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Dream Industrial Real Estate Investment Trust
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Good morning, ladies and gentlemen. Welcome to the Dream Industrial REIT First Quarter 2019 Conference Call for Wednesday, May 8, 2019.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. [Operator Instructions] Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go ahead.
Good morning, everyone. Thank you for joining us today for the Dream Industrial REIT conference call, which is for the 3 months ended March 31, 2019. Speaking with me today is Lenis Quan, the Chief Financial Officer of the REIT.On today's conference call, I will start off with a brief overview of our strategic growth initiatives, followed by an update on our markets and our operating results. Lenis will provide our financial highlights. We'll then be happy to field your questions.We've had an exciting start to 2019 and made significant progress towards adding scale in our target markets, upgrading the quality of our portfolio as well as maintaining a strong balance sheet with ample financial flexibility. During the first quarter, we acquired a 3.5 million square foot portfolio located in 5 cities across the Midwest U.S., adding highly functional and well-located assets to our portfolio. The purchase price for the portfolio was approximately USD 179 million or CAD 237 million, representing a going-in cap rate of 6% and a stabilized cap rate of 6.5%.Subsequent to the quarter, we acquired a recently renovated 258,000 square-foot distribution and warehousing facility located in the GTA through an off-market deal for a purchase price of $35.8 million, representing a going-in cap rate of 5.2%. The building is 98% occupied by 5 tenants with a WALT of 8 years. The property is well located and has direct access to primary transportation arteries, including highways 401, 412 and 407, which connect the entire GTA and multiple border crossings to the United States. We have also agreed to acquire 3 assets totaling 540,000 square feet located in the GTA, Ottawa and the Midwest U.S. The combined purchase price for these 3 properties is approximately CAD 71 million, representing a going-in cap rate of 6% with a 1.5% average rental rate growth each year. Including these acquisitions, we will have grown our asset base by almost $700 million and 8 million square feet over the past 2 years, adding scale in our target markets and improving the overall quality of our portfolio. Over this period, we have strengthened our balance sheet and reduced our leverage by 700 basis points. We continue to build a safer and more valuable company with higher-quality assets and strong cash flows.With ample liquidity, we remain focused on building and executing on an acquisition pipeline focused on our target markets in Canada and the U.S. We are looking for opportunities that deliver above-average income and net asset value growth over time. Our acquisition pipeline is in the $200 million to $300 million range currently.Moving on to our markets. The Canadian national availability rate has declined to a new record low of 3% in Q1 2019, down 110 basis points year-over-year. The national average net asking rent has reached a record high of $7.97 per square foot, making a 12% increase year-over-year. In our Southeast and Midwest U.S. markets, demand for industrial real estate continues to grow, driven by e-commerce demand as well as population expansion. We believe that industrial fundamentals on both sides of the border will continue to remain strong, providing us with opportunities to grow rents in our current portfolio.To date, we obtained lease commitments representing 81% of our 2019 expiries. In Ontario, approximately 243,000 square feet of leases commenced during the quarter with an average renewal spread of 11% over expiring rents. On approximately 389,000 square feet of leases that were transacted in the quarter, the spreads were even stronger at over 25%. Notably, we signed a 24,000 square-foot lease in the GTA at a 74% spread to the prior in-place rent along with a 2% annual average rent growth over the 10-year term. In Québec, approximately 101,000 square feet of leases commenced during the quarter with an average renewal spread of 5%. On 279,000 square feet of leases transacted during Q1, we achieved an average 7% lift over expiring or prior in-place rates.With tight market conditions, we want to maximize rent growth, and we view temporary vacancy as an opportunity to drive rents. During the quarter, we signed an 11,000 square-foot lease deal on Montréal on a space that had been vacant over the past year, and we achieved a 21% lift from the prior in-place rent. Strong leasing activity and market rent growth have led to continued increases in the value of our investment properties in these markets. In the first quarter of 2019, our investment property values have increased $20 million in Ontario and $7 million in Québec. In Western Canada, continued leasing momentum is starting to flow through to our operating results. Occupancy at the end of the first quarter was 95.5%, up 70 basis points year-over-year and 30 basis points over the prior quarter.Compared to the fourth quarter 2018, comparative property NOI increased 1% due to higher occupancy. For 2019, we expect positive comparative property NOI growth from the West, driven by increased occupancy and contractual rent growth. During the quarter, we completed an early 7-year renewal with Gienow Windows & Doors who occupy 351,000 square feet in Calgary. We reduced the rental rate to be in line with market. However, we achieved 2.3% annual rent growth over the extended term and were able to retain our largest tenant in the region until 2029.Our eastern -- in Eastern Canada, our NOI for the first quarter was impacted by lower average occupancy. However, leasing momentum has been strong, and committed occupancy increased 120 basis points during the quarter, which will lead to stronger NOI growth in the later half of 2019 and 2020. Following the acquisition of the Midwest U.S. portfolio, our U.S. assets were 95.5% occupied at the end of the first quarter. As we have previously noted, included in the Midwest U.S. portfolio was a 300,000 square-foot property in Louisville that was vacant at the time of acquisition. Upon filling this vacancy, we have the opportunity to increase the yield on this acquisition by 50 basis points. Tour activity for the space has been strong, and given the high quality of the building and close proximity to UPS worldwide hub and the Louisville International Airport, we are confident that we will fill the space in the near term. Overall, we continue to deliver on our internal and external growth objectives as well as add value through active asset management and a disciplined capital allocation strategy. Our strategic initiative have positioned us well for above-average free cash flow and net asset value growth over the long term. Lenis will now provide our financial update.
