Dream Industrial Real Estate Investment Trust

TSX:DIR.UN

Earnings Call Transcript

[Operator]

Welcome to the Dream Industrial REIT Fourth Quarter Conference Call for Wednesday, February 19, 2025. [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 are 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 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.

[Alexander Sannikov, executive]

Thank you. Good morning, everyone. Thank you for joining us for Dream Industrial REIT's year-end 2024 Conference Call. Speaking with me today is Lenis Quan, our Chief Financial Officer. In the room with us is Bruce Traversy, our Chief Investment Officer.

DIR was successful in achieving its operating and financial targets for the fourth quarter and the full year of 2024. Our results demonstrate the resilience of our business. We have a highly diversified occupier base, a functional urban portfolio designed to service a broad range of users, multiple drivers of organic growth and a solid balance sheet. Despite reducing leverage on a net debt-to-EBITDA basis from 7.7x last year to 7x in 2024 and dealing with 600,000 square feet of unplanned lease terminations, 2024 marked our fourth consecutive year of FFO per unit and free cash flow growth.

Our average in-place rents increased by 7% in 2024. This growth in rents outpaced the pressure from lower occupancy, driving comparative properties NOI growth of 4.6% for the full year. We signed over 7.3 million square feet of leases in 2024, exceeding 2023 in total leasing volume while achieving consistent spreads. This leasing momentum carried into the first quarter of 2025 was close to 2 million square feet of new leases signed or in advanced negotiations. Our in-place and committed occupancy was 95.8% at the end of the year, a 30 basis points increase from the prior quarter with a healthy 75% tenant retention ratio in line with historical norms. We made significant progress on our development pipeline with substantial completion of 4 projects at an average expected yield on cost of 6.3%, adding more than 1.6 million square feet of high-quality space to our wholly owned and managed portfolio.

We have increased our near-term development pipeline of projects in various stages of planning by 600,000 square feet including several build-to-suit expansions.

We continued with our program of high-grading our portfolio while maintaining disciplined capital allocation. During the year, we completed $261 million of acquisitions and $140 million of dispositions across our wholly owned and managed portfolio. Subsequent to the year-end, we closed an additional $400 million of acquisitions in the Dream Summit venture, including a 27.5 acre industrial outside storage assets in Vancouver. Our property management and leasing platform generated more than $11 million in net fees for the year, over $2 million higher than 2023, and we expect our fees to grow as we add scale to our ventures.

Turning to the occupier market. 2024 was a transitional year. Although the pace of rental growth continued to normalize following the height of the pandemic-driven leasing, we have been encouraged by the uptick in demand for industrial space across our markets. In Canada, while availability rates are higher compared to 2022 levels, the absolute levels of vacancy are amongst the lowest in North America. Demand from small to mid-bay users remained healthy, and we have seen growing interest from larger users in Q4 and into the first quarter of 2025. At the same time, the national construction pipeline has fallen by over 25 million square feet since mid-2023 as deliveries have outpaced new construction starts. The total supply currently under construction has slowed to the levels last seen in 2021 and 2022. Within our income-producing portfolio, rental spreads on contracted leases remained strong.

From the beginning of 2024 to the end of January 2025, we signed 4.5 million square feet of leases in Canada at an average rental spread of 55% with an average annual escalators of more than 3%. Although the Montreal market has experienced several quarters of negative absorption, vacancy rates appear to have begun leveling off. New supply levels have fallen, and we have seen an increase in interest from larger users since the start of 2025. We are currently in new leasing discussions on over 700,000 square feet of space across the Montreal portfolio.

In Calgary, we continue to see healthy demand and we are making good progress on the lease-up of our 1 million square feet of new developments that came online in the Balzac submarket. We're currently in negotiations on over 400,000 square feet of new leases for these projects. We have also seen an uptick in leasing activity in Edmonton with over 300,000 square feet of new leases in advanced negotiations across the platform.

The GTA market remains healthy with deep user demand for small and mid-bay facilities with multiple leasing data points, reinforcing our assessment of market trends as disclosed in our MD&A. In 2024, we completed approximately 3 million square feet of leases in the GTA at an average spread of 73% across our platform and at rents otherwise in line with our budget.

