Dream Industrial Real Estate Investment Trust

TSX:DIR.UN

Earnings Call Analysis

Company Foresees Steady Growth and Expansion

The company continues to grow, acquiring properties with potential for increasing market value and stable growth opportunities. Acquisitions have been consistent in 2023 and are anticipated to continue. Retention rates in 2023 were higher than historical averages but are expected to normalize in 2024. New developments will contribute to net operating income (NOI) in the second half of the year after a 6-month lease-up post-completion. In Europe, France, Germany, and the Netherlands are balanced markets with bifurcation between urban and large box logistics; urban logistics rates are growing faster due to limited supply. Despite high growth of up to 40% in Europe, absolute rent levels are still low, suggesting significant growth potential, outpacing Spain where the company is cautious due to current supply levels.

Impressive Organic Growth and Strong Operational Performance

Dream Industrial REIT (DIR) capped off the year 2023 by achieving remarkable operational and financial milestones, marking a period of significant growth. The company's comparative properties Net Operating Income (NOI) saw an 11.3% increase, which is the highest organic growth pace since its initial public offering. This growing NOI strongly supported the Funds from Operations (FFO) per unit, which rose by 10% over the year to $0.98, underscoring a solid streak of double-digit growth for three consecutive years.

Expanding Growth Avenues with Private Capital Partnerships and Fee Revenue

DIR successfully leveraged its private capital partnerships to carve new avenues for expansion, evidenced by the more than $9 million in net margin from its property management and leasing platform, doubling the previous year's figures. A key highlight is the completion of acquisitions valued at over $360 million through the Dream Summit venture in 2023. DIR remains proactive in capital deployment and is in the midst of securing additional assets that amount to 2.5 million square feet of Gross Leasable Area (GLA), which indicates a continued trajectory of robust growth for the company.

Optimizing Portfolio Quality via Capital Recycling and Strategic Dispositions

The company is exploring avenues to enhance its overall portfolio quality through capital recycling. By negotiating select disposition opportunities, ranging from user sales to disposals of non-core assets, DIR aims to maintain an accretive practice of reinvesting its capital. A keen focus on value-add initiatives and strategic investments promises an upward scale on both quality and returns.

Continued Development Success and Positive Leasing Prospects

DIR's development execution stands strong, with a notable development in Mississauga slated for completion in mid-2024 expected to generate a sizeable lease of over 60% of its space. This speaks volumes about the REIT's ability to capture demand from a wide occupier base. The leasing activity and occupancy rates, despite some transitory vacancies, indicate strong potential for revenue through lease-up opportunities. With market rents substantially above in-place figures, DIR is set to capture significant organic growth within the portfolio.

Projection of Rent Growth and NOI Amid Lease Maturities

Looking ahead to 2024, DIR's in-place rents are anticipated to escalate by a high single-digit percentage by the end of the year, with constant currency CP NOI growth expected to remain strong in the mid-single-digit range. The rent projection is particularly favorable with a large portion of lease maturities occurring in areas where current market rents are substantially higher than in-place rents, providing a conducive backdrop for DIR to engage in profitable renewals and new leases.

Prudent Financial Management and Mid-Single-Digit FFO Growth Outlook for 2024

With strategic financing initiatives in place, DIR sustained a mid-30% leverage range and net debt-to-EBITDA at 7.7x by the end of 2023, aligning with its financial targets. Coupling this with approximately $700 million in liquidity, including proceeds from a recent bond reopening, the REIT stays well-equipped to meet its strategic goals. Based on expectations surrounding NOI growth, leverage, interest rates, and occupancy levels, DIR envisions a mid-single-digit rise in FFO per unit over the course of 2024, suggesting a stable but growth-oriented financial outlook for the near future.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, ladies and gentlemen. Welcome to the Dream Industrial REIT Fourth Quarter Conference Call for Wednesday, February 14, 2024. During this call, management of Dream Industrial REIT may make statements containing forward-looking information with 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. Alexander Sannikov, CEO of Dream Industrial REIT. Mr. Sannikov, please go ahead.

[Alexander Sannikov, executive]

Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's year-end 2023 Conference Call. Speaking with me today is Lenis Quan, our Chief Financial Officer. We continue to deliver strong operating and financial results in 2023 and executed on our key growth drivers. DIR achieved 11.3% comparative properties NOI growth in 2023, representing the strongest pace of organic growth since the REIT's IPO. FFO per unit was $0.98, 10% higher year-over-year, marking the third consecutive year of double-digit FFO per unit growth. Our private capital partnerships continue providing us new avenues for growth.

