Dream Industrial Real Estate Investment Trust (DREUF) Q4 2022 Earnings Call Transcript

Dream Industrial Real Estate Investment Trust (OTC:DREUF) Q4 2022 Earnings Conference Call February 15, 2023 1:00 PM ET

Company Participants

Brian Pauls - Chief Executive Officer

Alex Sannikov - Chief Operating Officer

Lenis Quan - Chief Financial Officer

Conference Call Participants

Mark Rothschild - Canaccord

Kyle Stanley - Desjardins

Brad Sturges - Raymond James

Matt Kornack - National Bank Financial

Gaurav Mathur - iA Capital Markets

Pammi Bir - RBC Capital Markets

Mike Markidis - BMO Capital Markets

Sam Damiani - TD Securities

Operator

Good afternoon, ladies and gentlemen, invited to nan Dream Industrial REIT's Fourth Quarter Conference Call for Wednesday, February 15, 2023. During this call, guidance of Dream Industrial REIT whitethorn make statements containing forward-looking accusation wrong nan meaning of applicable securities legislation.

Forward-looking accusation is based connected a number of assumptions and is taxable to a number of risks and uncertainties galore of which are beyond Dream Industrial REIT's power that could origin existent results to disagree materially from those that are disclosed successful aliases implied by specified forward-looking information.

Additional accusation astir these assumptions and risks and uncertainties is contained successful Dream Industrial REIT's filings pinch securities regulators, including its latest yearly accusation shape and MD&A. These filings are besides disposable connected Dream Industrial REIT's website astatine www.dreamindustrialreit.ca.

Later successful nan presentation, we will person our question-and-answer session. [Operator Instructions] Your big for coming will beryllium Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please spell ahead.

Brian Pauls

Thank you. Good afternoon, everyone. Thank you for joining america coming for Dream Industrial REIT's year-end 2022 convention call. Speaking pinch maine coming is Lenis Quan, our Chief Financial Officer; and Alex Sannikov, our Chief Operating Officer.

2022 was different beardown twelvemonth for Industrial Real Estate. Despite respective macro headwinds during nan year, nan operating fundamentals of our markets person not skipped a hit and person continued to strengthen.

The outlook remains robust. Vacancy crossed our Canadian and European markets remains astatine grounds lows. We person seen beardown marketplace rent maturation successful Ontario, Québec and successful Europe. In Western Canada rental maturation is starting to accelerate.

Supply remains constricted successful each our markets pinch building restrictions and rising replacement costs. We person important maturation opportunities embedded successful our portfolio arsenic in-place rents are good beneath market.

Against this charismatic backdrop, successful 2022, we delivered beardown operating and financial results and completed a number of cardinal strategical initiatives that heighten our maturation trajectory going forward. We reported 9.6% comparative properties NOI maturation during nan 4th and 10.5% for nan year, which was up of nan guidance issued astatine nan opening of nan year. FFO per portion was $0.23 successful Q4, up 10% year-over-year.

We reported $0.89 for nan full-year, up 9% year-over-year, besides astatine nan precocious extremity of our guidance. We completed complete 0.5 cardinal quadrate feet of developments during nan twelvemonth astatine an mean output connected costs of supra 7.5% Over nan past 3 years, we positioned our business to person a beardown and elastic equilibrium sheet, allowing america to prosecute strategical initiatives, while adding aggregate drivers of maturation crossed nan portfolio.

Our results and initiatives successful 2022 bespeak this effort. Our portfolio value is nan strongest it's ever been pursuing strategical recycling retired of debased quality, superior intensive, and debased maturation assets successful nan modern logistics properties located successful Toronto, Montreal, and immoderate of nan champion markets successful Europe.

Our portfolio has beardown occupancy astatine astir 99% pinch a balanced lease rollover floor plan allowing america to attraction connected capturing upside, while managing consequence effectively. We accrued our mean contractual rent steps crossed our Canadian portfolio to supra 2.5%, presently up from 2% successful 2021. Our European leases are mostly indexed to CPI. Our improvement programme started to lend to our FFO and NAV per portion this year.

We expect this publication to turn arsenic we complete projects successful our pipeline. We are pursuing worth added projects crossed nan portfolio ranging from refurbishing buildings to star panels. In summation to these integrated maturation drivers, since 2021, we were actively focused connected expanding our strategical partnerships pinch backstage superior markets.

These partnerships let america to turn nan standard of our platform, heighten nan returns connected superior invested done interest income, and entree finance opportunities that would beryllium difficult for america to prosecute different without reliance connected superior markets. In 2021, we seeded nan U.S. Industrial money and maintained a 25% stock successful nan money arsenic it continued to adhd standard successful nan U.S. and improved plus quality.

As nan spot and leasing head of nan fund, DIR earns [PM] [ph] and leasing fees. The nett separator connected this interest business was 3.6 cardinal successful 2022. In April 2022, we formed a $1.5 cardinal developed to clasp associated task pinch a starring sovereign wealthiness money to further standard our greenfield improvement programme and summation our beingness successful nan Greater Toronto Area and Greater Golden Horseshoe Area.