In addition, we have successfully relet over 500,000 square feet of unexpected terminations. Even though some of these terminated leases had been recently regeared to market, the average re-leasing spread was still healthy at 20% with 8 months of downtime on average. We are also seeing larger requirements coming back to the GTA market, and we completed 1 million square feet of large bay leases in our wholly owned and managed portfolio in Q4 alone.

The fundamentals in Europe remains solid, especially for urban midsized assets. Subsequent to the quarter end, we signed a new lease for our 140,000 square foot facility near Paris. This asset was one of the unplanned vacancies we were addressing in 2024. The new lease was signed at a spread of 12% relative to prior rents despite the fact that prior lease had already been indexed by over 14% during the lease term. Additionally, we completed several other leases in Europe, increasing our committed occupancy by over 110 basis points this quarter.

And currently, we are seeing an uptick in demand for expansions from our existing occupiers. Last week, we signed an early renewal with an existing 289,000 square foot tenant in our Dutch portfolio. This tenant is looking to consolidate the operations and require additional 120,000 square feet of space. We'll be pursuing this expansion on the neighboring site and will upgrade the existing asset at a combined yield on cost of 7% with an additional lease term of 10 years, commencing after completion, which is expected in the first half of 2026.

Similarly, in our private venture, we recently signed a 10-year lease renewal with a large global automotive occupier at a 340,000 square foot facility in the GTA. As part of the agreement, we'll be activating the site's excess land potential, expanding the building by over 100,000 square feet. These are sizable space commitments, demonstrating the willingness of major occupiers to make long-term decisions. For example, the GTA renewal will amount to approximately $100 million of net rent payments over the lease term. We intend to actively pursue these opportunities to enhance our portfolio while meeting our tenants' needs. Our wholly owned portfolio includes over 180 acres of excess land that can be -- can facilitate build-to-suit and expansion requirements. And we have over 60 acres of undeveloped excess land across our private ventures that we can activate over time.

Supported by a balance sheet strength, we have been actively deploying capital into our private ventures. Since the beginning of 2024, we completed over $582 million of acquisitions within the Dream Summit venture, which includes a 27.5% industrial outside storage site in Vancouver leased to a diverse range of users and a portfolio of 7 assets in the GTA totaling almost 1 million square feet that offers significant upside, industrial outside storage opportunities and repositioning opportunities.

Within our development JV, we acquired a 32-acre infill site located in Brampton. This site is shovel-ready and can support a 680,000 square foot logistics facility demisable into 70,000 to 100,000 square foot units. Broadly speaking, private market demand for industrial assets remains strong with multiple data points across Canada and Europe supporting our assessment of value -- of our assets.

Against this backdrop, we remained focused on capital recycling program. Since the beginning of 2024, we have completed over $80 million of dispositions across a wholly owned portfolio at an average 12% premium to the carrying value. Additionally, we completed over $65 million of dispositions within our private ventures at an average price over $360 per square foot.

Additionally, we've made progress on our value-add initiatives. Our solar program now consists of 23 completed projects was 21-megawatt capacity, which generated $1.5 million of NOI in 2024. We are currently underway with an additional 60 projects undergoing feasibility. We also continue to pursue opportunities to convert some of our existing assets for data center users. We have submitted power applications on 4 sites totaling 200 megawatts. We expect to receive preliminary feedback from the respective utility providers in the second quarter of 2025.

Over the past few years, we've made substantial strides in our transformation of the business by enhancing the quality of our owned and managed portfolio, developing over 3.5 million square feet of best-in-class buildings, expanding our geographic presence, launching new private partnerships and exploring new value-add initiatives while strengthening our balance sheet. Our portfolio is comprised of -- by 80% is comprised of urban industrial assets is well located and highly functional, providing us with significant repositioning opportunities to accommodate a more diverse user base over time.

