PRO Real Estate Investment Trust

TSX:PRV.UN

Earnings Call Transcript

[Operator]

Good morning, and welcome to PROREIT's Third Quarter Results Conference Call for Fiscal 2025. [Operator Instructions] For your convenience, the results release along with third quarter financial statements and management discussion analysis are available at proreit.com in the Investors section and on SEDAR+. Before we start, I have been asked by PROREIT to read the following message regarding forward-looking statements and non-IFRS measures. PROREIT's remarks today may contain forward-looking statements about its current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements or other future events or developments. Forward-looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, levels of activity, performance, achievements, future events or developments to differ materially from those expressed or implied by the forward-looking statements. As a result, PROREIT cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. For additional information on the assumptions and risks, please consult the cautionary statement regarding forward-looking statements contained in PROREIT's MD&A dated November 11, 2025, available at www.sedarplus.ca. Forward-looking statements represent management's expectations as of November 11, 2025, and except as may be required by law, PROREIT has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The discussion today will include non-IFRS financial measures. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from the REIT's IFRS results. For a description of these non-IFRS financial measures, please see the third quarter earnings release for fiscal 2025 and non-IFRS measures section in the MD&A for the third quarter of fiscal 2025 for additional information.

I will now turn the call over to Mr. Gordon Lawlor, President and Chief Executive Officer of PROREIT.

[Gordon Lawlor, executive]

Thank you, Annis. Good morning, everyone, and welcome. Joining me today is Alison Schafer, our CFO and Corporate Secretary. Also joining us for the Q&A session is Zach Aaron, VP of Investments and Asset Management. I'll begin with an overview of our third quarter performance before turning the call over to Alison for a more detailed review of our financial results. The third quarter marked the achievement of a significant milestone for PROREIT and one of strategic importance. With the sale of 12 noncore retail properties in the quarter, we completed our transition to a pure-play industrial REIT, a goal we set for ourselves 3 years ago. At quarter end, our industrial assets represented 91.7% of our total GA and 89.4% of base rent. I want to commend our entire team for getting us here, which is the reflection of our collective focus and strong execution.

Moving on to our third quarter financial performance. We delivered impressive growth across our key financial metrics, improved our balance sheet and further strengthened our foundation for future growth. Revenues and NOI rose significantly during the quarter despite owning 10 fewer properties than in the same period last year. We also benefited from a full quarter of contributions from the 6 industrial properties in Winnipeg, acquired at the end of Q2, which was synergistic to the assets we already held in Winnipeg and significantly increased our scale in the market. PROREIT is now among the top 3 industrial landlords in the city with 21 properties, 1.3 million square feet of GLA and 99.9% occupancy. We're also pleased to host an investor tour in Winnipeg on October 21 and 22. This provided us with the opportunity to showcase some of these properties, and we received very positive feedback from participants. Winnipeg's resilient economy and strong industrial fundamentals continue to reinforce our confidence in its long-term potential.

Turning to portfolio transactions. As mentioned, we completed the sale of 12 noncore retail properties in the quarter for total gross proceeds of $51.3 million. This included 9 properties located in Atlanta Canada totaling approximately 221,000 square feet, 2 properties located in New Brunswick totaling approximately 50,000 square feet and 50% co-owned property located in Nova Scotia, totaling approximately 11,000 square feet. Net proceeds for these sales were used to repay related mortgages, credit facilities and for general corporate purposes. Subsequent to the quarter, we completed the sale of 1 noncore office property located in New Brunswick, totaling approximately 51,000 square feet for gross proceeds of $7.2 million and 1 noncore retail property located in Alberta of approximately 5,000 square feet for gross proceeds of $400,000.

A few words on Atlantic Canada, which accounted for 45.4% of our base rent at quarter end. Our portfolio in this market continues to perform very well. The region is strategically positioned to benefit from record levels of major project investment today and in the future. In the city of Halifax, where we are among the largest industrial landlords by square footage, net rental rates grew by over 15% year-over-year in Q3 according to CBRE. The report also cites Halifax as a top-performing investment market across Canada with industrial assets generating the highest total return on investment.

