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Dream Industrial Real Estate Investment Trust
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Welcome to the Dream Industrial REIT's Second Quarter Conference Call for Wednesday, August 2, 2023. 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.
Later in the presentation, we will have a question-and-answer session. [Operator Instructions] Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT.
Mr. Pauls, please go ahead.
Good afternoon, everyone. Thank you for joining us today for Dream Industrial REIT's second quarter 2023 conference call. Speaking with me today is Lenis Quan, our Chief Financial Officer; and Alex Sannikov, our President and Chief Operating Officer.
In Q2, DIR continued to execute on its core strategic pillars. Our operating and financial results reflect the success of our efforts and the quality of our businesses. We reported 11.4% comparative properties, NOI growth for the quarter and 12.3% for the six month period. Our FFO per unit was $0.25 for the quarter up 14% year-over-year, largely driven by CP NOI growth.
Since the closing of the Summit transaction in February, we have made significant progress in integrating the Dream Summit portfolio and have started expanding the JV in our target markets. The Dream Summit venture has acquired three assets in the GTA for a total purchase price of approximately $126 million.
In addition, the venture is in exclusive negotiations or under contract to acquire an additional six assets located in the GTA totaling 900,000 square feet for approximately $234 million. Our net equity commitment toward these acquisitions is expected to be approximately $25 million.
Combined with the associated property management and leasing fees, we expect the income producing assets to generate a going in yield on equity of over 7.5%. There is further upside as we mark expiring leases to market rents that are approximately 40% higher than in place rents.
Overall, we expect DIR to achieve IRRs in the mid to high teens on these acquisitions. Our private capital partnerships continue to generate a strong recurring fee stream that is expected to grow significantly over time.
Year-to-date, our property management and leasing platform contributed $4 million of net margins double that of the prior year period. Looking forward to the second half of 2023, all of our growth drivers remain intact. We see a long runway for industrial fundamentals with sustained demand for industrial space despite the challenging economic environment.
The long-term outlook for organic growth within our portfolio is strong with in place rent significantly below current market rents, average contractual rent escalators, and an essentially full portfolio.
I will now turn it over to Alex to provide additional color on our business.
Thank you, Brian. Good afternoon everyone. Supply demand dynamics in our core markets continue to drive increasing rents. Supply remains constrained with immediate development pipeline of less than 2% relative to existing stocks in our key markets in Canada.
Occupied demand is broad based, we see strong renewal activity and we continue to field more requests from tenants considering expansions that we do from occupiers looking to reduce their footprints. In our portfolio, we have seen strong leasing momentum across our key markets. Since the end of last quarter, we transacted 1.4 million square feet of leases across our portfolio, achieving a rental spread of 47%.
Within the Dream Summit JV, since closing of the transaction, we completed or finalized terms on over 1 million square feet of leases at an average spread of 125% over prior rents. We continue to execute on our development pipeline and our progress is in line with expectations. At our 343,000 square foot development in Balzac sub-market of Calgary, we have agreed to terms on leases for a hundred thousand square feet at rental range and in line with underwriting.
We have substantially completed our 154,000 square foot ground up development in Calgary. The building is over 40% leased, and we are in negotiations with several prospect tenants for the remainder of the building at terms that are in line with our underwriting and would support an un levered yield on cost of above 7%.
We've seen strong leasing interest at our 436,000 square foot project in Cambridge and our 209,000 square foot redevelopment in Mississauga. Lastly, during the quarter, we commence construction on our 390,000 square foot redevelopment project in [indiscernible] and construction is also underway on our 650,000 square foot greenfield development in Calgary.
For the quarter, we reported 11.4% comparative properties NOI growth. In Canada, we achieved CP NOI growth of 12.1%, led by Ontario at 19% and height single digit growth in Quebec. In Europe, we reported an 11.4% increase in European CP NOI, due to robust leasing momentum and CPI indexation across 90% of our portfolio. The six-month period we reported CP NOI gross of 12.3%, driven by 13.3% in Canada and 11.9% in Europe.
