Dream Industrial Actual Property Funding Belief (OTC:DREUF) Q1 2022 Earnings Convention Name Might 4, 2022 11:00 AM ET
Firm Contributors
Brian Pauls – CEO
Lenis Quan – Chief Monetary Officer
Alex Sannikov – Chief Working Officer
Convention Name Contributors
Sam Damiani – TD Securities
Mark Rothschild – Canaccord Genuity
Himanshu Gupta – Globe Capital
Sumayya Hussain – CIBC
Matt Kornack – Nationwide Financial institution Monetary
Pammi Bir – RBC Capital Markets
Operator
Good morning, girls and gents. Welcome to the Dream Industrial REIT First Quarter Convention Name for Wednesday, Might 4, 2022.
Throughout this name, administration of Dream Industrial REIT might make statements containing forward-looking data inside the that means of relevant securities laws. Ahead-looking data relies on quite a few assumptions and is topic to quite a few dangers and uncertainties, a lot of that are past Dream Industrial REIT’s management that might trigger precise outcomes to vary materially from these which might be disclosed in or implied by such forward-looking data.
Further details about these assumptions and dangers and uncertainties is contained in Dream Industrial REIT’s filings with securities regulators, together with its newest annual data kind and MD&A. These filings are additionally out there on Dream Industrial REIT’s Website at www.dreamindustrialreit.ca. Later within the presentation, we’ll have a question-and-answer session. [Operator Instructions]
Your host for at present, Mr. Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go forward.
Brian Pauls
Good morning, everybody. Thanks for becoming a member of us at present for Dream Industrial REIT’s 2022 first quarter convention name. Talking with me at present is Lenis Quan, our Chief Monetary Officer; and Alex Sannikov, our Chief Working Officer. Dream Industrial has had a stable begin to 2022, and our strategic initiatives have allowed us to proceed to submit file working and monetary outcomes. We reported a 16% enhance in FFO per unit for the quarter, led by sturdy CP NOI development, decrease price of debt and a sturdy tempo of capital deployment. Our tempo of CP NOI development rose to a brand new file excessive of 10% in Q1, with Ontario main the year-over-year development at 18%, adopted by Quebec with a 14% year-over-year development, each pushed by stable rental fee and occupancy development.
We have now accomplished roughly $227 million of acquisitions because the starting of 2022 with a further $500 million of property underneath contract or in superior negotiations. We have now superior our improvement pipeline with over 700,000 sq. ft of tasks presently underway and a further 1.9 million sq. ft of tasks at our share which might be in superior planning levels. Subsequent to the quarter, we shaped a $1.5 billion three way partnership with a number one sovereign wealth fund to additional scale our greenfield improvement program within the Larger Toronto Space and Larger Golden Horseshoe Space. We’re very enthusiastic about this chance as it would permit us to additional improve our portfolio high quality and considerably enhance our presence in these markets. Industrial fundamentals throughout all of our working markets have remained sturdy, and we’re able to outperform in every of our markets. In Canada, we proceed to construct on our enticing market positioning in our core markets of the GTA, GGHA and Larger Montreal Space via high-quality acquisitions, in addition to executing on our improvement and intensification pipeline.
This 12 months, we have now acquired 4 well-located property within the GTA totaling simply over 400,000 sq. ft for a complete buy worth of roughly $102 million. We have now a further 9 property totaling 700,000 sq. ft which might be underneath contract or in unique negotiations in these markets for a complete buy worth of $210 million. As well as, we acquired 2 websites totaling 70 acres positioned within the Balzac submarket in Calgary. We plan to assemble roughly 815,000 sq. ft of GLA at roughly a 6% yield on price. We proceed to focus on acquisitions of purposeful well-located product in our core markets that permit us to generate vital rental uplift in a short while body. Our acquisition standards focuses on buying high quality property that meet the widest attainable vary of tenant demand in sturdy places which can generate sturdy complete returns over time. With older classic product usually buying and selling above substitute prices, we proceed to see alternative in developments and intensifications, which will probably be a big driver of worth for DIR over time. The newly shaped three way partnership will goal buying $500 million of land within the GTA to develop trendy best-in-class property.
We anticipate this car to offer DIR a pipeline of enticing tasks over time as we goal 5% of our stability sheet to symbolize tasks underneath improvement. This partnership permits us to scale our improvement program throughout a number of tasks, in addition to safe a pipeline of land for future improvement leading to a balanced low-risk strategy to enhancing returns and including scale in GTA and GGHA. Participation with the main sovereign wealth fund validates the worth of our platform and the energy of our administration experience. As a part of the enterprise, each DIR and its accomplice have discretion over new investments, and we can have the chance to amass 100% possession of the property if the accomplice chooses to promote its curiosity. We contributed 2 websites beforehand owned by DIR into the enterprise for a complete worth of $98 million.
