Dream Industrial Real Estate Investment Trust

TSX:DIR.UN

Welcome to the Dream Industrial REIT First Quarter Conference Call for Wednesday, May 7, 2025. [Operator Instructions] And the conference is being recorded. [Operator Instructions]

During this call, management of Dream Industrial REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Industrial REIT's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information.

Additional information about these assumptions and risks and uncertainties is contained in Dream Industrial REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Industrial REIT's website at www.dreamindustrialreit.ca.

Your host for today will be Mr. Alexander Sannikov, CEO of Dream Industrial REIT. Mr. Sannikov, please proceed.

Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's First Quarter 2025 Conference Call. Here with me today is Lenis Quan, our Chief Financial Officer.

We started off 2025 with healthy operating and financial results. For the quarter, we delivered 5.8% year-over-year FFO per unit growth, driven by comparable properties NOI growth of 3.1%. We continue to observe stable activity in leasing market. So far in 2025, we have signed 1.5 million square feet of leases. Rental spreads were healthy at 57% and 51% in Ontario and Quebec respectively.

In the West, where we have seen a meaningful increase in leasing activity, the spreads have been consistent with prior quarters at 9%. In Europe, leasing momentum remained steady as we signed over 700,000 square feet of leases at an average spread of 16%, including the lease-up of our 140,000 square foot vacancy in France, which pushed occupancy up to the same level as a year ago at 96.9%. We ended the quarter with in-place and committed occupancy at 95.4% and a stable tenant retention ratio.

Our first quarter results highlight the strength and the resilience of our business, supported by a robust balance sheet. When considering the current economic climate, the contractual rent growth in our portfolio is a key driver of resilient cash flows. The average rent steps in our Canadian portfolio are over 3%.

In Europe, our portfolio is well protected against inflation with 85% of leases indexed directly to CPI and the remainder subject to fixed contractual escalators. We have already seen the advantage of growing organically with CPI during high inflationary periods of 2022 and 2023 when our European portfolio delivered approximately 10% organic growth.

We have taken a proactive approach in reviewing our tenant base for tariff exposure. This included a direct outreach to over 250 of our major occupiers to better understand any potential impacts and any incremental space requirements associated with tariffs as well as a comprehensive risk assessment of our top 100 tenants across our wholly owned and managed portfolios. We found that our portfolio generally has limited direct tariff exposure across a diverse tenant mix.

Turning over to the occupier market. The positive momentum we have observed in late '24 carried into early '25 with leasing activity remaining healthy, particularly amongst the small and mid-bay users, while the large bay segment showed a gradual rebound.

In March and April, we observed a slower new leasing activity and longer decision timelines across Ontario and Quebec, largely influenced by the uncertainty surrounding tariff discussions as select occupiers adopted a wait-and-see approach.

As we move into May, we're starting to see encouraging sign of leasing activity picking up again. Meanwhile, renewal activity across our various markets has remained healthy and we are achieving our targeted net rents. At the same time, we have seen robust leasing momentum in Western Canada, exceeding our expectations.

Both in Calgary and in Edmonton, we see broad-based demand across all unit sizes, resulting in occupancy increase of 80 basis points over last quarter. We're also making progress on development leasing with over 450,000 square feet of leases in active negotiations at our recently completed Balzac developments, which will lift the occupancy at those projects to over 90%.

Europe has remained consistently strong throughout this period, supported by sustained occupier demand and limited new supply. While today's environment presents a higher degree of uncertainty, it is creating new opportunities as well.

We are beginning to observe pockets of leasing demand across Canada driven by the shifting trade dynamics. For example, some tenants are rerouting their supply chains or capitalizing on the increasing domestic demand for goods imported from Asia and Europe in response to additional costs from tariffs.

Additionally, the higher tariffs recently imposed by the U.S. on certain countries relative to Canada's more moderate trade position are leading some occupiers, particularly those in consumer-packaged goods, chemical and automotive sectors to choose Canadian distribution hubs as strategic alternatives for servicing the North American markets.

We're already seeing this in our recent leasing velocity with increased tenant inquiries and an uptick in RFP activity in the past few weeks.

To put this into perspective, on our February call, we highlighted 2 million square feet of new leases signed or in advanced negotiations. Over the past 2 months, we have successfully converted over 1.2 million square feet of that pipeline into new leases with additional 660,000 square feet of potential new lease opportunities added to the pipeline.

