Dream Industrial Real Estate Investment Trust

Welcome to the Dream Industrial REIT second quarter conference call for Wednesday, August 5th, 2026. Please be advised that all participants are currently in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. During this call, management of Dream Industrial Weed 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 a Dream Industrial REITs 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 REITs filing 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.

Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's second quarter 2026 conference call. Here with me today is Gordon Wadley, our Chief Operating Officer and Lenis Quan, our Chief Financial Officer. We delivered another quarter of strong operating and financial results and achieved some significant milestones during the quarter. For the quarter, we delivered 10.3% year-over-year comparative properties NOI growth, driven by healthy leasing activity, leasing spreads and strong occupancy. The strong pace of organic growth drove FFO per unit growth nearly 8% over last year. We also announced a 2.5% increase in our distribution, first since 2013. This increase is supported by our robust operating and financial performance to date, the progress we have made in establishing various growth drivers for our business, our sort of balance sheet, and most importantly, the confidence we have in the outlook for the business. It is also consistent with our objective of increasing the distribution over time at a pace that represents a portion of our free cash flow growth so that the amount of retained cash flow available to be reinvested in our business continues to compound. We are executing on our strategic priorities and a key focus this year is redeploying the proceeds from the initial portfolio sale to the DCI venture with CPP Investments, which was completed in two tranches earlier this year. We have made good progress on the redeployment front. In addition to our NCIB activity, Since the beginning of the year, we have completed or placed under contract over $515 million of acquisitions across our wholly owned portfolio at accretive returns. Within our wholly owned portfolio, we have completed $332 million of acquisitions so far this year, adding over 2 million square feet of urban, infill, small bay and mid-bay assets across Canada and Europe. These assets were acquired at a going-in yield of approximately 6.3%, with strong embedded rental growth through translating into mark-to-market yield of approximately 7.4%. More recently, we completed the acquisition of an 11 asset portfolio located across major German urban areas and placed rents approximately 20% below market. We have further $140 million of acquisitions under contract or in exclusive negotiations across Canada and Europe that are expected to close in the third quarter at similar going-in yields and mark-to-market potential. In addition, we announced the Chancellor Gate transaction last week. This transaction helps us achieve multiple strategic objectives for our European business. We are entering the UK multi-led industrial sector, which is underpinned by strong structural demand tailwinds and constrained urban land supply. It is a natural extension of the small and mid-based strategy we have been executing across our markets. We're entering the market with a high-quality wholly owned portfolio of recently completed development assets in addition to two projects currently underway. We expect to invest $150 million in these assets at an expected yield on cost of 8%. Lastly, we're adding immediate scale to our private venture segment in Europe through existing vehicles and the new programmatic JV. For the existing vehicles, we are acquiring just over $40 million of co-investment interest alongside institutional partners and several JVs with a gross asset value of over $2 billion. These assets are expected to generate stabilized unlevered yield on cost of 7.5%. Given the scale of these JVs in the UK, we will explore opportunities to establish a property management platform in this market to grow our recurring revenue further. In addition, we're in advanced negotiations to set up a new partnership with a target gross asset value of $800 million, also focusing on multi-led industrial assets primarily in continental Europe. DIR is expected to have a 5% stake in this new JV and provide property management and leasing services in Germany and Netherlands where we have an in-house platform. Our existing private venture segment is performing well and continues to scale and contribute to our overall earnings. Operationally, the performance is in line with our business plan as we see improving fundamentals across our markets. Since the beginning of 2025, these JVs have completed over $660 million of acquisitions in addition to the recapitalization of the seed portfolio by the DCI JV. and our net property management income grew nearly 28% year-over-year this quarter. The acquisition pipeline remains robust for our JVs through marketed and off-market opportunities and in addition we continue to recycle capital out of non-strategic assets at accreted returns. Lastly, we're making progress on our power procurement program for select assets that we have identified as candidates for data center development. We are responding to various RFPs from occupiers and have seen the level of engagement generally increasing over the past quarter. In parallel, we are working with various utilities to put in place formal agreements for power delivery timelines. We will report back with more details as we make progress. Overall, we are encouraged by our financial results, operational progress and advancement of our strategic initiatives. I will now turn it over to Gord to discuss our operational highlights.