In 2023, we grew our accretive and recurring fee stream with over $9 million of net margin generated from our property management and leasing platform, more than doubled compared to 2022. We continue to execute on our development pipeline with 300,000 square feet of projects completed in 2023 that are expected to achieve an unlevered yield on cost of 7.5%. Supported [indiscernible] by a balance sheet strength, we have been actively deploying capital into strategic investment opportunities, especially within our private capital partnerships. These investments offer us the opportunity to generate strong returns and maintain balance sheet flexibility. We completed over $360 million of acquisitions through the Dream Summit venture during the year. We're currently in exclusive negotiations on a number of additional assets in the GTA totaling 2.5 million square feet of GLA.

Going forward, we will continue to focus on growing our private ventures. We will also explore capital recycling opportunities to fund our value-add initiatives and improve our overall portfolio quality. We're currently in negotiations on select disposition opportunities across the portfolio. These dispositions range from user sales to disposals of nonstrategic assets to private buyers of compelling pricing parameters, allowing us to recycle capital accretively on a total return basis.

Our development execution is progressing well, and we are on track to achieve our forecasted yields. Our $209,000 per foot net zero ready logistics facility in Mississauga is on track to be completed in mid-2024. We recently signed a 10-year conditional lease for over 60% of the space achieving a starting rent of over $20 per square foot with annual contractual rent growth of approximately 4%. The remaining 80,000 square feet could be demised into small units, allowing us to capture demand from a broad range of prospective occupiers. Overall, we remain encouraged by the leasing activity across our portfolio. We're responding to numerous requirements both for our development projects and current vacancy and have seen a significant increase in levels of touring activity since the beginning of the year.

We continue to see significant strength in the small and mid-day segments of the market, both in Canada and in Europe. We have also seen speculative construction activity decrease significantly in our markets, which should translate into continued strength and fundamentals over the near to medium term. Our occupancy rate of 96.2% at the end of 2023 was primarily driven by anticipated transitory vacancies across our Ontario and European portfolios and we expect to capture strong rental lifts on these vacancies upon lease-up.

We continue to execute on our strategy of maximizing rental rates on our new leases and renewals. Since the beginning of '23, we have transacted 7 million square feet of new leases and renewals across DIR and Dream Summit portfolios at a combined average spread of 55%, achieving average contractual rent steps of 3%. Our lease maturities are well staggered with 6 million square feet of GLA maturing in Canada over the next 24 months. of which approximately 75% is located in Ontario and Quebec, where average market rent is nearly double the in-place rent. In Europe, we have 2.4 million square feet maturing over the next 2 years, and the current average market rent for these European leases is nearly 10% higher than in-place rents.

With market rents over 30% above in place, we are optimistic that we can continue capturing significant organic growth within our portfolio as leases roll. In the near term, we expect occupancy to fluctuate as we continue prioritizing rental growth in our leasing strategy. For 2024, we expect our in-place rents to grow by high single-digit percentage range by the end of the year. We expect that the pace of CP NOI growth will remain strong in the mid-single-digit range on a constant currency basis. Our CP NOI growth expectation is largely predicated on timing of lease-up over transitory vacancies.

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

[Lenis Quan, executive]

Thank you, Alex. We ended 2023 with strong financial results, which demonstrates the successful execution of our strategic initiatives over the past few years. Diluted FFO per unit was $0.24 for the quarter and $0.98 for the full year, more than 10% higher year-over-year. The solid year-over-year growth was primarily due to strong comparative properties NOI growth of 9.6% for the quarter and 11.3% for the year, in addition to the fee income generated from our property management platform.

Our net asset value per unit at year-end was $16.61, modestly lower compared to the prior quarter due to higher cap rates in Europe, partially offset by higher market rents in both Canada and Europe. We continue to actively pursue financing initiatives to maintain a strong and flexible balance sheet with ample liquidity. During the year, we issued $400 million of unsecured debt at an average rate of 5.2% and refinanced EUR 229 million of European mortgages at a weighted average rate of 4.93%. We raised $107 million of capital through our ATM program in mid-2023 at an average price of $14.27 per unit. These proceeds were used to repay floating rate debt, generating immediate FFO per unit accretion. In addition, this enhanced our financial flexibility, allowing us to continue funding our development projects and co-investments in our private ventures, which are expected to generate attractive returns over time.