Turning now to leasing activity. Overall, we continue to experience healthy leasing momentum with attractive retail spreads across our portfolio. To date, we've renewed 74.8% of our 2025 GLA at an average spread of 34.9% and 54.8% of our 2026 GLA at an average spread of 33.4%. Key leasing highlights include the renewal of 45,000 square foot industrial lease in Moncton last August for a 5-year term and a 24% increase over expiring rent, a new 28,000 square foot industrial lease in Winnipeg starting in January for a 5-year term with base rent 12% higher than the previous tenant and 5 lease renewals commencing in 2026 with rent increases of 40% to 45%. These leases totaled 480,000 square feet, including 1 property of 155,000 square feet and 4 single-tenant properties at 325,000 square feet. These robust spreads continue to underscore the embedded value in our portfolio and the quality of the markets in which we operate.

Portfolio occupancy was 95.8% at September 30, including committed space. As expected this quarter, our occupancy rate was affected by a specific vacancy. In July 2025, a 176,000 square foot single-tenant industrial property just off the Island in Montreal became vacant when the tenant decided not to renew its lease. We've since received interest from both prospective tenants and potential buyers. As mentioned on the last call, the property has significant upside with current market rents at double the rate of expiring rent per square foot. We'll evaluate these opportunities in due course. Excluding this vacancy, portfolio occupancy would have been 98.1% at quarter end.

With that, I'll now turn the call over to Allison. Allison, over to you.

[Alison Schafer, executive]

Thank you, Gordy, and good morning, everyone. We are pleased with our third quarter results. Property revenue totaled $27.1 million, up 12.8% year-over-year despite owning 10 fewer properties. The increase is mainly driven by contractual increases in rent and higher rental rates on lease renewals and new leases. Net operating income, or NOI, was $17.1 million, an increase of 19.6% compared to last year due to these same factors. Same-property NOI reached $13.5 million, up 9.7% year-over-year, led by robust 10.5% growth in our industrial segment. The increase is due to contractual rent escalations, stronger renewal rates and higher rents on new leases. This is despite a decrease in overall average occupancy related to the vacancy Gordy mentioned. Funds from operations, or FFO, amounted to $8 million for the quarter, up 22.2%, driven by increases in contractual base rent, higher rates on renewals and higher rental rates on new leases. This was partially offset by an increase in interest and financing costs. Basic AFFO per unit increased by 7.2% year-over-year and basic payout ratio was 91.1% in Q3 compared to 97.7% for the same quarter last year. This improvement reflects the revenue drivers just mentioned and our ability to generate strong cash flows, offset by an increase in stabilized leasing costs and interest and financing costs.

The weighted average capitalization rate for our portfolio remained stable year-over-year at approximately 6.7% at September 30, 2025. On the balance sheet, we continue to focus on reducing leverage. At quarter end, total debt, including current and noncurrent portion, was $531 million, down $30.1 million from the same time last year. Adjusted debt to gross book value decreased to 49.1% from 50.2% at the same time last year, supported by debt repayment and fair value gains on investment properties.

In September, we refinanced the mortgage in connection with 4 50% co-owned industrial properties with 2 new mortgages totaling $64.3 million, bringing our portion to $32.1 million. The new mortgages mature in 2028 and 2030, respectively, and bear an annual interest rate of 3.99% and 4.2%, also, respectively. Our proceeds from the incremental financing were used to repay a portion of the revolving credit facility and for general corporate purposes. Looking at upcoming maturities, we have $6.2 million remaining in a mortgage maturity for 2025 with an interest rate of 4.6%. In 2026, we have $150.9 million in maturities. For 3 lenders totaling $127 million of the 2026 maturities, we have already been engaged with 2026 financing options. In 2027, we have another $48.7 million maturing, mainly tied to high-performing industrial assets in Burnside Industrial Park. The weighted average interest rate on these mortgages is 3.8% for 2026 and 4.8% for 2027. Finally, our distribution of $0.0375 per unit was maintained in the third quarter of 2025. That wraps up our financial review.