Thank you, Alex. The industrial sector is demonstrating resilience despite ongoing volatility from macro events. The Canadian industrial market strengthened over the prior quarter. National availability declined quarter over quarter, with most major markets posting flat or reduced availability. Moreover, the new supply pipeline continues to moderate, supporting leasing fundamentals in major markets nationally. We expect these trends to support continued absorption and rent growth expectations across most of our operating markets. These trends in improving market dynamics are reflected in our operating results. Committed occupancy in Canada was 96.8% at quarter end, up 150 basis points from a year ago, while our in-place occupancy of 96% is 200 basis points higher year over year. This absorption is driven by the lease-up of several vacancies in Quebec and our recently completed development in Alberta, which is now 100% leased. We are seeing more deal velocity, including development leasing. We have completed 247 deals for over 6.1 million square feet across the whole platform, inclusive of private ventures since January of 2026. Of this, 173 deals for 3.3 million square feet were leased across our wholly owned DIR portfolio at a weighted average rental spread of 21.1% over prior or expiring rents, including 1.1 million square feet of new leasing. Leasing economics remain disciplined. Walls continue to be stable with average lease terms of 4.1 years. Compared to 2025, we are seeing a reduction in lease incentives across major markets, resulting in continued growth in net effective rents portfolio-wide. This trend is strongest in Calgary, where we are starting to see a healthy pace of rental growth and upward pressure on rental escalators. We are also seeing it impact the GTA, as surplus availability in that market gets absorbed. We expect incentives to normalize further, in turn putting upward pressure on net effective rents and ultimately translating to higher face rents. Our development leasing momentum has also accelerated. During the quarter, we signed over 370,000 square feet of leases at projects across our broader industrial platform, including the Greater Toronto Area and the Kitchener-Waterloo Corridor. Notably, we signed a 265,000 square foot 10-year lease with a global automotive manufacturer at our project in Cambridge, Ontario, bringing the property to 100% occupancy starting in the third quarter. This project has now generated an unlevered yield on cost of 6.7%. Subsequent to the quarter, we entered into a binding lease for 127,000 square feet at our recently completed redevelopment project in Whitby and our advanced negotiations for another 110,000 square feet, which would lift occupancy at the property to over 60%. Over in Europe, leasing velocity for urban mid-bay assets has remained resilient, and we continue to see positive absorption in that segment, while absorption timelines for larger bay products have been somewhat slower. In-place occupancy in Europe was 92.5% at quarter end, primarily reflecting an anticipated transitory vacancy in Spain, as well as the vacant value-add asset in the Netherlands that we acquired last quarter. We are in advanced negotiations to lease up both vacancies. The leasing pipeline remains strong, with multiple ongoing negotiations. Despite the temporary occupancy pressure, our European portfolio delivered solid comparative properties NOI growth of 5.6% year over year in the quarter. This growth was supported by CPI-linked rent increases, higher rents on new and renewed leases, and contributions from completed intensification projects. Importantly, our European leases are indexed to local CPI or include contractual rent steps. providing embedded annual growth across the portfolio. As those indexation provisions reset, they provide potential upside to NOI in 2027. In addition, our transitory vacancies are attracting good lease discussions and tours, which when leased would set us up well for the strong operating performance in our European portfolio to continue into next year in terms of occupancy and CP NOI growth. Overall, our leasing pipeline remains healthy with over 35 deals and 2.5 million square feet in various stages of negotiations, coupled with continued tour velocity and deal economics. We are encouraged by the trajectory of our occupancy across the portfolio for the balance of 2026. I will now turn it over to Lenis to discuss our financial highlights.

Thank you, Gord. Our portfolio delivered comparative properties NOI growth of 10.3% for the quarter, led by 14.6% growth in the Canadian portfolio and 5.6% growth in Europe. This strong pace of organic growth, along with higher property management income, contributions from acquisitions and development lease-up, and the benefit of our NCIB activity drove diluted FFO per unit to 28 cents for the second quarter, 7.8% higher than the prior year quarter. These factors more than offset the impact of refinancing at higher interest rates and operating at lower leverage following the asset sales to the DCI JV. Our net asset value at quarter end was $16.76 per unit in line with the prior quarter, reflecting stable investment property values. At the end of June, we closed the second tranche sale of assets to the DCI Venture for net proceeds of $353 million. The proceeds were used to partially repay our revolving credit facility and to fund acquisitions completed subsequent to the quarter. We ended the quarter with approximately $750 million in available liquidity, leverage of 35.8%, and a net debt to EBITDA ratio of 6.6 times. As we deploy our available balance sheet capacity over the remainder of the year, we expect leverage to trend back towards our targeted high 30% range and our run rate net debt to EBITDA to trend towards the mid seven times range. The 2.5% distribution increase will take effect with our September 15th distribution, bringing the annualized rate to 71.75 cents per unit. With an FFO payout ratio of 63% this quarter, the increase is well covered. We intend for future distribution increases to be sized at a level below the pace of FFO per unit growth, ensuring the business continues to grow its retained cash flow. Our first half performance demonstrates the strength of our business, and we remain confident in our growth trajectory for the balance of the year. For the full year 2026, we continue to expect average in place occupancy in the high 94 to low 96% range. With our strong results for the first half of the year and the healthy leasing momentum across the portfolio, we are raising our full year expectations for comparative properties NOI growth to be 7-8%, well above the 5.7% growth we delivered in 2025. Based on the pace of our capital deployment, we expect full year FFO per unit to come slightly ahead of our previous outlook. Overall, the previously communicated range of $1.08 to $1.10 is intact and we are now expecting the results to be slightly above the midpoint. The Chancery Gate assets are not expected to have a significant impact on 2026 FFO. We expect them to start contributing to FFO as they are stabilized and become income producing over the next 6 to 18 months depending on their stage of development completion. As always, 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.