In December, we priced a $200 million unsecured debt issuance via a reopening of our series of unsecured bonds at a lower implied interest rate than the original issuance in early 2023. The offering closed in early January 2024 and the proceeds were partly used to reduce the outstanding balance on our credit facility bearing an average rate of approximately 6.9% with the remainder earmarked towards funding our development pipeline and contributions to our private capital partnerships.

To date, in 2024, we have repaid approximately $41 million of mortgage maturities. Our remaining unaddressed debt maturities for 2024 is approximately $260 million, including our Series B $200 million unsecured debenture maturing in June. We are currently evaluating proposals to refinance this bond with unsecured term debt at rates comparable or better than the current 4.5% rate or we could opportunistically access the [indiscernible] bond market. We ended 2023 with leverage in our target mid-30% range and net debt-to-EBITDA at 7.7x. With total available liquidity of nearly $700 million, including the $200 million Series F reopening proceeds, we retain sufficient capital to execute on our strategic initiatives.

With our in-place rents more than 30% below market and several development projects coming online soon, our portfolio is positioned well to continue producing strong organic growth that it can absorb the higher interest costs from refinancing our debt maturities from 2023 and over the course of 2024. Based on our comparative properties NOI growth expectations, we expect mid-single-digit FFO per unit growth in 2024. Our FFO growth expectation is predicated on current foreign exchange, leverage levels and interest rate expectations as well as expected timing of the lease-up of our transitory vacancies. We expect our in-place occupancy and FFO per unit to remain stable for the first quarter of 2024, with growth weighted towards the middle and back half of the year.

I will turn it back to Alex to wrap up.

[Alexander Sannikov, executive]

Thank you, Lenis. 2023 has been an incredibly exciting year for DIR and we're carrying this momentum into 2024 as we continue focusing on delivering strong results for all of our stakeholders. We will now open it up for questions.

[Operator]

[Operator Instructions] And the first question is from Kyle Stanley from Desjardins.

[Kyle Stanley, analyst]

Just like to say thanks for the new disclosure on the expiring lease rate by year, that's very helpful. But just a couple of questions around your lease maturity profile. So I guess, one, I'm just looking for timing of the lease maturities. Are there any chunky maturities? Or is it fairly spread out across the year?

[Alexander Sannikov, executive]

In 2024, there would be fairly spread out. There are some larger maturities in 2025 that are weighted towards the first half of the year. But in 2024, there would be relatively even spread.

[Kyle Stanley, analyst]

Okay. Perfect. And then just secondly, you mentioned this in your commentary, and I think it was in the MD&A as well. But just the language around the new expiring rental rate disclosure, indicating that market rent in Ontario and Quebec has doubled that of in place. I'm just trying to reconcile that comment with the mark-to-market opportunity table that's provided, which would have the mark-to-market just a little bit lower. Are you able to elaborate on that a little bit?

[Alexander Sannikov, executive]

Yes, absolutely. So this is a new disclosure for us, and there's a couple of things to note with the new disclosure table. First of all, what's being disclosed is in-place rents, not expiring rents. So there's in-place contractual escalators that will apply to these in-place rents. Second component, unfortunately, what we captured overnight is there's been a mislabeling of the roads in the table, we are posting a corrected MD&A table, more or less as we speak. So the table as shown, reads Western Canada, Ontario and Quebec, it should be the other way around. So please bear with us, and this is going to get corrected shortly. And then hopefully, the table will make more sense and reconcile better with our comments.

[Kyle Stanley, analyst]

Okay. Perfect. No, that's helpful. And very much appreciated for the new disclosure. Just secondly, the lease in the Courtney Park asset, very encouraging given the rate escalator and I think the timing of getting it done. When would it come online? And then can you just talk about the type of tenant taking that space?

[Alexander Sannikov, executive]

The lease will come online in September 2024. Please bear in mind that the rate is over $20. So it's not $20.01, so it's a very strong rate. We're very encouraged by that. We will obviously provide more color on this particular lease as it gets fully unconditional. When it comes to the type of tenant, it is a logistics user not a third-party logistics company, but a company that needs a modern logistics space with modern clear heights, great truck coordinates, et cetera. So this facility meets their needs.