Thanks, Brian. Diluted funds from operations or FFO per unit for the quarter was $0.21 compared to $0.22 in the first quarter of 2018. Higher FFO from acquisitions was offset by lower operating leverage when compared to the beginning of 2018.Comparative property NOI has increased 0.4% for the quarter led by higher occupancy and rental rates in Québec as well as higher rents in Ontario. Partially offsetting the above factors were lower occupancy and rental rates in Western Canada and lower occupancy in the East. The value of our investment properties increased to $2.4 billion from $2.1 billion at the beginning of the year. The increase was due to the acquisition of the $237 million Midwest U.S. portfolio as well as the $20 million increase in the fair value of the Trust's properties, mainly reflecting higher market rents in Ontario and Québec. The Trust reported net asset value per unit or NAV per unit increase by $0.07 or 1% to $10.61. Compared to the first quarter of 2018, NAV per unit has risen by $0.76 or 8%. Our net debt to assets ended the quarter at 42.4%, a decrease of 700 basis points year-over-year.At quarter end, our liquidity was strong with unencumbered assets of $322 million and $77 million of liquidity on our credit facility. Subsequent to quarter end, we completed a public offering of $12.5 million REIT units at a price of $11.55 per unit for gross proceeds of $144 million. The proceeds will be used to fund acquisitions, partially repay the outstanding balance on our credit facility and for general Trust purposes. Looking forward, we are maintaining our guidance for 2019 comparative properties NOI growth in the 2% to 3% range. We expect the stronger internal growth to be more apparent in the second half of the year. We continue to transform DIR with the goal of operating high-quality assets with a long runway for growth along with maintaining a strong balance sheet. Over the past year, we have significantly reduced the risks of our business by lowering leverage and redeeming our convertible debentures while acquiring properties that are less capital- and less management-intensive, with strong growth potential.Year-to-date, we have raised $288 million of equity to fund approximately $350 million of acquisitions of highly functional industrial assets in our target markets. Following the April equity offering and completion of the $107 million of identified acquisitions and placing permanent financing on the Midwest U.S. portfolio, our leverage would be approximately 40% with full availability on our credit facility. Our acquisition capacity is approximately $300 million, bringing leverage up to 47%. Over the long term, we are targeting leverage in the low to mid-40s.As we deploy our acquisition capacity over the balance of 2019 and early 2020, we are poised to post stronger FFO per unit growth in 2020 and beyond. We are excited about the positive outlook for internal and external growth for DIR. We remain well positioned with sufficient liquidity to execute on strategies to further improve our overall portfolio quality as well as generate higher long-term free cash flow and net asset value growth.I will turn it back to Brian to wrap up.
Thank you, Lenis. We continue to transform the business and have achieved significant milestones thus far in 2019, including the successful execution of our U.S. expansion strategy and inclusion in the S&P/TSX Composite Index. Looking forward, we are well positioned to continue to improve value through organic income growth, executing on asset recycling opportunities to improve overall portfolio quality and using the strength of our balance sheet for new investment opportunities that meet our investment criteria. We'd now be happy to take any questions.
[Operator Instructions] Our first question is from Sam Damiani of TD Securities.