In place occupancy across our portfolio remains strong at 98%. As we continue to execute on our strategy to maximize rental growth, this compares to 98.6% at the end of Q1 2023. Slight decline is primarily due to our 154,000 square foot appetite development coming online and a vacancy at our 225,000 square foot building near the port of Montreal that we discussed last quarter.
Providing an update on our 2023 CP NOI guidance, we are increasing our 2023 comparative properties, NOI growth expectations to 10% to 11% range, and the outlook for organic growth within our portfolio remains strong beyond 2023. We have over 6 million square feet of GLA maturing in Canada in 2024 and 2025 with approximately 75% of this space located in Ontario and Quebec.
Currently, the average market rent for the leases maturing in Ontario and Quebec is approximately double the in place rent. In Europe, we have 2.4 million square feet maturing over the next two years. The current average market rent for these European leases is over 10% higher than in-place rents.
I will now turn it over to Lenis to talk about our financial highlights.
Thank you, Alex. Our second quarter financial results are strong. Diluted FFO per unit was $0.25 for the quarter, 14% higher than the prior year quarter. The solid year-over-year growth was primarily due to strong comparative properties, NOI growth and property management income from our equity investments. Our net asset value per unit at quarter end remained steady at $16.97.
During the quarter, €106 million of European mortgages matured and were temporarily refinanced using our credit facilities. As we mentioned in our press release, we have executed two terms sheets with existing relationship lenders for over 150 millions of new mortgage financings that are expected to close in Q3.
We have also executed a binding term sheet for a €70 million refinancing to address the remaining 2023 maturities. Based on current interest rates, we expect a weighted average rate of approximately 4.8% on these new mortgages. In addition, we received commitments to extend the maturity of our $500 million unsecured credit facility to five years from November 2025 to August 2028.
We continue to focus on maintaining a strong and flexible balance sheet with ample liquidity as we execute on our strategic initiatives. Subsequent to the quarter end, we resumed our ATM program and raised $52.5 million and used the proceeds to repay outstanding amounts on our credit facility that were bearing interest at a rate of just under 7%. This was accretive to our FFO per unit run rate and allowed us to lower leverage by nearly 70 basis points.
Pro forma, our financing activities and our ATM issuances, our liquidity will increase to over $500 million. We see the ATM as a lower cost equity financing tool, allowing us to manage volume and timing effectively. When we look at the ATM funding, we are balancing net asset value per unit, immediate and long-term accretion, FFO, and cash flows, as well as leverage and liquidity.
Going forward, we will consider disciplined ATM issuances if deployment opportunities are accretive to our cash flow and the returns on equity are compelling, such as paying down debt, contributing to our private capital partnerships and funding development projects while balancing the overall impact on our NAV per unit.
Wrapping up with our outlook for the remainder of the, year with our strengthening CP NOI outlook and a creative capital deployment opportunities, we are comfortable increasing our 2023 FFO per unit guidance to the high $0.90 range with lower leverage than what was assumed in our prior guidance. Our FFO guidance remains predicated on current foreign exchange rate levels and interest rate expectations.
I'll turn it back to Brian to wrap up.
Thank you, Lenis. It has sure been an exciting first half of 2023. I would like to thank Alex for his leadership and growing role, as well as Lenis and Bruce travesty for their tireless efforts to drive performance for Dream Industrial. The team is well positioned to achieve significant milestones going forward.
I'd now like to turn it, open it up for questions.
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Rothschild from Canaccord. Please go ahead.
Looking at the acquisitions that you've done in Canada in the joint venture, can you just talk a little bit about strategically how you're thinking of acquisitions and balancing with the NCIB and to what extent these acquisitions are driven more from the larger partner in the JV or they driven from Dream and just how you're looking at the accretion of that versus what you're able to accomplish in other markets?
Thank you, Mark. So these are high quality assets that are very much on strategy for both DIR and the Dream Summit Venture. These assets are located in core GTA submarkets, and we think that the financial return metrics on these assets are very compelling. Not only for the JV, but also for DIR with the added property management and leasing fee revenue. So, high-level the metrics are, as Ryan mentioned in his remark in terms of the return on equity, but if you look at the assets from an unlever perspective, we expect mark-to-market yields in the sixes on income producing assets which we think is compelling. And these assets have relatively short wall allowing us to capture that mark-to-market upside sooner resulting in high teens levered IRRs on DIR's equity.
