars, our total return model has also evolved to focus on growth and reinvestment of our retained cash flow. Our monthly distribution has remained steady and is well covered. We are growing our retained cash flow, and we'll look to reinvest in accretive opportunities that increase cash flow and NAV. We will look to grow our NAV not only by reinvesting the retained cash flow, but also by unlocking value through alternative or higher and better uses for select assets within our portfolio. And lastly, we would look to grow our distributions sustainably over time by growing at a rate that is lower than how fast we grow our retained cash flow.

Thank you, Lenis. We have covered a lot of ground today. And while I'm certain that everyone in the room has been paying very close attention, we will recap some of these key observations. Again, the business growth prospects for us at Dream Industrial in our asset class, which is urban industrial, are amongst the strongest in our history. We believe that industrial markets in Canada and Europe are healthy and supportive and have supportive long-term supply-demand dynamics. And our business is well positioned within the industrial market with multiple drivers of growth with focus on our core portfolio, development, intensification and ancillary revenue. Our business is also well positioned within the capital markets through our strong and flexible balance sheet, strategic private partnerships, ongoing capital recycling and access to unique capital allocation opportunities. We're consistently focusing on higher and better uses, which provide additional sources -- avenues to allocate capital and increase value. Our platform has scale, allowing us to look for ways to add value for our occupiers and open new opportunities. And all of this underpins the potential for continued growth in cash flows and delivering strong total returns to our unitholders. We have achieved many significant milestones over the past few years, and we couldn't have done it without the hard work and dedication of every one of our employees. We are excited for the challenges and opportunities ahead. I hope our enthusiasm for our company is coming through in our presentation. We want to thank our unitholders, our business partners and advisers for your continued support of Dream Industrial. We will now open it up for questions.

First off, congratulations on the great presentation on many fronts. But Lenis, just with the building blocks that you have there in terms of the NOI by year-end 2026, the organic growth is very clear. For the solar and the stabilization of current development projects. What's the incremental capital that you think you require to drive -- I think it's $27 million in totality?

Yes. Thanks, Mike. So for completing the projects underway, -- so we're completing the projects that are currently underway. I think I mentioned and we do disclose there's about $100 million of incremental capital that's required to complete those. And then for solar, we mentioned an incremental $5 million. If you kind of take targeted 8% to 10% unlevered yields, sort of kind of do the math backwards there, it's probably about an additional -- and we're currently generating about 1, so probably an incremental $10 -- sorry, $50 million there.

Okay. So for most of that growth, then you would assume a majority of that gets funded internally. There's no additional debt record?

The business is generating some free cash flow as well. So some of that could be funded by the free cash flow that the business is generating. I think we identified that the development pipeline is one of our top capital allocation priorities as well. And then we are actively looking at opportunistic recycling capital as well. So it's not necessarily all debt funded.

Yes. So yes, new business retains cash flow on a monthly basis. So we are putting that capital back to work. And we talked about capital recycling where we've executed on some. There's a pipeline the assets that we featured or dispositions have reached on the slides are the ones that are complete. There are multiple going user sale discussions across the DIR wholly owned portfolio that will be at similar accretive returns. Pammi?

I wanted to maybe come back to the data center discussion and maybe some of the projects that you're looking at there. Can you talk about sort of where you're at in terms of maybe a timeline on that? And what sort of incremental capital per year are you thinking? And whether that starts, call it, in the next 12 to 18 months or so?

So where we are on that is we have engaged advisers, and we have a working group formed comprised of our development professionals, asset management professionals, who are specifically working through taking some of these sites through power entitlements. We are starting dialogue with utilities, and we are as we highlighted on the slide, at the powered land stage, i.e., we're taking sites through entitlements with the view to add value and unlock the optionality to either then sell sites to users at better values or then look at build-to-suit opportunities and things like that. So the current states not require any significant capital. And as we make progress on any given site, then we'll be obviously communicating this to the market. Timelines are hard to predict at this point, this is something we're spending time on. I think folks were asking us about data centers as recently as Q1 this year. And what we said at the time is that, yes, we're doing a lot of homework. We'll come back to the market when we're ready. So we're ready with kind of this interim update. And as we make further progress, we'll update the market. And we'll also provide guidance on capital deployment prospects, which again, we'll be incrementally positive because of the returns that we are currently seeing. Himanshu?