The 30-acre Brampton East Lands for a purchase order worth of $70.5 million represents a $35 million or 100% achieve in comparison with what we paid again in April of 2021, in addition to 28-acre web site in Cambridge for a worth of $27.5 million, which was acquired in late December 2021. The three way partnership acquired a 3rd 10-acre web site instantly adjoining to the Brampton web site on the finish of April 2022. Transferring on to Europe, we have now gained vital scale in our goal markets over the previous 2 years, and we have now already seen sturdy proof of rental fee development in these markets. Regardless of the continuing geopolitical tensions, we imagine that fundamentals in our core Western European markets stay wholesome and demand continues to outstrip provide. Our European portfolio is basically totally occupied with dedicated occupancy at 99%.
With in-place rents under market and the excessive occupancy degree, we’re assured of driving wholesome rental fee development. On over 1.1 million sq. ft of leases transacted this 12 months in Europe, we have now achieved rental fee spreads of 16%. We proceed so as to add scale in our core European markets. This 12 months, we have now already closed on 4 property totaling 472,000 sq. ft for roughly $100 million, and we have now a further 11 property totaling 2.5 million sq. ft which might be agency underneath contract or in unique negotiations for a complete buy worth of EUR220 million or roughly $300 million based mostly on the present FX fee. Our scale within the area has allowed us to extend publicity to improvement. The acquisition of the 8.9 million sq. foot pan-European portfolio final 12 months added over 1 million sq. ft of growth alternatives within the area, which we intend to entry over time.
At the moment, we’re underway on 2 tasks in Germany and the Netherlands that can add over 300,000 sq. ft within the subsequent 12 months. Industrial fundamentals within the US have continued to strengthen and the outlook stays fairly favorable. 12 months-to-date, DIR has funded USD70 million of its USD80 million undrawn dedication to the US Fund and has maintained its share across the 25% degree. We proceed to learn from offering property administration and leasing companies to the US Fund. In 3 quarters because the inception of the US Fund, we have now acknowledged $1.7 million in internet property administration and leasing revenue, and we anticipate the run fee to extend additional because the US Fund continues to develop. General, we’re properly positioned to proceed to execute on our strategic pillars, that are continued natural development, increasing our improvement program, centered capital deployment, bettering our price of capital and executing on our ESG technique. We have now made vital progress on every of those pillars and our enterprise is firing on all cylinders with an extended runway for development forward. I am going to now flip it over to Alex to speak about our natural development and outlook and operations.
Alex Sannikov
Thanks, Brian. In the course of the quarter, the worth of our property elevated by $361 million, reflecting low availability, tight provide and excessive capital values throughout our working markets. Largely pushed by the rise in asset worth, DIR’s internet asset worth per unit elevated to $16.48, a 28.5% enhance year-over-year and eight.9% enhance in comparison with This autumn 2021. Leasing momentum in our portfolio stays sturdy, and we reported 10% year-over-year same-property NOI development this quarter, pushed by a 5.6% enhance in in-place rents and a 2.7% enhance in common occupancy. The hire enhance was achieved via marking rents to market on rollover, contractual hire steps and indexation. Occupancy throughout our portfolio remained sturdy at almost 99%, about 150 foundation factors larger than the prior 12 months, and our leasing momentum continues to be sturdy. For the reason that starting of the 12 months, we have now signed roughly 2.8 million sq. ft of leases throughout our portfolio. In Europe, we signed 1.2 million sq. ft of leases at a mean leasing unfold of 16%. In Canada, we have now signed 1.6 million sq. ft of leases at a mean unfold of almost 25%. Contractual hire steps is a crucial driver of regular same-property NOI development.
At the moment, embedded rents that equates to over 2.5% in our Canadian leases. And in our current leases, we have now been capable of negotiate considerably larger development at 4% per 12 months within the GTA and three% per 12 months within the GMA. In Europe, 90% of our leases are listed to CPI, and up to date CPI numbers recommend a powerful enhance in rents in — on our European property. In Q1 2022, we estimate that CPI-based indexation resulted in a 3% enhance in contractual wins for leases representing EUR21 million in contractual rents that had their anniversary date in the course of the interval. Over the stability of the 12 months, we had almost EUR33 million of annualized contractual rents topic to indexation. Assuming the tempo of CPI will increase stays at present ranges over the stability of the 12 months, we anticipate CPI indexation associated contractual hire development to be within the 6% to eight% vary on an annualized foundation. Moreover, market rents for our properties have risen considerably, and we’re properly positioned to realize and even outperform market tendencies as leases roll. Market rents for our properties have elevated by 20% year-over-year and the unfold between in-place and estimated market rents equates to over 20%. Consequently, the outlook for same-property NOI development stays sturdy, and we anticipate to outperform our preliminary steerage offered firstly of the 12 months. We at the moment are anticipating CP NOI development of 8% to 10% for the total 12 months of 2022.