Thank you, Lenis. Jim Industrial's business is anchored by a functional, high-quality portfolio supported by a diverse occupier base and meaningful new revenue streams. Our results this quarter highlight the evolution of the total return model for DIR The IR offers to its unit holders. We remain focused on delivering sustainable and growing free cash flow that will look to reinvest back into the business as our opportunity set continues to expand. We will now open it up for questions.

Hello. Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star one. Again, there is no limit to who can ask a question and how many questions you may ask. We will pause for a moment as callers join the queue. The first question comes from Brad Sturges with Raymond James. Please go ahead.

Hey, good morning. On the new pan-European GV that you're in advance discussion on, I'm just curious if you could give a little bit of color in terms of if it gets consummated, what the investment strategy and return profile could look like for that new fund.

Thank you, Brad. Well, the investment strategy will be focused on multi-let industrial assets, so similar profile to what Chancery Gate already owns and manages. It will be a mix of standing assets and development with an overall value-add return levels and geographically geared towards continental Europe.

Would there be potential to be seeding some of that portfolio from the wholly-owned assets you own today, or would it be strictly more of a third-party acquisition vehicle?

It's generally focused on new acquisitions. We're not contemplating seeding this JV with any of the assets right now, but there's always a possibility to have a conversation. Nothing is ongoing at the moment.

Okay. And just from my understanding on Chancery Gate, what's the pre-leasing rate of the assets, either substantially completed or under construction, just to get a sense of what leasing is left to do, if any?

Yeah, so these are multi-led assets. As such, they don't get pre-led during construction. The leasing starts generally when the assets are built. So just under 300,000 square feet of assets that are the most advanced vis-a-vis construction, just over 100,000 has been built and delivered in Q1. So that asset has been in lease up. And there we are just about to finalize a lease for about 30% of the space. and in advanced negotiations for another 15%. So it's going quite well and the asset was just delivered in the first quarter. Just highlighting the leasing velocity for this kind of product. And then the other two assets are going to be delivered in September. So leasing marketing is starting but lease up will likely start ramping up then.

What would be generally your expectations for the timeline for a full lease-up process to reach stabilization once the construction is completed for these type of assets?

It would be gradual over the next 12 months, maybe shorter. It would be gradually ramping up for these assets.

Okay. Thanks. I'll turn it back.

Hello, do you have a next question?

Your next question comes from Sam Demiani with TD Cowen. Your line is open.

Thank you. Congrats on the good results in the quarter and securing the opportunities to deploy the capital from the DCI JV. With the sort of slightly raised guidance for this year, Just wondering how that makes you think about the trends going into 2027, both on same property and FFO growth.

Thank you, Sam. I think the trajectory is intact. We haven't provided a formal outlook for 2027 yet, but the overall trajectory is consistent and the drivers are all intact and are compounding, as hopefully you can see from our results and the progress we're making. Whether it's the same property NOI pays, whether it's additional revenue sources are contributing and are in place. Cost of debt is getting closer and closer to our marginal cost of debt. Therefore, the refinancing headwinds are going to be less pronounced into 27 and into 28. And so we are encouraged by that and encouraged by the overall trajectory of the earnings growth.

Thanks. And just, I guess, more specifically, would the slightly higher growth this year in any way sort of take away from the potential Next year. Like are you capturing growth earlier than expected or is the absolute growth?