Our ancillary revenue program is growing and increasingly contributing to our results. We have made significant progress on our solar program. During the quarter, we substantially completed a project in the Netherlands at an estimated yield on cost of 10% and commenced construction on 4 new projects with an expected yield on cost of over 8%.

Our near-term solar pipeline is comprised of 80 projects in various stages of feasibility, representing over $100 million in investments at an average yield on cost of 8% to 10%. In addition, we have been actively exploring distributed generation opportunities, which would allow us to sell surplus energy back to the grid in some of our Canadian markets, translating into meaningful additional scale of our solar program.

Our focus on private capital partnerships remains a key source of long-term recurring and diversified revenue. Our property management and leasing platform generated $3 million in net fees for the quarter, 19% higher than the prior year.

We expect these fees to grow as we add scale to our ventures and with our recently completed acquisitions in the Dream Summit venture, we expect to add more than $2 million in incremental revenue on a run rate basis.

We're also executing on our strategy to upgrade the power capacity at select sites across our portfolio for data center users. Our pilot program -- for our pilot program, we have received favorable early feedback from the utility providers for up to 180 megawatts of power across 3 sites located in Ontario and up to 40 megawatts of additional power capacity on one of our joint venture assets in Ontario.

We are highly encouraged by this initial feedback. At the proposed power levels, we believe that these sites will be attractive to a wide range of data center users and we intend to commence leasing discussions over the coming months as we advance our power procurement work. We are also looking to expand our powered line portfolio across Canada and Europe by adding new sites to this program.

With that, we remain committed to disciplined capital allocation. Supported by our balance sheet strength, we have been actively deploying capital into our private ventures at compelling returns. Despite the ongoing economic uncertainty, we continue to see evidence of strong private market demand and healthy pricing for our assets.

Over the course of late March and April, we engaged in discussions or have received bids on over 20 potential nonstrategic dispositions, representing more than $350 million in values across our wholly-owned portfolio and private ventures at pricing in line or above appraised values.

This reinforces our view that private market valuations remain strong and supports our assessment of the value of our assets.

In March, we implemented a normal course issuer bid program to accretively deploy capital and take advantage of the market volatility. Subsequent to the quarter, we repurchased 1.9 million units at a weighted average price of $10.42 for a total consideration of $20 million.

Looking ahead to the rest of the year and to 2026, we have strong conviction that our core business is underpinned by multiple growth drivers capable of delivering consistent organic growth.

I will now turn it over to Lenis to discuss our financial highlights.

Thank you, Alex. Our business continues to deliver stable and consistent growth. We reported diluted FFO per unit of $0.26 for the first quarter, which was 5.8% higher than the prior year quarter. The solid year-over-year growth was primarily driven by comparative properties NOI growth of 3.1% for the quarter, led by 4.2% growth in Canada and 1.6% in Europe.

In addition, early renewals from existing tenants, lease-up of newly completed development and fee income generated from our property management platform contributed to our overall FFO growth. Our net asset value per unit at quarter end was $16.76, relatively consistent from the prior quarter.

Due to increased market volatility, we continue to actively monitor our tenant receivables and any arrears. Our bad debt provision levels remain in line with prior year, although we are currently managing an isolated dispute with a tenant, which is unrelated to recent tariff developments, translating into increased provisions in the quarter.

We continue to actively pursue financing initiatives to optimize our cost of debt and maintain a strong and flexible balance sheet with ample liquidity. To-date, we have addressed approximately half of our 2025 debt maturities.

During the quarter, we repaid $60 million of European mortgages and amended our USD 250 million unsecured term facility, extending that maturity to February 2029, inclusive of a 1-year extension option at our discretion at an all-in rate of 3.17%. There are no other changes to terms and covenants.

We also entered into an unsecured credit facility with a Canadian financial institution for up to $50 million to fund commercial property retrofits related to energy efficiency savings and greenhouse gas emission reductions. We expect the interest rate to be around 3% and the first draw to be in late June.

Our Q1 credit metrics illustrate our solid financial position with leverage in our targeted mid-30% range and net debt-to-EBITDA ratio of 8.2x. We are actively evaluating several refinancing options for the remaining $450 million debt maturity, which is in December 2025. We are currently observing rates in the low 4% range in the Canadian unsecured market with euro equivalent debt 40 to 50 basis points lower.