Gordy, back to you for closing remarks.

[Gordon Lawlor, executive]

Thank you, Alison. As a pure-play industrial REIT, we're beginning a new and exciting chapter for PROREIT. On the marketing front, we've introduced the refreshed brand identity and tagline, Strong Foundations, Industrial Edge, which reflect both what we've built to date and where we're headed. Looking ahead, we'll continue to leverage our strong and focused platform while maintaining our disciplined balance sheet management. We also remain optimistic in pursuing accretive growth opportunities with about $30 million in room for new acquisitions at this point. Overall, we're well positioned to strengthen our standing as a prominent Canadian light industrial REIT and deliver long-term value for our unitholders. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Tom Callaghan with BMO Capital Markets.

[Tom Callaghan, analyst]

I guess, first off, just congratulations on the completion there towards the industrial pure play this quarter. Maybe first question for me is just on your organic growth. Obviously, same-property NOI at 9.7%, very strong and I think accelerated every quarter this year. So just curious where you see that clipping along in the next few quarters.

[Gordon Lawlor, executive]

Tom, it's Gordy. So, I mean, we don't provide guidance per se, but we had expected mid- to high single digits for the year. So, we're there now. We have a large vacancy coming that's going to reflect Q4. But even with that, I think we're still going to be in the mid-single digits even for that quarter as we're looking now. So, I mean, we may end up 7%, 8% for the year overall, I think. And then as the cash flow rolls into '26 and we have some of this new '26 coming on, we see that proceeding. So, we're pretty positive about our same-store growth there for sure.

[Tom Callaghan, analyst]

Okay. And maybe just following up on the vacancy there. Gordon, you alluded to a few different options in terms of potentially leasing to a few tenants or also some interest from potential buyers. Can you just give some incremental color there? Like are you further down the path on one versus the other? And just kind of broad time lines you're hoping to square that way?

[Gordon Lawlor, executive]

I mean we just kind of really -- I mean, it's been -- there's been a flyer out there for a bit, but we put a little bit of money into -- we did some paint. We did some work on the outside. We did -- cleaned up some of the landscaping and did some driveway and parking work there. So, it looks pretty sharp right now. So, we'll have a new flyer out and it's a for-sale flyer, but there's been interest in potential purchases as well. No offers really that way, just a few people kicking the tires. So, we're not really down the road on anything and leasing, we've got a leasing offer that came in just last week for almost half the building or over half the building depending on that. So, we just need to really assess what's what with that. We bought the building for $10 million. So, we have room to put some money into it for sure. It's just what's the easiest path between rent -- net rent that we can achieve versus if we have to split up the building or if there's a knockout sale bid, then we'll look at that as well. So, we're just kind of in the process of seeing where it goes right now. We're not in any hurry. We've [ plugged ] the market for a while here that this was coming. And again, I said we did some work on it. So, it's a pretty nice looking asset on the TransCanada Highway just set aside Montreal. So, we'll probably have some action on it in the next couple of quarters, I suspect.

[Operator]

Your next question comes from Brad Sturges with Raymond James.

[Bradley Sturges, analyst]

I guess maybe switching gears towards acquisitions. I know there might be maybe a small opportunity in Winnipeg still to do with -- coming from Parkit, but just what -- how is the acquisition pipeline looking in general? Is there more in the pipeline beyond that one asset from Parkit? Or how would you frame the third-party opportunity from other vendors as well?

[Zachary Aaron, executive]

Brad, it's Zach here. Yes, so we're -- so as we kind of discussed in Winnipeg, yes, Parkit has one remaining small 25,000 square foot cross-stock building in Winnipeg that we're likely to move into our portfolio sooner than later. We're just kind of working through that now. That would be kind of a small $5-ish million acquisition. Apart from that, some of the other things we're looking at right now, there's about a $12 million asset out in Moncton, a newer built asset with a long-term lease in place that we're just taking a look at that could be a fit in Moncton as well, no paper or anything like that yet. But just stuff that kind of sits in our backyard that could be a fit.

