Pro Real Estate Investment Trust (PRVUN) Earnings Call Transcript & Summary

Good morning, and welcome to the PROREIT's Fiscal 2021 and Fourth Quarter Results Conference Call. [Operator Instructions]. Management will make a short presentation, which will be followed by a question-and-answer period open exclusively to financial analysts. [Operator Instructions]. For your convenience, the press release, along with the fourth quarter financial statements and management's discussion and analysis are available at proreit.com in the Investors section and on SEDAR. Before we start, I have been asked by PROREIT to read the following message regarding forward-looking statements and non-IFRS measures. PROREIT's remarks today may contain forward-looking statements about its current and future plans, expectations, intentions, results, levels of activity, performance, growth or achievements or other future events or developments. Forward-looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, levels of activity, performance, achievements, future events or developments to differ materially from those expressed or implied by the forward-looking statements. As a result, PROREIT cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. For additional information on the assumptions and risks, please consult the cautionary statement regarding forward-looking statements containing PROREIT's MD&A dated March 23, 2022, available at www.sedar.com. Forward-looking statements represent management's expectations as of March 23, 2022, and except as may be required by law, PROREIT has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The discussion today will include non-IFRS financial measures. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from the REIT's IFRS results. For a description of these non-IFRS financial measures, please see the 2021 fiscal year and fourth quarter earnings release and MD&A. A reconciliation of non-IFRS to IFRS results, as applicable, may be found in the earnings release and MD&A for the 2021 fiscal year and fourth quarter. Please refer to the non-IFRS measures section in the MD&A for the fourth quarter for additional information. I will now turn the call over to Mr. James Beckerleg, President and Chief Executive Officer.

Thanks very much, operator, for your introduction. And good morning, and welcome, everybody. Joining me today, as always, is Gordon Lawlor, our Executive Vice President and Chief Financial Officer. But also joining us today on the call is Alison Schafer recently promoted to Senior Vice President, Finance and REIT; and Mark O'Brien, also recently appointed to Senior Vice President of Leasing Operations and Sustainability. Many of you already know them that both Alison and Mark have been key members of the PROREIT team for a number of years, and I and Gordy would like to congratulate them on their well-deserved promotions. They will certainly be happy to expand on any analyst questions as we continue our discussions later this morning. Let me start off my remarks by saying that we are really pleased with our performance in 2021 and it's PROREIT's most successful year in history. And I am proud of all that was accomplished both financial and an operational standpoint, so I want to acknowledge the achievements of the entire team. In 2021, we solidified our strategy to become a much more industrial-focused REIT. I believe we have successfully executed on that plan to date, accelerating our accretive growth in the industrial sector. And that, of course, will continue to benefit all of our unitholders [indiscernible] going-forward basis. Notably, during the year, we completed the acquisition of 34 institutional-caliber industrial properties that brought 2.3 million square feet of new space into our portfolio. The total purchase price for these transactions was just under $279 million. During the year, we also sold 5 noncore properties, all above their IFRS carrying values, realizing proceeds of just over under $21 million, and that sale was about 184,000 square feet. As a result of that activity, we now own 120 quality properties covering 6.6 million square feet and carrying value of $990 million on our balance sheet at year-end. Geographically, our portfolio remains specifically focused on Central and Eastern Canada. Within our areas of geographic concentration, our strategic focus has been on midsized Canadian cities with robust economies. We believe this strategy has proven its merit, and rental rate increases have been a key growth driver in our results. Our Industrial segment now accounts for 75% of our gross leasable area, similar percentage of our NAV and over 63% of our base rent. There is still significant growth potential in this segment. Rental REITs are continuing their upward trend in Southwestern Ontario, Ottawa, Halifax and Winnipeg markets in which we have particularly strong presence. In fact, we believe our mark-to-market net rent spread at the end of the year was still 18% of our total portfolio and specifically in the Industrial segment, 26%. Very importantly, our portfolio also experienced significant fair value gains in 2021. We completed new independent appraisals of over 50 of our properties, of which 30 were industrial properties. And this process resulted in a net fair value gains of $63 million -- over $63 million for the year. The increased valuations resulted from a combination of increasing rents and cap rate compression. We are, of course, continuing our regular review of the fair value of our properties in the current fiscal year. We expect to revalue about 55 properties during the year and are confident that we will recognize further increase in the upcoming quarters as we expect additional cap rate compression and rental value increases for many of our industrial properties specifically. We even actually will continue to see some upside to the remainder of our portfolio. And of course, this will be a little more modest. 2021 was also a record year on the financing front, with over $133 million in new equity raised. This was a result of a $70 million bought deal public offering as well as 2 private placements with a strong institutional investor [Indiscernible]. All of the funds were successfully deployed by the end of the year in line with our objective to create long-term value for our unitholders, although results were a little constrained at times during the quarter from the undeployed portion of the site. Let me now go over briefly some financial metrics for 2021. Our solid growth across key indicators was mainly driven by acquisition activity that I've already spoken to in the last quarter. Our property revenue grew to $77.7 million, 11.3% increase compared to 2020. Net operating income reached $46.3 million, up 14.2% year-over-year. Our AFFO grew to $25.1 million, up 11.7% year-over-year. Our basic AFFO payout ratio stood at 87.7%, which is comparable to 88.3% a year ago. But as I said, this number reflects the fact that we carry uninvested balances from our capital raises during parts of the year. Our stabilized payout ratios are lower, and you will see that through our first quarter results in the reported position this current fiscal year. While we believe it is especially important to our future results, the same-property net operating income was robust during the year, with increases of 5.5% in Q4 and actually 4.3% for the full year. The performance of both our retail and office segments in addition to the industrial were highlighting what was a persistent COVID-19 [Indiscernible]. I think that this achievement reflects the quality of the assets we own in each of these segments, coupled with a low risk tenant roster we got in place. Occupancy rates remained strong at 98.4% at year-end. We have now renewed or replaced over 97% of all leases which matured in 2021, with an average rental increase of over 10%, 10.2% of the maturing portfolio as a whole. We are particularly pleased with the new 15-year lease with an engineering firm for a 30,000 square feet office building in Ottawa. The lease expired in December 31 and was replaced by a new tenant at a base rent of 17% over the maturing base rent, and those tenants will be occupying from April 1 of the current year. Much work has been done so far in the current year for maturing leases as well, with almost half of our 2022 renewals completed by Mark and its team positive spreads of in excess of 10% compared to the maturing rates. I also must point out that we made important strides in our ESG journey, with the publication of our first sustainability report yesterday. Although, of course, much more needs to be done in that area, we are proud to note this marker of what to be achieved today. Our first ESG report outlines the progress we have made across our material topics and more information on the areas that we will continue to focus on over the coming quarters and years. So I will now turn the presentation over to Gordy to discuss Q4 financial results in particular.