With growing cash flow generated from the business and total available liquidity of over $750 million, we retain sufficient capital to fund our value-add and strategic initiatives, including funding our development pipeline, solar program and contributing to our private capital partnerships.

Our first quarter performance demonstrates the resilience of our business and we remain confident in our growth trajectory for the balance of the year and into 2026. Given the uncertainty in the current economic and political environment, it is difficult to predict the impact on our tenants' businesses and their operational decisions. We do expect it will increase the variability in the pace at which leasing decisions are made.

As such, we issued a wider range for our 2025 outlook this past February. Alongside the embedded organic growth drivers in our existing portfolio, we have integrated additional drivers of growth, including development, our property management and leasing platform, solar and other ancillary revenue streams.

These initiatives have already proven to contribute meaningfully to our business and position us well for long-term sustainable growth. While we have a high degree of visibility on our near-term renewals and are making solid progress on new leasing activity, it is difficult to predict the impact on the leasing velocity in any given quarter, especially from prolonged tariff uncertainty.

Accordingly, the expected growth outlined in our outlook was weighted towards the second half of the year, reflecting our expectation of some occupancy variability in the first half.

With that, the upper end of our initial range for 2025 comparative properties NOI and FFO is currently less likely and the 2025 comparative properties and FFO per unit growth is more likely to land at around the lower end of the outlook range.

Our outlook for 2026 is to a degree -- greater degree, informed by our ability to capture market rents, execute on our growth drivers and maintain occupancy at the long-term average levels. Accordingly, we continue to expect a continued strong pace of FFO per unit growth into 2026.

Our FFO growth expectations for 2025 and 2026 continues to be predicated on current foreign exchange rates, leverage levels and interest rate expectations as well as expected timing of the lease-up of our transitory vacancies.

I will turn it back to Alex to wrap up.

Thank you, Lenis. Dream Industrial has been navigating economic uncertainty over the past few years while delivering solid FFO and same-property NOI growth and reliable cash flows to our unitholders.

To put our results and outlook in context, we expect to deliver robust FFO per unit growth in '25 and '26, well above the average for Canadian REITs while refinancing our debt at higher interest rates. Our unit price reflects a highly compelling implied cap rate of over 7.5% with a conservative balance sheet and a payout ratio of below 70%.

We will now open it up for questions.

[Operator Instructions] And your first question comes from Frank Liu with BMO Capital Markets.

With respect to your occupancy level, which we see some quarter-over-quarter movement, is this movement within your expectation? And do you still expect the average for the year to be around end of the Q4 range of, let's say, mid-95%?

Thank you, Frank. Yes, the variability this quarter is within the standard deviation, if you will. And we communicated in February that we expect variability in the first half of '25 and we expect occupancy to ramp up in the second half, but not materially.

We're obviously not forecasting to be at 99% occupancy in the fourth quarter. We communicated in February that we expect average occupancy for the year to be consistent with year-end '24 and that broadly remains the expectation.

Just back check on your guidance, I mean, updated guidance. So you guys still expecting like the 6% to 8% [indiscernible] growth for 2025, but you're expecting that the actual results probably will be hitting the lower end of the range? And does that -- is the same story for your earnings growth as well?

So what we communicated in February is that broader range for NOI and FFO growth. And I think Lenis just commented that we expect to land at around the lower end of the range currently, where we think that that end of the range is more likely.

We also commented in February that we expect '26 results to be at least the same as '25 and that remains the expectation. If anything, given we are projecting to be towards the lower end of the range in '25, that pushes up '26 on a growth -- year-over-year growth basis.

And your next question comes from Fred Blondeau with Green Street.

Just looking at demand for space in the wholly-owned portfolio and in Dream Summit, are you starting to see some stress from not only larger bay tenants at this stage, but also from -- maybe from smaller or medium bay tenants? And what would be your base scenario on this for 2025?

Thank you, Fred. The short answer is no, we're not seeing stress from our occupier base broadly or nothing idiosyncratic over the last couple of months. But what we have seen in, call it, March and April is longer decision timelines, especially in Ontario and Quebec when it comes to the new leasing.

And can you characterize if you saw this more for larger bay tenants or smaller?

Generally, larger bay tenants I would say, would be lower than smaller bay because these are larger decisions.