Along with CP NOI development, we proceed to see a number of drivers of NOI and internet asset worth development throughout our portfolio. We have now made vital progress on our improvement pipeline, and we’re already seeing sturdy outcomes from our tasks. With market rents persevering with to develop and outpacing development plus inflation throughout our markets, we anticipate our improvement margins to stay sturdy. We presently have underway — we presently are underway on over 700,000 sq. ft of tasks which might be anticipated to be accomplished within the subsequent 12 months. With a complete anticipated price of $122 million, we expect an unlevered yield on price of 6.3%. We have now a further 1.9 million sq. ft in planning levels. These tasks will begin over the following 12 months with most of those tasks anticipated to be considerably full over the following 18 months. At our 401 Marie-Curie property in Montreal, we have now considerably accomplished the 132,000 sq. foot Section 1 growth. We leased the whole area at file rents for the submarket, leading to an unlevered yield on price of 9%. The lease commenced in April 2022.
Section 2 of the mission is properly underway with development anticipated to be accomplished by the top of 2022. We have now sturdy curiosity from tenants within the second part as properly. Development is underway on our 241,000 sq. foot freestanding constructing on extra land at our property in Dresden. The growth will roughly double the GLA on web site, and we’re forecasting an unlevered yield on price of 6.5% on the mission. We’re already in superior negotiations with these tenants to lease the whole facility. On the finish of April, development commenced on our 8-acre web site positioned in Caledon. We’re constructing 154,000 sq. ft of high-quality industrial area and anticipate completion within the first half of 2023. With a complete price of roughly $38 million, together with the price of land, we’re forecasting an unlevered yield of 5.6%. Within the second half of 2022, we intend to begin the redevelopment of a cluster of three buildings on a 10-acre web site in Mississauga. We’re working in direction of the development of a 209,000 sq. foot best-in-class facility with an unlevered yield on price of over 5%.
We proceed to make sturdy progress on our sustainability initiatives throughout the portfolio. The scope and the size of our renewable power program continues to achieve momentum. Our first photo voltaic set up mission in Sunridge, Calgary achieved substantial completion within the quarter, and the tenant is now utilizing solar-generated energy to function the constructing. We’re additionally executing on 12 tasks throughout Canada and Europe that can add 19,000 photo voltaic panels. We anticipate the capital funding to be roughly $10 million with an unlevered yield on price of above 8.5%. We anticipate this revenue to come back on-line in phases beginning within the second half of 2022. Our US property administration and leasing platform continues to generate sturdy revenue. We anticipate an working revenue of over $1.5 million in 2022. General, we imagine that DIR has vital alternative to drive CP NOI and NAV development, each of which ought to additional improve the standard of our enterprise.
I’ll now flip it over to Lenis, who will present our monetary replace.
Lenis Quan
Thanks, Alex. Our monetary outcomes for the primary quarter have been sturdy. Diluted funds from operations was CAD 0.22 per unit for the quarter, 16% larger than the prior 12 months comparative quarter on account of larger NOI from our comparative properties, profitable deployment of our stability sheet capability in direction of greater than $2 billion of acquisitions over the previous 12 months and decrease borrowing prices as we executed on our European debt technique. We have now been capable of obtain sturdy year-over-year development whereas strengthening our stability sheet. In the course of the first quarter, we additionally accomplished a $230 million fairness providing at a problem worth of $16.30. The proceeds from the providing have been utilized to fund our acquisition pipeline, in addition to improvement prices. In Q1 2022, we raised about $90 million via our ATM program at a mean unit worth of $16.46. We proceed to allocate substantial capital in direction of sustainable initiatives throughout our present portfolio and in direction of acquisitions of inexperienced buildings. Final month, we issued $200 million of Sequence E inexperienced bonds, which took our complete excellent inexperienced bonds to $850 million. We already deployed $295 million in direction of eligible inexperienced tasks and recognized $200 million in further eligible inexperienced tasks with an extra $300 million of tasks in feasibility or preliminary levels.
We ended the quarter with leverage just under 26% and was roughly $638 million of liquidity. After the quarter, we closed on our $200 million Sequence E inexperienced bonds and shaped a GTA three way partnership, bringing our complete liquidity to over $900 million. Since March 31, we have now closed on $110 million of acquisitions throughout Canada and Europe and funded roughly $60 million of our commitments to the US Fund. We have now simply over $500 million of acquisitions which might be presently underneath contract or in unique negotiations, in addition to $90 million of improvement prices for our close to time period improvement pipeline. Professional forma these capital deployment initiatives, our leverage will probably be within the low to mid-30% vary, and we’ll proceed to have vital room on our stability sheet to execute on our development technique. We will purchase roughly $500 million of further property earlier than our leverage will increase to our focused vary within the mid- to excessive 30% vary. Given the current market volatility, we imagine that it’s prudent to run the corporate within the close to time period at a decrease leverage degree within the mid-30% vary. Our geographic variety permits us to entry debt on the most optimum prices. We proceed to see euro debt charges which might be 200 foundation factors decrease in comparison with North America, and that gives us a big benefit as we proceed to execute on our development technique.