Thank you, Jim, and good morning, everyone. We recorded a robust financial performance in the fourth quarter. Revenues amounted to $22.9 million for the quarter, a 30.4% increase compared to the same period last year. Net operating income reached $13.4 million, an increase of 33.6% compared to Q4 2020. We recorded a $58.6 million fair market value gain on our rental properties in the fourth quarter of 2021. Turning to AFFO for the fourth quarter of 2021, it totaled $7.4 million, a 37% increase compared to the same prior period. This solid growth across key indicators was mainly driven by net acquisition activity in the last 12 months. Basic AFFO payout ratio stood at 91.5% compared to 83.9% in Q4 2020. The change is mainly due to the timing between the cash received from our equity raise in the fourth quarter of 2021 when the deployment of funds to acquire the properties in that same quarter was around actually the middle of November. While successfully pursuing our growth strategy in 2021, we also significantly strengthened our balance sheet and cash flow position. We improved our debt profile, eliminating an expensive alternative lender from our debt stack and obtained $71.4 million in mortgage financing at lower rates and extended terms. These steps will further benefit our results going forward. We also renewed and increased our credit facility to $60 million from $45 million for 3 years on more attractive terms. At the end of the year, we had $45 million in room available on our credit line. Our year-end total debt was $526.4 million with only $7 million in debt returning in 2020. Debt to gross book value was reduced to 53.1% from 58.2% at the end of Q3 2021, and from 57.8% at December 31, 2020. We remain committed to our strategy of reducing our ratio to go 50%, which we intend to achieve in the medium term. The weighted average interest rate on our mortgage debt was 3.39% at the end of the year compared to 3.5% at the end of Q3 2021 and 3.73% at the same date last year. Distributions of [$0.0375] per unit were declared monthly throughout the fourth quarter of 2021. Finally, our weighted average cap rate for the portfolio was approximately 5.9% at the end of the year or $148 per square foot, down from 6.3% at the end of the third quarter 2021. By segment, that's 6.9% for retail, 6.3% for office and 5.9% for industrial. We expect further cap rate compression in our industrial portfolio going forward. I'll now turn it back to Jim for closing remarks.

