DIR-UN.TODIR-UN.TOTSX
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Operator: Hello. Welcome to the Dream Industrial REIT Fourth Quarter Conference Call for Wednesday, February 18, 2026. [Operator Instructions] And the conference is being recorded. [Operator Instructions] During this call, management of Dream Industrial REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and 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 and 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. Your host for today will be Mr. Alexander Sannikov, CEO of Dream Industrial REIT. Mr. Sannikov, please proceed.
Alexander Sannikov: Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's year-end 2025 Conference Call. Here with me today is Gord Wadley, our recently appointed Chief Operating Officer, who we are happy to welcome to the industrial team and Lenis Quan, our Chief Financial Officer. 2025 was characterized by significant volatility and unprecedented changes to the global trade environment. Despite this volatility, our results once again demonstrated the resilience of our business. In 2025, we delivered FFO per unit of $1.05, a 5% increase year-over-year. Our average in-place rent increased by 8%, driving comparative properties NOI growth of approximately 6% for the full year. After a turbulent start of 2025, the leasing environment strengthened towards the second half of the year. We have seen a solid uptick in leasing velocity across our key markets, translating into positive absorption and stabilization of asking rents. Across our platform, we signed over 10 million square feet of leases at 30% spreads during the year, including 1.2 million square feet of development leasing. We ended the year with in-place and committed occupancy of 96.2% and a healthy tenant retention ratio of approximately 70%. Over the past few years, we have successfully captured meaningful upside embedded within our portfolio. There is still significant mark-to-market opportunity in the next 2 to 3 years, especially in our Canadian portfolio. In addition, we expect market rent growth to resume in the second half of 2026 and into 2027, following over 2 years of muted market rent development. During this time, we worked diligently to enhance our business by adding strong ancillary revenue drivers complementing our core operations and allowing us to continue driving FFO and cash flow growth irrespective of the amount of upward pressure on market rents. Our solar and our private capital business are the most established within our portfolio of ancillary revenue opportunities. These businesses continue to see healthy growth trajectory, significantly outpacing the growth rates in our core business and are already meaningfully contributing to our FFO and cash flow. Through the execution of these levers, we have significantly grown our free cash flow and meaningfully reduce our payout ratio over the last 5 years. In addition to deploying the retained cash flow, we are actively recycling capital to enhance our return profile further. During the year, we completed or firmed up on over $850 million of dispositions at premium to our IFRS values, including the formation of the DCI joint venture with CPP Investments. The first tranche of the recapitalization of our 3.6 million square foot portfolio by the DCI JV closed in early February, resulting in estimated net proceeds of $375 million. The opportunity offering -- the deployment opportunities offering the strongest risk-adjusted returns within our investable universe are all unique to our business and include our intensification program, activation of our land bank, solar and co-investments in our private partnerships. Beyond these opportunities, we're looking to deploy our capital into selective unit buybacks and accretive acquisitions. Our on-balance sheet acquisition pipeline is robust with over $350 million of opportunities currently in exclusive negotiations. These are mid-day infill assets in our core existing markets with growing in cap rates on these assets is just below 6% on average, and there's strong reversion opportunity translating into mark-to-market cap rate in the mid-7% range. As we deploy the proceeds from already completed and firmed dispositions. We intend to continue recycling capital out of nonstrategic assets into our core strategy, focusing on urban infill midday assets and selective new development that benefit from structural demand tailwinds. Looking ahead, while we recognize that the geopolitical uncertainty and trade tensions will continue to persist in 2026, our key growth drivers remain firmly intact. We are encouraged by the operational tailwinds, a strong access to capital and attractive deployment opportunities, all underpinned by a solid balance sheet. With now, I will turn it over to Gord to discuss our operational highlights.