Okay. And I mean, it looks like you remain relatively positive for the rest of the year in terms of smaller bay tenants. Is that fair to say?

We see consistent activity. We -- capturing the rents that we intended to capture. So we remain pretty constructive on that segment of the market. And then geographically, there's a wider range.

We see, as we commented, very healthy activity in Calgary and Edmonton, stronger than what we expected at the beginning of the year. Europe is pretty consistent. Ontario and Quebec started the year very strong. There was a bit of a pause in March, April.

We're starting to see that come back with more RFP activity. But it remains a challenging time to predict the future given the unprecedented trade environment.

Yes. Tell me about it. I may have missed this. I was wondering if you had an update on the European JV discussions.

No, we didn't provide any specific update in the prepared remarks. We have -- we continue to engage in various conversations. We were pretty close to put together one JV during Q1, but ended up not agreeing on governance terms with a prospective partner. And so -- but we continue to dialogue with other private market participants.

Okay. So nothing seems to be too imminent, but should we still expect something in 2025? Or I mean...

We're certainly working towards it.

And your next question comes from Himanshu Gupta with Scotiabank.

So on the portfolio occupancy, I mean, it was down in Q1, both Ontario and Quebec. So what's driving those occupancy decline? And then how should we expect for Q2? I mean, given your remark of some slowdown in March and April?

Thank you, Himanshu. The occupancy was indeed down in Ontario and Quebec. There's some idiosyncratic decisions. We had one group vacate a building right next to the airport. That was anticipated for close to 2 years.

We had some consolidations in Quebec. So there's no trend, if you will, to pick up from various non-renewals. We did communicate in February that we expected some occupancy variability. So this slight decline was anticipated.

Okay. And how should we think about Q2? I mean, given you're starting to see some slowdown, I think, in March or April, as you mentioned?

Broadly for the entire portfolio, we expect Q2 to be flattish on the occupancy level.

Okay. Okay. Fair enough. Okay. And then if I look at your same-property NOI guidance, I mean, now at the low end of the range, so is that a reflection of like lower occupancy expectation? Or are you factoring in like more market rent softness?

It's the delay in -- anticipated delay in leasing decisions or we are -- it still is a range, but what we have communicated, we expect the lower end to be more likely given the pace of leasing decisions that we generally observe. And unless there's a meaningful certainty added to the market, we expect that continued uncertainty is going to impact the pace at which leasing decisions are made.

Okay. Fair enough. And maybe the last question is on Quebec. I mean, would you say this is your weakest market right now? I mean, occupancy of almost 92%. So like where do we bottom out? And I know you have some more lease expiries coming in as well for the rest of the year.

Yes. So before we get into Quebec, just to clarify something on the occupancy side. What we are not necessarily baking in or what we're not seeing is a change in renewal activity. So our occupancy outlook is predominantly informed and the kind of the ranges that we expect for the NOI and FFO growth is maybe -- is predominantly pace of lease-up of vacancy as opposed to we now have more non-renewals that we expect compared to February, if that makes sense.

On Quebec, the answer is it depends. So the larger base segment in Quebec remains challenging or in Montreal remains challenging. We have started to see some activity. Some of it relates to tariffs that we just commented in our prepared remarks.

But there is a fair bit of availability in the large base segment. And obviously, these are larger assets and therefore, as a percentage of total, they impact the occupancy number more materially. When it comes to small mid-bay segment, we continue to see strong rents and strong pace of activity, both new leases and renewals.

And your next question comes from Brad Sturges with Raymond James.

I guess sticking with the leasing theme here, just on looking at what's left to do for expiries this year. I guess, Q1 retention rate was down. But how do you think about, I guess, the retention rate for the balance of the year? Or do you think you get back to kind of closer to historical average? Or would that be a little bit lower this year?

We expect generally historical average. We commented on the last call that we expect a 200,000 square foot non-renewal in Germany in Q2. And there's another 200,000 square foot non-renewal in November this year in Ontario. But broadly for the total, even factoring in these non-renewals, we expect the retention rate to be at around historic averages of give or take 70%.

Okay. And given the commentary around at least a little bit of a slowdown in March, April, starting to see an uptick again in May, does that change your thinking around your leasing strategy, whether you're pursuing a little bit more early renewals or thinking a little bit different about inducements or other factors in terms of your leasing strategy? Just put it in context in terms of how that leasing strategy may change in the current environment?

