Nexus Industrial REIT (NXRUN) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Nexus Industrial REIT Fourth Quarter 2022 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kelly Hanczyk, Chief Executive Officer. Please go ahead.

Thank you. I would like to welcome everyone to the 2022 Year-end and Fourth Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Robert Chiasson, Chief Financial Officer of the REIT. Before we begin, I'd like to caution with regard to forward-looking statements and non-GAAP measures. Certain statements made during this conference call may constitute forward-looking statements, which reflect the REIT's current expectations and projections about future results. Also during this call, we will be discussing non-GAAP measures. Please refer to our MD&A and the REIT's other securities filings, which can be found at sedar.com for cautions regarding forward-looking information and for information about non-GAAP measures. So in the last few years, we've been focused on the high grading of our industrial portfolio. In 2022, we continued with the strategy closing on 16 high-quality industrial properties. We have 5 more A-class newbuild properties, 2 of which are unit deals coming online throughout the year, which will add about another 1 million square feet to our portfolio. We have a solid pipeline of additional acquisition opportunities, including unit deals that we're currently reviewing. Our development pipeline is strong, and we are preparing to break ground on 2 sites to spring. So in Southwestern Ontario in London, we are getting ready to break ground on 100,000 square foot addition to our building at 1285 Hubrey Road. There's significant demand for the addition as we are working through 3 possible tenants where we're seeking to maximize our return for the site. It also looks good for 2 existing tenants expansions in the Southwestern Ontario portfolio to add another approximately 65,000 square feet each of expansion in space to their existing premises. We're currently finalizing the build cost for each of these to see if we can move those forward. As mentioned previously, the REIT is 22 acres of excess land at the Titan industrial site in Regina Saskatchewan that was acquired in February 2022. We will be constructing a new building here of approximately 312,000 square feet. We now have a signed lease in place for a minimum 200,000 square feet with a strong covenant tenant. We also have offers out to 2 additional prospective tenants for the balance of the space. The antenna breaking ground here in April, which will lead to, I think, a spring 2024 delivery or late winter 2024, early spring. This still leaves us with about 6.5 acres of developable land left at the site. The development side will continue to be a focus for us over the next several years as our developments will provide outsized returns to the REIT. We continue to have an active pipeline of off-market opportunities, and we'll continue to recycle capital into both developing the aforementioned sites at higher returns within our existing portfolio, newer Class A industrial opportunities with solid annual increases in assets where we see the ability to increase rents significantly on renewals. In Richmond, BC, we had a bit of a setback in State Canada, which was supposed to occupy half of the newly renovated 50,000 square feet executed determination provision allowing them to back out the notes just weeks before taking possession of the space. We pivoted quickly and we're working with the other tenant to repurpose the space into a private Rapid club called the Greater Vancouver Sports Club, which is now online with a focus on pickleball, which is North America's fastest-growing sports. We will include 36 indoor and outdoor courts well underway with the conversion. It's moving very, very quickly, and the site looks fantastic. They're currently taking memberships and we hope to have them live and operational by mid-summer. We continue the process of reallocating and high-grading our portfolio by selling some of REITs office retail and noncore industrial buildings and reinvesting the proceeds to acquire high-quality industrial buildings creating an institutional quality portfolio. I mentioned last quarter that the REIT was under contract to sell a 4-property portfolio of smaller industrial properties in Saskatchewan. That deal is now dead. We do have one smaller one still under contract. We are currently under a firm agreement to sell our grocery-anchored retail property in Victoriaville, Quebec. So post sale of this Victoria build property, over 90% of the REIT's NOI will now be derived from the industrial properties. This will continue to grow throughout the year as we close on all the aforementioned acquisitions. So it looks pretty positive that will be by year-end approaching 94%, 95%. I'll now hand it over to Rob Chiasson to give greater detail of the REIT's financials.