Are you not able to get these types of IRS in other markets?
Yes, high teen IRRs -- mid to high teen IRRs for core plus standing assets in key established submarkets would be very challenging to achieve otherwise.
So are these numbers being achieved because of the fees earned or just that they're more attractive values in Canada?
Well, as we commented on the prior call, we like the risk adjusted returns in Canada, and we continue to look for opportunities here. We think that the fundamentals of the market are very strong along with tailwinds from demographic trends that we see in key Canadian markets. So, the assets themselves produce sort of low-teens IRRs on equity invested, and then with the IRS additional fees, we get into mid to high-teens, depending on the asset.
Maybe just one more for, Lenis. For the same property NOI and in Ontario in particular, although I saw this comment, I think it was from other markets as well. How much of the growth was driven by expansions versus core raising rental rates or occupancy?
We actually provide, we did provide a number on what our comparative properties NOI growth for the three months, and the year-to-date would be if we excluded expansions from the total CP portfolio. So, it was 9.2% for the quarter and 10% for the six months period.
That's for Ontario or for the entire REIT?
That's total comparative portfolio.
And can you break that down for Ontario?
Yes, just give me one second here. So Ontario would've been 18%, 18.4%, excluding mansions.
The next question comes from Michael Markidis from BMO Capital Markets. Please go ahead.
Great results. Thanks very for the disclosure on the contribution from the expansion bonus much appreciated. Just with respect to, you guys are getting incredible leasing spread sounds like in the near-term, at least in Ontario and Quebec. That 90%, maybe even a 100%, 110% that you've been recently capturing is evident. How do you see the evolution of your embedded mark-to-market over the next one to two years just given the normalization that you're seeing in the market from market run perspective?
We commented on the mark-to-market opportunity with over the next two years in our prepared remarks. If you look beyond that it's mark-to-market is going to be driven by the growth in market rents versus contractual escalators in the leases. And what we've seen so far and including in 2023 is that the pace of market rent growth has been greater compared to contractual escalators. So that outlook beyond the next two years will inform kind of the view on ongoing mark-to-market opportunity in the business.
And maybe if I understand you correctly, then Alex, like you wouldn't expect that 37% embedded mark-to-market to change significantly, just given that you don't have all your leases coming due in the near-term. Am I hearing that correctly?
That's a fair assessment.
Last one for me just before I turn it back. A lot of activity obviously going on in Ontario through the Dream Summit JV, I realize capital is not ubiquitous for you guys today, but maybe if you could give us an update in terms of what you're seeing in the Netherlands specifically, or your other European markets just from a buy and sell perspective. Just maybe go compare and contrast those markets to what you're seeing here? That would be great.
So, we commented on the financing rates that's what we see in Europe right now for moderate LTV, non-recourse mortgage financing. So that obviously informs the acquisition market as well. When it comes to opportunities, we are monitoring opportunities in Germany, Netherlands. We continue to be encouraged by the fundamentals in the market rising rents, steady demand, increasingly constrained supply; and we're starting to see interesting opportunities that translate into, from a levered IRR perspective and again, that low to mid-teen range and we're starting to see more opportunities like that.
Actually, maybe I would just say, do you think, based on what you're seeing, is it reasonable to expect that you might transact in Europe, at some point later this year or is that not likely at this juncture?
I think it is early to comment. We're monitoring, what's happening in Europe, we're monitoring what's happening in Canada and continuously comparing opportunities, where we get better returns. For the time being, we get the best returns in terms of the acquisition market and within the JV structure that we have, but we're constantly more entering transactions and opportunities. So it's hard to predict how that will unfold.
In terms of dispositions we have done some dispositions to date in Europe and we have a few in the pipeline that we'll continue pursuing. And lastly, I should have pointed out on acquisition, we just did one small acquisition in Germany, immediately adjacent to something we already own in Dusseldorf, but it was a small addition.