Yes, that's a fair question and it's a spectrum. So we -- and it's not applicable to every asset. So it's certainly asset-specific, segment-specific. We are engaging with all of our occupiers proactively to understand their needs, understand their -- the impact on their business. And obviously, we are commencing renewal discussions with them. So we generally are focused on retention and are not opposed to early renewals, blend and extends, et cetera.

Would that equate to being more open to like shorter-term deals? Or like are you seeing tenants given the uncertainty prefer shorter-term deals versus longer-term deals or vice versa wanting to lock in space for a longer period of time? Just curious if there's any sort of trends you're seeing at this point?

We see maybe a little bit more shorter-term requests compared to end of '24. I wouldn't say that it's 100% or anywhere close to that, but there's a little bit more shorter-term renewal requests or new lease requests maybe compared to 6 months ago. But we continue to see 10-year deals and 5-year deals that's pretty common.

Okay. Last question, just on -- I think you mentioned receiving some inbound bids for disposition. Just curious on, sort of, if that was focused within a specific region or is it more broad-based? And then like secondly, would you be more open to doing dispositions with the wholly-owned portfolio in order to, let's say, buy back stock just given the discount?

It's pretty broad-based. We see inbounds in the West, in Ontario, in Montreal, in Europe. So it's not specific to any region. We also see a pretty broad range of potential buyers ranging from smaller regional investors to family offices to users.

And we are active on the disposition front in terms of engaging with potential buyers for both private ventures and wholly-owned portfolio and want to make sure we stay disciplined with pricing and mindful of, sort of, go-forward returns that we are foregoing by selling these assets and versus where we can redeploy the capital.

If your question is, would we be looking to lean into dispositions, try to sell assets maybe at suboptimal pricing given the unit price, we're probably not quite there yet and we want to stay disciplined with pricing. And there's enough balance sheet capacity to pursue our capital allocation program otherwise.

And your next question comes from Kyle Stanley with Desjardins.

Could you elaborate a bit on the outreach you mentioned to clients? I'm just curious, is there an expectation of more or less demand coming on the back of kind of the trade environment? And maybe in your discussions, what has maybe led to tenants being willing to make a decision now in May versus maybe holding back a bit in March, April?

We've seen from the outreach, Kyle, that some occupiers are in need of additional space to store additional inventory. And so we're engaging with them on that. I guess when we started this outreach, this was -- some of these requirements were shorter term.

They may morph into longer term. And we continue to see that our occupier base is pretty resilient. As far as need for decisions, well, the market cannot postpone some of the leasing decisions forever. We obviously try to be flexible and accommodate shorter terms, as we commented in response to Brad's question. So trying to be flexible with our occupiers.

Okay. So I guess to sum it up, it seems like there could potentially be more demand on the back of these changes, but obviously, it's just -- it's the timing, which is most uncertain today?

There could be. It's not all one-sided. Obviously, the impact on Canadian or U.S. economy from prolonged uncertainty and increased tariffs is not helpful. But what we have seen in Canada is that this tariff environment is leading to incremental demand, specifically in Canadian assets.

Okay. Difficult question I'm sure to answer, but coming into the year there ahead of tariffs really being an issue, there is a view that by midyear, you start to maybe hit peak availability and then fundamental strengthen into year-end with the potential for market rent growth to accelerate again. As we sit here today, I mean, what is your outlook for that maybe positive inflection of market rents and obviously, has it been pushed out?

Yes. It is indeed a difficult question to answer. We've seen arguably the inflection already in the fourth quarter with pretty solid absorption across the Canadian market. We -- yes, we'll see whether this continues.

There's likely to be a bit of a delay there. What we are seeing, though, is supply is continuing to shrink and there's less and less space being proposed for development. And so that is going to be a healthy contributor to the overall strength of the market. The other metric that is important to note is that the subleasing volume is down materially and so that's also helpful.

Okay. And just one last one. On the Oakville acquisition, the pricing seemed quite attractive. So I'm just curious, was the building occupied or maybe what contributed to the favorable price per square foot, price per acre amount?

It's a good deal. I think that's probably the shorter answer. That's why we like the asset. Some of your colleagues in the industry pointed out that while Oakville is a market that has the potential to be impacted by tariffs more than others, we see this asset as pretty resilient and insulated from that.