Gordon Wadley: That's great. Thank you very much for the introduction, Alex. It's really good to be with you all again today and share firsthand some of the great work our team is doing across the platform. I'm really looking forward to executing on the robust opportunity set within the industrial business. Our portfolio continues to generate very stable and consistent cash flow growth, which is a testament not just to the quality and location of our assets but also the leasing and operating teams we have in each region that ensure we are achieving our goals. In the fourth quarter, just from a macro perspective, the Canadian industrial leasing market continued to stabilize with 6 million square feet of net absorption recorded during the quarter. This represents the strongest pace of absorption in the last 12 quarters. Combine this with a shrinking supply pipeline and a transition to more build-to-suit developments, the outlook for fundamentals has improved across most of our operating regions. Across our specific occupier markets, we continue to observe sustained demand for our assets in core urban locations. Since the beginning of October, we've completed over 2.1 million square feet of leasing at an average rental spread of 14.3%, bringing year-to-date leasing to a very strong 7.4 million square feet at an average spread of 19.6%. This directly underscores the embedded mark-to-market opportunities across our portfolio. As Alex pointed out earlier, we're very encouraged by the recent leasing trends across key markets. Starting with the GTA. This market continues to lead the country in terms of absorption and leasing momentum. We recorded one of the strongest quarters of net absorption in 2025 in the region. This was driven in large part by solid demand across small and mid-bay product and improving activity in larger format space. I'm quite pleased to share that our team did approximately 2.5 million square feet of leasing in this market across the platform over the course of 2025 alone and approximately 610,000 square feet in Q4 with a rental rate spread of 58%. We're also seeing significant new requirements in the market that have been waiting on the sidelines since the normalization process in 2024. Based on recent market research from major brokerage houses, there's been over 40 million square feet of active industrial requirements across Canada. When you look at markets such as Calgary and Vancouver, active requirements significantly outpaced current availability in that market and account for 40% of current availability in the GTA. In Quebec, I wanted to touch on that small and mid-day leasing supported modest occupancy gains in Q4 2025, driven by the lease up of smaller vacancies. While elevated sublease availability and excess large bay inventory continued to weigh on overall market conditions, pushing the overall vacancy rate to just under 6%. Despite these near-term headwinds, demand for very well-located and functional mid-bay space remains quite healthy, especially for on-island product, with small to mid-bay availability stabilizing in low to mid-single-digit range. Good renewal activity, strong tenant relations and steady absorption has allowed our team to maintain occupancy and capture rental growth where conditions support it. A great example that I want to draw everyone's attention to of this momentum is our 366,000 square foot asset in Montreal, where we successfully regeared the entire building occupied by 3 tenants to market rents. These renewals were completed at starting rental rates of $13 to $14, with average annual escalations of 3%, achieving a spread of over 70% compared to prior rents. Notably, we also regeared 137,000 square foot lease within the building 5 years sooner and did better than expectations. In Western Canada, leasing conditions remain very strong. During the fourth quarter, we transacted over 800,000 square feet. Calgary and Edmonton benefited from solid renewal and backfill activity and leasing spreads since October have averaged to high teens. At our Balzak 20 development, we completed 20 new leases during the quarter, achieving full lease-up at rents in the mid-$10 per square foot range, with approximately 3% annual steps. This commences in early 2026. We also stabilized our Balzak 50 development through a 245,000 square foot lease at starting rents of $9.75 per square foot with escalations of about 2.5%. These 2 marquee developments in Calgary are now 100% leased and expected annual NOI contribution of over $10 million. The strong leasing performance highlights sustained industrial demand for the Calgary region and reinforces our strategy of delivering modern, well-located logistics assets to meet the need of national and global occupiers. In Europe, we're also observing very robust leasing activity. The leasing market has been somewhat less impacted by tariffs in 2025, and we have continued to see very resilient fundamentals with new demand drivers for industrial space such as defense and nearshoring becoming more prominent. Availability has stabilized in the low mid- to single-digit range and is trending downwards with increasing take-up and declining supply. Our team expect market rent growth across our core markets in the Netherlands and Germany to outpace inflation in the very near term. To date, we've already addressed over 40% of our 2026 expiries. And since the start of 2026, we have signed or advanced negotiations on over 1.3 million square feet of space, positioning us very well as we move throughout the year. I will now turn it over to my friend, Lenis to discuss the financial highlights. Thank you.