Through this partnership, we will person entree to precocious value improvement opportunities successful our superior markets. As these improvement projects scope stabilization, we will beryllium earning leasing and spot guidance fees, enhancing our improvement returns further.

Most recently, nan statement of Dream Summit’s associated task pinch GIC allowed america to summation standard successful immoderate of nan tightest markets globally, deploy our equilibrium expanse into high-quality portfolio pinch important embedded upside, while generating contiguous accretion to our FFO per unit.

Subsequent to nan transaction and we will co-own and negociate 1 of nan largest portfolios of business existent property successful Canada pinch 43 cardinal quadrate feet of precocious value properties, chiefly located successful Ontario and Québec. We will besides person vulnerability to complete 6 cardinal quadrate feet of near-term improvement projects successful Canada. Pro forma nan Dream Summit venture, our co-owned and managed portfolio will turn to complete 69 cardinal quadrate feet crossed Canada, U.S., and Europe, pinch 46% of its GLA successful Ontario and Quebec, up from 33% a twelvemonth ago.

In summation to improvement upside, we judge that Summit's portfolio offers beardown integrated maturation prospects. While nan mark-to-market imaginable successful DIR's Canadian portfolio is beardown astatine complete 50%, we judge that nan embedded upside wrong immoderate portfolio is importantly higher. Beyond nan important merits of nan existent property itself, our programmatic JV pinch GIC provides an unthinkable opportunity to proceed increasing successful our halfway markets astatine charismatic economics to nan REIT.

With nan spot guidance and leasing interest income, we expect nan Summit transaction to beryllium $0.01 to $0.02 accretive to our FFO per portion for 10 months successful 2023. We expect nan accretion from nan transaction to much than double complete nan adjacent 3 years to 4 years arsenic we turn nan NOI of nan portfolio organically and arsenic nan spot guidance and leasing interest watercourse increases pinch higher rents and income.

Overall, our outlook for 2023 and beyond remains affirmative arsenic we proceed focusing connected executing connected our maturation strategies crossed our full platform.

I'll now move it complete to Alex to talk astir our operations.

Alex Sannikov

Thank you, Brian. Good afternoon, everyone. 2022 was an breathtaking twelvemonth for DIR arsenic we outperformed our leasing and portfolio guidance goals. Tenant request for business merchandise remains robust crossed our markets. During Q4, we transacted 1.5 cardinal quadrate feet of leases crossed our portfolio achieving a rental dispersed of astir 60%. More than half of these leases were successful Ontario and Quebec wherever we much than doubled nan rents.

For nan year, we transacted 7.2 cardinal of quadrate feet astatine an mean dispersed of complete 30%. In Canada, we transacted 4.6 cardinal quadrate feet astatine an mean dispersed of 47% led by Ontario astatine 87% and Quebec astatine 62%. Toronto and Montreal markets proceed to show robust fundamentals and we expect rents to proceed increasing.

Our Western Canada markets, peculiarly Calgary, person performed well. We're starting to spot accelerating rental maturation arsenic vacancy rates tighten and proviso remains constrained. Our plus guidance strategies person allowed america to thrust 11% comparative properties NOI maturation successful Canada for 2022.

We expect nan abstraction of integrated maturation successful Canada to proceed driven by beardown contractual rent steps and mark-to-market of leases connected rollover. In Europe, nan macroeconomic sentiment has improved considerably complete nan people of nan year, while business rents continued expanding pinch constricted vacancy successful a caller supply. Our portfolio remains fundamentally afloat astatine complete 99% occupancy arsenic we transacted 2.6 cardinal quadrate feet of leases astatine a 7% dispersed to expiring rents.

These rental complaint increases are supra and beyond nan CPI indexation that we captured connected our European leases complete nan people of 2022. CPI indexation had a important publication to our 9.2% CPI NOI maturation for nan year. We proceed to spot beardown request from occupiers. For example, successful our portfolio alone, we are presently successful discussions pinch respective tenants successful nan Netherlands, France, and Germany regarding imaginable description s connected excess onshore totaling astir 0.5 cardinal quadrate feet.

We expect 2023 CP NOI maturation successful Europe to stay beardown successful nan mid-to-high single-digit scope driven by CPI rent adjustments and rent mark-to-market. Overall, we expect our comparative properties NOI increasing astatine 8% to 10% successful 2023.

As Brian mentioned successful his remarks, we achieved beardown improvement yields connected our first slate of projects and outperformed their underwriting. We person a number of projects that are presently underway and 2023 will beryllium different progressive twelvemonth connected nan improvement front.

We're successful precocious stages of building connected our 155,000 quadrate ft crushed up improvement successful Canada. We expect completion successful mid-2023 and are presently engaging pinch prospective tenants. We commenced building for a crushed up improvement task successful Cambridge. This 440,000 quadrate ft building is portion of our GTA onshore associated venture.