So you mentioned about the incremental NOI opportunity, mark-to-market $50 million, escalators, $17 million in occupancy gains as well. Pretty significant there. What kind of same property NOI growth it will translate into the next 2 to 3 years?

Yes. So we typically, as you know, provide more specific guidance on same-property NOI growth, FFO growth at the beginning of year, which we will do again in February '25. We commented before that we expect same property NOI growth for 2025 to accelerate from 2024 levels, that remains the outlook and numbers that we're showing are consistent with that outlook. There's been no assumptions change, if you will -- a recent if anything, with some of the leasing that we've highlighted earlier in Bruce's presentation, we've seen some early absorption of vacancy -- at rents that we would otherwise target than we may be expected when we provided our last update in August.

Got it. So would you say almost high single digit for the next 2 years based on these numbers?

Without providing any guidance at this point, we continue to expect acceleration from 2024 levels, consistent with our Q2 earnings calls message. Sam?

Yes. Just on the distribution growth. It was mentioned up here as a future possibility. I'm just wondering what your thoughts are on the payout ratio, which has been coming down nicely in recent years? Is there a payout ratio you're targeting before you initiate distribution increases? Or is it more a function of the myriad of other opportunities that, of course, are compelling right now?

I think it's primarily the function of the latter. We're not only focusing on FFO payout ratio, where we do measure internally, and then there's information available in our disclosure as well to calculate it for all the market participants. We also look at free cash flow, payout ratio and retained free cash flow, i.e., after spending active capital, whether it's maintenance capital, leasing costs, et cetera. And so what we are focusing on is opportunities to reinvest capital and trying to balance this with sustainable distribution growth. Again, with the view that we want to make sure that our cash flow -- retained cash flow increases over time, it doesn't steady over time, but increases over time, i.e., long-term distribution growth should be a lower pace than the free cash flow growth, so that, that free cash flow reinvestment compounds over time providing for us more strong balance sheet in business. Kyle?

Earlier on in the presentation, there was a lot of discussion about foreign capital coming to Canada. Obviously, you guys have been quite successful in attracting that. So I guess -- two questions there. On the GIC side, how are they feeling about Canada? How are they feeling about your pace of investment and the opportunity set ahead of them? And then would there be an opportunity for you to partner with incremental foreign capital if this is going to be kind of the next driver of investment opportunities in Canada?

Thank you for the question. Without commenting on GIC's behalf, we're obviously in ongoing dialogue with them. Hopefully, our collective view and our collective sentiment towards Canadian industrial is reflected in what we've been doing. So the venture that we set up in February 2023 has been of the more active buyers in Canadian context. We've added $0.5 billion of assets to the venture. We have significant assets under contract, both on the development side and the producing side and industrial outside storage. We have currently under contract in Vancouver, which we're very excited about. So, the venture is growing and we obviously, as many of you know, Dream Summit is a reporting issuer so our financial statements with Dream Summit are available publicly. And so that's the best way to track what our venture is up to. And we continue kind of seeing that positive sentiment towards Canadian industrial globally. As far as future partnership opportunities go, we're pretty happy with our setup in Canada. We are in active dialogue for -- to set up programmatic ventures for Europe. And that's one of the areas that we're looking to at scaling.

Hey, guys, sorry to bring it back to the near term because you've painted a very compelling medium-term outlook. But we heard earlier sounds like peak vacancy is probably Q2 of next year. But the tone is improving in the U.S. from an industrial standpoint, are you starting to feel kind of that traction build in Canada? And also I mean it seems like your portfolio may be experienced vacancy earlier. Are you starting to see some leasing in that vacant space?