Lenis Quan: Thanks, Gord. We are pleased with our 2025 financial performance as our business continues to deliver stable and consistent growth. Despite slower leasing of existing vacancies amid tariff-related disruptions that affected roughly 1/3 of the early part of 2025, our portfolio delivered solid cost comparative property NOI growth of 8.4% for the quarter and 5.7% for the year. This strong organic growth allowed us to absorb higher cost of refinancing and also the impact of early refinancing over $500 million of low-cost debt in 2025. We delivered diluted FFO per unit of $0.27 for the fourth quarter, 5.3% higher than the prior year quarter. For the full year, diluted FFO per unit was $1.05, representing a 4.9% increase year-over-year. Our net asset value at year-end was $16.60 per unit, reflecting stable investment property value. The slight quarter-over-quarter decrease in NAV primarily reflects transaction costs largely the incentive fee payable on the gain realized with the sale of the initial assets into the new DCI venture with CPP Investments. During the fourth quarter, DBRS upgraded our credit rating to BBB high with stable trends. Following the upgrade, we secured interest rate savings on our various corporate bank unsecured facilities, which represent approximately $0.05 on FFO per unit this year. We continue to actively pursue financing initiatives to optimize our cost of debt and maintain a strong and flexible balance sheet with ample liquidity. We successfully addressed all of our 2025 debt maturities. We repaid the maturing Series A debentures in December by temporarily drawing on our credit facility and ended 2025 with leverage in our target range and with a net debt-to-EBITDA ratio of 7.9x. In early February, we repaid the majority of the balance on our credit facility following the closing of the first tranche of asset sales to the DCI venture. Over the next few quarters, we expect to deploy these proceeds on an accretive basis towards a combination of unit buybacks and strategic growth initiatives. And in conjunction with this objective, we suspended the DRIP, our distribution reinvestment plan as of the end of 2025. Through last Friday, in 2026, we have repurchased $2.4 million of units at a weighted average price of $13.08 or a total of $32 million under our NCIB program. With growing cash flow generated from the business and current available liquidity of over $700 million after repaying our facility draws, we retain sufficient capital to fund our value-add and strategic initiatives, including funding our development pipeline, solar programs and contributing to our private capital partnerships. Our 2025 performance highlights the resilience of our business. The multiple growth drivers we have built position us well to continue delivering on our operational and financial targets. For the full year 2026, we expect to maintain stable average in-place occupancy in the high 94% to low 96% range. We expect comparative properties NOI growth for the first half to be relatively consistent with the Q4 2025 growth rate. And depending on timing of leasing, we expect 2026 full year CPNOI growth to be stronger than the full year 2025. We expect to deploy the proceeds from the sale of the initial DCI portfolio over the course of the next few quarters, more weighted towards Q2 and Q3. As such, average leverage is forecasted to be in the low to mid 7x debt-to-EBITDA range to almost 1 turn lower than at year-end on a run rate basis as we deploy the proceeds. As a result, we currently expect our Q1 FFO per unit to be slightly lower than that of Q4 2025 with the quarterly run rate accelerating as we deploy the sale proceeds. For the full year, our current outlook for FFO per unit is $1.08 to $1.10. As we execute on our leasing and capital deployment targets, we will update our outlook. In addition to the above factors, our FFO growth expectation is predicated on current foreign exchange rates and interest rate expectations. I will turn it back to Alex to wrap up.
Alexander Sannikov: Thank you, Lenis. Over the past 5 years, our cost of debt has gradually increased by approximately 200 basis points. During this time, we delivered FFO per unit growth of 30%, equating to an annual growth rate of approximately 6% to 7%. Going forward, our business remains on a strong growth trajectory, and we expect to continue delivering solid results to our unitholders. We will now open it up for questions.
Operator: [Operator Instructions] Your first question comes from Kyle Stanley with Desjardin.
Kyle Stanley: Gord, you gave a really good overview of kind of the market dynamics and leasing demand looks quite strong in the fourth quarter. I'm wondering, as we've kind of begun the first quarter of this year, have you seen any changes year-to-date that would either be more positive or somewhat concerning? And maybe where is your pipeline today versus where it would have been last quarter? I believe last quarter, with reporting, you disclosed roughly $1.7 million of leases under negotiation on both the on-balance sheet and JV portfolio. So just curious how that looks today. .