Thanks, Kelly. Year-over-year same-store NOI was up $400,000 or 2.2% for the quarter, benefiting from strong renewals in Southwestern Ontario. Approximately $150,000 of the year-over-year increase is attributable to items that will not recur in 2023. However, we expect the strength in the Southwestern Ontario market, where we have approximately 400,000 square feet expiring in 2023 will continue. Partially offsetting will be the expiry of 2 leases in Western Canada where renewal rates are expected to be lower than expiring rents. Acquisitions completed on November 1, contributed approximately $450,000 of NOI in the fourth quarter and will contribute approximately $200,000 of additional NOI in Q1 2023 when they are owned for the full quarter. As Kelly mentioned, the repositioning of approximately 60,000 square feet at our Richmond BC property was anticipated to be complete in the fourth quarter, and this has been delayed in the third quarter of this year. Upon completion, this is expected to have an approximately $600,000 positive quarterly NOI impact. Interest expense was up approximately $600,000 in the fourth quarter as compared to the third quarter with higher levels of debt from financing $80 million of acquisitions completed in the second and third quarters. More of the REIT's debt was also in the form of floating rate interest. Proceeds from the offering completed in December, we used to pay down debt in the March $717 million acquisition of the Ford distribution center in Casselman, Ontario was financed with variable rate debt drawn on the REIT's unsecured credit facilities. $80 million of proceeds from the December offering and the establishment of $375 million unsecured credit facilities provides the REIT with the flexibility required to fund the announced acquisitions and certain of the REIT's development plans. We are monitoring the markets, and we'll consider swapping variable rates under the credit facility for fixed as and when swaps are priced an acceptable ranges. In 2023, we have approximately $50 million of mortgages with a weighted average interest rate of 4.26% maturing. 5-year Government of Canada bond yield was approximately 2.8% this morning. The maturing mortgages were refinanced with 5-year mortgages, there wouldn't be a significant spread on refinancing based on today's bond yields. I'll now turn the call back to Kelly.

Perfect. Thanks, Rob. On this lovely day in the capital markets, we'll open up the line to questions.

[Operator Instructions] The first question comes from Kyle Stanley from Desjardins.

So just looking for a bit more information on the Victoriaville disposition. I'm just curious on cap rates, where the value received compares to your IFRS values and maybe just the timing of the deal.

So the Victoriaville disposition is roughly in line with carrying value as at Q4. However, the carrying value was adjusted to reflect the selling price. I believe the deal is expected to close in April towards the end of April, Kelly? Cap rate, I'm not certain of hand.

Yes. I feel, Kyle, it was a decent offer, considering the market. I think we're happy with it.

Just going back, there's been more focus on the development opportunity within the REIT this year. I think if you walk through in your prepared remarks and in the disclosures, starting development in Regina, the 100,000 square feet in London. You've got the project in Hamilton. I'm just wondering what else could you start? I think you did mention some stuff in Southwestern Ontario and what does your development capital budget look like for 2023?

Yes. So let me start. So the London one, we are breaking ground in April. We'll start to move earth in April. It's in for permitting. We had an offer on it already bought one of our existing tenants, it looks like they want it in the offer is much higher return for us. So we're slowly working with them on a, I guess, a broader deal, I would say, that enhances our return on that site. So I think that could be a real home run. It'd be probably I'd say, at least a 10% cash on cash yield on that site. The 2 that I mentioned, the expansions square feet each. One of them apparently has got board approval. We're just going through final costing for them and I've negotiated just a return on that deal. So we'll see if that gets through. So it depends on, I think, what the final pricing is on there. The other one in Windsor, that's the other one. They contacted us the other day just to firm up pricing to get final approval for them. And then in Regina that one, we will be breaking ground very shortly because we have a time constraint to get the tenant in there, but it doesn't look like it's an issue, but pricing has come in pretty good. I think our return there is going to be somewhere around an 8.75% cash-on-cash. So pretty good for Regina. It will be a brand new build. We have 110 already. We're working on a couple more to fill the space. So pretty positive that, that will be 100% full by the time we're finished. And then we've identified other potentials in London, Ontario that we have, but they're a little bit down the line. I'd say those are next year type projects for us. And then on the Hamilton development sites, I think 2 of them are longer term. One of them could possibly break ground, I'd say, early next year. So at the end of the day, I think we see outsized returns from our existing portfolio versus what you can get in the market. So Rob, I'll talk -- Rob will just jump in here on the capital side.