We expect to decorativeness building successful nan first half of 2024 and are forecasting output connected costs good supra 6% earlier immoderate spot guidance and leasing fees. We're presently underway connected our redevelopment of a three-building cluster connected a 10-acre tract successful Mississauga into a 210,000 quadrate ft nett zero creation state-of-the-art logistics facility.

The rendering of this task is featured connected nan screen of our yearly report. We commenced nan demolition of nan existent buildings successful precocious 2022 and expect to decorativeness building successful nan first half of 2024. We are already receiving beardown tenant liking and pinch that we expect this task to present an unlevered output connected costs good successful excess of 6% arsenic well.

Including projects and precocious stages of planning, we person complete 2.2 cardinal quadrate feet of progressive projects that are expected to beryllium completed complete nan adjacent 12 months to 30 months. Incremental costs connected these projects are expected to beryllium astir 350 cardinal pinch a forecast output connected incremental superior of complete 9%.

Through our Dream Summit venture, we will get entree to an further 3 cardinal quadrate ft pipeline of projects presently underway, chiefly located successful nan GTA successful Southwestern Ontario. We besides expect beardown returns from these improvement projects and will beryllium further – that will beryllium further enhanced done nan leasing and spot guidance of [these streams] [ph].

To wrap up, I wanted to item that complete nan past fewer years, we person curated nan portfolio strategically pinch nan extremity of maximizing nan integrated maturation floor plan of our business. Our plus guidance strategies, improvement and sustainability initiatives are each expected to beryllium accretive to our returns and aboveground worth from our assets. This year's beardown results showcase nan level of integrated maturation that tin beryllium produced by our portfolio.

With nan Dream Summit venture, we are positioned to beryllium 1 of nan Top 3 business landlords and managers successful Canada crossed nationalist and backstage markets. We expect that this standard will let america to beryllium much businesslike arsenic we execute connected our plus guidance and improvement initiatives and build strategical relationships pinch our tenants crossed nan country.

I will now move it complete to Lenis to talk astir our financial highlights.

Lenis Quan

Thanks, Alex. Our financial results are beardown and show nan occurrence of our strategical initiatives complete nan past respective years. Diluted costs from operations was $0.23 per portion for nan quarter, 10% higher than nan anterior twelvemonth quarter. For nan full-year, we reported diluted FFO per portion of $0.89, which was astatine nan higher extremity of our first guidance and up 9% year-over-year.

The beardown year-over-year maturation was owed chiefly to beardown comparative properties NOI growth, and spot guidance income from nan U.S. Industrial fund. We ended nan 4th pinch leverage of 31.7% and pinch complete $500 cardinal of disposable liquidity. Following nan acquisition of our 10% liking successful Summit, we would person successfully deployed superior to bring leverage to our targeted scope successful nan [mid-30s percent] [ph] pinch complete 400 cardinal of full liquidity.

We expect to support our leverage astir this level pinch a flimsy uptick arsenic we money our improvement pipeline. Our near-term indebtedness maturities are constricted pinch astir $270 cardinal of European mortgages maturing this year. We expect to refinance these mortgages pinch existent marketplace rates successful nan 4.25% to 4.75% range.

Our in-place rents are astir 40% beneath market, which on pinch recently developed projects coming online, should thief to support patient integrated maturation and offset immoderate summation successful liking disbursal from refinancing indebtedness astatine higher rates. Based connected our comparative properties NOI and leverage guidance, we expect FFO per portion for 2023 to beryllium successful nan mid $0.90 scope pinch imaginable upside. We expect to supply further clarity successful nan upcoming quarters.

Our FFO per portion maturation for 2023 is being driven by comparative properties NOI maturation and accretion from nan Summit transaction. Our FFO guidance is predicated connected existent overseas speech levels and liking complaint expectations. Overall, our strategical initiatives person allowed america to build DIR into a business that tin make assemblage starring integrated maturation consistently.

I will move it backmost to Brian to wrap up.

Brian Pauls

Thank you, Lenis. It's been an breathtaking commencement to 2023 and we proceed to group and outperform eager targets. We are positioned to go 1 of nan largest business platforms successful Canada crossed some nationalist and backstage markets. We are well-positioned to seizure nan benefits of nan standard and present beardown results for each of our stakeholders.

We'd now for illustration to unfastened it up for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we person our first mobility from Mark Rothschild pinch Canaccord. Please standby sir, while I unfastened your line.

Mark Rothschild

Thanks and bully afternoon, everyone. Maybe conscionable starting pinch Lenis’ past comments arsenic acold arsenic physicians for continued beardown integrated growth. Looking astatine nan guidance for 2023, and nan lease switch that you have, is location immoderate logic you shouldn't beryllium capable to do comparable rent maturation aliases NOI maturation for respective years?

Brian Pauls

Thank you, Mark. So, we provided guidance betwixt [2023] [ph] astatine 8% to 10%. The drivers that lead to nan guidance stay intact for nan portfolio successful 2024 and beyond. So, we don't expect nan underlying drivers to change. Having said that, we're not successful a position to specifically guideline nan 2024 numbers, but I deliberation your connection is accurate.