Thanks, Gordy. And just before we move to the question period, I'll just make a few concluding statements. I think it important to you that with 2022 well underway. I've already mentioned that our leasing activities are going strongly reflecting the expanding Canadian economy. So I think we're prudently optimistic. But of course, like everybody else, we're very cognizant of the unpredictable events which are occurring in the world around us. But within that, I can say that we continue to optimize our strong and flexible financial position, and I think we maintained a disciplined capital allocation. We intend to pursue our accretive growth in the industrial sector especially, focusing on midsized Canadian cities, where we believe rent growth opportunities remain very strong. We will do so well aiming to achieve the right balance between growth and quality of cash flows. We will also consider on an opportunistic basis with sale of some nonstrategic properties, mainly smaller buildings in the retail and office asset classes, which will result and further focus on our cash flows from the industrial sector. While optimizing the value and performance of our portfolio, this will also contribute to the decreasing of our leverage numbers. I think we have confidence in our strategies in our assets, and I surely have confidence in our team to deliver on. We remained fully dedicated to our ultimate goal of all of us to creating sustainable value for our stakeholders. So that's it. That's our outline for the year and the end of my formal remarks. I like to turn the call back over to the operator to take any questions from the analysts on the call would like to address us. Thanks very much.

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

Just following up maybe on the office portfolio, there was some slippage in occupancy. And then I just want to understand if that already includes the vacancy you mentioned that occurred late in the year, if that was actually the entire thing. And then on that, should we expect some dip in FFO in Q1 from vacancy and then a decent pickup in Q2 as that lease takes effect or when the tenant starts paying rent?

Yes, it's Gordy here. So occupancy at the end of Q4 compared to Q2, so -- Q1. So the 30,000 square feet in Auriga, that would have been occupied as committed space at Q4. So that's about 30,000 feet. So there will be about 190,000 not in Q1 office gross revenues because that starts paying rent in April 1 or Q1. And then the only other piece there is about 10,000 square feet of office that will come vacant in Q1, but 13,000 actually being committed for November. So there's a bit of tos-and-fros there. But the main thing you'll see, I think, is about 190,000 dip just on a 1 quarter basis for the Auriga.

Okay. Great. And I know that...

[indiscernible] would you like to say anything on the...

Yes, the old leases at $12 net and the new 15-year leases at $14. So we'll see -- you'll see a bump on that specific building once it's in place.

Understood. I know that you're, for the most part, happy with the office and retail assets, but following this leasing and with the growth in your industrial portfolio, have there been any new thoughts to maybe selling some more of the office and retail assets? You sold a little but not too much. Or do you view them as core properties that you want to own just because they are good quality and good cash flowing properties?

Well, this is something reviewed regularly by the Board, Mark, we have about $30 million of properties currently entering the marketplace. And we'll see how those sales go, and we expect the net proceeds to be applied to debt reduction. I guess we'll continue to review the portfolio after that. The core part I think as we've said before publicly, the core part of our retail and office portfolios are performing well, as Gordy just touched on. And much of our retail legacy properties are strong community-based centers, many led by Sobeys [Indiscernible] and they're performing well. So we're probably not looking to be robust sellers of those unless we have a very specific place to redeploy. But our new funds are being focused much more on the -- continue to be focused on the industrial sector. So I think you'll see those properties becoming a smaller percentage. And yes, sure, we'll continue to review them on a quarterly basis. But they're providing strong cash flows right now.

Your next question comes from Lorne Kalmar with TD Securities.

Just switching, I guess, from dispositions. On the acquisition front, obviously, you guys had a great year last year. What do you guys see? And what does the pipeline look like? And what do you think you can do in 2022?

Well, that's a -- I think over the next 2 years -- I'm going to put a specific timeline on it -- in next couple of years, we'd like to see the company move toward $2 billion of assets from the $1 billion we're at right now. So the right opportunities, we see ourselves being positive acquisitors of portfolios. There is some activity in the market. It slowed down a little bit from our point of view in the last couple of weeks and just what we're seeing in the marketplace. But I think we'll see opportunities as the year goes forward and it will depend a little bit on how capital markets performed. I'm, of course, just sort of qualifying my answer to you based on the possible black swans out there that we all think about every morning when we get up [indiscernible].