Yes. So we've got developments in various stages. The Regina project is roughly a $43 million development anticipated to be roughly $43 million development. We're probably looking at about $75 million of development costs. And then the majority of that will be financed by construction financing and the equity component would be the remainder.

And just one last one for me. Rob mentioned of the assets held for sale and maybe the dead deal on the 4 noncore industrial portfolio. I'm just curious, the -- what's included in that house for sale now, I'm assuming that the Victoriaville asset, but maybe one else?

Yes. So the Victoriaville asset, it's some office properties that we previously were selling, I believe, 3 Montreal office -- suburban Montreal office properties. And yes, so the 4 blocks please.

Okay. And just some color on that, on the office properties, Kyle, 2 of them have some term to them. One of them has low return, but 2 of them are -- we're in the process of -- the 2 main tenants are under renewal right now that we're working through the renewal, and that looks good that they're both renewing. So getting term on those will help potential sales down the line.

And I guess, are those being actively marketed right now or are you kind of waiting for to be a stronger period in the summer? How are you thinking about that?

So what I'm doing is I'm going to lock down the 2 renewals first and then wait probably, we'll see how the markets are. Right now it's a little volatile all over the place. So we'll wait for the best time to do it or we'll soft market with some groups that we've been dealing with and see if we can get something done there.

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

Just when you're thinking about future development initiatives, can you just discuss how development yields may have changed across your markets when compared to a year ago?

To be honest, like we're looking at developing Regina, we had that site. We bought it with the land and it had a development plan. We just went out marketing it to find a tenant. So we have a large tenant. So we will begin to go there. It's a very strong covenant so it's a little bit of a no-brainer for us to go on that one. And the we were doing spec. I guess, technically is still spec, but we do have 3 groups that are kind of clamoring for the space. So overall, demand is still really strong especially in Southwestern Ontario. We had a tenant that was looking to leave thinking they could go build their own building, and now they get a short-term renewal and they're coming back to us saying, we have nowhere to go. And so it's positive from the fundamental side and where we're looking to develop.

And just lastly, we noticed the fair value losses on the investment properties. Do you think there is more price discovery that's yet to happen? Or are we somewhat in the later innings as far as valuation relating to the concern?

Well, just a question where we think cap rates in the markets are going, but I think we've reflected the changes in cap rates to this point. I don't think there's any more adjustment required on the books. Kelly, I guess maybe you can comment on where you see cap rates going in the future?

Yes. I mean I see it all over the place. I mean there's portfolios out that I'm seeing in the low 4s. And it depends on the quality. It depends on a whole bunch of different things. But I think what we did in this quarter was go through ours and make some adjustments just because there has been some cap rate decompression. But we weren't overly aggressive in the past of taking write-ups. So at the end of the day, I think what we have pretty fairly reflects that I don't see any more adjustment coming in the short term anyway, unless god forbid the markets absolutely collapsed, but I don't see that happen. There's still strong demand in the industrial sector, it is really strong, and even where I thought the one office building that we have there that we had 2 tenants coming up in the smaller suburban it looks like they both reached out to top renewals. So it looks pretty positive for us.

The next question comes from Munish Garg from Laurentian Bank Securities.

Congrats on the quarter results. Just to start on the Q&A. Just a bit more color on Richmond BC. So could you please remind us the time line on the completion of the entire project and whether right now you're looking for any sort of exit strategy over there or it's a bit too early for that?