Apart from that, there are some opportunities in Montreal and some other ones in Atlantic, we're looking at as well, some on-market, some off-market. That could be interesting for us, but we'll see. We're not in a rush if the opportunities don't make sense. Otherwise, it still feels pretty thin out there in terms of opportunities, especially those in the market. Not much has come to market in the last quarter or 2, and it doesn't seem like anything between now and the end of the year is going to hit the market as well. There's always off-market chats, but those usually don't go too far because it's still kind of that wide bid-ask spread. So overall, pretty thin in terms of interesting opportunities, but we have seen a few things that we'll continue to look at.

[Bradley Sturges, analyst]

If the opportunities do come up, like what is the -- what's the capacity on the balance sheet today to pursue acquisitions? Is there a dollar amount you're comfortable investing in -- or where would leverage -- where would you be comfortable pushing leverage if the right opportunity came?

[Gordon Lawlor, executive]

Yes, Gordy. So yes, I mean, I mentioned it on the call, in the $30 million range, I think we're like [ 49.1 million ] or something right now. So we've got a room for $30 million, $35 million to get to the -- back to the $50 million again, which we're comfortable with. We don't need to push it for acquisitions or anything like that. It's just a result when we -- all that we've done for the year with the additions and the dispositions. When we sit at the end of the year is there's some interesting assets that we could do in the $30 million range, likely not going to get anything across the line this year, but working on now for next year. So that would be kind of the target. Dispositions, none. Basically, closing the loop on that effectively. I mean, $70 million sold this year, I've given the target, I think, from the beginning of the year, $30 million to $60 million. So, we achieved that, including a small office after the quarter. So yes, I mean, we've done that.

For our strategy, those were a lot of good assets that we like. Unfortunately, it's just the nature of the business. And now we don't need to sell anything else. If there's opportunities that come, we'll look at them. Same with industrial with our partners. We're reviewing the portfolio. There may be a disposition, a small disposition with an industrial asset if it comes to fruition, if it doesn't fine. So yes, we're pretty complete on that basis. But if you thought maybe $30 million that we had room for, that probably -- we got all that lined up. That wouldn't be until Q2 if we achieved any of that.

[Bradley Sturges, analyst]

Yes. And just a follow-up to that. Your target cap rate or going in yield if you were to transact is still kind of 6.5% to 7% at this

[Gordon Lawlor, executive]

point? Yes. I mean, 6.5% to 7% or more on between 4.25% to 4.75% depending on the asset. Look for a little bit of upside in the asset, obviously, and the kind of stuff that we have right now. Yes, that's it. As Zach said, it's just -- it's an interesting market as we end the year. I think there's still 25, 50 basis points spread between the bid and ask on some of these assets. So somebody has to flinch, so to speak.

[Operator]

Your next question comes from Kyle Stanley with Desjardins.

[Kyle Stanley, analyst]

You made great progress on the '26 leasing program so far. Just as we think about 2026, do you see any kind of remaining maturities presenting any risks? Would you say retention is probably likely to be pretty consistent in '26 as it's been in '25? And I guess just lastly on this '26 leasing front. The 33% spread that you've kind of successfully done so far, do you expect that to be kind of consistent with the remaining leases for the year?

[Zachary Aaron, executive]

Kyle, it's Zach here. Yes. So as of right now, looking at our 2026 maturities, there's no kind of sizable tenants that we're aware of today that we see coming due that we're concerned about vacating. I mean, obviously, that's still an option. We're just not aware of any of it today. And most of our more sizable tenants expiring in '26, we're already in contact with today, discussing potential deals. So hopefully, we're going to have even more momentum with some of these completed by our next call in Q4. Overall, I definitely see that kind of 30-ish percent spread staying pretty consistent when the remainder of our '26 expiries is mainly going to be our small bay Burnside portfolio and then really some small bay assets in Ottawa and Winnipeg. And just looking at our '25 results and where those markets are at today, we see no reason that those spreads aren't going to stay healthy like what we've achieved here in '25 so far. So, I think that kind of 30% number is a pretty good point to think through for '26 looking ahead.