Strong corridor, good basis with mark-to-market yield in around 7% and excess power that we can probably enhance over time, which is consistent with our power-focused industrial program. So we like the asset for many reasons.

Okay. And one last one, just on the data center side. It looks like, obviously, very solid progress on the power procurement. But just actually getting the power to the site to the point that then you're able to make leasing discussions, what kind of timeline will we be looking at to actually have the power ready to go on the sites?

Power generally could be coming in phases, which is consistent with how data centers get developed in Ontario, let's say. General timeline would be 3 to 5 years. And again, it's going to be not all at 3-year mark or not all at 5-year mark. It's really phasing in of that power.

Okay. So would you theoretically be able to make kind of leasing or have spaces be leased or ready to sell in advance of the power being there? Or is this really just kind of a 3- to 5-year program before we start to really see progress?

We expect to be able to start commencing leasing discussions much sooner than that. It takes at least 2 years to develop a data center. So 3- to 5-year window is not that long in that context.

And your next question comes from Matt Kornack with National Bank Financial.

I'm trying to read between the lines a bit here in terms of your MD&A disclosure. But it looks like if you look at the mark-to-market potential as well as the in-place rents and market rents that some of your transitory vacancy has been product that had maybe a higher mark-to-market potential.

So I'm just -- I'm trying to gauge whether you still think that mark-to-market is attainable and maybe some of your leasing process around it has been to preserve that mark-to-market and hence why you're taking some time in leasing those assets. Is that a fair characterization?

Indeed, some of the transitory vacancies have very high mark-to-market potential. We got an asset back in Mississauga at sort of high-single digit rents. It's high teens in terms of market, same in Montreal.

When it comes to the pace of leasing, yes, of course, we want to make sure that we capture the right rent, but also capture the right user and address the right audience with the assets. And in some cases, we have users looking to buy these assets at highly compelling pricing. So we're pursuing multiple angles.

When it comes to our leasing strategy and trying to position the assets to compete well in the specific segments of the market where we see the most demand. So if we have a larger bay asset come back to us that demises well into smaller units, we will pursue that to then capture the most demand at the highest rents.

Makes sense. And then maybe one for Lenis. On the bad debt side, yes, this quarter was a bit higher from a provision standpoint. I don't know if any of that has actually been realized.

But how should we think about that in terms of your forecast going forward? I don't think we have any bad debt in our forecast. So it seems to be episodic at some point. But should we be running kind of a provision each quarter for this year or is it one-off?

So in the prepared remarks, I did allude to just higher bad debts related to an isolated -- one situation we have with a tenant who's -- I think they're trying to do an early termination on their lease. So we did some provisions there. We may expect it to be elevated for the next quarter or so. But we did include additional reserves in our prior outlook and continue to carry -- continue to carry that as well in our update.

Okay. Fair enough. And is there potential, I guess, that it would have a reversal at some point in the future? Or is it -- yes, is there a positive potential that would come at some point in the balance of the year, if it's resolved favorably?

Yes, there's potential for that. It's again, difficult to predict.

Fair enough. And then just wanted to turn to -- because we're losing track a little bit in terms of the development pipeline, some of the stuff that has been completed as well as what is in process. And just how we should think about the contribution from development stuff that's already done this year versus the lease-up of some vacant space as well as stuff that's yet to be complete?

So in terms of developments that are generally complete and not fully leased, that's our Calgary developments that are roughly at 50% leased right now. And as we commented, we have a pretty good pipeline to take the occupancy there to close to 90% or over 90% and we also have our Cambridge development that is -- that we own 25% of that is around 20% leased with a pipeline that would take it to 70%, 80% range.

We expect the contribution from these assets to be in the second half towards Q4 this year. And we are expecting to complete our Whitby development this year as well and then we're kind of in the lease-up mode for that development. That's about 400,000 square feet across 2 buildings.

Okay. And then just a quick clarification. But for the substantially complete but not, I guess, fully leased, so I guess it's Balzac -- Cambridge and Balzac. Are those in your aggregate occupancy figures? Or are they kind of still carved out as...

They're carved out. They're carved out. There's still some works being finished on the sites, et cetera.

No, that's fair enough. That's how we're modeling it. Just wanted to make sure.

And your next question comes from Pammi Bir with RBC Capital Markets.