[Kyle Stanley, analyst]

Okay. Perfect. And then I guess just last one for me. How reflective of the current leasing environment in the GTA was this process? I guess you made some commentary that touring activity has been up to start the year. So just wondering, could you give us a bit more of an update on what's going on from a leasing demand perspective?

[Alexander Sannikov, executive]

As we commented, we've seen significant increase in the levels of RFP activity in the market. So there are significant requirements in the 80 to 200,000 square foot range across the GTA and Southwestern Ontario that we are responding to for our new developments and some existing vacancies. We continue to see that occupiers are looking for space that is readily available. So in some cases, for our new developments, we are starting to put in small offices on spec as opposed to wait for occupiers to then drive the specifications for the office because we see that users need space -- well, effectively tomorrow. And even for a brand new warehouse that is otherwise constructed, building an office requires permitting process, which then adds to the time as to when occupiers can be in the space. So we're definitely looking at that. And then when it comes to small to mid-day, we continue to see very strong levels of rental rates and activity.

[Operator]

The next question is from Himanshu Gupta from Scotiabank.

[Himanshu Gupta, analyst]

So just on the CP NOI growth guidance of mid-single digit. So what is driving this? I mean is it mostly Ontario and Quebec and maybe offset by Europe and Alberta, so maybe can you elaborate on this guidance, please.

[Alexander Sannikov, executive]

It's certainly, Ontario and Quebec, the top drivers for same property NOI growth. We are seeing a good pace of same-property NOI growth in Europe. In Europe, lease-up of vacancy is going to have a slightly higher contribution to same-property NOI growth compared to some other regions where rents are going to be the driver. Obviously, our in-place escalators are contributing to the overall same-property outlook. And as we commented earlier in the prepared remarks, the rents are expected to increase by high single digits, mid-single digits for same property NOI growth, it's largely predicated on timing of lease up of vacancy and some downtime on a few upcoming rollovers. So occupancy is a factor in same property NOI growth outlook, but the number that is going to drive the long-term performance of the business well beyond 2024 is the rent. We continue prioritizing rents in our leasing and we could easily lease some of our vacancies if we were to be more aggressive on rental rates, we're choosing not to do that.

[Himanshu Gupta, analyst]

Got it. Okay. Okay. That's helpful. And maybe shifting gears on the acquisitions under Dream Summit entity. I think you mentioned 10 assets under negotiation comprising 2.5 million square feet. Can you elaborate on that? What kind of pricing are you seeing in the market today on a CapEx basis or dollar return base?

[Alexander Sannikov, executive]

These acquisitions are in the GTA, we continue to see pricing that's consistent with what you've seen from the acquisitions we completed in 2023. And pricing that is consistent with some other transactions that have been completed in the market by some of our peers that you would have seen late last year, some larger transactions announced, both on a price per square foot basis and cap rate. From a mark-to-market cap rate perspective, we're seeing high 6 range in terms of what we can achieve on a spot market rents over capital value.

[Himanshu Gupta, analyst]

Got it. Okay. And is it fair to say that like Dream Industrial will be a bit quiet on the acquisition front? And maybe acquisitions would be more in the Dream Summit JV in that venture [indiscernible].

[Alexander Sannikov, executive]

I think that's fair overall. We continue allocating capital for new acquisitions through our private ventures for various reasons that we've talked about, including the additional returns we're generating from our property management platform for Dream Industrial's balance sheet. We have other capital allocation priorities, specifically on our completion of our development program and projects that are currently underway. We don't exclude the possibility of pursuing strategic acquisitions that would be 100% for Dream Industrial's account. However, the bar is relatively high for us to pursue something on the DIR's balance sheet given the conflicting capital priorities.

[Himanshu Gupta, analyst]

Got it. Okay. Maybe the last question is on the new supply in GTA. Obviously, a fair bit of supply got delivered in Q4, and I mean if I look at your Courtney power development, I mean, you achieved like $20 rents, 4% escalator. That's very, very strong pricing. Will pricing like this encourage more new supply in the market? So can you comment on the development pipeline you're seeing for this year?