The limited supply of new urban product, coupled with stated occupier demand continues to inform our constructive outlook. When assessing our near-term outlook, we need to take into account the ongoing uncertainty with respect to trade in North America and Europe. As we mentioned before, our occupier base is highly diverse. We have recently reviewed the trade exposure across the main tenants. While many of our occupiers are participating in the broader supply chain, the direct cross-border trade exposure within our portfolio is limited. Market rents for our assets in Canada are 35% above in-place rents, providing both upside potential and mitigating any downside in the event of distress.

We are also in active dialogue with over 300 of our key tenants in Canada. Through the course of these discussions, we again have not identified significant trade concerns. In fact, we've begun exploring opportunities with some of our occupiers to accommodate potential additional space requirements stemming from higher inventory levels. While trade uncertainty will inevitably lead to some volatility in the near term, we expect that one of the positive outcomes of this uncertainty will be reinforcement of supply chain resiliency, resulting in consistent and growing requirements for industrial and warehouse space. That said, we are factoring this near-term uncertainty into our '25 outlook.

We expect this pace of CPNOI to accelerate to 6% to 8% growth on a constant currency basis in 2025. Our CPNOI growth expectation is largely predicated on the timing of lease up of our transitory vacancies. We expect the average occupancy for 2025 to remain relatively consistent with the current levels with some expected fluctuations quarter-to-quarter. We expect average occupancy for...

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

[Lenis Quan, executive]

Thank you, Alex. We ended 2024 with solid financial results, which demonstrate the strength of our business and our portfolio. We reported diluted FFO per unit of $0.26 for the fourth quarter, which is 5.8% higher than the prior year quarter. For the full year, diluted FFO per unit was $1, representing a 2% increase year-over-year.

The solid year-over-year growth was primarily driven by strong comparative properties NOI growth of 3.3% for the quarter and 4.6% for the year. Early renewals of existing tenants, development leasing coming online in addition to the fee income generated from our property management platform. The full year CPNOI growth was in line with the initial guidance for the year. While the FFO per unit growth was on the lower end of our initial guidance issued last February as a result of unplanned lease terminations, which we discussed earlier, higher average cash balances throughout 2024 and lower average net leverage.

Our net asset value per unit at the quarter end was $16.79, slightly higher than the prior 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. We successfully addressed our 2024 debt maturity.

During Q3, we also increased the limit on our unsecured revolving credit facility from $500 million to $750 million and extended its maturity to August 2029. In addition, we extended the maturity date of our $200 million unsecured term facility to March 2028, enhancing both our liquidity and debt maturity profile.

During the fourth quarter, DBRS confirmed our credit rating and improved the trend from stable to positive.

We ended 2024 with leverage in our targeted mid-30% range and net debt-to-EBITDA ratio of 7 times, nearly a turn lower than the prior year.

Our debt maturities for 2025 includes $60 million of European mortgages, which we will be repaying at the end of February. Our 2 remaining maturities are later in Q4 of 2025 and comprise our USD 250 million unsecured term facility and $450 million Series A debentures. We are currently in advanced discussions for the early refinancing of USD 250 million term facility on a blend and extend basis, which we believe would further strengthen the balance sheet and free up liquidity.

We currently expect to achieve a blended rate of approximately 3% on this facility while extending the maturity by 3 or 4 years. We believe that this will further enhance our credit profile, positioning DIR stronger for a credit rating upgrade, which in turn benefit our cost of capital for the remaining upcoming debt maturities.

We expect that this early refinancing would have a $0.01 to $0.015 impact on our 2025 FFO while increasing our FFO per unit in 2026 onwards by the same amount. With growing cash flow generated from the business and total available liquidity of over $822 million, we retained sufficient capital to fund our value-add and strategic initiatives including funding our development pipeline, solar programs and contributing to our private capital partnerships.

Our business is well positioned to continue delivering sustained FFO and free cash flow growth, not just in 2025, but over the long term. As we have communicated previously, we expect that CPNOI growth and FFO per unit growth will accelerate into 2025 and 2026 compared to 2024.

In determining our expectations for 2025, we believe it's prudent to incorporate higher reserves than we typically do as a result of the uncertain trade environment. We are expecting comparative properties NOI growth in the range of 6% to 8%. We are also incorporating the impact of the potential early refinancing of our term loan in our outlook.