The next question comes from Brad Sturges from Raymond James. Please go ahead.
Just on the revised same property guidance there 10% to 11%, can you remind me, does that, that does include contribution from expansion activity?
Yes, as reported.
And if you were to exclude that on the same property guidance, what would that range be?
Let us get back to you on that, Brad, we don't have that number right off the top, but we can get back to you. It's less than a 100 basis points in terms of the impact, but what we can come back to is take that.
And just the revision of the guidance, is that more just based on what you've done this year-to-date or were there material changes to expectations for the back half the year?
I think it is what we've done for the, at the beginning, since the beginning of the year and some revised expectation in terms of leasing spreads on spaces that are coming up for the balance of the year.
No changes I guess of where you would be from like an occupancy point of view or potential for transitional vacancy in any particular lease that might not renew?
No significant changes on that front. We commented a little bit on the vacancy. The only vacancy that, or only sizable vacancy in the portfolio that will impact same property and line numbers is our property in Montreal. As far as future transitory vacancy, we expect some space coming back to us in Spain in September, October, which again was factored into our guidance and is long expected long expected vacancy.
The next question comes from Kyle Stanley from Desjardins. Please go ahead.
Maybe just sticking with some of the last little bit of Brad's question there. I'm just wondering, with the bulk of your leasing in the back half of the year kind of located in Europe, I'm just wondering, is there anything you're seeing there that would either positive in terms of your leasing discussions or something that maybe is of more concern? You just mentioned obviously being aware of the space in Spain coming back. So just curious on your thoughts for European leasing in the back half?
No real change in terms of our outlook or rent expectations or timing expectations with respect to those spaces. These are high quality units and we continue to be encouraged by the least momentum we see in Europe. We're engaging with a number of occupiers on expansion needs and that particular space was kind of long expected. The building is going to target for a slight refurbishment to upgrade lighting to LED upgrade the floor. The previous occupier has been in the space for quite some time, so we want to upgrade the space to get the highest rent that we can. So there's going to be a little bit of downtime on that one, but that's in line with our expectations.
You made mention of the vacancy in Montreal, and I know you discussed it last quarter in terms of balancing new development on the site or just releasing at current market. Have you made any decisions on that yet?
Not yet. Both are still on the table. And then there's kind of an option in between those on the table as well where it is a light refurbishment. Somewhat similar to what we did in Kitchener, at our 60 Steckle asset. We bought that asset in kind of older asset that needed some refurbishment work in terms of the warehouse flooring, ceiling lighting, dock doors. So, we might do something similar with this property. So, we have three tracks I guess that we're pursuing at the moment. First is leasing, second being kind of a larger refurbishment and significant intensification, and third being kind of in the middle of the two scenarios.
Just the last one and just looking at Calgary for a minute, I mean, we've heard a lot more positive commentary about the industrial market in Calgary. But the mark-to-market opportunity and the same property growth from that portion of your portfolio has been a little bit less robust. Does that primarily reflect elevated in place rents? Or is that a little bit more related to elevated new supply? I'm just trying to think about how we should think about Calgary going forward?
I think it's in place rents. I think it's also, there's more tenant rollover within the Calgary portfolio, Western Canadian portfolio in general. We have smaller tenants in Western Canada. So, we see more of that rollover on a regular basis, some kind of regular transitory vacancy. And lastly, we continue to be very optimistic on Calgary and constructive on the market, but rental growth story there is just starting and so we expect to see more rental growth over time compared to Ontario, Quebec, where we've seen quite a significant run up in rents over the last three years that is informing the spread that we are achieving to-date.
The next question comes from Himanshu Gupta from Scotiabank. Please go ahead.
So just turning to balance sheet. So just wondering, what is your target leverage here? And is there plan to further use ATM in the near-term to get there?