[Alexander Sannikov, executive]

There's been indeed some products delivered in the second half of 2023. The number that we think is much more interesting is the level of speculative activity currently in the market. What we see right now is that there's about 9 million square per feet under speculative construction in the GTA, which represents roughly 1% of inventory, and that's arguably a bit of low number and low number, both in historic context and in the context of other major industrial markets in North America. And we expect that the level of speculative construction activity will remain low for 2024, and new speculative starts will remain low, which will translate into strong occupier fundamentals.

When it comes to pricing on new supply, we continue to see a range in the market. There are private developers who would be prioritizing occupancy over rate. And there are institutional groups who are developing or have delivered products who are prioritizing rate over occupancy. So there's a range in the market. And we generally don't think that it's going to have a -- one way or the other, the impact on the market is not going to be significant or long-lasting given the deliveries that took place in 2023 were relatively low as a percentage of total stock.

[Operator]

The next question is from Brad Sturges from Raymond James.

[Bradley Sturges, analyst]

Just to touch on your discussion on asset sales, it sounds like there's some discussions happening right now. I'm just curious if you have a dollar amount that we could see you execute on from an asset sale or capital recycling perspective.

[Alexander Sannikov, executive]

Thank you, Brad. I understand the reason for the question, obviously, it's a significant input in a model we would be providing more color on these disposal discussions as they progress, given we're in negotiations with private buyers, there's lower transaction certainty in some cases. And so we would want to advance these deals a little further before we can provide more specific guidance, as to pricing parameters, timing and quantum so that the modeling of it can be more precise.

[Bradley Sturges, analyst]

Would this all be through the wholly owned portfolio? Is there transactions that are in terms of cap recycling occurring through the sum of GTA as well?

[Alexander Sannikov, executive]

There's both. There's some disposal discussions within Dream Summit and on wholly owned portfolio as well.

[Bradley Sturges, analyst]

And it's not really focused on any particular market, just based on opportunistic transactions at this point?

[Alexander Sannikov, executive]

Opportunistic for the most part. That's right.

[Operator]

The next question is from Mike Markidis from BMO Capital Markets.

[Michael Markidis, analyst]

Two questions from my end just,I apologize if I missed this. I was on the call late. But I guess, maybe last year, your expectation as the market sort of normalized, was that 4% to 6%, I think correctly, if I'm misquoting you, but 4% to 6% market rent growth going forward was a reasonable expectation or something -- certainly the assumption you guys were operating under. I'm just wondering if -- how that's changed over the last several months, if at all?

[Alexander Sannikov, executive]

Thank you, Mike. Well, the growth expectations that we have for the market in '23 generally materialized. We've seen that mid-single-digit pace of rental growth across our key markets, even higher in -- for some nodes or submarkets. Going forward, we remain encouraged by the level of speculative supply that we just commented on -- and so we think that the pace of rental growth will reaccelerate in the second half of '24 or early '25. As to the outlook for the next couple of quarters, it's really hard to predict. But when we look at supply-demand dynamics in the GTA, in particular, they are -- they may be helpful.

[Michael Markidis, analyst]

Okay. That's great. And then just Lenis, I think you had mentioned you're talking about the remaining debt maturities that you have coming due, specifically the Series B. And I think you said 4% to 4.5% was where it sits today. But you also said that you think you can refinance that at or better. So I'm just wondering what type of financing you're contemplating here, if you give us a little bit more color, that would be helpful.

[Lenis Quan, executive]

Yes, sure. So when we would look to ideally replace that with unsecured debt. So we're looking at some various options. And just as I mentioned, unsecured term debt, potentially accessing the unsecured bond market. It's currently swapped to euros. So euro equivalent rate would be low 4s that we're seeing to date. On swaps, the Canadian term debt probably in the low 5s. So we're still seeing 100 basis points difference there. So that's sort of where we're coming out with the mid-4s or better average rate on refinancing this one.

[Michael Markidis, analyst]

Okay. So I guess the swap rate into euros has improved materially over the past 3 to 6 months time frame.

[Lenis Quan, executive]

Sorry, I couldn't catch what you said there?

[Michael Markidis, analyst]

No, just the equivalent euro swap rate seems to have improved meaningfully over the past several months.

[Lenis Quan, executive]

Yes, it's come down maybe 50 basis points or so in the last few months, yes.

[Michael Markidis, analyst]

And just last one for me. On your mid-single-digit NOI growth -- or sorry, FFO growth guidance. Does that contemplate any acquisitions or dispositions? Or is it existing portfolio?