[Kyle Stanley, analyst]

Okay. Perfect. That's great color on that. As you look at your kind of '26 mortgage maturities, do you expect your -- the rate you can achieve being similar to that 3.99% or the 4.2% that you just did on the Q3 mortgages?

[Gordon Lawlor, executive]

So that was about -- 3.99% was a 3-year rate. So, I think that was about -- it was a bank cost of funds, but it was about 150 over. So that's pretty tight. 150 is pretty tight for us. Our budget has us in the 450 range, give or take, for our '26 budget and where we'll end up. That's basically $175 over the curve, which is close to 275, I think of 5 years. So yes, I mean, the 4.25% to 4.75% range and then depending with the $150 million, we're going to try to spread that a bit. That was a result of buying $300 million of assets in 2021 and putting 5-year money on basically all of it because that was the most efficient at the time. So, we'll try to spread that a bit, 3, 5, 7, 10. The curve is pretty steep between 5 and 10 right now. So, it has to make sense on the asset that we have. And not sure there's that much 7 or 10 money around. So, we'll have to look at that. So that's the strategy. We already ran numbers. I mean, plus or minus 25 basis points on those spreads doesn't affect our model significantly for '26.

[Kyle Stanley, analyst]

Okay. And maybe just last one. You've highlighted in the past the enhanced defense spending and what that might do for some of your key markets. Just curious, at this point, have you seen that translate into more RFP activity or more touring activity, specifically as it relates, I guess, to Halifax and Ottawa? And would you say that it's impacted your leasing pipeline today? Would it be greater than it's been historically? Or -- just curious on how much that's contributing to things in the market today?

[Gordon Lawlor, executive]

Yes. I mean Zach can step in. I think it's more just like a general positive vibe about what's going on. Tenants are renewing, spaces are turning if they're not renewing. You have plus or minus tenants all the time looking. We sold the building in '25 opportunistically to a supplier with our JV partner that wanted to own their own building. The [ Tales ] lease that we have in [ Canada ] is 128,000 square feet, 15-year lease, that's for support of the Halifax contract. So, whether it's Halifax is booming with the $8 billion, I think increased spending across Canada here will just be helpful to the industrial sector overall.

[Operator]

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

[Matt Kornack, analyst]

Just quickly turning back to Saint-Hyacinthe, you mentioned kind of that the market rents are double in place. Should we assume kind of mid-single digits, I guess, for the outgoing rent? And then I think it was a July maturity. So, would you have had the full impact of that in this quarter? And then maybe secondary to that, I think you mentioned the Q4 vacancy. Is that this -- the impact of this in Q4? Or is that a new vacancy that you expect in your Q?

[Gordon Lawlor, executive]

No, it's the same vacancy. So, in July, the tenant was $4.50 net rent. So, when we say double, $9 seems a reasonable number. So, what happened in July they were $4.50 net rent and they wanted an extension. So, my friend Zach here said they can stay, but they had to pay market, which is $10 a month. So, they paid $10 net in July and then left at the end of July. So Q3 was affected maybe negatively by $150,000, $180,000. So, we'll have that full effect in Q4, though, that's the point. So, I don't know, say, $10 gross rent or whatever based on the old tenant, that would be the difference, I guess, from this time last year.

[Matt Kornack, analyst]

And that $9 -- I mean, [ granted 20-foot ] cleared $19.75 vintage, but that $9 is well below kind of broader Montreal rent. So, is that product relatively attractive at this point? It seems like you're getting some interest, but it obviously wouldn't compete with like new modern oversupply stuff that's a bit further out.