Mark Rothschild

Okay, great. Thanks. And possibly moving connected thing other connected nan IFRS headdress rates that you use. To what grade is that based connected transactions that person happened aliases expectations? And possibly conscionable springiness a small much colour connected really you arrived astatine nan summation successful nan headdress complaint this 4th to change?

Alex Sannikov

Thanks, Mark. The IFRS values successful Canada are mostly driven by transaction. So, we person seen a adjacent spot of transaction grounds successful Canadian markets. Some of nan upside captured successful nan 4th successful Canadian values is driven by description s being completed, and arsenic nan output connected costs successful these description s is good complete 7% we've captured immoderate of nan upside connected improvement successful nan values.

In Europe, however, we haven't seen arsenic overmuch evidence. So, a batch of nan – arsenic overmuch transaction evidence, and truthful nan input from our appraisers was mostly based connected incomplete information and much nan sentiment than nan transactions evidence. And that led to a mild correction successful Europe that we recorded successful nan quarter, whereby nan flimsy headdress complaint description was offset by marketplace rent maturation to immoderate extent.

Mark Rothschild

Okay, great. And you benignant of answered portion of my past question, my adjacent question. Just offsetting nan headdress rates, obviously, you person immoderate operating income growth, would you person nan information, fto america possibly return this offline to break down nan quality betwixt rent maturation versus different affirmative factors specified arsenic completing improvement to affirmative yields?

Lenis Quan

Sorry, you meant to break that – nan components, nan moving pieces connected nan worth changes?

Mark Rothschild

The higher headdress complaint evidently negatively impacts value, but past you had a batch of that aliases almost each of it offset by income maturation aliases different affirmative moves successful values. So, what I'm trying to understand is, really overmuch of that is from rent maturation that possibly you didn't person successful your Q3 IFRS NAV they person now versus worth that was really created from caller developments?

Brian Pauls

I deliberation nan components are successful nan MD&A marketplace and we tin link separately to locomotion you done that. You tin spot nan marketplace rent movements successful nan portfolio. We disclosed in-place headdress rates aliases implied headdress rates successful our MD&A and we besides disclosed prices per quadrate foot. So, each nan ingredients are there, truthful we'll beryllium happy to locomotion you done that.

Lenis Quan

That being – like, Mark, nan ample portion of nan affirmative offsets are driven by marketplace rents, fixed that we had astir 600,000 quadrate feet of developments coming online and that would beryllium erstwhile nan worth creation would beryllium recognized. So, nan ample constituent of nan affirmative portion is coming from marketplace rents.

Mark Rothschild

Okay, great. Thanks truthful much.

Operator

Thank you. We person our adjacent mobility from Kyle Stanley pinch Desjardins. Please standby, while I unfastened up your statement for your question. It will return conscionable a moment. Your statement is now open.

Kyle Stanley

Thanks. Good afternoon, everyone. In your prepared remarks, you noted seeing an moreover greater mark-to-market upside wrong nan Summit portfolio. Could you elaborate connected that? How do you expect to, benignant of seizure that? And possibly wherever are nan differences wrong nan Summit portfolio that was acquired versus, benignant of nan bequest DIR plus base?

Brian Pauls

Thank you, Kyle. We will supply much item successful position of numbers arsenic we adjacent nan transaction and study connected nan mixed portfolio complete coming quarters. In position of drivers, our portfolio has a short vault and it's a much multi-tenant portfolio. So, nan leases move faster. Summit’s portfolio has longer walled and they are much single, benignant of buildings. And so, leases historically person been possibly turning slower.

So, nan embedded upside is greater. We believe, we were exposed to nan aforesaid trends successful nan markets successful position of increasing marketplace rents, but arsenic a usability of [indiscernible] successful Summit’s portfolio, that embedded upside is now greater astatine this constituent successful time, we believe.

Kyle Stanley

Okay. Fair enough. Maybe conscionable switching complete to development, I mean, Lenis you conscionable mentioned nan developments that came online during nan year. I'm wondering, tin you disclose what nan NOI publication from nan developments that were, benignant of substantially complete during nan 4th was, conscionable trying to fig retired really to exemplary that going forward?

Lenis Quan

Yes. We disclosed that during nan quarter. If location really was only about, I deliberation astir 0.5 cardinal publication successful Canada, they were coming online passim nan year. Some of them person been substantially completed pinch occupancy starting successful early 2023 arsenic well.

Brian Pauls

If you mention to our improvement array successful nan MD&A, you will spot that nan full costs connected completed projects is astir $80 cardinal astatine 7.6% output connected cost. So, if you're trying to exemplary nan publication to NOI going forward, multiplying those numbers will springiness you a comparatively meticulous number.

Kyle Stanley

Okay. Yes, I conjecture I was conscionable funny on, I conjecture what was location possibly a half quarter's worthy of contributions successful nan 4th fourth and we tin follow-up offline conscionable connected nan timing, I conjecture of nan deliveries. That's nary problem. Last question…

Lenis Quan

Yes, we tin do that. It's besides connected nan array arsenic well. But we tin surely tin reconnect.