Gordon Wadley: It looks good. It looks very consistent. I appreciate the question. It looks very consistent to what we saw last quarter. And the fundamentals are largely in line going into Q1. So we feel pretty good about the start of the year. .
Kyle Stanley: Okay. Just looking at the Calgary assets, the development assets that have been leased up, I think the disclosure highlights $10 million of NOI on a run rate basis. I'm wondering if you can disclose how much of that $10 million of NOI was baked into the fourth quarter results. And I'm just trying to think about bringing that -- the ramp up online through 2026. .
Alexander Sannikov: Very limited was -- in the fourth quarter, there's been some space income producing. It is going to gradually build up into 2026 and you'll see the run rate in the second half kicking in.
Kyle Stanley: Okay. Okay. Perfect. And then maybe just higher-level question as it relates to the new defense strategy. Obviously, we just kind of rolled out yesterday and still very early days. But clearly, it seems like it should be positive for manufacturing activity. And although Dream Industrial doesn't necessarily play in the manufacturing space as much. I just want to get your high-level thoughts on what this could do for demand going forward. .
Alexander Sannikov: Yes. Thanks for this question, Kyle. As you say, we're not in manufacturing space. However, because of the assets that we have, which is infill mid-bay product, primarily in Canada. These assets are pretty flexible. So they can be used for last mile distribution. They can also be used for light industrial. And we do have some occupiers who are in light industrial and manufacturing operations within our properties. And so these manufacturing facilities will benefit from these defense-driven demand drivers. But broadly, industrial sector, we expect will benefit from that, primarily the more closer in mid-bay product is going to benefit mostly as opposed to kind of big box logistics and fulfillment type centers. So we are encouraged by what we're seeing, and we're starting to see early drivers from that emerging. In addition, I would say that we are seeing a slight uptick in user acquisition activity connected to defense needs in particular.
Operator: The next question comes from Himanshu Gupta with Scotiabank. .
Himanshu Gupta: So just on the 2026 FFO guidance, does that include full deployment of net proceeds from the JV the end of the year and NCIB as well. And the question is just wondering when we will see the accretion from that CPP JV in numbers.
Lenis Quan: Thanks, Himanshu. We do expect to deploy the proceeds over the course of the year. The first tranche closed in February, second tranche is targeted to close by the second half of the year. So that would help just with timing of deployment. So we do expect to have it -- we're targeting how it's only deployed by the end of the year. So the -- looking at Q4, kind of that run rate will be higher than what Q1 would be as the proceeds are fully deployed. So a stronger run rate through the end of the year and into 2027. And I think in terms of types of deployment and buyback activity, I think it is going to be dependent on the opportunities. We've stated a target on the buyback program, but I think we want to just monitor other deployment activities, returns and where the unit prices and how the unit prices are acting.
Himanshu Gupta: Okay. Do you still expect like low to mid-single-digit FFO accretion from this transaction? It looks like more in next year than this year?
Alexander Sannikov: Thanks for this follow-up, Himanshu. As we communicated in the original announcement press release, we do expect that the accretion is going to fully materialize when we get the balance sheet fully deployed, which as Lenis just commented, will happen in 2026. So the accretion will build up through the second half towards the run rate. We still expect accretion to be there. And it is moderately accretive for the full year 2026 as we communicated in December when we announced the transaction. So the thesis remains intact.
Himanshu Gupta: Okay. And then when you say balance sheet fully deployed in terms of acquisition activity, fair to say most of the acquisitions will be done in Europe and then the remaining on the JV in Canada?
Alexander Sannikov: We expect that on balance sheet acquisitions in Canada will be around 30% to 40% of the volume for this year. And obviously, our co-investments in private partnerships are going to be mostly in Canada as well.
Himanshu Gupta: Okay. And my last question is Alex, in your prepared remarks, you mentioned market rent growth to resume in second half of this year and then next year as well. Can you elaborate like which markets you think can lead the market rent growth recovery here? And do you assume like limited new supply in the near-term?