No, we're not capturing growth earlier than expected on the same property side. If anything, we're capturing the growth that we are delivering with kind of occupancy levels that are generally below the run rate. So there's more potential from occupancy going up. And as Gord suggested in his remarks, we're starting to see more evidence of rental growth, especially in Alberta, starting to see net effective rents moving positively in markets like GTA. We continue to see rental growth in certain pockets in Europe, so rental growth should be an added driver as that trend continues.

Great. And maybe on the intention to establish a property management platform in the UK, do you have a timeline on that as to when, I guess, the expenses might ramp up and revenues start to be recognized?

Sam, I won't say that's the intention, it's an opportunity. So we underwrote the chance to get transactions primarily on the basis of the assets that we're buying and the returns that we're buying and then obviously that opens up the opportunity set for us to continue deploying in the UK through an established operation, both in development and standing assets. When we looked at the existing ventures, the returns that we're getting there is compelling and attractive, and so that's how we underwrote it. The opportunity to establish a property management platform is going to be additive to that, and then we're putting emphasis on this new JV that is going to be ramping up in the markets where we're already present from a property management capability standpoint.

And last question for me is on the property management margin. I think previously you communicated some sort of five-year guidance on how that margin could grow. And now with the Chancery Gate announcement made and the new JV being created, do you have a new kind of growth target for the property management fee margin?

We'll provide that when we communicate the guidance for 27, but generally it's intact, perhaps slightly better as we're seeing more scale to that business.

Okay, great. Thank you. I'll turn it back.

Thank you, Sam.

Your next question comes from Himanshu Gupta with Scotiabank. Your line is open.

Thank you and good morning. So guidance was increased on same property NOI growth for this year. Which region is driving that increase in expectations? And then on this Spain vacancy, do you see that being backfilled in your guidance?

Thank you, Himanchu. On the Spain vacancy, it's not materially impacting our NOI outlook. Rents in Spain are growing, but they're still relatively low. So while this is impacting the occupancy numbers, especially occupancy numbers for Europe, optically, it doesn't really change the NOI all that much, given the rents are still relatively low. We are in advanced negotiations there, as Gordon suggested, to potentially commence for the occupancy to commence this year, but it doesn't change our outlook dramatically. And regionally, as we communicated when we issued the same property NOI outlook earlier in the year, when we said that it would be stronger than 25, despite relatively strong first half of 26 being expected. We kind of baked in some reserves for timing of lease up, and now we're seeing the leases, contracted leasing coming through, strong retention, so we're confident to increase that outlook, and that's across the board, really. It's not driven by any particular region.

Okay, fair enough. Thank you. and then on the lease incentives, how do you see that evolving? I know you made a comment in your prepared remarks on incentives. Just wondering what was the peak and where are we now, you know, specifically in the GTA?

Good question, Himanshu. It's Gord. We're seeing some NER compression right across the portfolio. It's most pronounced in Western Canada. but as the new supply starts to dry up which it has been and get absorbed in Toronto we're starting to see reductions as well too in the GTA. Where we're noticing the most of the reductions in Western Canada has predominantly been driven by direct deals of our leasing teams so we're mitigating commission costs and then also too we've been mitigating some deal and allowance costs. in the GTA we're predominantly seeing less free rent in deals and the other spot where we've been doing quite well as an operating team is on renewals we're having a number of tenants exercise our option to renew given the low supply and in many of those cases cost associated are being reduced so we're seeing that predominantly in Western Canada the GTA and some marginal tightening as well too as the supply gets absorbed in the greater Montreal area.

Sorry. And sorry, in Montreal also you're seeing that trend coming through, these incentives reductions?

No, not necessarily these incentive reductions, but we are starting to see more absorption. This was one quarter. If you look at some of the national stats where Montreal has had some positive absorption, so we're starting to see more good deal flow. the small and mid-bay sector in the GMA has been quite good and quite resilient. So we're seeing more competitive deals there. But traditionally, as we have advised over the last few quarters to Manchu, the larger bay is still quite competitive and soft in the region.

Correct. Thank you. Thank you, Gordon. And then just moving to capital deployment, a bunch of these acquisitions announced. So are the proceeds from CBP disposition, is that fully deployed now? Like once we include the post-quarter acquisition, chance regate, and the under due diligence acquisitions.

Thanks for that, Paul. We still have, we're largely through the redeployment. There's still some acquisition capacity to get to our target leverage on the debt to EBITDA basis. and, well, to get back to the leverage that we were at prior to the transaction. So we have a little bit more capacity to go.

Okay, okay, fair enough. And then just looking at the acquisitions, I mean, almost $200 million in Germany, I think, post-quarter. You mentioned 20% below market, I mean, in place trends. What is the lease term for that particular acquisition you're doing in Germany?