Kyle Stanley

Okay. Thank you. Just a past one. Just looking for your position connected backstage finance volumes, connected nan business broadside successful Canada and Europe successful nan twelvemonth ahead. I mean, obviously, it seems for illustration we saw a decent magnitude of transaction comps successful Canada, but would conscionable beryllium funny connected your thoughts on, benignant of what happened successful nan marketplace successful nan twelvemonth going guardant successful some Canada and Europe and if you expect Dream to beryllium progressive connected nan outer maturation side?

Brian Pauls

We expect to beryllium progressive done our programmatic JV pinch – successful nan Dream Summit venture, we proceed targeting cardinal markets successful Canada for that task being Toronto, Montreal. And we deliberation that nan underlying fundamentals are beardown pinch debased vacancies, debased caller proviso and rising rents, and a batch of nan properties that travel for waste person embedded mark-to-market upside. So, that's nan type of merchandise that we're targeting and we expect to beryllium active.

As to nan marketplace activity, it's difficult to predict. We person seen reasonably beardown level of activity successful Canada recently. So, thing that points to that slowing based connected our conversations pinch marketplace participants.

Kyle Stanley

Okay. Thank you. I will move it back.

Operator

Thank you. We person our adjacent mobility from Brad Sturges pinch Raymond James. Please standby, while I unfastened up your line. Please spell ahead.

Brad Sturges

Hi there. Just to spell backmost to nan guidance for a second, $0.95 of FFO, what would that – for interest income, what scope should we beryllium reasoning astir successful position of interest income for nan REIT, fixed nan partial publication by nan [settlement fund] [ph], but besides nan U.S. money arsenic well?

Alex Sannikov

Thanks Brad. We're not successful a position to disclose specifically nan interest income for confidentiality purposes and reasons. So, arsenic we study connected nan mixed spot guidance and leasing interest business, including nan U.S. money spot guidance business, past you will beryllium capable to abstracted it to potentially. But astatine this point, we cannot really remark specifically connected nan interest levels.

That said, we mention you backmost to nan accretion guidance that Brian mentioned successful his remarks. To harvester pinch nan costs of backing that we've disclosed successful our announcement property release, arsenic good arsenic your estimates of nan going successful headdress rate, you astir apt tin backmost into nan separator connected that business successful approximate terms.

Brad Sturges

Okay. No problem. Just reasoning astir superior allocation for this year, really do you deliberation astir your champion usage of superior correct now? Would it beryllium that evidently you've sewage a decent sized improvement program. Is that nan main root of superior for now aliases do you spot a return to opportunities connected nan acquisition broadside arsenic your costs of superior stabilizes and possibly improves?

Brian Pauls

We proceed to spot opportunities organically successful nan business wrong nan improvement pipeline immoderate of nan worth adhd superior that we're investing successful our portfolio whether it's star aliases refurbishment aliases different worth adhd initiatives. And we person a programmatic constituent to nan Dream Summit task that we're very excited about. Those are awesome avenues for america to turn externally if we take to.

Brad Sturges

Would portion of nan superior allocation beryllium further contributions to nan caller and existing JV costs that you have?

Brian Pauls

Yes. So, arsenic we discussed and disclosed successful nan announcement property merchandise for nan Dream Summit task that location is simply a programmatic constituent to that JV. And so, we intend to turn together pinch GIC pinch our partner successful our target markets. Do you person immoderate guidance astir really overmuch further equity you would expect to perchance deploy, not conscionable that fund, but still increasing nan U.S. money and yet nan improvement money arsenic well?

Alex Sannikov

We deliberation that nan equity deployment is going to beryllium opportunity driven. We don't usually guideline acquisitions whether it's connected equilibrium expanse acquisitions aliases immoderate different finance – deployment of superior initiatives different than what's organically is embedded successful nan business, specified arsenic nan improvement pipeline. So, arsenic nan twelvemonth progresses, we'll beryllium providing much colour connected opportunities that we spot to deploy superior increasingly.

Brad Sturges

Yes. Okay. Thanks a lot. I'll move it back.

Operator

We person our adjacent mobility from Matt Kornack pinch National Bank Financial. Please standby, while I unfastened your statement for you. And your statement is now open.

Matt Kornack

Hi, all. Just a speedy follow-up to Brad's statement of questioning there. Would you expect possibly contributing immoderate of your existing wholly-owned assets into nan associated task and past either usage that superior to bargain further assets wrong that associated task aliases successful nan improvement one?

Alex Sannikov

Thank you, Matt. Nothing for illustration that has contemplated astatine nan moment.

Matt Kornack

Okay, adjacent enough. And past connected nan G&A front, Lenis, I don't cognize if you tin springiness america a spot of further colour arsenic to what we should run. It's been beautiful unchangeable connected a percent of gross aliases NOI ground for this year, but is that a good, benignant of separator to usage going guardant aliases is location immoderate incremental costs that we should presume successful 2023?