Putting this all together, we expect FFO per unit growth of 6% to 9% in 2025. Equally as important is the outlook for 2026, which fully takes into account the upcoming debt maturity. We currently expect at least a comparable rate of growth in 2026 in our FFO per unit. Our FFO growth expectation is predicated on current foreign exchange rates, leverage level and interest rate expectations as well as the expected timing of the lease-up of our transitory vacancies.

I will turn it back to Alex to wrap up.

[Alexander Sannikov, executive]

Thank you, Lenis. Overall, our business is in solid shape, and all of our growth drivers remain intact. The successful execution of our core strategic pillars has provided us with stable and growing cash flow, which we continue to reinvest into our business. These pillars will continue to inform our strategy as we navigate through the first quarter of 2025 and focus on delivering sector-leading total for our unitholders.

We will now open it up for questions.

[Operator]

[Operator Instructions] The first question comes from Brad Sturges with Raymond James.

[Bradley Sturges, analyst]

Just on the guidance there, would the guidance also include any -- or factor in any disposition assumptions at this point?

[Alexander Sannikov, executive]

It doesn't explicitly factor in disposition assumptions, although our capital recycling program is ongoing, and we continue pursuing dispositions. We don't expect dispositions to be material to the overall FFO outlook. And obviously, the dispositions that we do end up completing will be accretive to our results on a NAV free cash flow or FFO basis.

[Bradley Sturges, analyst]

And in terms of the blend and extend refinancing, I guess that you're looking to do it ahead of the maturity. Just what would be the assumption around potential timing?

[Lenis Quan, executive]

Correct. We're looking to do it early in advance of the late November maturity. We'd probably look to do it late Q1, early Q2.

[Bradley Sturges, analyst]

And in terms of the -- I think, the euro-denominated maturity, I guess, what would be the assumed or where is market interest rates today for that maturity?

[Lenis Quan, executive]

So for -- so all of the debt that's maturing in 2025 is euro equivalent debt. We would see current 5-year rates in and around 4% for 5-year terms for incremental cost of euro financing. This blend and extend provides us the opportunity to achieve up to 100 basis points of savings after off of that.

[Bradley Sturges, analyst]

Yes. Makes sense. And just on -- last question, just on the acquisitions announced within the Summit JV. Can you comment on going in cap rates? Or how do you think about pricing on those 2 deals, 1 in the GTA 1 in Vancouver.

[Alexander Sannikov, executive]

On the Vancouver deal, we have quantified the cap rate in the press release. As you probably noticed, in around 6%, it's in fact, north of 6% growing in with upside from mark-to-market. On the 1 million square foot GTA portfolio, we haven't disclosed the cap rates in detail partially as a result of the vendors' confidentiality concerns. However, the metrics are generally consistent with what you have seen from us for the Summit JV throughout 2024, both on going-in basis and on a mark-to-market basis.

[Operator]

Next question comes from Frank Liu with BMO Capital Markets.

[Frank Liu, analyst]

So I just wanted to quickly touch on the Quebec market. I believe the estimated market rent hold pretty well for the first 3 quarters in 2024, but adjusted more than other geographies in Q4. I wonder if this is a reflection of what you see in the market? And could you provide some color on the dynamics in the Quebec market? We're also hearing that -- we're also hearing that some of the retailers are pulling out from the market.

[Alexander Sannikov, executive]

With respect to Quebec market, I'm not sure which retailers you're referring to, but perhaps the...

[Frank Liu, analyst]

Well I'm referring to Amazon, the Amazon sees operations in Quebec.

[Alexander Sannikov, executive]

Yes. So that's widely documented. So we are, in fact, seeing -- first of all, we don't have Amazon exposure in our Quebec portfolio. What we are seeing as a result of the Amazon announcement is an increase -- an uptick in large bay requirements broadly because some of this footprint is getting reallocated to other third-party logistics providers. And so we're seeing an uptick in larger bay requirements in Montreal. And we commented earlier that we're seeing some of that in our portfolio.