Hi, Himanshu, I'll start answering the questions. So in terms of our target leverage, that has not changed. We've always been targeting sort of mid to high 30% range, although kind of given, higher interest rate environments, some of the economic uncertainty think, lower, the lower end of that targeted range could likely be more ideal, just given some of the uncertainty. I think in the, the near-term usage of the ATM, as we've mentioned, was used to lower leverage by 70 basis points and we were able to do that on an FFO or creative basis by repaying credit facility draws at 7%.
And on the credit facility, how much balance will be left once you do those European mortgage refinancing? How much credit balance would be left?
We would expect that it to be say less than 50 million approximately on a pro forma basis.
And given that, it is variable debt, will there be preference to like kind of use ATM or this position to pay down that credit facility?
Hi, Himanshu, this is Alex. As we commented in our prepared remarks, when we look at using the ATM going forward, we will balance various factors including cash location opportunities to deploy capital, whether it is in reducing debt acquisitions or development, and balance that out with the impact from NAV. So, that analysis is ongoing and as we get the proceeds from financings and repay the facility and then kind of evaluate where the market is at, evaluate the interest rate environment at the time, then we will, we'll go back to these factors that we've outlined to look at using the ATM further, if that's warranted.
And then just turning to the European portfolio, I mean, your vacancy remains less than 1%, in fact it's better than creating portfolio. Are you also surprised for the resilience there? And is your portfolio like outperforming the broader markets here?
Thanks for the question. In terms of comparing European portfolio and Canadian portfolio, it's not really kind of the current occupancy numbers don't really paint the full picture or you shouldn't be extrapolating anything from that, it is just a point in time occupancy in both portfolios will fluctuate because we have multi-tenant portfolios in both regions, which is by design will see some transitory vacancy in different regions from time to time.
But overall, the occupancy remains strong in the portfolio and this is in line with our strategy also to sometimes take a little bit of vacancy. It was targeted and quantified bets, if you will to then be able to capture the most in terms of market rents. As far as our portfolio performance relative to markets, yes, the statistics in terms of Canadian occupancy levels are out there.
I think it's really been kind of the overall availability in the Canadian market relative to occupancy in our portfolio is again, not a perfect measure, because the occupancy in our portfolio is informed by some, a few idiosyncratic data points and also informed by our strategy to keep pushing the rents.
And maybe just last question on Europe, and I know you have provided some color earlier as well. Just specifically leasing volumes, I mean, we have seen leasing volumes come down a fair bit in Canada and U.S., in the first half of the year. Are you seeing same kind of volume or leasing volume adjustments in Netherlands and Germany as well?
Leasing volumes are you referring to the broader market.
The broader market, not just your portfolio, broader market, correct.
Yes. So leasing volume in our business is frequently informed by the development pipeline. The more development is coming online, the more leasing volume there is, that they're frequently correlated because the market is full. And so the new leasing volume is really driven by availability of space. So, we're seeing shrinking development pipelines across the board, and that's also informing some of the leasing dynamics, specifically in Canada and in Europe. As far as renewal activity and tenant demand for space. We haven't seen significant shifts in that regard, and we continue engaging with many occupiers in Europe as well regarding expansion needs.
Just last question on the land pricing in GTA, I think you acquired that 26 acres side in Dream Summit joint venture. Question is how much land pricing has collected in GTA from its peak last year?
We haven't seen significant corrections. Land pricing is difficult, it was more difficult to compare relative to standing assets, because each site is idiosyncratic and there could be site conditions that inform the price for any given project. And also we haven't seen significant volume on land transactions in 2023.
So when we look at new sites in the GTA, we would be generally targeting a yield on cost in around 7%, when underwriting the land. And we see opportunities at current prices that get us there. And it really is a range. It can be as low as one and a 0.5 million an acre to 2.5, 3 and above a million an acre, depending on the site and the attributes.
The next question comes from Matt Kornack from National Bank Financial. Please go ahead.
Just wanted to quickly talk about the underwriting for the acquisitions that were done, you quoted the 7.5%, but I think you said 6% on a stabilized basis from a cap rate on leverage cap rate standpoint. Does that imply kind of mid fours going in? And then could you kind of speak to that relative to I think you have a higher mark-to-market opportunity in your existing Ontario, portfolio, but maybe a lower going end cap rate so just your thoughts there?