[Gordon Lawlor, executive]

No. So Zach can highlight, I mean, that would quantify as a South Shore section basically, if you think of Boucherville and the other side off the island there, it's kind of South Shorish, but you're seeing deals at...

[Zachary Aaron, executive]

Yes. Yes. Just to add some color there, We've seen some recent deals in South Shore like Boucherville and [indiscernible] get done at 100,000 square foot range for $11 to $12 net rent similar kind of OpEx. So Saint-Hyacinthe at around $9, we think, is very competitive from a net rent and a gross rent perspective as well. And so, it just -- it's the size, obviously, 175,000, that's a large size, but we know we can demise that building into 2 or 3 units. And with the interest we have so far, we've had a few groups reach out and tour kind of for that base size of 50,000 to 100,000 square feet. So I can kind of see a situation where the building ends up getting demised to that 2 or 3 units, including with this one potential deal that recently came in that we're still evaluating. So you can see that at $9 and maybe even some room above that, but $9 feels like a comfortable number.

[Gordon Lawlor, executive]

Sorry, Matt, leasing half the building gets you flat to where we were before.

[Matt Kornack, analyst]

Well, yes, and you mentioned you paid about $56 a square foot for it. So, I mean, presumably, fully leased at least double that, maybe more in terms of value. Is that fair?

[Zachary Aaron, executive]

I would say that's fair.

[Gordon Lawlor, executive]

Yes, yes, that's fair. I mean it could be a $23 million to $25 million asset.

[Matt Kornack, analyst]

And then maybe just quickly in terms of the general dynamics that you're seeing. It sounded like you're seeing some optimism in tenancies. Has there been enough time relative to kind of what's going on in the trade environment where you're starting to see tenants that maybe put things on hold come back to the market? Or has it been pretty steady? I mean you guys have done pretty well from a leasing standpoint, but are you seeing positive inflection at this point?

[Zachary Aaron, executive]

Yes. It's still honestly hard to say. I would say there's definitely cautious optimism today in the last few months. But you speak with one broker and they'll say, yes, we're seeing a ton of new activity and you speak to another and they still say it's quiet. So, you kind of have to read in between the lines. But I've definitely noticed a few more deals get done recently, kind of at the 50,000 range and up in Montreal and the South Shore. So that's obviously positive. We're getting into late Q4 and going into '26, and so we're going to be a year into this environment. And just as I've kind of thought and spoken about before, I think groups are kind of just -- they kind of have to get off the pause mode one way or another and just kind of make a decision. And I think people have just gotten more comfortable and used to this new environment and maybe adapted their supply chain. So, I expect we will start to see some decisions being made in Q1 '26 as people kind of approve their '26 budgets and plans now, understanding this new universe. So, I think that should start to unlock some leasing activity, but time will tell still.

[Matt Kornack, analyst]

Makes sense. And then just the last one for me on the accounting side. straight-line rent and amortization of deferred financing fees were up a little bit sequentially. Is that -- I understand straight-line rent moves around, but are those 2 this quarter pretty good run rate numbers for the future? Or is there anything onetime in either of them?

[Alison Schafer, executive]

Straight-line rent would definitely be fine for a run rate going forward. Obviously, we had the new properties come online at the end of June, which had an impact compared to the previous quarter. In terms of the amortization of deferred financing fees, a little higher this quarter given that we wrote off some balances related to the repayment of debt on the sales of property. So, I would just lower the run rate, I guess, for the amort from this quarter going forward.

[Operator]

Your next question comes from Sam Damiani with TD Cowen.

[Sam Damiani, analyst]

So Gordy, just on the comment about the $30 million to $35 million of acquisition capacity. So, are you basically comfortable with the REIT's leverage today? Or are you targeting that sort of 45% over time as I think was kind of once on the table?