No. That's a good question. So like I said, we were turning over -- we got 2 different tenants. I'll try to give more color. One of them was we had started, but we've given them a break because they were relying on State Canada as part of their business and we've done a shift. And so the site has gone a major over a major overhaul. So it looks fantastic. And they're up live on the private, call it, pickleball Club, that rackets to be Badminton, pickleball and [ pedal ]. I think it was one of the top growing sports in North America, actually is the top. So without even marketing their membership list is growing really quickly, and they haven't even launched the marketing yet. So I think it hopefully is sooner than later because we're well underway. The courts are in, they just have to paint the outside courts. So it's taken a little bit of a delay, like we were ready to turn over and had done a walk through 2 weeks before and because of COVID we had a delay, obviously, and they did have an out if we didn't hit a certain date, and then they surprised us with a notice to not follow through on the lease. So at the end of the day, I think overall positive for the site because I think the racket Club will be a huge success. Looks fantastic. There's pretty big demand for it in that. So we're delayed, call it, I don't know, where we would thought December looks probably I'm thinking it's June, July. It could be surprised to the positive, but that's what I'm thinking in July, sometime in July. So at the end of the day, we have kind of shifted plans on the development as well. So because we now have the front of the building where our green space was that's courts going to be courts, the footprint of our expansion that we have. So we are still planning on about 74,000 square feet there that we will go on, I'd say, end of the year. And it just takes away some of the land, which would have been bonus density. So I think the plan for the site as a whole is to build the 74,000 square feet. And then once we've done that, we will look to exit that site. So I would think at some point in about a year, 1.5 years, we would look to exit and then redeploy that capital elsewhere into pure-play industrial like we've been doing for the last 2 years.

And just one more for me. Just on the acquisitions that you announced, could you please provide a range on the CapEx for those acquisitions?

Sure. I'd say overall, there is the -- let me just think we're between 5% and 6% or there's a couple of more, so call it for 7.5% to 6%. One more comment on this one just as I say on the exit. So we would look to separate title everything and then I think that's how we can maximize value on the site and then sell the units individually.

The next question comes from Brad Sturges from Raymond James.

Just to continue along with Richmond there for a second. Just with State Canada, can you remind us of what the size of the space and the rent was? And then what would be the conversion cost to get the new pickleball tenant in?

Yes. So I think we're throwing a couple of million bucks in there to get it done, but so is the developer. He's throwing in quite a bit of capital on his own. So at the end of the day, it's not enormous for us. And I believe -- we're working a new deal with the existing tenants. So where they were like, I think, $52 and Escape was call it, $30 kind of blending them that the overall space was going to be real $39, $40 a foot.

How much space is the pickleball from the beach?

They're going to be big. They're going to be that entire 60,000 square feet plus additional that they're going to be doing in the first phase.

So despite the step back, it sounds like your real strategic attention with the asset hasn't changed that you'd still proceed with the expansion and then look to exit. What would be -- what would change your thinking around that, given you have a pretty healthy development pipeline of high-quality opportunities on the industrial side, would there be something that you would have in mind where you would maybe rethink whether or not that's the right trade area to be deploying capital?

Yes. So I think I can sum it up greatly. It's in Richmond, B.C. I think we can build for about $300 to $350 a foot, and I think we can exit somewhere around between $1,200 and $2,000 a foot on the new 74,000 square feet. So I think the return there is pretty big. I mean another is pretty valuable land and pretty in-demand area. There's just no land in which in BC or in Vancouver, greater Vancouver. So I think the returns will be well worth it when it's all said and done.

And Rob, just to go back to your comments on the development budget. I think you referenced a couple of numbers there. The $75 million, was that for the budget for '23? Or was that related to just return?

That's for Regina and some of the Hamilton as well as I think that includes London.

Do you have a budget for '23 in terms of what you plan to spend?

We're still -- I mean, we haven't committed aside from the Regina development we haven't committed yet. So we're still refining the budget. But we could be looking at development of up to about $250 million for 2023. That's total cost of that.

Costs, yes or the large portion being funded by construction loans?

Correct. Yes. And then take out financing with the lift we get on development, takeout financing on one project might actually finance the equity piece on the next project.

When you put a 10% or 11% cash-on-cash return, say, on London and then really the valuation on it is probably about a 5.25% cap, we could effectively pay for it just in your returns.

Last question, just to go back to the acquisition pipeline. Besides what's under contract, it sounds like you're working on some other kind of unit deal opportunities at the moment. Just wondering if you could expand on some of those opportunities and where they might be?