The second bit that is important to highlight with respect to the Amazon announcement that they're not looking to necessarily stop servicing the Quebec market, they're just stopped looking to operate their warehouse facilities. And so the -- approximately 2 million square feet they have in the market will end up staying in the market is just going to be reallocated to other providers. What we continue to see in Montreal is solid demand from small day and mid-day tenants. So that didn't change. And we recently seen an uptick in the larger bay requirements.

[Frank Liu, analyst]

Just switching gears to Europe. I think the 5.6% on the leases down since end of Q3 seems lighter than what you achieved from -- since Q1 2023. Is this just a function of more renewals and less new leases? Or I mean, this is a way to push for occupancy in Europe?

[Alexander Sannikov, executive]

The re-leasing spreads, especially in Europe do fluctuate a fair bit. As you pointed out, renewals tend to have lower spreads than new leases, especially if renewals are achieved through tenants exercising their options. So we've provided some color on the new leases that we've achieved. They have done a double-digit spreads, but some of the renewals, in some cases, get done at expiring rents because tenants exercise options. So it's a mix. And it's not necessarily a reflection of changes in fundamentals in Europe one way or the other.

[Operator]

Next question comes from Himanshu Gupta with Scotiabank.

[Himanshu Gupta, analyst]

On CPNOI guidance of 6% to 8%, just to confirm, you assume flat occupancy on a year-over-year basis, and all the growth comes from the rental spreads and then just on the occupancy side, do you expect any ramp-up during the year from Q4 levels?

[Alexander Sannikov, executive]

Yes, the CPNOI guidance is predicated on a relatively flat average occupancy for the year. We do expect occupancy to go up as the year progresses. But generally, that's not baked into the guidance, if you will.

[Himanshu Gupta, analyst]

Fair enough. And then the CP growth, NOI growth, mainly, I mean, similar to last year driven by Ontario and Quebec and maybe like low to mid-single digits for Western Canada and Europe, fair to say that?

[Alexander Sannikov, executive]

I think that's generally consistent, yes.

[Himanshu Gupta, analyst]

Okay. Fair enough. And then sticking to guidance, just wanted to make sure I got it right. I'm now talking '25 FFO guidance. I think you mentioned 6% to 9% growth. And then 2026, also, you mentioned very comparable 6% to 9%. Did I hear correct? I mean some guidance for 2026 FFO growth as well.

[Alexander Sannikov, executive]

Yes. And we said at least comparable.

[Himanshu Gupta, analyst]

Okay. That's fantastic. Last question, I would say on Europe side, and I know you provided some commentary. Half of the '25 leases are already in the bag, I mean, already done. What's the expectation for the remaining half? I mean, in terms of getting it done and then the rental spreads you can achieve on that.

[Alexander Sannikov, executive]

We expect general -- generally, the retention ratio to stay consistent across the portfolio with what you have seen from us historically at that 70% to 80% range. And there are some units that are coming back to us, 1 in particular, a 200,000 square feet in -- at the end of the first quarter of '25 in Europe. But beyond that, we expect kind of normal retention.

[Himanshu Gupta, analyst]

I'm sorry, Alex, which market you are expecting...

[Alexander Sannikov, executive]

Just commenting on Europe. I think your comment was really relating to Europe.

[Himanshu Gupta, analyst]

Yes. No, no, within Europe, which market I meant that's...

[Alexander Sannikov, executive]

The unit that is coming back to us is in Germany. We expect to see good rental spread on that when we retenant it. And then when we look at the rest of the expiries, we expect to see mostly renewals, and that's a diverse range of geographies.

[Himanshu Gupta, analyst]

Got it. And sorry, just a last follow-up here. Would you say like Germany is probably the weakest within the European exposure you have among all the markets?

[Alexander Sannikov, executive]

No, not at all. I think it's really a location-driven exercise and assessment. We have some units that we are renegotiating in France at amongst the highest spreads we've achieved in Europe over the last 4 years that we've operated there. This particular unit that is coming back to us is, in fact, relating to the ongoing geopolitical issues. In Europe, this occupier serviced the Russian market from that facility and they no longer need that space. So it's not really relating to the German economy in any way.

[Operator]

The next question comes from Kyle Stanley with Desjardins.