Yes, thank you for that question. When it comes to our portfolio, yes, we continue to see good activity, if anything, late summer, early fall. I've been on the more active side, a couple of new leases that we announced or talked about today are very, very new -- when we're looking at the activity levels across our availability set, whether it's in our public wholly owned portfolio or private ventures. We are seeing touring activity on a whole range of units, we've seen, call it, over the past 12 months as that activity being centered in 50,000 to 150,000 square foot range. We are in active dialogue on a handful of 200,000 to 300,000 square foot requirements right now. primarily for a new development which is good to see. We haven't seen that big box market being active. So we definitely welcome that, although that's not bread and butter for us. Obviously, it's obviously helpful. We continue to see that midsized market being active. Hopefully, our results speak for themselves, we do achieve rents that are premium rents for our assets. We often say that in our business, we get to sell our product every 5 years. And so we want to make sure that every time we sell it, we sell it at the right price. And as we've demonstrated as well on our slides that this is the much more meaningful driver -- that rent level is much more meaningful driver compared to occupancy and occupancy is a much easier driver to activate. So talking about self-service road, which we just talked about earlier today, the 100,000 square foot asset in Burlington, we leased it at $19.50 with 3.5% steps. In March, Andrew had an inbound at $15, and we could have done it at $15 in March. So that occupancy would have been higher, but the rent differential that we achieve between -- by being patient is significant. And again, that rent differential is going to stay with us for the next 5 years. And so that's what we are focused on and continue to be focused on across our markets. We have one more question over there.

Thanks for the presentation. There was a slide towards the end that spoke about incremental NOI to outpace incremental interest expense. And you had 2 bars there. And on the right bar, there was the $23 million from development, $17 million from rental growth. I think it was 3% in Canada and 2% in Europe. I'm just wondering if we think about exactly, if we think about the right side and that incremental NOI, what do you think is the biggest risk factor? Like -- is it the -- the rental growth slowing in that $17 million? Is that the development? Like what's your concern item that you're watching most? And is there anything to do to offset that risk?

Thank you for that question. The reason we presented the numbers this way is we wanted to specifically derisk the taller bar. So we didn't add any rental growth. We didn't add any speculative development that is not currently underway. So every project that we are showing here is either under construction or there's one project slated for construction start in the spring. But other than that, everything is going vertical today. And we didn't model ancillary revenue that we are actively pursuing other than incremental, a little bit more in solar revenue that we think is very tangible. So we wanted to derisk that chart to then illustrate that even with conservative assumptions, you get to a pretty attractive place and that demonstrate kind of that business is well positioned over the medium term and hopefully, some of the drivers we talked about earlier. And by the way, this is not all mark-to-market that is available to our portfolio, this is just near term, paint the picture that the business is well positioned over the medium and long term to produce solid returns. So that's how we thought about it, and that's why we wanted to show more of a conservative outlook here just to illustrate the point. We're going to try to do better than that.

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So the limiting factor -- the limiting factor on solar historically has been sort of regulatory environment in Ontario, regulatory environment up until somewhat recently wasn't particularly constructive. It has become more constructive. So we are spending a lot of time and leaning into that opportunity. We wanted to obviously prove the model and we're way over kind of the pilot phase in Europe as well. And so now we've done this. It's generating what it's supposed to do. It's actually doing better than what we underwrote. And so we are now looking to properly leaning to the opportunity and scale it up. And we have -- we've dedicated resources very recently to this program within Dream to just focus on this to really drive proper scale in this opportunity. And as we commented before, this is just what's feasible today. There's more roofs than $200 million can accommodate. And so over time, and especially as we advance some of these new revenue models or alternative revenue models, we think that the opportunity can be scaled further. So the limiting factor in Canada primarily is what's getting used in your building. And that's the case in Alberta. That's the case in Ontario. And so as we crack the code, if you will, on how that works, on how we can sell or maximize the system on the roof. And the market is moving that way. The buildings get electrified, fleets get electrified without even using things like virtual PPAs, we think we can get to even more capital opportunity to be deployed and then maximize system capacity on various routes, which again is not in this $200 million spend that we identified.

The $200 million spend that implies a $18 million, $20 million NOI near at 5 annualized by the end of 2026. Just wondering [indiscernible].

Certainly, our goal is to -- and again, that goes back to the question. I think what we wanted to illustrate on that slide is kind of a conservative outlook. But certainly, the goal is to go faster if we can. One more question.

You did a great job of outlining that incremental $100 million or so of incremental NOI. When you look at your IFRS valuations and part of it is a DCF approach, how much of that $100 million is captured currently in your IFRS value?

It's a great question. I think when it comes to new revenue, not at all. When it comes to development, it's primarily at cost until it gets stabilized. When it comes to mark-to-market opportunity, arguably that's reflected in appraisals and appraisers do factor that in, although we don't always agree with their views. And yes, when it comes to higher and better uses, again, not at all because that's not how appraisal methodology works. Does that answer your question?