Just wanted to start off with Eastern Canada. The same-property NOI growth in the quarter was down, but obviously occupancy has ticked up meaningfully by quarter end. And so how much of the sort of second half same-property NOI growth for the whole -- overall portfolio is likely to come from your Eastern Canada portfolio?
Sam, it's Lenis. I would say the same-property growth that we're going to see in 2019 is largely going to be driven by Ontario, Québec and the West and not so much the East. I think the East, we had said, was going to be stable for the year on that -- for the full year.
Yes. Just on the occupancy -- the higher occupancy at quarter end in the East, is that going to translate into some NOI pickup in the second or third quarter?
I think on absolute dollar basis, it'd be -- it's going to be a little bit higher. But I think we had some pretty strong growth last year, so we're lapping like higher quarters come the second half of the year. So even though the numbers -- the dollars will go up, I don't think on a percentage-wise we're going to see as much growth. It'll be pretty stable.
Okay. Fair enough. And any update on the possible sale of some or all of your properties out East?
Yes. Sam, it's Brian. We've got a lot of interest. We've had a number of groups tour the assets and are digging into the diligence material. We've got -- we're really pleased with the strong interest. We knew we had that, and that's why we're entertaining that interest. So we'll have more on that to come. We don't have anything concrete to report other than quite a lot of interest from a number of different parties.
Okay. Great. And just one more for me. On the Gienow lease extension, is there a rent adjustment happening in the near term? Or would that occur when the original lease was going to expire?
So we're adjusting near the end of 2019. That's a couple of years early from their original expiry. They were interested in renewing early, we were interested in renewing early and locking them in for a long period of time. So we're locked in through 2029. I think they adjusted November of this year from 7.54 down to 7. So it's an old lease. It was contracted in 2007 originally. So we're dealing with 2007 original rents and bumps from there for 12 years, so that's why it's adjusting down to today's market.
Our next question is from Chris Couprie of CIBC.
Just wanted to touch on the acquisition pipeline. If you could maybe give us a flavor for the geographies that you're looking at. And just in terms of the overall portfolio mix, I think that your target has generally been 80-20 Canada-U.S. Just wondering what would have to happen in order for you to change your view of the right kind of balance.
Those are good questions, Chris. Let me just answer the first one. The acquisition pipeline is a combination of U.S. and Canada. I think our Q1 pipeline and the deals that we've announced are a little indicative of what we're continuing to see. We will see a mix of Canada and the U.S. in our -- the markets that we have current properties and our target markets. We do see higher volume of deals in the U.S. And so we anticipate our further -- our new acquisitions to be a combination of U.S. and Canada. However, there are probably more -- there's more volume of deals that we see coming out of the U.S. so it may be weighted in accordance with just where opportunities are. We're currently 22% in the U.S., and that's a soft target. I think we've achieved that soft target. Going forward, we're going to look at opportunities as they're presented and not necessarily take a hard line on a specific percentage north or south of the border. We'll always keep the majority of our assets in Canada. That's certainly a target of ours. But whether there -- our interest in the U.S. flexes from 22% up to something higher than that, we're okay with that, provided that we are buying high-quality assets in markets that we want to be in for the long term.
Okay. And then I think Quebec had been a target market. Are you evaluating much product in that province?
We are, yes. That's certainly a target market of ours. We're seeing opportunities there and evaluating those along with the other markets that we're growing in.
Our next question is from Brendon Abrams of Canaccord Genuity.
Brian and Lenis, just in terms of the renewal spreads in Ontario, I just want to make sure I'm reading this correctly, that the 10.7% is on renewed spaces of existing tenants and the 26%, the 39 leases. Is that new leases? Or is that a mix between the renewals and new?
Chris, it's a combination of new and renewal -- sorry, it's Brendon. It's a combination of new and renewal leases for that 26%. And then the reason we do that is I think it's -- sometimes, we view short-term vacancy as an opportunity to really increase the long-term rents that we're obtaining on certain spaces, and I think it was a better way to illustrate. So it's a combination of the 2.
Okay. So that would imply that the new leases are obviously above the 26%, if it includes the renewal, that 10.7%?
Correct. It's also a slightly different time period. The 10.7% is renewals that are taking effect during the quarter, and the 26% are deals that will take occupancy throughout -- mainly throughout 2019.
Okay. Just looking at the in-place rents, the market rents, specifically in Ontario. It's now jumped to 14%. I think it was 10% at year-end and even lower than that, I mean, a year ago. I mean, Brian, how much runway do you think there is in this market and -- I guess, for this number to continue to widen, I suppose? And what can potentially derail the momentum?