We ended the quarter with roughly CAD400 million of euro debt capability. Following our CAD200 million inexperienced bond in April and professional forma the closing of European property and our acquisition pipeline, we anticipate our euro debt capability to develop to over CAD500 million. With lower than $30 million of debt maturing for the rest of this 12 months, we have now restricted publicity to larger rates of interest within the close to time period. On future acquisitions, our underwriting continues to deal with property that generate sturdy complete returns that exceed our return hurdle. Our Europe equal debt supplies a pure forex hedge to our property and revenue from Europe. As our property are almost totally hedged, we anticipate minimal motion in our internet asset worth per unit from modifications within the euro, Canadian FX fee. On the FFO aspect, there may be some impression as a result of unfold between our NOI yields and rates of interest. The year-to-date strengthening of the CAD versus the euro of roughly 6% when in comparison with year-end 2021 would have an approximate CAD0.015 to CAD0.02 impression on our full 12 months 2022 FFO per unit.
Wanting on the the rest of the 12 months, we anticipate to run at barely decrease leverage and assume the Canadian greenback stays near present ranges. We’re on monitor to exceed our comparative properties NOI goal, as Alex had talked about earlier, we expect 8% to 10% comparative properties NOI development this 12 months. Placing that each one collectively, we anticipate FFO per unit for the total 12 months 2022 to be within the vary of our prior steerage, which is within the excessive $0.80 to $0.90 vary and can rely upon our common leverage and FX charges. Over the previous a number of years, our strategic initiatives have reworked DIR right into a high-quality enterprise that may produce sturdy FFO and internet asset worth development over the long run. And we imagine that our trajectory of rising and bettering portfolio high quality stays sturdy. I’ll flip it again to Brian to wrap up.
Brian Pauls
Thanks, Lenis. Our staff continues to work exhausting and achieved vital milestones alongside the best way. We have now taken vital steps to place DIR because the premier industrial REIT in every of our working markets. I would be comfortable now to open it up for questions.
Query-and-Reply Session
Operator
[Operator Instructions] And our first query comes from Sam Damiani.
Sam Damiani
I suppose perhaps simply to start out off is, I suppose, the large query most likely on everybody’s thoughts is Amazon of their announcement final week in regards to the capability points of their success operations. Do you guys have any sense as to what they might or might not do and the way pervasive that challenge is likely to be for different area customers within the market, like how large of a problem do you suppose that is?
Brian Pauls
We have heard their steerage, and we do not have an amazing publicity on to Amazon. And the publicity we do have, I am going to word are in very, what I would name generic, however extremely purposeful buildings. So it is in generic area that might be very relettable. Actually, most often, it is underneath market hire that they pay. So we do not have specialty buildings. We do not have tremendous excessive rents that we’re receiving from Amazon within the small publicity we do have. I am going to let Alex discuss a little bit bit about it as properly. However we do not see this having an amazing impression on us. Actually, many of the markets that we’re in, definitely the place we have now publicity to Amazon, we might welcome some emptiness and the chance to mark these leases to market. So it is, I feel a giant factor available in the market as a result of they’re such a big occupier of area around the globe. However for probably the most half, the markets we’re in will not be considerably impacted by them. For instance, within the Netherlands, they do not have a giant presence in any respect. Within the US, the place we do have some publicity to them, it is in buildings which might be very relettable. So we do not know the extent of — or cannot essentially quantify their modifications, however we all know it would create some market noise. Alex, do you wish to elaborate on that?
Alex Sannikov
Sam, once we take a look at the markets we’re in and the asset sorts we’re in, so beginning with asset aspect, as you already know, we’re specializing in city logistics property primarily. We do not deal with form of success facilities and really massive bins. We have now warehouse distribution property, they’d be in 200,000 sq. foot, 300,000 sq. foot vary on common. And once we analyze Amazon’s steerage once they discuss their extra capability primarily in success facilities, not within the final mile product. After which if we zoom in into the markets, we ran so within the GTA, the markets are exceptionally sturdy. And we’re listening to that there are many different occupiers who might have been behind on — by way of their distribution networks in comparison with Amazon, who’re persevering with to ramp up their e-commerce operations.
We’re seeing sturdy demand from tenants who’re adjusting their companies for the modifications to produce chains, stock ranges, and we’re seeing that demand. On the subject of Europe, there’s quite a lot of demand that we see not from Amazon in our portfolio, it is actually — or e-commerce, it is actually from varied industries as properly. And what we proceed to see on the bottom is that the markets stay sturdy, and there is a lot of demand coming from a wide range of sources, not simply e-commerce. E-commerce has undoubtedly been a big driver for industrial and logistics, however there have been vital different drivers added over the past 24 months which might be nonetheless there in our markets.
Sam Damiani
And simply transferring on to the event pipeline. Have you ever recast the budgets on the lively tasks to form of mirror present market costing? Have you ever finished that? And what impression have you ever seen? And has it been extra of an offset or sufficiently offset by larger rents?