Obviously, we're always working on things with our lending partner. So that is one that we will be exploring, another one in BC that we have a potential unit type deal. So 2 right now, and we're always talking with guys. So it's just like I've always said, it's along the process to get guys on board and comfortable with the story and what we do. So yes, I mean there's no shortage of opportunities. Where we're focused right now is closing on what we have, getting the development going I've always said it's been a transition to get us to this institutional quality. And I think if you look at all the stuff that we're bringing in and that we brought in, it is institutional quality and it's Class A. So we'll execute on that. We'll execute on our London renewals where the majority of it is and show the same-store lift in that portfolio and execute on our development, which should bring outsized returns. And I think once we continue to execute on all those capital markets will look to see what we're doing and start to really appreciate what we've done to the company and the story. So that's going to be our focus for the next year.

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

A lot of small details thrown out. I think you said you had a couple of -- not nominal, but roll downs in Alberta. And I know we're expecting pretty good growth in Southwestern Ontario in 2023 and beyond but with -- I think you're at 70% of your portfolio is now same properties. So just looking to 2023, what should we be thinking about as a reasonable assumption on same property growth?

So we're probably looking at about, I'd say, $750,000 give-and-take on the year.

$750 million of upside on total NOI? Like [ on a rent basis ]?

Yes. Net of the downside in Alberta or Western...

Yes. We have 2 London alone, call it, 10, 15 million, call it, 150,000 square feet, where we're probably up, I'd say, $5 a foot on renewals. That's just 2.

So $750,000 on the total portfolio and then I guess I could pro-rata that somewhat I could get to more of a same property other, but you guys know what that might be actually on a same paper percentage basis?

Not up.

COVID story, I don't remember the detail the disclosures that was I apologize. But what was the -- what's the greens price for that asset?

We haven't disclosed that yet. Are we under confidentiality, Kelly?

We are.

Okay. So Victoriaville and then the 3 office properties in Montreal, that's the $70 million as held for sale. Correct.

And then just with respect to Richmond, does the vendor support continue until...

Yes.

Last one. I guess the development numbers are a bit confusing. So I heard $75 million, then I heard $250 million. I'm trying to get a sense of what is the spend is projected to be sort of this year or what you think it's going to get started in terms of the capital outlay?

So as mentioned, there's a number of development projects that we're looking at, not all of which are at advanced stages. However, there's roughly, as I mentioned, about $250 million of potential development projects that could get started this year. Of that, I'd say it depends on the start time, how much of that gets spent this year, but the total...

I'd say, Mike, so we have Regina, which is probably 312,000 square feet and it's probably about $136 a foot. So it's going to be around $42 million because that is breaking ground. We've got Hubrey, which is going to break ground. I think that's somewhere around $14 million or $15 million. Those are the 2 immediate ones that are going to start. I'd say if we did the Windsor and the St. Thomas, which quite frankly, St. Thomas can go on a lot many boom considering the lithium plant that was just announced for there by Volkswagen. But that's combined 130,000 square feet, probably $150 a foot, $175 a foot on those that, if anything, those would probably be late fall type breaking. So I think of what we actually break ground on and have to spend the 2 immediate ones are Regina and London and Hubrey.

So that would -- okay. Yes, that would be like $57 million for those 2. And then I guess the $75 million is an incremental on stuff Okay. And then the $250 million, I mean, is that more of an aspirational figure? You actually think they'll start on $250 million of projects as you're -- it's pretty big delta in what you guys have described?

Yes. I don't think we'll start on that much this year. I think what is feasible really for this year is probably the -- which one later in the year. We've got Hubrey and Regina for sure, possibly the 2, the Windsor are in St. Thomas, and I would say one of the RFA developments late in the year or early next year. So that could be pushed over.

The next question comes from Jimmy Shan from RBC Capital Markets.

So I just want to clarify on Rob, on your $750,000 NOI comment. So if I take Q4 NOI, just simply annualize it, it's about $100 million. So what you're saying is at $750,000 to $100 million?

Yes, that would be year-over-year increase, yes.

So that would just -- and what is that $75,000, is that rental lift on the leasing securities and the role and some of the roll downs? Does that include other rent escalation as well? Like how do we think of that?