[Lenis Quan, executive]

No, just existing portfolio and the developments that have been completed and leased up, the impact of that's in there as well.

[Operator]

The next question is from Sumayya Syed from CIBC.

[Sumayya Hussain, analyst]

Just wanted to follow up on the Mississauga deal you did in the quarter and getting the 4% escalated obviously, for a premium location. Just any thoughts around your ability to push 4% escalators on tenants more broadly? And if you see that coming down at all based on just macro level softening?

[Alexander Sannikov, executive]

Thank you, Sumayya. We consistently achieve in around 4% escalators across our leasing in the GTA, in some cases, it's 4.5% to 5% on smaller units, full large units. We generally see 4% to 4.5% in the market range. As with rental rates, we do see that some groups out there would be looking to do as low as 3.5% and there's groups out there who would be pushing it high as 5%, so there's a range in the market, but we are generally consistently landing in that 4% range on our leasing.

[Sumayya Hussain, analyst]

Okay. So no change there. I also wanted to clarify just kind of what kind of lease-up time frame you are reflecting in your same property NOI outlook. I think Alex, you mentioned occupancy likely grows in H2. So would that suggest you would be fully addressing the existing vacancy by the end of the year?

[Alexander Sannikov, executive]

The target is to address most of it by the end of the year. Having said that, the occupancy on average will remain steady for 2024. That's part of our guidance.

[Operator]

The next question is from Sam Damiani from TD Cowen.

[Sam Damiani, analyst]

First question, I guess, just on the guidance for same property in the mid-single digits. I assume that captures the drop in occupancy that we've seen over the last couple of quarters. Just wondering when you see occupancy gains being a positive contributor to same-property NOI growth.

[Alexander Sannikov, executive]

Yes. [indiscernible] comments, Sam. We are generally expecting some occupancy gains towards the second half towards the second half of the year in terms of the guidance and then obviously on a run rate basis beyond that, they will contribute more into 2025.

[Sam Damiani, analyst]

So is it fair to say the same property NOI growth stat that you'll report each quarter this year might be a little below average in the first part of the year and then above average in the latter part of the year.

[Alexander Sannikov, executive]

We expect that the pace will accelerate through the year and on a run rate basis, not that we are providing guidance into 2025, it will strengthen towards the second half of '24 and into '25 as well.

[Sam Damiani, analyst]

Got you. And is that guidance pretty much the same for both Canada and Europe? Or is there a big difference in that mid-single-digit guidance for 2024.

[Alexander Sannikov, executive]

Canada is a bit higher than Europe, generally speaking, as we commented.

[Sam Damiani, analyst]

Okay. And then just on the acquisitions, the Dream Summit JV, is that still a 10% stake for the REIT?

[Alexander Sannikov, executive]

We are targeting for the time being to stay at 10%, That's right.

[Sam Damiani, analyst]

And I guess last question for me, in the -- I guess, in the GTA, but perhaps Montreal as well, are you getting any more pushback from tenants on rent on the level of rent that you're asking versus a year or so ago?

[Alexander Sannikov, executive]

Of course, it's a negotiation with our occupiers. And there are more options available to occupiers now than 18 months ago, which is healthy. However, frequently, we see that occupiers would look at the market and come back to staying put because it's cheaper. And they don't need to incur moving costs, new setup costs, et cetera, et cetera. But generally speaking, we have occupiers see more options, and that informs the discussions that we are having with them.

[Operator]

[Operator Instructions] And the next question is from Pammi Bir from RBC Capital Markets.

[Pammi Bir, analyst]

Just coming back to the 2024 FFO guidance. Lenis, can you maybe just clarify, and I'm not sure if you mentioned it, but how you see leverage shaping up for the year and whether the guidance incorporate any equity issuance through the ATM?

[Lenis Quan, executive]

So leverage, it'd be consistent with current levels on both net debt to assets and that's EBITDA basis, largely consistent for the full year. And no issuances on the ATM are assumed in there.

[Pammi Bir, analyst]

Got it. I wanted to just come back to the occupancy drop in the quarter. Can you maybe just provide some additional color or background on that slippage? And I'm curious as well are you seeing any longer periods to get leasing done or maybe some notable differences regionally?