A follow-up on that question. You mentioned a significant optionality in data centers, cold storage, mixed-use development, self-storage. To what degree are those reflected in your IFRS value. And if they're not reflected today, when will they be?

So the existing cold storage facilities are obviously valued as such. When it comes to opportunities to scale this further, yes, that's not reflected, again, the land bank that we have is embedded within the IFRS value so effectively when you're looking at implied per square foot metrics, whether it's IFRS value or implied by the stock price, the $3 million development potential whether that gets activated as industrial or cold storage, that's already included. And look, we didn't talk about many other things that we're pursuing, we are looking at opportunities to partner with operators in the cold storage space and really leverage our development expertise and land bank and their operating expertise to then build primarily refrigerated facilities. But again, these are earlier stage opportunities. And as we make progress, we'll report back. And yes, as we always said, we're very much like the space. It's hard to build on spec. But when we have an opportunity to partner either with a user and operator, we're definitely looking for those. When it comes to self storage or intensification. It's not factored in, but it's factored into our decision making. So in many cases, when we look at user sale opportunities, we do look at how does the building -- this building look over the long run. And so we have users who knock on our doors, for available midsized urban assets, and they would put values that are on these assets that are 30% and in case, 50% above the IFRS, which sounds compelling. And so then -- but then we look at what are the prospects for these assets. And so we had one case where we had a user approach us on a vacant building, at well over $300 a foot and well below 5% mark-to-market yield on, that we could achieve on that asset. Now that asset is located right next to GO Transit. And over medium term, and even if you use 15 years as your time horizon or 20 years as your time horizon, you can see that this is residential density, screams as residential density. And so if you use very moderate assumptions on residential density, and use market rents. So basically, the alternative to selling it to a user at a very high price is to lease it as industrial, carried as industrial for the next 15 years. And then 15 years later or 20 years later, realize some of that upside. That's very quickly, that's $350 a foot or whatever number doesn't scream very attractive over that time horizon as fundamental kind of urban industrial land or urban land. And so that's what we look at. And so it makes our analysis more challenging. It's not as simple as, yes, well somebody knocks on your doors at a premium to IFRS and to pursue a sale. Does that makes sense?

So I just wanted to come back to one of the responses to the earlier questions. You mentioned exploring JVs in Europe or private capital JVs. Can you just -- Alex, can you maybe just expand on that? Is that -- are you thinking about the -- some of your existing assets? Would these be new acquisitions? Or -- and multiple or single partners?

Primarily single partner in various conversations. Our preference generally is to pursue a greenfield venture, i.e., identify a program and then look for opportunities in the market. we wouldn't be opposed to starting the venture with vending in some assets at the right valuation. Now that valuation discussion becomes sometimes challenging. So that's why it's not our first preference. But we are in dialogue other than this, it's difficult to provide kind of more guidance as we make progress, we'll report back. And obviously, the filter that we apply to these discussions has to be compelling -- compelling financially for DIR, not only from a growth and scale perspective, but has to have a compelling reason. So that's the main filter. Doesn't look like we have any further questions. We have one more question.

Thank you. I just to know how do you prioritize between IFRS NAV growth versus cash flow retention because the REIT is dripping right now, and issuing monthly under $14 per unit. That will hurt your cash flow retention if you stop it, but I would think it's probably better long term for shareholders -- a total return growing the NAV. How do you balance that today?

That's a great question. Thank you for asking. I know it's being asked from time to time. Now in our business, DRIP is not something that we turn on and off on a weekly basis. So these are medium-term decisions when we look at it. And obviously, at a certain price, it doesn't makes sense, and we've turned off DRIP before and turn it back on afterwards. But the span of time between these 2 decisions is significant, and it's not something that we do on a monthly basis. And so as we look at our capital planning and business plan, we obviously evaluate the -- whether there's room for DRIP in our capital allocation stack. -- and how it impacts. Now 25% number seems like a lot. However, you look at the impact of this DRIP on FFO and on NAV. It's quite negligible. And so that's something that we also keep in mind as just for perspective. But yes, definitely top of mind. And every few months, we definitely evaluate whether there's place for DRIP in our capital sources, if you will.

Well, thank you, everyone. Well, Alex, the rest of the management team and I will be available to chat further. Lunch is available in the room next door. For those of you that aren't able to stay for lunch, there is also going to be food to take away. So I'll thank you again for your interest and support. And this concludes today's session.

Thank you.