Lenis Quan

I would opportunity it's a bully tally complaint successful position of nan percent of NOIs successful that 10% to 11% scope of NOI. That's a bully tally complaint for 2023.

Matt Kornack

Okay, perfect. And past connected – you mentioned that you've crossed [2%, 2.5%] [ph], I deliberation to your 2.6% embedded rent escalators successful nan existing portfolio, tin you springiness america a consciousness that are you still connected apical of these benignant of 100% rent increases putting done 3% and 4% yearly escalators connected apical of that?

Alex Sannikov

Thank you, Matt. Yes. What we typically spot successful nan GTA is, we're targeting 4% to 4.5% successful immoderate cases 5% yearly escalators connected apical of nan existent marketplace rents.

Matt Kornack

Okay. And past past 1 pinch regards to conscionable looking retired a spot further connected nan indebtedness maturity profile. There's a spot of financing to beryllium done successful 2025. Do you expect being opportunistic astir that aliases waiting and seeing, benignant of wherever nan euro liking complaint situation goes? And fixed wherever rates are betwixt Europe and Canada, conscionable your wide thought connected nan financing broadside of nan business astatine this point?

Lenis Quan

Yes. Thanks, Matt. I mean, I deliberation 20 – fixed really volatile markets were successful 2022, 2025 does look for illustration – location a batch could hap betwixt now and then, let's conscionable say. But yes, we're perpetually monitoring. And yes, if there's an opportunity, we are optimistic. We would surely look to do that. I deliberation our attraction evidently correct now is successful nan adjacent term. And I deliberation I had mentioned it successful nan prepared remarks conscionable addressing nan near-term maturities successful Europe.

So, that's rather nan focus, but we don't spot immoderate issues connected refinancing nan European mortgages connected that front, but we'll beryllium opportunistic and proceed monitoring to spot if we tin widen nan indebtedness maturity banal further out. In position of wherever we're seeing rates, I deliberation that was nan 2nd portion to your question.

I would say, for nan European mortgages, I'd mentioned nan rates successful that scope of 4.25% to 4.75% for European mortgages, which is nan astir charismatic complaint of financing that we're seeing correct now for European swaps would astir apt beryllium location successful that 25 ground points to 50 ground points higher for balanced rates connected an unsecured ground successful euros.

Matt Kornack

Okay. That's very helpful. Great. Thanks guys and congrats connected continued stellar results.

Operator

Thank you. We person our adjacent mobility from Gaurav Mathur pinch iA Capital Markets. Please standby, while I unfastened your statement for you. And your statement is now open.

Gaurav Mathur

Thank you and bully day everyone. A mates of speedy questions astatine my end. So, firstly, arsenic 2023 rolls forward, tin you talk really nan return floor plan whitethorn person changed erstwhile you're reasoning of nan superior allocation determination betwixt acquisitions improvement and imaginable portion buybacks?

Brian Pauls

Thank you, Gaurav. Look, we've consistently pointed retired that from nan return profile, nan opportunities wrong nan business specified arsenic our improvement pipeline supply – we judge nan highest consequence adjusted returns successful position of what we see. As we mentioned successful our prepared remarks, erstwhile we deliberation astir allocating incremental superior to our improvement program, we're looking astatine generating a adjacent to 9% if not complete 9% output connected that incremental capital, which we deliberation is very compelling. And these opportunities are proprietary to us. So, we deliberation that's an advantage.

When it comes to acquisition opportunities, arsenic we mentioned to Brad's questions, we proceed monitoring opportunities crossed Canada. We deliberation that our Dream Summit Venture allows america to make enhanced returns done spot guidance and leasing interest income, which is going to beryllium compelling going guardant erstwhile we measure opportunities together pinch our partner.

When it comes to buybacks, arsenic we communicated previously, we perfectly are unfastened to that and we're monitoring comparative opportunities betwixt buybacks and nan improvement pipeline successful position of nan consequence adjusted returns. And nan effect connected financial leverage and financial elasticity and, arsenic good arsenic immoderate different strategical opportunities that are disposable to us.

Gaurav Mathur

Okay, great. And past conscionable lastly connected nan improvement pipeline and particularly nan spec development. Any concerns connected leasing softness successful nan markets, which you're targeting complete nan adjacent benignant of 12 months to 18 months aliases is it dependable and beardown ahead?

Brian Pauls

Thank you. We don't person immoderate concerns connected leasing. What we ever communicated that nan measurement we person organized our improvement pipeline is, we don't prosecute very ample projects connected spec, [we trying to prosecute is] [ph] – what we would telephone wound sized projects that are correct for nan submarkets, nan buildings that we effort to build are flexible. So, we don't request to lease them to a azygous occupier that's not nan request successful nan market.

So, each of nan merchandise that we're building is sub-divideable. And we are engaging pinch occupiers already connected immoderate of our developments that are targeted for transportation successful 2024. So, we're seeing request and we're encouraged by nan level of interest.