Brian Pauls
Presuming that, Sam, we — a lot of our prices for our — quite a lot of our development proper now could be locked in. So among the present tasks we’re recasting to mirror the market rents, quite a lot of our prices are locked in as we glance to future pipeline, future improvement, we’re definitely price modifications as we go each on the fabric, labor, land after which we’re additionally rents as properly. So our yields and spreads, we predict are definitely intact, market rents have been rising quicker than prices at this level, regardless that prices are going up. However we take a look at it definitely weekly, if not typically day by day. Alex, would you add to that?
Alex Sannikov
Sure, as Brian mentioned, so we’re locked in on every part that’s underway. So we’re seeing enhancements in yield as a result of on the income aspect, we’re nonetheless seeing upside as market rents proceed to develop. Some tasks which might be nonetheless in planning, sure, we’ll probably see — proceed to see publicity to fluctuations in development prices. However as Brian mentioned, we have now seen that our margins are staying intact or bettering as market rents develop.
Operator
Our subsequent query comes from Mark Rothschild.
Mark Rothschild
With the transfer in rates of interest and clearly, the fairness market has been a little bit softer. Have you ever modified at all of your underwriting for acquisitions or perhaps simply how aggressive you may be, you’ve got clearly purchased fairly a bit over the previous 12 months after which transferring shortly this 12 months to date?
Brian Pauls
We’re watching it very, very intently. The issues that we have waived on, we’re closing on issues that we have not waived on, we have been principally re-underwriting, remaking positive that our pricing is nice, the geography is nice, that is precisely what we wish. We’re watching it intently. I feel there’s nonetheless been a little bit little bit of a decoupling between rates of interest and cap charges, however that might change over time. And so we’re fairly cautious, I’d say we’re extra cautious now as we take a look at noise available in the market. And as rate of interest dangers are on the market and issues which might be affecting, probably affecting pricing, we’re that very intently. So throughout all of the markets. I feel it is affecting Canada, Europe and the US probably completely different relying on how tight the markets are and what the hire development outlook is for that exact market. So we — it isn’t a broad brush we paint with, however it’s very, very particular once we take a look at every particular person market and the underwriting. So we’re relooking at it as we go. And I’d say we’re definitely taking a extra cautious eye as we take a look at underwriting in mild of the price of debt.
Mark Rothschild
Possibly only one extra query. Are you able to simply give us an up to date remark particularly on Western Canada, how fundamentals have modified of late? And do you may have a extra optimistic view on that market now versus perhaps 6 months in the past or a 12 months in the past?
Brian Pauls
I am going to let Alex mirror on that, however it’s definitely altering now.
Alex Sannikov
I’d say 6 months in the past, Mark, we began to be far more bullish on Western Canada already. 12 — and when evaluating 12 months in the past, completely, the basics have modified significantly. We have now seen vital absorption. The outlook for rental development has improved significantly. And we’re seeing rental fee development in our personal leasing as we go, each week, we’re seeing type of bettering turns, larger contractual steps, larger rents. So I’d say that we’re far more constructive in the marketplace in comparison with 12 months in the past.
Operator
Our subsequent query comes from Himanshu Gupta.
Himanshu Gupta
So CP NOI development steerage was elevated, I feel to eight% to 10% from 7%. Are you able to elaborate like what or which areas are driving that enhance?
Alex Sannikov
So we’re seeing bettering fundamentals throughout the board. So in Ontario and in Quebec, we’re signing offers at larger rents. In Europe, we have now had a number of successes as properly by way of marking rents to market. We’re definitely seeing larger CPI contribution in Europe. We talked about Western Canada only in the near past. So we’re seeing bettering fundamentals throughout the areas that contributed to this improved outlook.
Himanshu Gupta
And are you [baking] — I feel you talked about the CPI index in Europe anticipated to be 6% to eight% vary. So are you anticipating that as properly on this steerage of 8% to 10% now? Like is that one more reason why the steerage have gone up due to CPI pickup right here?
Alex Sannikov
Sure, quite a lot of the CPI pickup for 2022 has already occurred. We have now a little bit bit extra leases that will probably be topic to indexation in Europe. A whole lot of these leases are non-same — non-same-property they usually’re not within the same-property pool. So we anticipate that, sure, CPI will contribute, however quite a lot of that already is in.
Himanshu Gupta
After which on FFO per unit steerage. I feel that was unchanged. So ought to we assume the destructive impression from Europe, definitely of the Canadian greenback versus euro will probably be offset by larger NOI steerage? I imply is that how we must always take a look at?
Lenis Quan
Sure, that is right, Himanshu. The opposite transferring half was the typical leverage that we have now assumed. I feel we’re anticipating that we might run at barely decrease leverage, however that once more can be offset by the stronger natural development piece.
Himanshu Gupta
After which again to the leasing query right here. In Europe, over 1 million sq. ft of leases signed at 16% plus unfold. So I imply, Alex, is {that a} operate of increasing them being low or are you seeing market rents, like energy in market rents nonetheless as properly?