Alexander Sannikov: We're already seeing market rent growth in the West. So we expect that, that will continue. Certain segments of the market in Calgary and Edmonton will likely outperform others. But broadly, we expect the market rent growth to continue in the West. And when it comes to Toronto and Montreal, we would indeed expect second half to start seeing rental growth again primarily in the tighter end of the market, which is small and mid-bay product, leading the way and then that gradually translating into growth in market rent for larger bay assets starting perhaps in Toronto, where we are seeing more robust pace of absorption.
Operator: The next question comes from Brad Sturges of Raymond James. .
Bradley Sturges: Just to clarify comments there, Lenis, on the same-property NOI. I think you said for the first half of the year, you expect NOI growth to be similar to what Q4 to was. Is that correct? Would there be any guidance for the full year? Or maybe I missed that in the opening comments. .
Lenis Quan: Thanks, Brad. That's right. For the first half of the year, we were expecting the same property growth to be consistent with fourth quarter. We reported 8.4% in the fourth quarter. So to be in and around that range. Obviously, as we complete more of the leasing towards the year, we commented that we expect full year growth to be stronger than full year 2025 growth.
Alexander Sannikov: Just to build on that, Brad, I think what we're effectively saying is we are confident that it's going to be stronger than 2025 in 2026. The degree to which it's going to be stronger is going to depend on the timing of leasing. But we think the 2025 is an achievable hurdle.
Bradley Sturges: I guess for now, we should think about it as sort of similar growth for now and then we'll kind of see on timing as the year progresses?
Alexander Sannikov: And we'll update you on timing again. .
Bradley Sturges: Yes. Okay. You talked about private partnerships. Obviously, you've had success in Canada. Just any updates on European opportunities at this point? Is this -- is there any kind of changes in opportunity there that you might be able to get across the line this year?
Alexander Sannikov: No change in the outlook and we're still exploring opportunities in Europe. We did put more emphasis on to the Canadian JV with CPP Investment in the second half of 2025. So that took precedent over any European joint venture formation, perhaps pushing back the European joint venture by a couple of quarters, but it still is on our radar to explore, and we are advancing dialogue there.
Bradley Sturges: Okay. And just on -- last question just on your development opportunity, I guess, more specifically like expansion and intensification. How does that opportunity shape up for this year? Could you see some more projects get out into the pipeline this year? .
Alexander Sannikov: Thanks for that follow-up. Yes, we do, and we are tracking a number of opportunities. Some of them on a build-to-suit basis, some of them on a speculated basis, both in Canada and in Europe. And in Canada, that would include the wholly owned portfolio, but also our private ventures. So we are continuing to pursue opportunities to activate our land bank selective thing.
Operator: The next question comes from Mike Markidis with BMO.
Michael Markidis: Just wanted to lean into the JVs in Canada a little bit, Alex. I mean I think there are -- you've outlined it a little bit in the MD&A and in your comments, but there are differences between the JVs. But maybe you could walk us through sort of the different strategies within DSI, DCI and what's on your balance sheet. .
Alexander Sannikov: Thank you for this follow-up, Mike. As we articulated in the announcement press release in December when the DCI venture was formed, the on-balance sheet strategy in Canada is going to lean into newer quality, you can describe it as generally core plus mid-bay infill assets, whether we've acquired them or build them that's generally what we are going to be pursuing more of for the on balance sheet strategy. The DSI joint venture is very mature. We continue to be active in looking at opportunities, both acquisitions and dispositions. And with the in DCI joint ventures, it's just starting. It has generally more of a value-add lens to evaluating opportunities, both from a profile of assets but also from a kind of target underwriting time lines and perhaps the leverage point as well. So quite different from the DSI joint venture given its scale and overall setup. So that's how these ventures fit together and from our standpoint, without maybe going into 2 granular specifics, we believe they fit well together and we can be active across of interest and we'll have more capital available to cover opportunities that we weren't covering before.
Michael Markidis: Okay. And then just your comment on DSI being very mature and obviously still looking at acquisitions in dispute. But from a net square footage or net asset value perspective, do you expect that to grow? Or will be the focus be more on growing DCI just because it's earlier stage at this point? .