Gaurav Mathur

Okay, great. Thank you for nan color. I'll move it backmost to nan operator.

Operator

Thank you. [Operator Instructions] Our adjacent mobility is from Pammi Bir. Please standby, while I unfastened your line. Your statement is now open.

Pammi Bir

Thanks. Hi, everyone. Just pinch respect to nan FFO guidance for nan year, nan [mid-$0.90] [ph] range, I deliberation you mentioned pinch imaginable upside, is location thing circumstantial that you were referring to aliases had successful mind that could thrust that upside, whether it's aforesaid spot NOI aliases fees aliases developments aliases was it much conscionable a wide statement?

Lenis Quan

No, I deliberation arsenic nan twelvemonth progresses and we execute connected nan leasing. I deliberation we'll person a spot much certainty astir what nan NOI is going to look for illustration and what rental spreads and nan upside connected that beforehand will look for illustration passim nan year. So that's really what it's referring to.

Pammi Bir

Got it. And past conscionable pinch your pro forma leverage station nan Summit portfolio acquisition, pinch the, benignant of successful your target range, what are your thoughts pinch respect to possibly recycling immoderate superior either successful nan existing portfolio aliases immoderate of nan different Summit properties?

Brian Pauls

Thank you for that question, Pammi. Absolutely superior recycling is connected our radar. We person started that arsenic you would person seen successful our property merchandise this quarter, we completed a mates of mini dispositions successful Europe astatine a premium to carrying value. And there's a fewer dispositions for illustration that crossed nan portfolio that we are presently evaluating.

We ever communicated that we person a excavation of assets that we see non-strategic and wherever we would see dispositions for nan correct value astatine nan correct clip and we are gradually executing connected that.

Pammi Bir

And would these assets beryllium – they scattered crossed nan portfolio aliases much circumstantial to Europe aliases thing you tin stock there?

Brian Pauls

Yes. It's chiefly smaller assets, assets that came pinch various portfolios. Assets that we don't deliberation really beryllium successful nan business going forward. Again, nan logic we telephone them non-strategic arsenic opposed to non-core is that they are performing assets.

We're not disposing them because we're trying to woody pinch consequence per se, but we deliberation it's not really halfway to nan portfolio going guardant because nan business has grown considerably, immoderate of these buildings require attraction connected superior and we deliberation our attraction successful superior are amended spent elsewhere.

Pammi Bir

Okay. And is this possibly perchance successful the, I don't know, $50 cardinal to $100 cardinal scope for nan twelvemonth aliases is location nary specific, benignant of fig that you person successful mind astatine this point?

Alex Sannikov

It could beryllium successful that range. Timing will beryllium challenging to predict. We're engaging connected immoderate imaginable opportunities, but it could beryllium successful that range.

Pammi Bir

Okay. And past conscionable lastly, pinch respect to nan aforesaid spot NOI, I conscionable want to clarify, are you assuming, benignant of unchangeable occupancy astatine these levels pinch nan immense mostly of that 8% to 10% aforesaid spot guidance being driven by conscionable predominantly from releasing higher rents?

Alex Sannikov

That's right. Yes, we're not assuming important occupancy gains.

Pammi Bir

Got it. Sorry, 1 past one, conscionable pinch respect to – again, coming backmost to nan Summit deal, tin you punctual america nan costs of indebtedness that you're underwriting successful that?

Alex Sannikov

As we communicated successful nan announcement property release, we are assuming nan existing debt.

Pammi Bir

No, I meant conscionable successful position of your equity backing of that transaction. If I recall, I deliberation you've upsized – I judge nan word line. I deliberation it was – is it still coming successful astatine astir 4%?

Lenis Quan

Yes. That's right. There was a fewer components to it, but I deliberation connected nan blended complaint of components was 4% incrementally from nan announcement date.

Pammi Bir

Got it. Okay. Thanks very much. I'll move it back.

Operator

Thank you. [Operator Instructions] We person our adjacent mobility from Mike Markidis pinch BMO Capital Markets. Please guidelines by.

Mike Markidis

Hi, acknowledgment everybody. I'd really put my manus down, but now that I've sewage you, I'll spell ahead. I cognize you're reluctant to springiness specifics connected nan interest business and I get that. I was conscionable wondering if you could thief america conscionable successful position of really you guys deliberation astir it? I cognize there's a guidelines guidance interest and past there's leasing fees, etcetera, etcetera, but precocious level do you guys look astatine it successful position of it would boost your unlevered output connected nan acquisition by a definite number aliases scope of number? Or do you benignant of look astatine it arsenic a accordant ongoing because I cognize it's lumpy, but much of a – connected a gross gross basis. I conscionable dream you could springiness america a small spot of guidepost successful position of really to deliberation astir that going forward?

Alex Sannikov

Yes. Thanks, Mike. Yes, we deliberation astir it arsenic much of a accordant gross stream. As we communicated successful nan prepared remarks, you referred to Brian's remarks, we expect that that fees watercourse is going to standard arsenic nan income of nan portfolio scales arsenic well. As you know, nan marketplace modular spot guidance fees are tied to gross rental gross of nan properties.