Alex Sannikov
We’re seeing market hire development. And sure, we had inbuilt mark-to-market potential, however we’re additionally seeing market hire development.
Himanshu Gupta
After which the mark-to-market alternative in your European portfolio, I feel within the disclosure, it is talked about round 6%. I imply, do you suppose there may be — that is a conservative quantity, given what you are seeing available in the market hire right here, prefer it might extra appear like double digits right here by way of mark-to-market?
Alex Sannikov
It might over time. As extra leases roll, we might see extra upside than draw back to that quantity.
Operator
Our subsequent query comes from Sumayya Syed.
Sumayya Hussain
Alex, in your remarks, you spoke to getting success, getting these 3% and 4% contractual steps in your renewals. Are you seeing any indicators of resistance from sure teams of tenants or do you may have any issues about tenant affordability at this cut-off date?
Alex Sannikov
Sure, we’re seeing these ranges in our current negotiations, they — it turned form of the market norm to have the built-in escalators. What we see from our occupiers and when we have now the discussions with the occupiers in regards to the market hire ranges, hire is necessary, however it’s nonetheless a small element of your total P&L. And so it isn’t essentially an affordability challenge for lots of the occupiers. For lots of the occupiers, it involves being in the best location with shut proximity to main arteries, labor swimming pools, that’s far more necessary, opponents are, as an instance, negotiating the final [CAD2] on the hire or transferring to a location that’s maybe cheaper by way of the general occupancy prices [that] will end in further different prices.
Sumayya Hussain
And also you additionally spoke about form of the non-e-commerce demand for us, particularly within the European portfolio. Might you give some examples of form of the most important person sort or sorts which might be main demand or is it form of properly across the demand from a wide range of industries?
Alex Sannikov
In our portfolio, we see quite a lot of meals and beverage tenants, these tenants have been very lively and we have seen them develop. We’re seeing tenants taking more room to hold extra inventories as they’re adjusting their operations for modifications to produce chain. So we see that in North America. We see that in Europe. So there’s a lot of examples of non-e-commerce demand in our enterprise.
Operator
Our subsequent query comes from Matt Kornack.
Matt Kornack
Only a fast follow-up to Mark’s earlier questioning close to the acquisition pipeline and what you are . Has this bond yield setting modified, which markets look extra enticing at this level or I suppose, mentioned otherwise, would you reasonably have leases which might be buying and selling at decrease cap charges with extra upside on the hire aspect or in markets like Europe, the place rates of interest, you continue to have a optimistic unfold, I suppose, between rates of interest and cap charges? Simply excited about your normal ideas as to the place you are concentrating on capital as of late and the place you suppose placing incremental cash is sensible?
Brian Pauls
We’re nonetheless very, very centered on the identical technique. We’re centered on liquid markets. We’re very, very centered on high quality property. None of that has modified. I discussed to a solution to Mark’s query that we’re wanting on the mark-to-market. We take a look at WALTs, for instance, longer WALTs are getting repriced most likely extra considerably simply due to the debt or bond yields, shorter WALTs and marking to market with vital development could be very, very aggressive. So we’re all of these attributes to acquisitions that we’re chasing, however actually the core elementary of nice markets, nice places, Alex talked about proximity to predominant arteries, proximity to inhabitants facilities, long-term values that we’re centered on. In order that has not modified within the markets that we’re in are nonetheless our core markets. And people markets will proceed to be the stronger markets and those that carry out finest for us over the long run. So none of that has modified. A number of the particular pricing, we’re wanting very intently at and taking a reasonably conservative eye towards the associated fee and the incremental accretion to these acquisitions. So none of our total technique has modified. It is simply we’re centered on the distinctive pricing to every particular person asset or the distinctive attributes to every market that we’re in.
Matt Kornack
So it appears like pricing at this level is pretty environment friendly to cross markets based mostly on these completely different traits. After which I suppose the flip aspect is the euro has depreciated in opposition to the Canadian greenback. Does that make a distinction by way of that market being a little bit bit extra enticing at this level to place capital into? After which perhaps a follow-up query for Lenis. By way of the best way you challenge European debt, are you able to converse to the distinction in price between perhaps issuing in Europe straight on an unsecured foundation, if that is even attainable in addition to type of the associated fee differential to the swaps that you simply’re doing on present financing?
Brian Pauls
So there is a collection of questions there, Matt. I am going to simply begin with the primary one to say, our allocation in direction of the completely different markets hasn’t modified. So the attraction to the FX aspect of the enterprise hasn’t modified, the place we wish to allocate capital on type of our total geographic allocation or combine. So then I am going to let Lenis touch upon the type of the stability of your questions because it pertains to our stability sheet, however…
Lenis Quan
The query I do recall is the one in regards to the euro, the issuance of European debt. So we’re wanting into alternatives as to whether or not we might challenge debt straight in Europe. From a price perspective, it is pretty equal. It could be a number of foundation factors cheaper the strategy that we’re doing it presently. There’s some — I suppose, some pricing that is to be gained via the swap mechanism, however it’s a number of foundation factors. We’re wanting into whether or not or not we might challenge straight in Europe, there may be some further steps required, a further ranking — further ranking from a one other ranking company can be required, and simply how that might be structured, et cetera, however it’s one thing that we’re exploring as properly.