Yes. So that's the rent on renewals 2020 -- or the rent lift on 2023 renewals that of some lost NOI on some 2 renewals in Western Canada. We may end up -- I mean, we may end up ahead of that. It depends on how some of the releasing goes. Kelly is working on some deals, blended extends that we could see our same-store NOI significantly up above that, but that's the most likely in the bag increase.

And so then when I look at the lease maturities like in Ontario, as you mentioned, 400,000 feet, most of which is in London at $6 rent. I presume market is somewhere in the $10 range. So that alone would be $1.6 million, if my math is correct. So I guess the roll down of Western Canadian assets more than offset costed a lot of that?

I think the roll down, Kelly, correct me if I'm wrong, but about $750,000.

Of renewal? Yes. I mean we've got that on 2 tenants alone. And then we have 2 renewal lockdown. And honestly, it's over double the rent of their existing, and that's about 150,000 square feet that are complete.

Maybe turning to the funding for the acquisitions. I think you mentioned Castleman, you've gone on the credit facilities. Are you planning on putting mortgages on that facility? And then how are you planning on funding the remaining $200 million in the content?

Yes. So the expectation right now is that we'd add those assets to the unencumbered asset pool and draw on the credit facility to close.

And how would the rate compare if you were to sort of putting in a new mortgage on it? Like is there a reason not who you want to be putting a mortgage on that today?

Well, today, we might look at putting a mortgage on given where GOC is. Putting a 6% mortgage on wasn't something that we were looking at. But on Monday and again this morning, swaps traded down and GOC traded down. Many of 5-year mortgage financing as of today, probably looking at about 4.5% based on today's bond yields. So we would initially put it on the facility, and that doesn't mean that it's permanent -- that's permanent financing. We'd look then to swap the facility where it made sense or we could acquire some of the future acquisitions and put -- having mortgages on them, that's a possibility. However, what we're trying to do is build up our unencumbered asset pool and get ourselves to the point where we could be rated and issue public debt. And so even taking it down on the facility, if we put a swap on top of it, it brings our interest rate down to in and around 5% depending on the length of the swap. So we're not locked into the higher short-term interest rates.

So that would be roughly $155 a foot. Is that kind of where prices are today in London or...

No. Rent now is cranking pretty quickly. Here's a crazy example for it. I just was looking at something in development charges to build new industrial, there is $25 a foot. So it makes pricing pretty tough for new builds for guys. We don't have bad development charges on our expansions, obviously. But I would say those deals were signed and done when market was 9 and change, I think it's over 10% now 10, 11, 12, and it's moving pretty quickly still. So at the end of the day, I think finding anything under $200 a foot is good. We are looking at others that have pretty low in-place rents. And I'm talking alone. And so on renewals that you can really get some same-store growth. So yes, I mean, the market is very, very, very tight. There's still pretty big demand going on because the development charges are really prohibitive to new builds there. So I think at the end of the day, we're purchasing those that are on a 6 cap. And I think with the amount of WAM, especially on the one that we have in the building growth it has a ton of development land and the tenant that is there is growing and growing substantially and has been. So while it's getting a 150,000 square foot addition and it's 300,000 feet, I think, that they may need to expand again, which is, again, just bonus for us.

Especially at that cap rate.

The next question comes from Himanshu Gupta from Scotiabank.

Just to follow-up on the same-property NOI growth for this year. So it looks like it will be less than 1% based on some of the maths discussed here. So just wondering what kind of rent escalators do you have on your in-place portfolio right now?

So it varies. I mean, we've got a piece west that CPI. And then on the new stuff that we're acquiring, we're typically looking at higher rental rate growth, 3.5%, 4%. But the real story, I think, is expiries more so than built-in steps in rent. And so it's interesting.

I think at the end of the day, we can walk you through Himanshu, but Southwestern Ontario has significant rent growth. Most of our Western Canada that has CPI the new properties that we're buying in London and whatnot have embedded 3% to 4.25% increases. So I think it's probably better offline just to walk you through it all.

So we spoke about the industrial lease expiries in London, specifically, you talked about the write-down in Western Canada. What about the, I think, 186,000 square feet coming due within the retail portfolio? Are you expecting more down stale as well or you're expecting like flat renewals? Any color there on the retail portfolio?