Thanks, Matt. No, the going end cap rate is actually higher than low force, because as you suggested, the mark-to-market is not as significant. So it's not double, it's kind of around 40% is the mark-to-market opportunity. So we're going and cap rate on the standing assets is higher than, it's kind of in the fives and the mark-to-market yield is in the mid sixes.
And then with regards to financing, you dealt with the mortgage and maturities in Europe with secured debt. That seems like a reasonable rate of 4.8% given the underlying rate environment. But, can you give us a sense, Lenis, as to where unsecured debt swapped into Euros would be relative to that and why you went the secured versus unsecured route at this point?
Yes, so CAD swap to Euros is probably in the low fives right now. I think we wanted to at least these assets were mortgages were already in place. We wanted to continue to diversify the funding sources. So, there was -- there is still some incremental savings by keeping the secured. So, we chose to keep that and maintain the relationships with our lenders over there. We've worked with some of them for several years within the broader Dream platform as well.
And then Alex, I don't know if you can provide any incremental thoughts on the timing of the leasing in Montreal and Kaledin. Obviously, Montreal will depend on the route you go, but do you have a sense as to when we should have some sense on the direction and when a lease potentially would take place?
In Montreal, we expect to land on the direction in late Q3. So in September, we expect to land on the direction. We're pursuing and that will inform obviously the timing of lease up. For [indiscernible], we expect, a lease signed in the second half of '23 for leases. As we commented on our core, in June the asset was designed for a multi-tenant structure, so we're executing on that.
And last one, just with regards to capital recycling. You mentioned a few asset sales in Europe. Is there anything in Canada where you think you've taken it as far as you can take it, at this point? And is there any potential to sell assets, I guess from DIR into Dream Summit or is that not something you're entertaining at this point?
With respect to the latter question, no, we're not entertaining anything of that sort at the moment. With respect to your former question, we have a few deals in the pipeline in Canada in terms of dispositions and we're advancing them. So as they progress, we will provide more color in our upcoming results.
The next question comes from Gaurav Mathur from iA Capital Markets. Please go ahead.
When you're focusing on the acquisition pipeline out of curiosity, what's the seller profile like, and what's the bid spread that you're seeing for the product that's coming to market?
The seller profile varies we're doing some selling leasebacks. We're doing some deals with large institutional sellers, who are looking to recycle capital or dealing with redemptions and one of them sell the most liquid assets, so we've seen quite a range. As far as the bid as spread, we've seen that narrow, we see the transaction market active again, and we see the depth for smaller tickets especially. So, we've seen some deals that we didn't win with as many as 15 bidders pursuing those assets.
And just your point on seeing sellers which have redemption issues, is that something that's spiked up over the last couple of quarters or is that just to historical norms?
There's no distress if that's what you're getting at. We see this being executed in an orderly fashion whether it's redemptions, whether it's just general mandates from capital providers. So it's pretty orderly and we're not seeing distress in Canadian markets.
And I think that could be the same for the European markets as well?
European markets are generally different in the sense that they're larger, there's more players, there's a greater range of capital structures and market participants. So, we are seeing pockets of stress. We will categorize as that primarily driven by financing costs and availability of debt at those costs.
So debt service at 1% is very different and debt service at 4.5. And so, that will inform some of the sellers, desire to transact. So, it's not -- it's early to categorize that as distress or pockets of distress, but we're seeing some pockets of stress maybe emerging with more and motivated sellers over time.
The next question comes from Sam Damiani from TD Cowen. Please go ahead.
First question, just on one of your comments at the beginning that Alex, about still fielding good requests for expansion and that seem to still exceed your inbound requests for reductions in space or contractions. Just curious, are you seeing like an increased amount of tenants looking for less space today than you might have six months ago. Is that a trend at all?
In the context of a broader market and the broader economy we're seeing, we're seeing some, but as we mentioned, we're seeing far more tenants looking to expand than tenants looking to shrink footprint.