And so, arsenic we people leases to marketplace arsenic gross rental gross and NOI of nan portfolio growth, nan spot guidance interest watercourse will standard pinch that. And successful addition, nan leasing fees are tied to nan rents achieved connected lease rollover and caller leases. So, we straight is connected to nan marketplace rent levels from that perspective.

Mike Markidis

Okay. And pinch nan terms, again, without getting into specifics, because you do person disclosure for nan U.S. money complete nan past 3 aliases 4 quarters, would nan position beryllium akin to nan U.S. spot fund?

Brian Pauls

Thanks for that question, Mike. As we communicated, we'll effort to supply a bully disclosure arsenic we tin without reaching immoderate confidentiality provisions. We communicated antecedently successful nan announcement property merchandise that nan fees are group astatine marketplace levels.

Mike Markidis

Got you. Got you. I get nan reluctance there. Okay. Just past 1 and past this was hopefully not a sensitive, but erstwhile you guys spell from gross to net, is that conscionable simply an allocation from your existing OpEx? Just trying to deliberation astir that going from nan [gross re to nan net] [ph]?

Lenis Quan

Yes. We're conscionable deducting [that] [ph]. Yes. Gross gross includes guidelines rent recoveries and past nan NOI would beryllium deducting operating expenses.

Mike Markidis

No, no, sorry. Just again, I was conscionable talking astir nan fees because you person it arsenic a nett interest contribution, but there's evidently a gross constituent to that. So, I'm conscionable wondering if that's conscionable an allocation of your existing OpEx aliases if there's this – really that each works?

Alex Sannikov

No, it's chopped business that we're modeling and erstwhile we are communicating accretion from nan associated task that takes into relationship nan expenses that we expect incurring. So, it's a nett margin.

Mike Markidis

Okay. Got you. Okay. Thanks very much. Great quarter. [Market] [ph] surely likes it. Thanks a lot.

Operator

[Operator Instructions] Our adjacent mobility is from Sam Damiani pinch TD Securities. Please standby, while I unfastened your statement for you. You are now open.

Sam Damiani

Thank you. Good day and congratulations connected a awesome decorativeness to nan year. Just 1 mobility for me. It's conscionable connected what's nan biggest alteration you've seen successful nan leasing markets successful your halfway regions complete nan past year. What industries are looking for much space, what industries mightiness beryllium contracting, rents are evidently up successful a large measurement successful nan past year? Any alteration successful nan tenants' willingness and expertise to salary these higher rents? And what's been nan biggest effect from inflation, higher liking rates, and nan economical uncertainty? Thank you.

Alex Sannikov

Thank you, Sam. So erstwhile we deliberation astir Europe, for example, we mentioned our remarks that we're engaging pinch a number of occupiers crossed 3 countries connected description opportunities. Those occupiers are each from very different sectors. When we look astatine our caller leasing measurement successful Europe, we've seen important [3PL] [ph] demand. We've done caller leases pinch extremity users we've done deals pinch tenants engaging successful electrical car manufacturing proviso chains.

So, we would opportunity that nan request is beautiful diverse. And we haven't seen, benignant of immoderate circumstantial group outperforming. There's been immoderate news of possibly e-commerce driven – axenic e-commerce driven request being slower. What we spot successful our business is that it's very difficult to abstracted e-commerce from nan broader proviso chains fixed a batch of nan occupiers that we woody pinch are engaging successful e-commerce one-way aliases nan other.

In Canada, for example, to move gears, we person been pleasantly not needfully surprised, but encouraged by nan developments successful Calgary. We're starting to spot accelerating rent growth. Vacancy levels are beautiful debased and Calgary is really becoming a beardown replacement for Western Canada successful position of being a distribution hub. That is affordable comparative to different markets successful nan West. And we're occupying our confined space. So, we person surely seen that.

In Canada erstwhile it comes to caller demand. Again, erstwhile we look astatine our divers tenant base, we haven't seen immoderate peculiar group of tenants outperform aliases benignant of do amended – do worse aliases importantly amended than others. We've done deals again pinch 3PLs, pinch extremity users, pinch manufacturers passim nan year.

In position of tenants willingness to salary rents, evidently it's successful negotiation. However, tenants travel to these negotiations usually very good informed of nan alternatives and nan market. And nan location, nan labour unit that these tenants employ, arsenic good arsenic nan entree to awesome proscription corridors stay nan cardinal drivers for a batch of nan occupiers.

Sam Damiani

Thank you. That's helpful. Thank you.

Operator

Just to confirm, Sam, thing further?

Sam Damiani

That's it for me. Thank you.

Operator

Thank you truthful much. We person nary further questions successful queue. I will now move our telephone backmost complete to Mr. Pauls for closing remarks.

Brian Pauls

Thank you truthful overmuch for participating today. Please return care. We'll talk soon.

Operator

Thank you. This concludes today's convention call. We convey you for participating. You whitethorn now disconnect.