[Kyle Stanley, analyst]

It seems like your outlook is definitely a little bit more positive today than it's been over the last few quarters. I'm just wondering what's changed in the market, especially over the last maybe quarter or 2 that's resulted in occupancy beginning to firm up and the more elevated level of leasing that we've seen you guys complete?

[Alexander Sannikov, executive]

I think this is consistent across industrial landlords. It's certainly a reflection of the urban nature of our portfolio. As we've consistently commented throughout '24, we've seen solid demand for urban small and mid-day assets. And we've seen uptick in large bay activity, which is helpful for the broader outlook. This uptick in larger bay activity is partly driven by the delay in making leasing decisions by some of the occupiers of at least 12 months and now some of these decisions. Well, they cannot be postponed for too much longer. So we're seeing some of that, and that's materializing in our portfolio.

[Kyle Stanley, analyst]

Okay. No, I think that's really helpful. It's good to see progress towards the data center initiative in the quarter. Would you say today, you're looking to advance further power applications is maybe you wait the results on the initial 4 sites? And since you provided kind of the initial disclosure on the data center opportunity at the Investor Day, has anything changed, the strategy evolved a bit. I'm just curious if there's any prospects for a powered shell deal at this point? Anything else that you can provide on that front would be helpful.

[Alexander Sannikov, executive]

Yes. Thank you for that follow-up. Yes, we are definitely looking to submit more applications and pursue more opportunities. We're not necessarily going to wait for these to materialize. We have consistently seen imbalance from users, mostly relating to acquisition of sites and we are also engaging with potential joint venture partners, but these are early-stage discussions as to how we could execute on the opportunity once we advance the power procurement.

[Kyle Stanley, analyst]

Okay. And then just last one. I think you've provided previous disclosure or discussions around the potential for maybe a European JV to enhance the REIT's presence there. I'm just wondering if there's any updates you might be able to provide in discussions at this juncture.

[Alexander Sannikov, executive]

We are in active dialogue with a couple of groups. If this dialogue advances, we should be in a position to announce something in the first half of '25. This JV is not necessarily driving our strategy in Europe. It's -- we think it's additive. But our strategy in Europe remains intact. We continue recycling capital, continuing to pursue on balance sheet acquisitions and we think that this -- a potential JV will enhance our growth prospects further and there are some ongoing conversations.

[Kyle Stanley, analyst]

Okay. No, that makes sense. Very quick last one. Thank you for the added 2026 guidance disclosure. Just curious on your view with occupancy for 2026. Would you expect a similar level of occupancy maybe is what you've provided for '25? Or do you actually -- do you expect to see a bit more lease up to get to your '26 guidance number?

[Alexander Sannikov, executive]

As we commented, we do expect the occupancy to ramp up through the year. The outlook is generally informed by rental growth, not necessarily by occupancy gains, whether it's '25 or '26. Our portfolio is very multi-tenant. As you know, our top 10 tenants account for just around 11% of our rental and with that 96% to 97% is relatively full occupancy. There's certainly no constraints to get to higher levels than that, but we will always have some turnover in our portfolio. So to consistently stay at 98% or 99% will be difficult. We may get to that point at any given quarter, but it's unlikely to stay there for a prolonged period of time.

[Operator]

The next question comes from Sumayya Syed with CIBC.

[Sumayya Hussain, analyst]

Wanted to follow up on the occupancy guidance discussion. And just curious why there's no little improvement expected given positive commentary, Alex, on just demand trends and interest from large users or did you just want to be a bit more conservative at formulating the guidance?

[Alexander Sannikov, executive]

Yes, it is the latter. And I think we want to emphasize that occupancy is less of a driver when it comes to our outlook for '25 or '26. We are certainly in the business of leasing space, and we are aiming to lease all of it. We do expect occupancy to ramp up, but that's not what is necessarily the main driver behind our outlook.

[Sumayya Hussain, analyst]

Okay. Got it. And then just on the market rents that you disclosed I think they showed their first quarter of moderating a little bit. Do you expect that this trend would continue? Or do you see market rents as stable from here on out?

[Alexander Sannikov, executive]

We generally see market rent as stable. I think the -- some of the fluctuation or the moderation you're pointing to is relating to dispositions. As we sell assets, the mix changes and the average changes as well. So it's not necessarily that we are reducing our like-for-like market rent assessment, it's the mix as well.