Well, I think what's driving it, Brendon, is it will continue to grow. Replacement cost continues to go up. We view market rents and replacement cost as related to each other. As availability continues to go down, rents don't -- or tenants don't really have a choice. The market gets tighter and tighter. We've got to provide some new space. And to provide new space, rents have to grow substantially more than even where they are today. So we think there is some runway, and we think it will continue to grow just to provide a relief valve for the increased demand in the market. What could derail that, to the second part of your question, is geopolitical thing in the world. There's other things that could happen that could affect the economy. But the general supply/demand imbalance in industrial real estate and the GTA remains, and we don't see that changing. And we see rents continuing to grow just because of the increased replacement cost and how high the barriers to entry are to build new product.
Okay. And just turning to currency. Perhaps -- now that more and more of your portfolio is in the U.S., maybe perhaps you can provide some color on how you're thinking about -- or I don't know if there have been any discussions. Just in terms of currency risk of running the business -- cash flow day-to-day of the business or deploying capital in U.S. dollars, any color there?
Brendon, to date we are hedging our currency exposure largely through natural hedges, i.e., taking out U.S. dollar-denominated mortgages and/or draws on our credit facility to hedge out our exposure from that point of view. I think as -- if we do continue growing the U.S., we can revisit that, but to date, we're using natural currency as a hedge.
Okay. And then just last question for me before I turn it over. Maybe I missed it in the opening remarks, but is there an update on the vacant Louisville property?
I mentioned it briefly in our opening remarks. We've got a lot of activity. This space became vacant at the very end of '18. As we -- we knew it's going to be vacant. It was a planned departure of this tenant. It's one of the better buildings in the whole portfolio. It's in a great market. We've had a lot of activity on it. We have -- we're trading proposals right now with tenants. We're confident it will be leased in 2019, and we're very happy with the asset. So I guess the short answer is we've got a lot of activity on it, and we're confident it will be leased.
Our next question is from Mike Markidis of Desjardins.
Lenis, I think you talked about this, but I just want to make sure I have the semantics nailed down. So when you say commenced versus transacted, would there be any overlap between those 2? Or does it include -- like does transacted include some of the ones that commenced on the leasing side?
So in the GTA, the overlap is like -- would be 18,000 square feet.
Okay. So it's de minimis. Okay. Got it. Okay. That's good to know. Okay. Then I think in the same-property NOI, you had flagged a legacy lease and some free rent that was impacting Ontario this quarter. Was that significant? And if so, how long before that would reverse or burn off?
So the free rent is all in Q1, so that's gone. The same-property growth in Ontario, it was actually 5% in the GTA. We've got some temporary vacancy sort of outside the GTA. One is a building in Cambridge, which has been leased. And then we do have a building in London, which vacated at the end of last year.
Okay. Just looking a little more closely at some of your stats for the quarter and realizing it is 1 quarter and not necessarily a full year. But I did notice that the WALT on your renewals was -- or leases that commenced during the period, I should say. Some of your lease renewals was pretty short at 3 -- just over 3 years, and also, the leasing costs were quite high. So I guess, firstly, what was the driver of that? And how should we expect that -- those metrics to unfold throughout the remainder of the year?
Yes. The -- I would say the WALT for everything that commenced during the quarter, it was -- with any new leases, we've got WALT for 5 years. Renewals were about 2 years. The leasing costs associated with the 2 years -- average 2 years of renewals was pretty nominal. A lot of the new leases were out in Western Canada, reflecting office or flex-type units as well as a larger unit that had been vacant out West for about 9 quarters. So out West, we're focused on occupancy but we're also wanting to invest capital prudently. So we're focused -- very much NER focused in all regions but in particular for the West.
Okay. Maybe just one last one before I turn it back. If I look at your total CapEx for the first quarter just based on what you own today, how would you see that unfolding for the full year 2019?
So for the total portfolio as a percentage of NOI, we see our CapEx, as in leasing costs, being lower than that of 2018. We would focus on the West just because that was a little higher this quarter. So I'll also add the color that the West as a percentage of NOI would be flat to its ratio for 2018.
Okay. Sorry, so you're not changing -- I can't remember how you view your FFO. But you're just saying that the actual amounts incurred this year are going to be lower in -- than 2018?
Lower, yes. Correct.