Just in terms of the private partnerships, Q1 was obviously very active. But as you move forward, has the appetite changed at all? Or is the JV still looking to maybe expand at a fairly rapid clip?

The JV is still looking to expand. The pace at which the JV is going to expand is opportunity-driven. Obviously, it's, again, unprecedented economic environment. So both public markets and private markets are assessing what this means for capital allocation and pace of capital deployment.

But generally speaking, the JV strategy didn't change. And we continue to pursue opportunities and bid on assets. We also are deploying capital within the venture on select expansions. Some are tenant-led, some are on-spec. So the venture continues to deploy capital into Canadian industrial broadly.

Okay. And just to clarify, that's on both the income -- the sort of the income-producing JV and the development JV? Or is it more leaning toward the income property JV?

The income property JV has been more active. It's been difficult to find sites that pencil. We added the Brampton site to the development JV last year. We continue to look for land opportunities. But generally speaking, we're not leaning into land acquisitions at the moment.

Okay. And just last one for me. Good to see some of the activity on the NCIB. But can you just comment on the appetite to stay active at these levels while also sort of being mindful of your leverage? And maybe just how high are you willing to push leverage at this point?

We're not willing to push leverage high. And so we want to make sure we stay disciplined with activity that is well-funded by ongoing cash flow, maybe some dispositions, but definitely not looking to push leverage up for unit buybacks.

And your next question comes from Sam Damiani with TD Cowen.

So just maybe to clarify a little bit on the NCIB, which obviously was active after the market price for most REITs fell in April. Was that the catalyst? And if the price stays in the mid-$10s or below $11, how much of capital allocation would be diverted toward buybacks versus acquisitions in the near term?

Thank you, Sam. It definitely was informed by the unit price and availability of capital and otherwise kind of where the acquisition pipeline is or other capital deployment opportunities were in their cycle. So ongoing activity will be informed by the mix.

And so we will continue to reassess and we'll remain prudent when it comes to leverage and try to pursue a balanced approach between allocating capital to unit buybacks, but also not shrinking the liquidity of the business and not foregoing any attractive opportunities.

There is an opportunity cost to buybacks, especially at a significant scale. So we're mindful of that.

Perfect. That's helpful. And the other -- last one for me really is just on the U.S. fund. It seems to have been active on the disposition front in recent quarters. Is that likely to continue near term?

It could continue in the near term. We achieved very good pricing on select assets there and it makes sense to pursue those dispositions. It's going to be informed by pricing and general capital allocation, sort of, strategy for that vehicle. We're not necessarily in a disposition mode, if you will, in the U.S. There was a good opportunity that we pursued.

[Operator Instructions] Your next question comes from Sumayya Syed with CIBC.

In your disclosure, there was some commentary around a slight decrease in market rents for Ontario and Quebec. So how would you ballpark that decline? Would it be low single digit or below that range?

Sumayya, you -- the market rents are informed by asset mix as well. So as we sell assets, there will be some changes to the overall. We haven't seen meaningful declines in our assessment of market rents in the quarter.

Okay. And then there's the odd broker report out there suggesting that lease escalators have started to come down based on the market from, let's say, high 3%s to 2.5% to 3% range. Are you seeing any of that occur in your leasing activity as well?

We continue to see strong escalators for small mid-bay segment in that 3% to 4% range. We -- yes, we're seeing escalators for larger bay segment to be in the 3% to 3.5% range generally. So that's what we've been achieving in our leasing.

Okay. And then probably just lastly, Alex, you noted that there was good activity in Western Canada. What tenants or category are you seeing being most active there? And with the oil prices moving down, do you see any headwinds to that demand?

We've seen very strong activity in the West and it's not directly connected to oil and gas segment. It's mainly driven by population growth in Western Canada, driven by Calgary and in particular, becoming a distribution hub for Western Canada.

In the West, we've also seen the tariff-led demand where occupiers are looking to lease larger footprints to address the opportunities, I guess, that they see in supply chains, specifically relating to tariffs that the U.S. is looking to impose on other countries, et cetera.

Okay. So more broad-based.

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

Thank you for your interest and support of Dream Industrial REIT. We look forward to reporting on our progress next quarter. Goodbye.

This brings to a close today's conference call. You may now disconnect. Thank you for participating and have a pleasant day.