[Sumayya Hussain, analyst]

Okay. And then just lastly, on the Vancouver acquisition, the 6% going in cap rate is pretty attractive compared to, I guess, broker side cap rates in the high 4s. Is that higher because of the outdoor storage component? And then for any future acquisitions in Vancouver is your intent to look for similar assets?

[Alexander Sannikov, executive]

Well, I think I'll start with the second part of your question. We very much like outside storage -- industrial outside storage as a sub-asset class. And so whenever we can identify that in our acquisition program, we pursue those opportunities. They're very rare and hard to come by, and we think they offer attractive economics.

So if we find more outside storage opportunity -- industrial storage opportunities in Vancouver or any other market that we're targeting otherwise, we'll look to pursue those. When it comes to the cap rate metrics, yes, the iOS nature of the asset is part of it. There are very few dedicated iOS strategies in Canada. It's also a sizable asset. So at $140 million, not as many groups are able to kind of pursue something like that. So these factors combined are forming the cap rate.

[Operator]

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

[Matt Kornack, analyst]

I appreciate that you've taken some conservatism in your forecast, but can you give us a sense if Trump decides the best way to make Canada the 51st state to be nice to Canadians or gets hit with reality in terms of where inflation will go if he does put tariffs in place, what a more normal or optimistic scenario would look like on your organic growth?

[Alexander Sannikov, executive]

Well, the upper end of guidance is probably a reasonable target. And we'll update the outlook throughout the year. There are many moving parts in the business. We are executing on a lot of different strategies, all contributing to our FFO outlook. So the execution of some of these initiatives with a solar lease up some of the developments, we'll inform the '25 outlook.

I think what's important is also to highlight is the trajectory over the medium term, which is capturing '26 as well. And we wanted to specifically highlight that we don't expect that the reacceleration in '25 is going to end there. We expect the pace to continue as we execute.

[Matt Kornack, analyst]

And then can you give us a sense, like I think your Canadian leases embedded rent steps are around 3%. What's the forecast for CPI adjustments in Europe that would go into the forecast?

[Alexander Sannikov, executive]

We're using 2%.

[Matt Kornack, analyst]

Okay. And then just broadly on going back to the economic risks that we face and the uncertainty. It sounds like there may be some opportunities if there is trade around for higher inventories, maybe the port of Montreal becomes more important in diversifying relationships from a trade standpoint outside of the U.S.

But can you give us a sense are you in any nodes where the auto components would be impacted or other businesses that would be more U.S. destined. And is that taking place in a product that is similar to what you own or is it in something that's special purpose and wouldn't be comparable anyways?

[Alexander Sannikov, executive]

We do have some exposure to the auto sector. It's around 6% of DIR's balance sheet. There's some exposure to the auto sector within the Summit venture, but as we commented in our prepared remarks, when we look at the sectors we have exposure to and then in turn how these sectors are exposed to trade, we also factor in the in-place rents that these leases have compares to market, how generic facilities are.

And so when we put all of that into the analysis, the interim conclusion that we have is the exposure within our portfolio is limited. But obviously, we have close to 50 million square feet of space in Canada across the platform and our occupiers are participating in broader supply chains.

[Matt Kornack, analyst]

Fair enough. And then maybe lastly, just with regards to -- I assume it was in Montreal, but there was 100 basis points transitory vacancy. Can you say who that was and how quickly you think you can release it? I know you mentioned that there is potential upside on the lease, but what would that look like?

[Alexander Sannikov, executive]

Couple of transitory vacancies in Montreal that we are dealing with related to third-party logistics users. There's one that we are working through in around 100,000 square feet. We have a prospect tenant with whom we're in advanced negotiations presently. So we expect to backfill that in early '25.

[Operator]

The next question comes from Sam Damiani with TD Cowen.

[Sam Damiani, analyst]

First question, just on the outlook for 2025. The 6% to 8% same property guidance that has the reserves, Lenis, that you spoke about, that you've factored just given the uncertainty? I'm just wondering what would the same property NOI growth look like in '25 without those reserves.