[Gordon Lawlor, executive]

Yes. I mean, Sam, the 45% is on the table. Just the brutal reality of it is to get to that 45%, selling assets won't do it. Back in the old days when REITs could raise equity at prices that they like, you'd take a piece of your deal, whether it's the green shoe or what have you and then adjust your debt a little bit. So, our target is definitely 45%, but we're happy here operating at the 50% right now. And it would really be -- you get into some kind of creative transaction or something or JVs -- another JV deal or something that creates some excess cash for you that you weren't expecting, we'd use that to move to the 45%, but we're happy staying at the 50% right now.

[Sam Damiani, analyst]

So Helpful. And I guess your comments about the -- I think the word of the transaction market, a little bit surprised me. Has it changed in the last few months?

[Gordon Lawlor, executive]

The -- like acquisition market?

[Sam Damiani, analyst]

Yes, I think there was Zach's comments there about that.

[Gordon Lawlor, executive]

No. I mean I'll turn it back over to Zach. I think there seems like these off-market deals that they just are around, but they're like around forever. And then like the execution of deals where brokers actually get paid and they like this, there's not a lot of that. You just don't see a lot of it. So there's things around, but it just seems like everything is slow and Zach can...

[Zachary Aaron, executive]

Yes. I mean there's obviously been a few sizable, larger transactions in the GTA, like a 640,000 square foot cross-dock facility in Halton Hills. There was another massive one, I think, in Mississauga that transacted. So, like there's been a few of those that are big numbers, but that's only one deal, and those are more unique deals at the end of the day. In terms of those typical $30 million, $50 million opportunities, smaller portfolios, just haven't seen many of those around off late. And I think there's a number of reasons for that. So again, a lot of -- the way it kind of typically goes right now, you'll hear from brokers is a broker will provide someone with an opinion of value, either they'll say, we don't like that number, so we don't want to take it to market. But if you'll -- if someone comes off market, we're happy to talk about it. And then they come to you, they show you it, they kind of say, here's what they're expecting and you do your math and you're 20%, 30% below that number where you feel comfortable transacting. So, it definitely feels like we've done that exercise a few times over the last few months, looking at opportunities off market, and we're just -- we're not really that close. And we're just trying to be sensible in terms of the markets we're in and how we're underwriting. So, I think that's really the takeaway of what we're seeing. It's just a lot of off-market chats, but not much really transacting, at least not yet.

[Sam Damiani, analyst]

That's helpful. And last one for me, just on the debt settlement cost. in the quarter, around $750,000. Is that related to the dispositions that closed in the quarter? And should we expect that to be basically 0 in Q4?

[Alison Schafer, executive]

Yes, Sam, it is completely related to the dispositions in the quarter, and we don't expect anything or anticipate anything in Q4.

[Operator]

Your next question comes from Tal Woolley with CIBC Capital Markets.

[Tal Woolley, analyst]

Just wanted to start on the Saint-Hyacinthe property. You talked about potentially putting it on the market versus trying to re-tenant it. I'm just wondering if you're seeing any trends as the market really -- the industrial market has really changed over the last 5 to 10 years and whether you're seeing more demand from potential occupiers to buy assets versus lease them? Or are there any sort of rules of thumb that we can use to think about these kind of assets going forward?

[Gordon Lawlor, executive]

I'll start and Zach can jump in. But I mean, we're not contemplating putting it for sale. What happens when you have single-tenant buildings with the brokers basically is you start to lease it and then somebody looks at the space and somebody walks in and they look where they could buy it. What's interesting is you get a premium, you generally -- Dream Industrial was on a panel recently or a little while ago. Some of their gains on their fair values on assets were sales to owner-occupied or that type of thing. You have some unique structures where owner-operator can get BDC loans up to 80%, 85% loan-to-value, things like that, that make it more interesting for them. So, we're happy with this building. And I mean, we're in the business of leasing industrial buildings, like this is no big deal to us from that standpoint. It's just if somebody comes with this -- you heard what we paid for it and somebody comes from -- with a bid that's double that or whatnot, makes an interesting person think about what can I do with that asset and can I redeploy the funds accretively. So that's really the driver on it. I mean, Zach, you haven't seen any significant sale leasebacks or anything else?