Fair enough. Have you guys thought -- I think Alberta has kind of had a bit of a comeback on the industrial front. Have you guys thought of looking out there for possible opportunities?

Yes. We have, I think it worked well for us sort of not invested west of Manitoba in any significant way to date and have not been, and I think that's into our advantage. I think probably, historically, although I know things are doing much better now, I think before we enter in a very significant way, we've got to make sure we know any specific new markets we go into well. And I think it probably would be something unless it was a really triple net lease something of a portfolio of scale, where we could take our economies of scale and our property management platform to robustly establish there. So it's not an area that we're focused on right now, but I recognize that the Alberta economy is -- we view much more positively than it was a couple of years ago.

Absolutely. Okay. And then maybe just outside of office, how has occupancy trend in the portfolio year-to-date 2022?

Mark?

So we've been -- I mean just quarter-over-quarter, we're 98.45%, so it's been relatively flat. We had a small dip this quarter just due to some of the acquisitions we took on in the Q4. there was a bit of vacancy in the industrial portfolio that we purchased in Atlantic Canada, which we will aim to lease up in the next quarter or 2. But we've been trending at 98.45% for multiple quarters and been over 98% occupied for, I think, 16 consecutive quarters. So we're always focused on getting the last little bit of vacant units done, but we see ourselves as predominantly close to pull out the fees.

Okay. And then just one last one. On the portfolio you guys bought in Q4, what kind of NOI growth do you think you can get out of there?

Yes. So I mean, from a lease-up perspective, in terms of the acquisition we did, again, majority Burnside, Halifax was our Q4 acquisition. There was one in Moncton, was part of that portfolio and then another asset that went off in Winnipeg. But in terms of the Burnside portfolio that we picked up, it's been performing, I would say, above our expectations. We're halfway through the year -- sorry, halfway through the GLA for 2022 on leasing across the portfolio, but predominantly halfway through the industrial leasing as well. And we're seeing 30% to 35% rent increases, year 1 rent increases, specifically in that portfolio, so well above what we anticipated.

Your next question comes from Jenny Ma with BMO.

Mark and Alison, congrats on your promotions. Wanted to go back to your comments about acquisitions. I think, Jim, you said that if everything goes well, you'd hope to have $2 billion of assets in the next couple of years, I think I heard you correctly?

Correct.

So I mean, that's a pretty big number, basically doubling from now. So putting aside all the geopolitical risks and everything else that could model the picture, when you're thinking about that kind of a growth, do you expect it to be within the markets that you're at now? Or does that contemplate spreading out? I know you mentioned -- we talked a bit about Alberta, that's the first question. And then number 2 is, are you seeing that magnitude of opportunities out there in terms of portfolios available for sale? Because I presume that would be a big part of getting to $2 billion.

Yes. So let me -- I guess I'll start by saying, I guess I used, and you correctly repeated what I said, but I think a couple of years to me isn't -- we haven't said like a Board objective is that specifically 2 years. We just think over the next, let me call it, 2 years, we should double the size of our portfolio, and that's partly helps to diversify risk and draws, we believe, a stronger institutional base. But how we would do that would be historically. Yes, of course, we'd have to revisit capital markets, but I think that we can scale up acquisition opportunities and portfolio transactions when they present themselves. And I -- as far as expansion is concerned, in markets, I think there will be continued opportunities in Halifax, in Ottawa, in Winnipeg, certainly in Southwestern Ontario. I think in answer to one of the earlier questions at the right moment on the rate basis, we would look at some expansion in the Alberta market after we review tenancies and so on. So yes, we see possibilities in all those markets. Demand is high. And -- but there is a constant circulating of assets.

So I guess my question is, are there these sizable portfolios being traded? And are you saying that it's a matter of getting to some scale on PROREIT's side to be able to sort of play in those larger portfolio transactions?

Yes, yes. I mean we think we can do -- I'm just pulling a number from here, Jenny, but $200 million portfolio transactions. We've got a strong institutional investor investing beside us. And we think that we can play in those kind of acquisition transactions. So I mean, we did in the latter part of last year, and I think there will be opportunities. I mean we understand there's portfolios of that magnitude will probably be coming to market this year. Some of the markets we're interested in. I did just say, in answer to a little earlier question, we have seen some pause in portfolios coming to market right now. Because I think people are just trying to assess all the geopolitical risks that are happening in the marketplace, so there's a bit of a pause. But having said that, I think you remain both intended selling and intended life.