Alexander Sannikov: It is hard to comment specifically. We do have acquisitions identified for the DSI joint venture. We have assets that we just closed on in Q1, and we have another asset in due diligence right now. And equally, we will look at recycling opportunities as we have in the past. It's really difficult to comment on the net growth or net contraction we will pursue both, and we'll aim to achieve the best total return outcome for the venture through this capital recycling activity.
Michael Markidis: Okay. And globally, I guess, Canada is a pretty small place. and you now got 3 different strategies running in Canada. Is there room for any more at this juncture? Or do you think you're pretty much set up from a private capital perspective on the Canadian assets for the Canadian landscape? .
Alexander Sannikov: We feel like we reasonably set up, we don't have a core segment of the market of it right now. So there could be room for that, but we're not actively pursuing that at the moment.
Michael Markidis: Okay. I guess last one or maybe 2 last ones for me quickly. Just, is there -- I mean, obviously, things can change and an asset could become more of a core value add versus what you deem as being core plus today. But is there any more seeding or transfer of assets from the wholly owned into either of the JV is contemplated in the near term?
Alexander Sannikov: Nothing is currently contemplated.
Michael Markidis: Okay. Last one for me. I know you guys have a core fund in the U.S. just it's been relatively inactive if you can give us some updated thoughts on the landscape down there and if there be potential to raise capital for a U.S. strategy over the next year or two?
Alexander Sannikov: We are seeing better opportunities in the U.S. now than we were, let's say, 2 years ago. So that is both on the acquisition side and on the capital raising side. So we are spending more time there. And hopefully, we'll see more growth for that vehicle or -- if not, then we'll perhaps start exploring other opportunities more likely in private capital partnership set up to grow the U.S. business. We are generally encouraged by the trends we're seeing for the U.S. market for that vehicle, although it is early days.
Operator: The question comes from Sam Damiani with TD Cowen.
Sam Damiani: Alex, just on your comment for market rent growth sort of to resume in the latter half of this year into next year. What do you need to see from a market sort of data point perspective to, I guess, give you more confidence or would be more certain that market rent growth is going to resume under that time line. .
Alexander Sannikov: Thanks for this follow-up, Sam. We expect to -- that we will need to see consistent pace of absorption, consistent trends either stable to downward on the availability rates and that will then lead to greater confidence by the landlord community to for stronger rents. And there are some less significant metrics and factors such as sublease availability that will contribute to that. We think that it's not going to be a broad-based rental growth to start. It's going to affect certain subsegments of the market first. Where we're seeing, for example, if you look into statistics for the GTA is that there's quite significant difference between vacancy rate for small assets versus large assets as a proxy for a small bay versus large bay. And so with these smaller assets showing tighter vacancy rates and availability rates. So we will likely see or we expect to see stronger rental growth for that segment of the market sooner than the larger bay. And it is going to be market-specific not just segment specific, as we commented before, we expect to see stronger perhaps rental growth in the West and maybe sooner than we would in the GTA and the GMA.
Sam Damiani: Okay. That's helpful. And do you -- between the DSI, the DCI, I appreciate the new acronyms there and the balance sheet strategy, I mean, which of those sort of 3 buckets would be -- you expect to see the most acquisition activity in 2026?
Alexander Sannikov: Well, for the own balance sheet program, we expect to deploy the capital that we have, whether it's in the unit buybacks or the acquisition. So we expect that is going to be all deployed in 2026. When it comes to private ventures. It is difficult to comment. These are early days for the DCI JV. We don't want to comment on behalf of our partners indirectly. So we'll report on our progress, including the pipeline that we are pursuing for debenture as we make progress.
Sam Damiani: Appreciate that. Last one for me, and I apologize if this might have been asked, but we're working on a European JV, is that still in the works? Has it -- have you progressed on that sort of path since November, December? .
Alexander Sannikov: So we commented earlier, Sam, you may have missed that, yes, it's still something that we are pursuing. We did put more emphasis on the DCI JV in the second half of 2025. We didn't want to pursue kind of 2 joint ventures at the same time. So it did push out the European JV formation by maybe a couple of quarters, but it still is something that we are exploring.
Operator: The next question comes from Matt Kornack with National Bank. .