And also, Sam, what's important to note here is our portfolio that we are managing and the number of data points that we have is roughly double compared to not six months, but maybe six and a half months ago. So, obviously we see more data points as a result of that.
Last question for me is just on the development pipeline, like is there anything holding you back from kicking off new developments in the next 6 to 12 months that you're still seeing good, good economics to justify that capital allocation?
We're still seeing good economics, we have a couple of sites in due diligence right now for our development JV. Those look interesting, but we still need to complete our diligence on the assets and due technical attributes and planning, etc. So we continue to see development in the right market for the right product as an attractive investment. And within the portfolio, we have a significant pipeline of expansion opportunities that we continue executing on across the board including on DIR on balance street portfolio within Dream Summit. We have significant opportunities that look very compelling.
The next question comes from Pammi Bir from RBC Capital Markets. Please go ahead.
Just coming back to the development and land pricing sort of discussion, can you provide maybe some color as to where, as to whether maybe you're starting to see overall development costs stabilize and as well as to maybe where all in costs are for sites in the GTA, if you were to go out and buy or acquire some additional new land?
So, if you will look at construction costs, so the disclosure that we provide on our development pipeline, it could be a good indicator of roughly the ranges depending on the market. So we do disclose the GLA that we're building as well as the construction costs. So, you will be able to get a sense of construction costs by jurisdiction.
They do vary between Toronto, Montreal and Calgary. So that would be a good source for that. As far as land prices, as we commented, we see a range, so we're looking at something in a million and a half range, but we've seen interesting opportunities in the 2.5 million an acre range. And there are trades especially to users at significantly higher numbers than that.
Okay. I want to come back to the ATM for a second, and I do appreciate that your comments. I think you mentioned, ideally being in the low 30% range in this environment, but again given where the unit price is, I just wanted to clarify, do you see getting to that level, again, using more so from using the ATM or from asset sales?
So, Pammi, just to clarify on the leverage target comment. Our targeted range is at mid- to high-30 and I had just stated that in this environment being on the lower end of that range, so not low-30s, but probably more than mid closer to mid-30s rather than high-30s is the targeted range so just wanted to clarify on that point.
And then just maybe coming back to the comments around dispositions, I think last quarter you talked about, I mean, that $50 million range. Is that still the thinking based on some of the stuff that you highlighted maybe in Canada and in Europe, or is there possibly more than that?
It is still an achievable range. The level of interest that we see in terms of inbound require -- inbound offers that we've received is greater than that range. However, as we commented earlier we still need to work through those sales still negotiate the right price, so not every one of them will materialize likely. So, the range that we've indicated is still a doable range, but we do get more, we have more opportunities that we are evaluating than that.
[Operator Instructions] The next question comes from Sumayya Syed from CIBC. Please go ahead.
Just wonder if you can give an update on the outlook of supply in your main European markets. How that looks in terms of historical context and also where preleasing stands?
So, we see supply increasingly constrained in Europe. So, we've previously commented that planning is a significant constraint in our core markets such as Germany and Netherlands and France. And it continues to be the case, vis-à-vis planning. It's challenging, it takes time. There's significant opposition to new industrial development in most municipalities.
In addition to that, the financial constraints are now more significant in terms of cost of debt, availability of construction debt exit cap rates for merchant developers who is the dominant group in European industrial development landscape.
So, all of these factors lead to increasingly constrained development pipeline and developers generally target to a high degree of pre-leasing, especially merchant developers because that translates into construction financing being available and being priced attractively. And so generally we see that developers are targeting to prelease to a greater degree compared to Canada.
And then there was a fairly minor write down in your European portfolio. Just curious about the drivers behind that and that was based on transactions you've observed in the market?
Yes. As you suggested, it's very moderate in terms of write down. It isn't informed by the spreads that we think should be warranted in terms of the mark-to-market yields, relative financing costs, and while the observed transactions are limited, we think that that spread should be healthy and that informs that moderate correction and values.
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Brian Pauls for any closing remarks.
We'd like to thank everybody for your time today. We look forward to speaking in the future. Take care.