And that would be on an equivalent amount of square footage? Or is that part of the issue that there's less square footage this year?
Yes, as a percentage of NOI -- total NOI.
No, I get that. But I just -- I guess what I'm saying is, is it all because the costs are going down on a -- or is it -- on a per square foot basis or is it because there's less square feet this year?
I think it's less square feet as a percentage of total portfolio.
Okay. So you would expect that the average cost overall would be similar?
Yes.
Our next question is from Brad Sturges of IA Securities.
I guess when thinking about acquisitions -- and I think when PAULS Corp. first got involved and Dream was thinking about changing the strategy, there was a discussion at some point about leveraging, I guess, Dream's land bank and potentially using -- vending in assets that are newly constructed from Dream. Is that in the pipeline whatsoever today? Is that still a thought process or a strategic option for the REIT?
Brad, the vending in, we did vend in the Nashville asset. That's the only asset I would see happening in the way you described. The PAULS Corp. relationship, the Dream relationship, we do use people in both organizations to help us source deals. We're -- we continue to look at development opportunities, which I think we will maybe find some opportunities to do that, and we use them for a lot of different things. For example, we've got an asset in Orlando that has expansion land on it. We're analyzing growing that building by 65,000 square feet and expanding that. We would utilize some of those folks to underwrite that and potentially execute on growing that building as well as look at expanding other properties or building other buildings for the REIT. So I think that's more the nature of the relationship as opposed to vending in assets that some of these other organizations hold.
Right. And when you think about the development exposure, it sounds more focused on, I guess, expansion opportunities of existing assets. But are we -- or from your thought process now, is there any change in thought in terms of adding development exposure to the REIT, whether it's through a mezz structure or on balance sheet? Or is it just the preference continues to be looking to source stabilized assets with opportunities to grow rents or add values in other ways?
Development is certainly on our radar. It has been for some time. We're likely to do that through a JV with the REIT and another developer. So we're certainly looking at that. And it would be mostly through a JV, Brad, if we were to do it.
Our next question is from Matt Kornack of National Bank Financial.
Lenis, with regards to the same-property NOI growth guidance, one -- just looking at your prior period. It looks like you're comping some strength in Q1 obviously, a little bit more in Q2, but then things got a little weaker in the second half of 2018. So if you're -- if we're looking out, where would you see the quarterly number sort of maxing out in the second half of 2019? And then is the driver rent growth or occupancy or even just organic rent steps? If you could give sort of a view as to what the makeup of that number is.
Okay. So I think quarterly -- we'd see the quarterly SPNOI growth increasing with each quarter throughout the year. So I think Q4 would be the highest compared to the prior quarters. And then the main drivers of the growth are going to be -- it's going to be occupancy in the West. We've got contractual plus the rentals growth in Ontario as well as just the market -- the rent increases plus occupancy in Québec.
Okay. And there's no -- it sounded like you're flat on Atlantic Canada, but outside of that, you're expecting growth from every segment of the operations.
That is correct.
Okay. And then on your leverage target, you indicated that you'd like to be in the low to mid-40s over the long term. Can you give a sense as to what is the long term and how do you think about over-equitizing acquisitions at this point?
As I -- I think I had given a stat in the prepared remarks. So we've raised $288 million of equity slated for $350 million of acquisitions. So that capital has been spoken for, and those acquisitions would be -- is acquired without financing. We would put financing on later on, which is why we're down to the 40%. Currently, we would like to deploy our acquisition capacity over the remainder of the year. The long-term target is 40%, which is probably going to be '18 to -- 2 years out. But it really depends on acquisition activity and obviously opportunities.
Yes. Matt, I think we want to have some dry powder to execute on opportunities as we find them. One of our competitive advantages is just speed to market and being able to react to opportunities quickly. So we want to be able to do that. We also want to maintain quite a strong and stable balance sheet. So that's one of our goals as well, not just performance by leverage but have a strong balance sheet and the ability to have capacity to acquire or build or capitalize on opportunities when we find them.
Okay. So you're -- you don't foresee going back to sort of the low 50% range on leverage. You're going to keep it in the mid- to high 40s and then in the medium term, I guess, move down towards the low 40s if you can continue to acquire and have a good cost of capital to issue equity to buy assets.
Correct. Our -- I think our long-term view on leverage has come down over time. Over the last 18 months, I think we've reduced our target from, call it, 50% to low to mid-40s. And we feel like that's an appropriate leverage amount for our business over the long term.