[Zachary Aaron, executive]

They try. They try. Yes, owner-occupier sales definitely became a trend over the last few years. And I think the main driver of that was attractive financing and for tenants who were kind of maybe being forced and their rents were going from $5 to $16 and on a 3-year deal and then have to face the uncertainty of what the rent was going to be in another 3 years, like the idea of going to buy their own asset and kind of take their real estate into their control. Given where the market is and just the general softening around general fundamentals for industrial nationwide, I think that's probably started to temper down a little bit, just as rental rates have come down, incentives have gone up kind of things. So, I think there's a better market for tenants than it was just a year or 2 ago. So, I think that kind of affects the owner-occupier market a little bit. Plus those transactions have generally been for much, much smaller assets like 5,000 to 25,000 square foot building, generally haven't seen it too often on 100,000, 150,000 square foot building, it's still a big dollar amount for an operating business that they may not want to take on. So, I don't really expect a big owner-occupier to come pay a huge premium for this. Obviously, it could happen, and there have been some kicks at the cans for it. But we have it on the market for lease. We have some traction on the leasing. And at the end of the day, we really want to keep this asset, lease it up and then go refinance it and take out some healthy equity to go do something else with that. So that's our preference, but we'll see what opportunities come forward.

[Tal Woolley, analyst]

Got it. And then I guess just with the benefit of some time since the tariff announcement in April now, I'm just wondering if you could maybe like -- we talk to you once a quarter and you sort of give us an idea of what the feel is. But if you look back now over -- since April, did you really see much of an impact on leasing velocity related to tariffs? And then as we look out to 2026, you're going to see the free trade or the CUSMA renegotiation [indiscernible]. Do you expect to see any sort of shifts in leasing velocity next year when that starts to come up?

[Gordon Lawlor, executive]

I can give you kind of my thoughts just in general. I was turning more positive towards all of this that our friends on -- our government friends in Canada and the U.S. were going to come to some kind of conclusion on this to take uncertainty out of the market. That's what it is to me. It's like just let's take this uncertainty out of the market. If you're a smart operator and you know what the rules are, then you can play. Then our friend gets angry from an advertisement and everybody is back in their corners again. So that seems -- that's very frustrating to me. So, my concern is, I guess, where we are now and now you're rolling into '26, there's no impetus to solve all of this before opening up the bigger pot. So that's my concern that's probably different from 3 months ago. That said, we're not seeing any difference in the leasing or anything like that. It's just the robustness of it may still stay stale for another 6 to 12 months. That's a concern of mine, although we're not seeing it in our portfolio. Zach, I mean...

[Zachary Aaron, executive]

No. In our portfolio, which again, obviously, very much small, may, I think there's not as much sensitivity to the tariff stuff just because you're a 5,000 square foot tenant in Halifax isn't necessarily doing day-to-day export imports with the United States. So I think there's just more sensitivity to that to the larger 3PL, 100,000-plus square foot users who might be more exposed to that. And a lot of the bigger deals that kind of drive leasing velocity and big absorption numbers have been the 3PL companies in Canada over the last few years. And I think they've just been mostly on the sidelines, all of them. When they start to feel confident and the market is in a better shape and again, just more certainty, I think then you'll start to see those groups start to come back to the table and you look to get new space so they can then get new contracts. And if that comes back, then that will kind of really probably shoot velocity quite rapidly. And then on the flip side of that, the construction development market has come to a halt. Every quarter, CBRE is reporting less and less amount of square feet being built and the percent of build-to-suit projects instead of spec is going up every quarter. So, you are in a situation where, yes, demand has slowed and absorption is kind of steady right now, but the supply side is also going down pretty dramatically across the country. Maybe GTA is a bit of an outlier. There's still a decent amount of projects going on there. But in our markets, there's basically nothing. So, I think we -- I think that those bigger users need to get some more comfort before they start getting back into the leasing momentum. But in our portfolio, the small bay world, things continue to trickle along.

[Operator]

There are no further questions on the phone line. And with that, ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day. Thank you.