[Lenis Quan, executive]

Yes, Sam, that factors in some of our additional reserves. And similar to what Alex explained, it's probably only the upper end of the guidance which sort of reflects less reserves.

[Sam Damiani, analyst]

Okay. That's helpful. And then your comments on 2026, also very helpful. What kind of same-property NOI growth were you looking at behind that FFO growth expectation?

[Alexander Sannikov, executive]

We expect it to be -- to stay kind of consistent, if not higher, behind kind of what informs the '26 outlook. Again, we -- as you know, we typically don't provide this outlook 2 years out. But given the increased focus from investors on '26 and the upcoming maturities -- debt maturities that are at the end of '25, we wanted to highlight that we don't expect growth to moderate. And we'll obviously be providing more details on '26 outlook this time next year.

[Sam Damiani, analyst]

For sure. I guess, Lenis, maybe I missed it, but did you offer sort of a guidance on how the debt -- what rate of debt would be refied later this year, at the end of the year/what would be possible today on a euro swap to debt issuance, fixed rate for medium to longer term?

[Lenis Quan, executive]

Yes, sure. So current, say, 5-year euro equivalent debt is in and around 4% or just below 4%. So kind of consistent with what we were modeling at our Investor Day presentation. So that's sort of what our base case is for refinancing debt towards the end of the year. We've kind of assumed consistent rate levels, interest rate level. We are looking to early refinance as part of the prepared remarks, I alluded to this. We are looking to early refinance about half of that with the term facility through a blend and extend structure and targeting or expect that we could achieve up to 100 basis point savings on the face rate through that.

[Operator]

Next question comes from Pammi Bir with RBC Capital Markets.

[Pammi Bir, analyst]

I just wanted to clarify the FFO guidance again. The top end, it sounds like seems to assume punitive maybe no tariff scenario. Does the low end of the FFO and same property NOI guidance assume like the full tariff scenario or the worst case outcome on that? Or just if you could clarify.

[Alexander Sannikov, executive]

As you know, there's no empirical evidence that we could point that we could directly correlate any tariff outcome with pace of leasing or how occupiers behave. So it's not exactly tied to tariffs such as broader uncertainty, if you will, that we are factoring in, in the ranges that we are quoting.

And it sounds like the 9% FFO guidance takes into account absolutely 0 reserves, that's not the case. But we think that this is a reasonable outcome or a reasonable range of outcomes we could expect vis-a-vis pace of leasing, retention rates that we could achieve, et cetera, with the heightened focus on trade environment, in particular, in North America.

[Pammi Bir, analyst]

Got it. Okay. That's helpful. Just on the Brampton development site that was acquired, and I apologize if you did mention this. But can you talk about the plans there? And is this a site that maybe you would look to proceed speculatively on?

[Alexander Sannikov, executive]

Yes. So we're looking to develop it on a speculative basis. We are designing a 680,000 square foot facility that is -- as a base case comprised of 2 buildings, each demisable into 70,000 to 100,000 square foot unit. So very consistent with, let's say, Courtney Park just larger. We already have interest from occupiers ranging from the full facility to 150,000 square feet. And this is urban infill mid-bay product that we are designing here and we expect to achieve in around 7% yield on cost based on this demise scenario.

[Pammi Bir, analyst]

Okay. And then just lastly, on the data center power initiatives, just how long can that process take in terms of securing the additional power? And is any of that potentially happening. Could you get any of that completed this year? Or does it take a couple of years to actually go through all that?

[Alexander Sannikov, executive]

To get powerfully procured, it might take more than this year. But as we advance through this process, then we can start engaging either with occupiers on a build-to-suit basis or users on a sale basis as the visibility into power materializes. So the execution part of the strategy can be done in parallel with the power of procurement. The infrastructure itself to the site, et cetera, et cetera, that might take some time, but that doesn't mean that the monetization of the outcome cannot start sooner.

[Operator]

[Operator Instructions] If there are no more questions, this concludes the question-and-answer session. I would like to turn the conference back over to Mr. Sannikov for any closing remarks.

[Alexander Sannikov, executive]

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

[Operator]

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