[Alexander Sannikov, executive]

Thank you, Pammi. We are seeing the lease-up times are longer, especially as we are still pushing to achieve kind of market-leading rates on this vacancy. The occupancy drop is function of a few units. We got some space that we were anticipating to get back in Spain. That -- we're working through refurbishment of that space and lease-up, again, some anticipated vacancy in France, where we had one occupier changed the setup of their operations and gave back about 180,000 square feet. We've let some of it already and are working with 2 occupiers to take the balance. We got about 100,000 square feet in Ontario. That was not anticipated with tenants being placed and it was struggling towards the second half of '23. So we are working through releasing that and we'll achieve better rents than what that previous tenant was paying. So in the long run, it's going to be beneficial for the asset and the overall cash flow profile of the business. But in the meantime, yes, we're seeing some vacancy and some downtime on that particular space.

So there's a few pockets as we commented before, occupancy will fluctuate in the mid- to high 90% range for us across the board. And yes, we continue prioritizing rates. For example, on that particular space, that I just mentioned in the GTA, it's about 100,000 square feet. We had the opportunity to lease it at about 10% spread relative to prior rents, which from our perspective was a bit of a concession, and we chose to continue pushing for higher rents. So we could have had at least a month ago, but we decided to continue pursuing rates. So moving occupancy in many cases is the easiest lever for us to pull, but it may not be the right long-term decision. It will translate into short-term gains at the expense of long-term growth of the cash flow of the business.

[Pammi Bir, analyst]

No, that's really helpful. Just last one for me. On the summit, the Dream Summer JV acquisitions in Q4 and post Q4, the ones that are in the works, I think you mentioned 10 properties or just over 2 million square feet. What's the total value of those from a transaction standpoint. And I'm curious as well if the growth profile is similar to that sort of mid-single-digit same-property NOI growth that you've cited for your 2024 guidance?

[Alexander Sannikov, executive]

The growth profile is similar to what we see across the board. In some cases, higher as we're buying properties was meaningful mark-to-market potential. There's a couple of assets there that are more stabilized with steady growth opportunities. As far as value quantum, we will be providing more color as these transactions advance. Some of these are in exclusive negotiations. Some of them are under contract. So we still need to complete our work on due diligence or in negotiations in some cases. So for now, for sizing, we would just encourage you to use the capital values that you've seen from us in 2023 on the acquisitions that we've completed to then extrapolate onto the set of acquisitions.

[Operator]

The next question is from Matt Kornack from National Bank Financial.

[Matt Kornack, analyst]

Notwithstanding your comments on prioritizing rate over occupancy. You've had pretty good retention in the Canadian portfolio. Should we expect that -- and I think you mentioned in your commentary that there's some upcoming potential nonrenewals, but is that in the Canadian portfolio? Is it still largely Europe where retention has been lower?

[Alexander Sannikov, executive]

Indeed, Matt, retention has been pretty high for us in 2023, higher than historic run rate. We would expect that the retention will be a bit lower this year than 2023, but consistent overall with historic averages. As you know, we disclosed long-term averages over 10-plus years in our investor presentation. So 2024 will likely be consistent with that long-term average, nonreasonable that we are expecting are not specific to any region. It's more space-specific.

[Matt Kornack, analyst]

And then just on the development deliveries, you give good disclosure as to the yield on cost and the timing. Should we just assume that the NOI comes in over the average of that period. And is there anything -- and I know, obviously, there's some lease-up from assets that were previously delivered. But I don't know, Lenis, if you have the number offhand as to what the contribution would be from developments NOI wise this year?

[Lenis Quan, executive]

Yes, it's going to be in sort of throughout the year. So I don't have the number offhand on the contribution. Obviously, as they're delivered and leased and then occupied, that's when they would start contributing. So it will be kind of over the second half of the year.

[Alexander Sannikov, executive]

Matt, for modeling purposes for run rate modeling, you can look at our development disclosure and look at projects that are complete, we disclosed the cost to complete, we disclosed the yield on costs achieved. So obviously, they will contribute on a run rate basis into 2024. And then for projects that are delivering within 2024, as we commented before, lease-up time is usually about 6 months post completion. So again, for modeling purposes, you could use roughly this time frame.

[Matt Kornack, analyst]

Okay. So a bit of a lag to what is -- like the numbers that are disclosed are completion. They're not necessarily expected economic occupancy.

[Alexander Sannikov, executive]

Completion. That's correct.