On the retail portfolio, 186,000.

So within the retail portfolio, the lease expiries, which is coming due in this year, what are your thoughts there?

Sorry, maybe the connection is not clear, but which market?

I'm just talking about the retail portfolio.

Retail? Okay. Yes, I think retail will be relatively flat. We've seen 1 or 2 positive moves on leasing, but overall relatively flat.

Yes, it surprisingly held up. It's held up pretty well, I think, at the end of the day. So overall, I think, and the results here, it looks positive. So I think we could say free model like it's probably like 1% overall on the retail.

And then just turning on the balance sheet and sorry for some background on there. So turning on to the balance sheet there. So unsecured facilities, I think, $375 million. My question is, what leverage do you need to maintain to capture the rate? I think there's a BA-plus 170 basis point interest rate on that? How much leverage do you need to maintain there?

Sorry. leverage in order to maintain the spread like at 170 or how much...

That's, yes, go ahead.

50% or less, I think, debt to total assets.

And then you were looking at the acquisition announcement and the development spend, do you see yourself below that 50% leverage?

We do, yes.

And the effective interest rate on that unsecured facility would be something around mid-6%. Is it fair to say that you're looking at where the BA is right now?

Yes. I mean it's -- but I don't know that you can look at it that way because we will be looking to swap it out and reduce our interest rates. That's the short-term rate, but we can swap it at any time to lock in at a, you know, 5-year swap this morning was trading at around 4.95%, a 3-year swap, just 5%, 5.25%, let's say. So yes, 6.5% as long as we're floating. But we always have the opportunity, and we're looking closely at opportunities to fix the rate by way of swaps.

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

Your occupancy has been pretty stable in all of your asset classes, but just wondering, and it sounds like from your commentary, there's known large nonrenewals, but how should we think about occupancy trends in each of the buckets through 2023?

So Industrial will pretty much stay full at the end of the day. The retail, I think, has been pretty constant since we've had it. So I don't think there's any surprises there. Office, we have -- our 3 office buildings are good. Our building on Stanley is good. We do have one in St. John that we have for sale that hopefully gets moved. That's always been a little bit of a problem asset for us. So I think overall, in the office, it will probably stay fairly stable as well.

One of our largest tenants in the Old Montreal office portfolio is expected to vacate as well. So there could be a little bit of pressure in that portfolio.

And then just with regards to industrial and then just a broader commentary on the strength of the market, but let's say you did have a nonrenewal of a tenant, how long is it at this point to find a replacement? And then obviously, there was a rent spread probably to your benefit on that?

Yes, I don't -- other than the one we mentioned in Alberta, we don't really have any that I believe will be nonrenewals. So we're well working on everything. We did have actually in London, one nonrenewal end of May, but literally, I think it at least for June 1. So it's pretty easy to lease on the industrial side, especially in those markets. Yes, other than the Alberta one, I don't see anything nonrenewing.

And then just on the spreads, obviously, Ontario and Quebec very strong. You leased a vacant space in one of your Alberta properties. Can you -- like that was a negative 30%. But was there something anomalous to that? Or is it?

Yes. That was a space that's been baked into a 25,000 square foot space that's been vacant at the Royal Vista property for quite some time. And so as noted in the MD&A, where a space has been vacant for a period, and there's no rents to compare it to, we take the average rents for the building. So the average rent for the building was, I think, around $16 a foot compared to an $11 or $12 lease. And so that's what led to the negative leasing spread. But I think in Western Canada, for the most part, we're pretty close to market rents, but that particular property, we had the tenant technical vacant on us on 25,000 square feet where the rate was fairly high.

On Richmond, the $600,000, can you just remind me, I missed it in your commentary, that's a quarterly figure. And that's additional to anything that's being collected through the guarantee, but also is there still a Class B unit issuance associated with that at the time that it's complete or...

Yes, there shouldn't be. I think we settled. So at the end of the day, there would be more Class Bs on that one.

This concludes the question-and-answer session. I would like to turn the conference back over to Kelly Hanczyk for any closing remarks.

I just want to thank everybody, and we'll see you next quarter.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.