Okay. Great. Now last quarter's call, you talked about same-property NOI outlook of about 2% to 5% for 2022. You had a nice strong finish to the year. So I'm just wondering if that's something that you would reiterate? Or has that view evolved a bit in the last 4 months since that call?

It's Gordy. I missed that call, but I listened to it. It was a good call. Yes, I mean that 2% to 5% is still a good number because we're seeing the growth in the industrial, but we still have some retail office in there as well. So we haven't stepped back in retail other than one small space, we're still getting modest growth there. And just in the 2 deals that we mentioned, the 2 office deals, one, we're got a $2 step in rent from $12 to $14; and then the 13,000 feet that's going to come in, in November, that's what's the rent on that one, Mark as well.

It's moving from $14 to $15.

Moving from $14 to $15. So we're seeing that in the office as well. But just conservatively, we're still using that target of $2 to $5, but we'd like to beat it, obviously, with the tos-and-fros though, I think that's a good number.

Your next question comes from Himanshu Gupta with Scotiabank.

So just on 2022 lease expiries, I think 50% down at 10% spreads. Any color on the remaining lease expiries in 2022?

So Mark here. Yes, we're -- as you mentioned, we're halfway through portfolio-wide and asset class-wide, but also halfway through about the industrial as well. So certainly, on the industrial side, we're going to see the majority of the year 1 net increases. We're trending actually -- and we have enough data now to pull it out for the asset class and geography to have some meaningful stats. And we're just under 20%, if you just pull the industrial side of the year 1 renewals. So we're happy with that, and I'm confident that we'll continue on that path. Again, retail and the office side is more modest, but I feel that 10% is probably a good trending number.

Got it. And if you do like 10% on the other half as well, so it's technically 10% for the full 2022 expiries, which was very similar to 2021 as well. So do you think the same probably NOI growth should be on the higher end of your guidance range of 2% to 5% in that case?

Yes. Yes. Yes.

Okay. Okay. So that's fair enough. And then just sticking to the...

So the reason -- I think you fully understand. The reason -- the difference between those 2 numbers, the 18% and 20% pickups and then same property performance, is that some of the renewals that Mark we're referring to come in over the year, right, he's renewing some leases now where the increases are only reflected in later quarters, but not all the date of the agreement.

Absolutely. It will be timing about it for sure. And then I'm looking at your in-place rents and market rents. So mark-to-market opportunity is fairly meaningful at 26% for industrial portfolio, what you guys laid out. So is it any specific market which is driving that? Or are you seeing that across the portfolio?

I mean -- so again, we broke it down by geography because we have some meaningful data now that we're more geared towards industrial. So we're seeing, again, the main pickup on the industrial side, the 26%, which is driving really the 18%. And then if you break down to geographies on the industrial side, again, Halifax is really the number that we're focused on, where there's the big spread, the big delta from where we are and where we can be on a market basis. Ontario, again, is attractive and Winnipeg as well.

Yes. And Halifax, what is the dollar per foot rents right now? Like in GTA, we are talking rents are moving from $12 to $15 perhaps. So how -- I mean, how do we compare like Halifax market or Atlantic Canada market compared to, for example, GTA on rent side?

On the rent side, so we're about half. I mean, on our current market rents, we're about half of Ontario, I would say. Well, Ottawa specifically is probably double what Halifax is now. So that's -- and they're very similar markets. They're smaller, secondary, but good household income markets with constrained geographies, small business parks. So we're currently about $7 -- just under $7 in place rents in Halifax, and we're pushing that up to $10. Ottawa would be -- currently we're about, I would say, closer to $9 and pushing that up to the $12 to $13. So it's -- those 2 markets are high growth areas for us.

Yes. So -- and on the same line, your -- as far as cap rates, like I can see you have done some sizable fair value gains this quarter. So what cap rate are you marking your industrial portfolio now?

Yes, our industrial for this quarter is, that -- I think I mentioned on the call...

5.6%, yes.

5.6%. So we went from basically 6% to 5.6%, I think, on this quarter. And then we've got some more growth. We're revaluing some of our Southwestern Ontario assets this quarter. Obviously, significant deals got done at the end Q4 2021. So we still see some compression in that for sure. And then modest cap rate compression in our -- and actually in the office and the retail. But at 5.6% here, we still have some room on our industrial and I think you'll see some of that reflected in Q1.