[Matt Kornack, analyst]

And then just last one for me with regards to -- I mean, this is not an insignificant amount of space -- or sorry, value of transactions that you're doing in Dream Summit on our numbers, something approaching $700 million of assets. Is that -- what's the nature of the seller at this point that would be disposing of these assets? And in terms of targeting kind of value-add versus newer? How should we think about what the profile of what you're purchasing is?

[Alexander Sannikov, executive]

Yes. Thank you, Matt. We see a range. We see private groups, private institutional groups, asset managers selling assets as part of normal life cycle of their vehicles, it's a value-added fund that was established 5, 6 years ago. They've done their work and they're exiting -- we see some sale leaseback opportunities. It's a pretty broad range. When it comes to the profile of the assets, we commented earlier on the growth expectation. We underwrite all of these opportunities on a total return basis and whether they are stabilized or have some value-add to do -- we want to make sure that they get to a total return number that is compelling, and that's how we price them and approach these opportunities.

[Matt Kornack, analyst]

No, that makes sense. And one very quick follow-up. Just on the Montreal Port asset. It seems like you've gone the route of replacing it as is as opposed to redeveloping it. Is there a prospect or a time line as to when that would have a tenant in place.

[Alexander Sannikov, executive]

Yes. Thank you, Matt. We have a few discussions that are ongoing. We also have some user acquisition interest, which we are following up on -- so that could be fruitful and could materialize at some point this year. We have not excluded the redevelopment possibility and I expect that by the time we report either Q1 or Q2 results this year, we'll provide more color as to the direction towards this asset.

[Operator]

The next question is from Mike Markidis from BMO Capital Markets.

[Michael Markidis, analyst]

Thanks, [indiscernible], for getting the way of everybody's lunch here. But Alex, maybe if you could just give us -- you talk about sort of the leasing dynamics that you're seeing in the GTA and GMA and maybe again, I missed this commentary, but how would that compare to what you're seeing in Europe, just in terms of the spec supply you're seeing in the GTA and how that makes you feel good about rent growth this year and accelerating potentially into 2025. What's the dynamic in and around your key markets in Europe?

[Alexander Sannikov, executive]

Thank you, Mike. Well, Europe is a big place. We see different dynamics in different markets, but also we see different dynamics and different segments of the industrial market. So starting with Spain, we see Spain, maybe a little bit more supply than we would like. So that supply is getting absorbed. And so we're actively watching that unlikely a market where we'll be allocating more capital because of this kind of this current supply levels. When it comes to France, Germany and the Netherlands, broadly speaking, supply demand is balanced and we're not really concerned about the pace of lease-up or competition from the new developments.

And in terms of segments of the market, we see continued bifurcation and fundamentals between what we would call urban logistics assets and big box logistics. Roughly half of our portfolio in Europe is what we would categorize as urban logistics and the rest is larger box. Larger box has historically seen more supply, albeit moderate levels, it's still more compared to supply in urban locations. And as a result, we've seen already rents for urban assets exceed rents for -- the pace of growth for urban assets exceeded the big box by a factor of 1.1 to 1.3x depending on the market. And we expect to continue seeing that as there's very little to no supply of urban industrial smaller bay product.

[Michael Markidis, analyst]

Okay. That's very detailed and useful. So I guess no incremental capital in Spain, it sounds like France, Germany and Netherlands, again, correct me if I'm reading you correctly, but supply-demand imbalance and the opportunities for growth, notwithstanding bifurcation, which we do see, I think you would say we've seen in the GTA and GMA markets to some degree as well. Those markets, are they as good or better or worse than what you're seeing in sort of Ontario and Montreal.

[Alexander Sannikov, executive]

We would continue to rank GTA as one of the best markets globally for industrial with the depth and liquidity of the market and supply-demand dynamics. So it's very hard to find another market like this globally. But the absolute levels of rents in Europe are low and despite the rental growth that we've seen, especially in '22, first half of '23, in some markets, it was as high as 40%. And the absolute levels remain low, and so we expect that there's more runway for growth in Europe and especially in the segments of the market that we just talked about.

[Operator]

Thank you. There are no further questions registered at this time. I'd like to turn the call back over to Mr. Sannikov.

[Alexander Sannikov, executive]

Thank you, operator. Thank you, everyone, for your interest in our business. We look forward to reporting on our progress in the first quarter of 2024.

[Operator]

The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.