Operator
Our subsequent query comes from [Vaibhav Mathur].
Unidentified Analyst
I’ve 2 fast questions, and I am going to begin with the primary. Now we have seen honest worth positive factors throughout the portfolio, and I am making an attempt to not paint every part with the identical paintbrush. However I am questioning in the event you’re witnessing larger cap fee compression throughout the European portfolio as in comparison with Canada, given the place demand of personal asset is and the place capital flows going to?
Alex Sannikov
General, once we take into consideration capital values, not essentially cap charges, as a result of the cap charges could be very difficult to match throughout property. As Brian mentioned, shorter WALTs with mark-to-market versus longer WALTs with mobility to mark-to-market. After we take into consideration capital values, capital values stay decrease in Europe in comparison with North America, in comparison with Toronto, specifically, Montreal. We’re persevering with to see upward motion in capital values, particularly as rental development takes place. Within the GTA and GMA, capital values stay sturdy, and we have now seen upside in our personal portfolio from a capital worth perspective within the Larger Toronto Space, Larger Golden Horseshoe Space usually to mirror type of the comparable transactions that we have seen available in the market over the previous couple of months.
Unidentified Analyst
After which my final query, now we have additionally seen spectacular quarter-on-quarter development with respect to your NAV per unit. How ought to we take into consideration NAV per unit development for the remainder of the 12 months? And I am simply questioning if there’s any steerage that you simply’d like to offer about?
Alex Sannikov
Effectively, we will not actually information into our future worth modifications as a result of clearly it is valuation is [done] at a time. Nonetheless, we proceed to see drivers for natural and asset worth development. As we talked about, our same-property outlook is strong. We’re finishing value-add initiatives throughout the portfolio. We’re finishing improvement tasks throughout the portfolio. And we anticipate that each one of those initiatives will contribute to our internet asset worth development over time.
Operator
[Operator Instructions] And our subsequent query comes from Pammi Bir.
Pammi Bir
Simply with respect to the $500 million of acquisitions which might be within the works, are you able to simply touch upon the place pricing is coming in, by way of cap fee ranges or — and what kind of debt prices on an total common foundation are you underwriting there?
Alex Sannikov
So we anticipate that the cap charges are going to be constant and the expansion profile goes to be according to what you’ve got seen from us. We’re performing some offers in Larger Toronto Space which might be instantly adjoining to a few of our holdings in core GTA that can permit us to pursue a land meeting technique. Their cap charges on these property can be decrease, as an instance, within the 3% vary, however with vital upside as we mark hire to market after which additional upside as we pursue the redevelopment of these property, for instance. In Europe, we’re seeing offers within the 4% vary, within the mid-4% vary was upside from CPI and marking rents to market, et cetera. So far as the price of debt, we have now issued bonds lately. So we nonetheless must deploy that cash. However usually, we’re underwriting 2% to 2.5% vary once we take a look at new capital.
Pammi Bir
And perhaps simply sticking to the, I suppose, the acquisition market. I am simply curious in the event you’re seeing any modifications by way of the kinds of consumers on the desk, simply once more, with the transfer up that we have seen at the back of the bond yields?
Alex Sannikov
We have seen that among the consumers that rely closely on financing are extra cautious. So extra personal consumers or I’d say, smaller personal fairness gamers who want financing and want quite a lot of it. However on the identical time, we proceed to see that giant establishments in Canada and in Europe function with little or no leverage and no leverage they usually proceed to be lively.
Pammi Bir
Possibly simply — it was attention-grabbing truly simply listening to a dealer presentation final week in Europe, and I suppose their expectation for cap fee growth in industrial, however offset by hire development. I am simply curious, do you share that view? And do you suppose that the hire development is greater than adequate to offset the impression of rising cap charges in your portfolio? And perhaps simply so as to add on, have there been any conversations about whether or not it is with appraisers of doubtless adjusting cap charges going ahead?
Brian Pauls
When you take a look at our spreads, our renewal spreads, they’re vital. Lease development proper now has been very vital. So we’ve not seen an impression on cap charges. Appraisers will watch for knowledge factors earlier than they’ll type of acknowledge the change in that. We anticipate which will come over time. However proper now, we’re seeing rents which might be making an attempt to satisfy substitute prices. So financial hire will justify new development, and that’s someplace within the mid- to high-teens within the GTA, for instance. So we have nonetheless received some hire development to go, and we’re seeing that outpace cap fee growth. In order that’s the present state of the market. And we anticipate that to proceed till rents can justify vital new development.