Yes. So 5.6%, which is down 40 basis points quarter-over-quarter. Okay, so that makes sense. And then in the same context like in GTA, we are seeing transactions at like 2s and 3s and sub-3s now, do you think the spread will remain that wide? I mean we're almost double the cap with what we are seeing in some of the other markets or probably GTA markets?

So I mean we're not GTA proper. I guess because GTA, extra fringe, I mean our Southwestern Ontario stuff was Woodstock, Hamilton Air, just outside of Cambridge. But those properties we bought a couple of years ago at 6 to 7 caps, I mean, Woodstock was a 7 cap. And those -- the last most recent deal, I think that if you would have followed by another purchaser -- repurchaser there, it was like a weighted average 4.3% on those deals. And that portfolio was a weighted average lease term of 5.4 years. So it's still pretty attractive -- very attractive caps. It's not the 2s and the 3s, obviously, where the larger REITs are pure GTA. But I mean to think that you had a 7% cap in Southwestern Ontario that now could be sold at 4.5. And then when we look at our Montreal industrial, we haven't bought a Montreal for a while, but we've got 2 properties that are billboard signs on the 20, which is the highway between Montreal and Quebec City, that there were 7 caps as well, and they're tradable at a 4.5 cap right now. Because the island of Montreal is so expensive at the 2s and 3s, these 4.5 that are 40 minutes away or -- and on the TransCanada Highway, it's still very attractive. We have a $4 rent in a building just off outside the island here. That's moving to [ $8.50 ] over the long term.

And probably the last question is in terms of investor appetite have you seen investors moving out from MTV like Toronto, Montreal or Vancouver to some of your markets, like Winnipeg or Halifax given the spread in the rents and given the spread on the cap rates? I mean have you seen that anything on the ground yet?

Winnipeg is more private buyers and then there's some private capital and some funds there, not so much REITs. Halifax, we were -- we kind of did the larger deals there in the last little bit, but there's lights coming from Toronto and people walking around for sure. So yes, there's more people looking in our markets. I think they have to -- where we kind of come from that region, Atlantic Canada myself specifically, they have to kind of understand the markets a bit to go -- to put significant capital in there, though, I think. So we'll see how that goes.

Your next question comes from Sumayya Syed with CIBC.

So sticking with Industrial, obviously, cap rates came in nicely in the quarter. Could you give some color on the cap rate moves by market? Or are they largely in line with your earlier comments on, I guess, where mark-to-market looks like by market?

Mark, do you want to...

Yes. I mean, just generally, if we went across our various markets, the lowest cap rates would be in Ontario. It's just a function of how much capital is chasing each market. So I would see -- and then to the previous question, I would see still probably 200 basis points spread between the Ontario cap rates and then the Winnipeg and the Halifax cap rates, although those are compressing, along with the influx of capital.

[Indiscernible] especially strong growth [Indiscernible] capital.

Yes. Recently, Ottawa saw quite a bit of compression with recent volume in industrial.

I mean the compression we're seeing is things that we would have bought at a 6 cap, which includes Ottawa recently, the Winnipeg portfolio and the Halifax portfolio, and those are moving to 4.5. That's what we're seeing in bids after hour deals. So that's really what we're noticing.

All right. So on that point, I guess, last year, you were able to plant that on industrial in the low 6% cap rate range. So do you still see opportunities on that level? Are those going to be fewer and far between now?

Well, it's Gordy. I mean the one benefit we have is we have the property management in-house as well. So we're recording those cap rates, there's a benefit from our property management synergies as well. So as we all know, the debt's gone up here 60 basis points in the last few months as well. But we're still looking at those deals. And if they -- if we do the math and we see significant upside in the rent in the next couple of years, we'll still be going afterwards. So we're not sitting by the sidelines. We still make the math work just because of the numbers that Mark and Jim had mentioned as far as where the rents are going, there's still very accretive deals here to pick up.

We're probably -- using just traditional ways of measuring in the way people talk in the marketplace, we're probably not seeing a lot of fixed cap portfolios coming on in the markets we're in. But as Gordy said, I mean, we look at it, obviously, from a much deeper financial analysis point of view than vendors advice cap rates. So that there can be synergies, there can be rental growth opportunities that haven't been fully discounted into the purchase price that will allow us to effectively buy several accretive REITs.

Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.

Thank you, everybody.

Thank you.