Matt Kornack: It was evident with the results that you sold some vacancy but also some mark-to-market potential. Obviously, the cap rate was quite low on what you achieved. But can you give us a sense of the: a, whether the residual portfolio that you wholly owned should operate at a higher occupancy; and b, just the ability to get kind of cap rates more in line with your IFRS cap rate in terms of deploying some of that capital?
Alexander Sannikov: Yes. Thanks, Matt. So the margin opportunity in the DCI initial portfolio was quantified in the announcement press release and if you refer to that, you'll see that the mark-to-market opportunity as of September 30 in the DCI initial portfolio and on balance sheet holding on portfolio was pretty close. Two, as we approach year-end, the mark-to-market opportunity for the wholly owned portfolio did decline a little bit just as a function of NOI growth and in-place rental growth as opposed to kind of changing the balance dramatically. When it comes to the occupancy outlook, as Lenis commented, we think that mid-90% range for our portfolio, call it high-94% range to low-96% range is the right run rate. For 2026, we obviously are aiming higher but as we've consistently highlighted for multi-tenant portfolio like ours, high 96% to 97% range is relatively full. We're unlikely to exceed that for a prolonged period of time.
Matt Kornack: Makes sense. And then as we think about -- and again, we've all asked about this market rent growth inflection, but is there kind of a magic number on occupancy before tenants start to get a little nancy and want to pay up the rent or make decisions to move into space that would maybe precipitate that change in market rent? .
Alexander Sannikov: Our observation is that every market is different in that regard. So there are markets where rents grow at 6% to 7% vacancy and there are markets where rents are growing at 3% vacancy. So it is highly market-specific and increasingly a subsector specific. So what we generally expect we need to see is just consistent pace of absorption and consistent development of availability rates, flat to down.
Matt Kornack: Okay. And then just looking at your projects in planning, I think, to get to the 6% to 7% estimated unlevered yield. It looks like you need kind of in the $18 rent level. Obviously, different markets. So maybe it's achievable in some and not others. But can you give us a sense, is that still kind of the gravitational pull higher in terms of market rents is that it's more expensive to deliver this type of space than what you're currently getting for space in the market. .
Alexander Sannikov: Yes. A lot of our products planning are in Brampton or they weighted towards Brampton by cost to complete. And rents for new products in Brampton are in that high-teens range, and that is pulling the average a little bit.
Operator: [Operator Instructions] Your next question comes from Pammi Bir with RBC Capital Markets.
Pammi Bir: Not sure if you can quantify this, but with the 2026 same-property NOI guidance, does the sale of the assets to the DCI JV, help or detract from that outlook that you provided, I think you're greater than 2025?
Gordon Wadley: Without commenting specifically on the DCI JV, it is probably adding the numbers a little bit in the first half and relatively neutral in the second half. Maybe DCI JV, you could see high growth into 2027 as some of the vacancies get leased up.
Pammi Bir: Okay. Got it. And then just on the when is the -- again, coming back to the guidance on same property NOI. Just putting all the comments together and the occupancy numbers that you quoted, is it fair to say that at this point, the way you see it is the bulk of the growth in 2026 is going to be from higher rents as opposed to occupancy gains.
Lenis Quan: Yes, there will be some slight from occupancy gains. But I mean, obviously, it's going to be higher rents. There's the base escalators in Canada indexation in Europe. But I mean certainly, the trend over the last few years has been on capturing the higher rents as we've rolled over leases, and that will continue. I think we included some disclosures as to kind of over the next few years, the spreads of where our in-place rents are by market versus the average market rents for the region. So there's still quite a bit of upside to capture.
Pammi Bir: Okay. Got it. And then just maybe last one, sticking with the lease maturities and tenants. Any on your watch list at the moment? And any large known vacancies coming back to you in the next few quarters or that you're aware for this year?
Alexander Sannikov: We have a couple of vacancies coming back to us. There's one unit in Spain that is coming back to us in the first quarter that we expect to re-tenant at higher rents after demising that unit, that's 200,000 square feet there's a couple of idiosyncratic units that are on known vacates, but then there's vacant units currently vacant units in the pipeline. So overall, as Lenis said, occupancy and run rate plus/minus at the range where we are at today for 2026 on average is a good modeling level. .