And then I guess, in that vein, from an FFO per unit growth standpoint obviously there's an impact if you're deleveraging and you should be rewarded with a higher multiple. But do you have a sense as to what you'd like to obtain in FFO per unit growth on an annual basis? Or are you sort of okay with keeping things as they are at this point?
I think we would like to -- once the capital is deployed and we're at stabilized leverage -- I mean part of it is we want to -- we're strengthening the balance sheet bringing down leverage. We're improving the quality of the portfolio so that the quality of our cash flows is stronger, it's a safer business. We want over -- want to stabilize FFO per unit growth in the 2%, 3% range annually, but we'll have a much stronger, safer balance sheet and safer business.
Our next question is from Pammi Bir of Scotia Capital.
Just maybe off of the last answer, Lenis, the 2% to 3%, is that a figure that you see as an achievable target for 2020?
So for 2019, we're going to be deploying the capital, so that has, as you all know, a sort of impact. Our FFO will be stabilized in 2020. It will be a much stronger year. The 2% to 3% may actually be a bit light going from '19 to 2020, depending on the timing of the acquisitions. But I think sort of 2020 and going onwards, that's the annual increase that we'd be forecasting.
Sorry, maybe just to clarify, 2020 should be better than 2 to ...
Yes, correct.
Better than the 2% to 3%?
That's right.
Okay. Maybe just switching gears. If you look outside of the Eastern Canadian portfolio, can you provide maybe some color on other potential asset sales under review?
Sure, Pammi. We've got a model that we look at every single one of our assets and to really determine whether it's an asset quality we want to keep or whether we should trade out of that and buy other assets that are more in our target range of geography or target range of yield or target range of just performance. So we look at that. We do have one-off recycle targets in really all of our markets, and so we're looking at that constantly. I can give you examples in Alberta or in -- even in Ontario that we're looking at recycling. Obviously, we're looking at that in the East as well. So in all of our markets, I would say, probably save for the U.S., we do have recycling that we are looking at. And we're likely to kind of redeploy in the markets that we are recycling in. So for example, in the West, there's a good chance we will recycle into other assets in that same market. It will just depend on where opportunities are that we find.
And if we -- again, if we exclude the Eastern Canadian assets, what would sort of be the -- I guess, the potential value of some of these assets that you're referring to in Ontario and Alberta or even U.S. in aggregate?
$20 million to $30 million maybe in aggregate.
Okay. So pretty small amount, I guess, overall.
Yes, yes.
Okay. And can you...
It's really fine-tuning the portfolio of assets. I mean we're continuing to look at adding to the quality -- or average quality of assets. We want that to go up with every transaction we do. We analyze it from a free cash flow standpoint, from an asset quality standpoint, from a long-term hold kind of standpoint. And those are the metrics that we're looking at.
Got it. And just on the Eastern Canadian portfolio, can you remind me if the intent is to sell the whole portfolio? Or would you consider selling parts of it?
We would consider selling parts of it. We've got interest in the whole. So how it actually executes, I don't know, but we've certainly got interest in both.
Okay. And then just maybe lastly, coming back to the market rents. You obviously had some good results in pushing rents, and I know that's a pretty big focus. But what do you see as the upper bound on the renewal spreads for the balance of this year? I think you're running at about 5% in Q1 overall, but how do you -- is that likely to move higher?
I think we'd expect that to stay flat. And the spreads that we're seeing sort of region by region would be very similar. They carry on throughout the year.
And our next question is from Mike Markidis of Desjardins.
Just to follow up on Eastern Canada. And obviously, a lot will depend if you guys actually do transact on that portfolio. But if, in fact, you do and -- on a substantial part or the whole, that could potentially veer your leverage into a temporary state of, I guess, not in line with your long-term target. So how are you guys thinking about that with respect to what you were talking about with respect to the earnings growth being stronger in 2020?
Sure, Mike. We've mentioned in the opening remarks our pipeline of $200 million to $300 million of pipeline. We're seeing a lot of deals. We're seeing a lot of opportunities. We're confident we'll deploy that money quickly. So we're not too worried about the short-term effects of the leverage going up and down. We know that, that will settle out in the -- over the short to medium term because of the opportunities that we're seeing. So we're confident we'll deploy that.
We have no further questions. I'll now turn the call over for final remarks.
Thank you, everyone, for your time today. We look forward to seeing you at our AGM next week, and we appreciate your time. Thank you.
Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.