Alex Sannikov
After which lastly simply so as to add to that’s particularly for Europe, in terms of cap fee growth argument, we had — there hasn’t been quite a lot of proof of it. Nonetheless, the place the hypothesis is, what occur is property which might be — have very lengthy leases with very restricted upside and no capability to mark-to-market core property that have already got low entering into yields. That mentioned, as we talked about earlier, once we take into consideration total capital values for logistics in Europe, logistics in — or industrial in Canada, we proceed to see capital values rise, and there, it is actually a operate of rental development. And we do see that for property which have mark-to-market potential in Europe that’s extra close to time period. Market is mostly baking in — sorry, is making assumptions about mark-to-market and underwriting.
Pammi Bir
Possibly final one for me. Simply with respect to the ATM, simply given the place the unit worth is, how would your view perhaps modified with respect to utilizing the ATM?
Lenis Quan
I imply, we nonetheless suppose the — of the ATM is a price efficient means of elevating fairness, however we’re cognizant of the prices that we’re issuing at versus our internet asset worth. So I feel we will be very cautious by way of topping that. I feel we have got a adequate quantity of liquidity proper now to deal with our pipeline and improvement, upcoming near-term improvement prices. So type of given among the current market volatility and the place the unit worth is buying and selling, I feel we’ll be a little bit quiet on that within the close to time period.
Operator
[Operator Instructions] And our subsequent query comes from [Todd White].
Unidentified Analyst
Only a fast query. It is extra on knowledge that we have struggled to search out. And might you quantify — do you may have knowledge to quantify what Amazon has meant to the annual take-up in Europe and Canada as a proportion of complete take-up? I imply we have seen the numbers for the UK, which could be very excessive, for the US, which is excessive. What’s that quantity for Canada and Europe in case you have that knowledge?
Alex Sannikov
We do not have the precise knowledge at our fingertips proper now, however we will get again to you within the GTA, it is — it hasn’t been vital for — in Toronto particularly. The footprint of Amazon is lower than 1% of the market, of the general inventory available in the market. So we do not suppose that the impression of them slowing down. If they are going to decelerate within the GTA, for instance, that might be the market that’s based mostly on the record of extra capability, it is — the impression goes to be vital.
Brian Pauls
And Todd, simply so as to add to Alex’s feedback, their impression shouldn’t be equal throughout all product sorts. So for instance, their success facilities haven’t got a lot of an impression on city logistics, as we mentioned earlier within the name, we do not suppose it would have a significant impression on our portfolio. It could have an effect on creating some area within the massive very rural logistics success markets perhaps by offering some area there. However by way of our portfolio and the places the place we’re, we do not see that having a significant impression.
Unidentified Analyst
And only a follow-up, considerably associated, do you may have a way both from discussions with Amazon or from these which might be linked to are associated that their feedback about extra capability within the type of the logistics market? Was {that a} US particular remark or was {that a} world remark?
Alex Sannikov
We have now not had these conversations, it is early days. What we’re seeing is that they continue to be lively in some markets and fewer lively than others. We have now footprint within the US. We have now footprint in Canada and Europe. So we predict that Canada might be a bit completely different than the US the place they’ve the most important footprint in Europe. And I am speaking about Continental Europe, their footprint is rising. They have not — they have not reached totally the, as an instance, the footprint they should service the whole market. As we talked earlier within the Netherlands, they’re simply beginning within the Netherlands. They have been servicing that out of Germany primarily. We see them taking more room in France, have seen them taking more room in France as lately as 6 months in the past, and vital area. We’re speaking about [Indiscernible] in some markets. We’ll proceed to see the impression in Germany. They checked out our improvement web site in Dresden, for instance. We have been partaking with them 6 to 9 months in the past. So we proceed to see exercise from them throughout varied markets.
Brian Pauls
It’s honest to say that e-commerce penetration is highest within the US, most likely subsequent in Canada after which the bottom in Europe. So if that follows their capability or the effectivity of the e-commerce market, that is what we see or how we interpret that knowledge.
Unidentified Analyst
And do you may have the most recent snapshot by way of simply from a market perspective, sq. meters per capita or sq. ft per capita for Canada, US and Europe and the way they examine? I do know there’s that rule of thumb, the Rule of 10 for US is 10x everybody else by way of sq. footage per particular person. Do you may have any up to date view for Canada and Europe?
Alex Sannikov
By way of industrial stock that’s required — nonetheless required per capita?
Unidentified Analyst
Not required, simply present as a proportion of inhabitants. Simply getting a way of how that’s on the market…
Alex Sannikov
We have now in there, however we do not have it proper with us. Todd, so we — that is okay. We’ll circle again with you after the decision.
Operator
Thanks. And at this level, we have now no additional questions. [Turning it] again for any closing remarks.
Brian Pauls
Thanks a lot on your time at present. We hope you may have a protected day, and we stay up for circling up quickly. Take care.
Operator
Thanks, girls and gents. This concludes at present’s convention. Thanks for taking part. Chances are you’ll now disconnect. Audio system, please standby for a debrief.