Pammi Bir: Okay. Great.
Alexander Sannikov: Just kind of following up on your CPNOI question, Pammi. As you know, over the last year or two, while occupancy wasn't contributing to the NOI growth, it was actually taking away a little bit as occupancy was declining slightly. And so as we expect that the occupancy is going to stabilize in-place occupancy is going to stabilize at today's level, then it's going to be less of a negative factor to the overall CPNOI equation. .
Operator: The next question comes from Tal Woolley with CIBC.
Tal Woolley: Lenis, in the outlook for this year. I think just looking at your numbers, you did about $11 million in management fees in 2025. I'm just wondering on the timing of the JV closings and the expected ramp-up of its asset base. If we're looking at incremental management fee in the order of like $3 million to $4 million for 2026 and then growing thereafter. .
Lenis Quan: Yes, I think that would be -- it seems like a reasonable estimate. Obviously, the new venture is going to close in 2 tranches, so it'll take a little bit of time for that new component to kick in throughout the year, but certainly, by the second half of the year, that will be in there. A lot of the margin is also dependent on leasing, there's a recent component as well, but there's a little higher margin on that as well. So that's a little bit lumpier, but obviously something that we focus on as well.
Tal Woolley: Okay. And just if I'm modeling this, which is an exit cap rate and around 6%. I'm not going to get too much in trouble if I use that.
Alexander Sannikov: Tell forward purpose you modeling as cap rate?
Tal Woolley: Sorry for the portfolio disposition. For the $805 million.
Alexander Sannikov: We would suggest you refer to the announcement press release where we quantified the in-place rents. And the disclosure we provided in the announcement press release will also allow you to calculate roughly the market rents the portfolio and then that would be a more accurate way of modeling the NOI impact.
Tal Woolley: Okay. And then I just -- I apologize if I missed this earlier, but just with respect to the potential defense opportunity there is in the industrial space here in Canada, is this something like you're not especially interested in, just given that you guys are -- tend to focus more here in the country on small and mid-bay product versus larger stuff. What sort of strategy are you trying to develop to address the potential demand there? .
Alexander Sannikov: Thanks, Tal. We are very interested in it. And we actually think that our product is going to be a beneficiary of the additional defense requirements and activity relating to defense industries because of the flexible nature of our real estate. So occupiers for this kind of product tend to look for closer infill assets with strong power connectivity to public transit, and that's exactly the type of assets that we are targeting to own and own already. And so we are very much focusing on the defense opportunity. and how it can affect our portfolio.
Tal Woolley: Do you have an estimate of how much square foot do you have occupied by defense-related tenants right now, whether it's contractors, the government itself? .
Alexander Sannikov: We are -- we do -- we haven't disclosed that yet, but we'll probably provide more color over time. It is meaningful across our managed portfolio. We have a number of that are already in defense sector. And we have some light industrial and manufacturing. We have buildings with strong power connections, connectivity and that drives, again, demand from light industrial-type occupiers. So this is something that we are going to quantify more as we observe kind of how the defense requirements develop.
Tal Woolley: Okay. And then I think in mid-December, you were sort of talking about how you were in due diligence and late-stage negotiations on roughly $600 million of product. I'm just wondering if you can talk about the progress made there and where and what type of -- where are you finding these assets right now? And so any quantification of like what the sellers -- like who's selling this stuff right now? .
Alexander Sannikov: Yes. So we commented in our prepared remarks that we have over $350 million of assets in exclusive negotiations. Going in cap rate, we are currently underwriting these assets too, it is just under 6% with mark-to-market cap rate in the mid-7% range. And these are mid-day assets in our target markets. So this is the type of product that you will be very familiar with as you look at what we've been acquiring over the last few years.
Tal Woolley: And no large portfolios out there at all?
Alexander Sannikov: We are monitoring a number of portfolio situations across our footprint.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Sannikov for any closing remarks. .
Alexander Sannikov: Thank you for your support and interest in Dream Industrial REIT. We look forward to reporting on our progress next quarter. Goodbye. .
Operator: This brings to close today's conference call. You may now disconnect. Thank you for participating, and have a pleasant day.