It's relatively short lease term, three to five years, depending on the assets, but on average I think in the three and change range. Good assets, urban mid-box product in major markets, strong diverse occupier base. There's some single assets there. but also some are portfolio, which is one portfolio deal that we just completed. We very much are enthusiastic about the profile of this acquisition given the strong going in yield and the market to market potential. So we're looking at kind of on the German assets overall, we're looking at about 6.3 going in cap rate with mark-to-market cap rate taking us to kind of mid-seven range, which we think is a compelling profile.

Got it. Thank you. And maybe just the last one. I mean, how does Germany compare to the UK, like in terms of market and growth expectations? And I know you just entered the UK with the Chancellor's Gate. So just wondering, do you rank one over the other in your outlook?

We will look at every opportunity and we will compare the total return underwriting amongst all acquisitions that we pursue and we also try to look at the risk adjusted returns vis-a-vis the assumptions that we need to put into our model to get to that level of total return. And so the more assumptions that we need to put in, the higher the risk of that underwriting. So what we like about Germany is that we can get to attractive total returns without necessarily putting a lot of stress into the underwriting model. and from our existing portfolio we've seen strong evidence of rental growth in urban nodes especially for these mid-sized footprints and so we expect that that will continue because we're not seeing a lot of supply of this kind of product and so we're not really seeing how that pressure on the occupier markets is going to be changed. When we look at the UK, well, part of the reasons why it took us a while to enter the UK market is we were looking at opportunities that would provide a return premium relative to deploying in our existing markets that we know well already. And so with Chancery Gate, the opportunity we found that, where we're acquiring their high-quality assets at a target 8% yield on cost, and that's untrended yield on cost. So we think that's attractive. we also think that the UK opportunity offers differentiated growth profile through the rent review mechanism that doesn't exist on the continent doesn't exist in Canada so we expect that that is going to be additive to our contractual rental growth opportunities and rental growth wise again is as it is everywhere in our markets at least. There's no widespread rental growth, there are pockets of rental growth. In Canada we're seeing Calgary emerging as a market that is seeing the strongest rental growth, for example. The court suggests we're seeing pockets of that in GTA and similar in Europe. We're seeing pockets of that in our current portfolio and in the UK. Some markets are doing better than others and we think that the markets that we're getting exposed to are going to outperform just given the lower starting point.

Great, Kalar. Thank you so much, and I'll turn it back.

Thank you.

Your next question comes from Kyle Stanley with Desjardins. Your line is open.

Thanks. Good morning, everyone. So it was interesting to see the REIT be much more active with on-balance sheet acquisitions versus growth within the various GVs. So I'm just curious, what's the driver of how that capital is being deployed? Just trying to understand, I guess, the strategic decision-making on how the capital is kind of invested across the various buckets at this point.

Well, we're trying to do both, Kyle, and timing-wise it just so happened that we've been able to redeploy more capital on balance sheet, but there is a long and pretty active pipeline for our private ventures. We're just not in a position right now to announce any deals, but there's a meaningful pipeline that we're pursuing in Canada across our private ventures. So we expect to do well for for our own balance sheet program vis-a-vis hitting our deployment targets and we expect to do well for our partners as well.

Okay, that makes sense. It was small, but within the DSI JV, there was the GTA West disposition and the pricing at roughly just over 500 bucks a square foot. I was just curious, you know, What does the type of asset, type of buyer, just thoughts on the value achieved? Just wondering, is that reflective of a shift in kind of the private market value of assets in the GTA West? Just love your thoughts there.

Strong pricing. Thank you for picking that up. We like that price. It's a good asset. It has a fair bit of land. So older asset that sits on a larger plot. and the value there is reflective of that. But also it's reflective of just strength of the private market overall for these kinds of assets or assets that we own, strength of the user market. It's very consistent with the theme that we've been communicating over the past few quarters now.

Okay, fair enough. And then just the last one for me, you've given a lot of good colour on the call so far, but how would you classify the kind of occupier or leasing environment today? Are you seeing elevated RFP activity? How has that maybe changed or not changed year to date?

It's regionally specific, Kyle, it's Gordon. but still Western Canada is strong. Tour activity has been strong. ETA, we're seeing increased activity. Where we take Solace in and we've been quite optimistic on is our development opportunities. We've been seeing really good activity, RFP activity. We did a couple of big deals in Q2. So there's tours. The type of users that we're seeing are more touring around big box in the GTA but we're seeing a lot of 3PLs out in the market. We're seeing some people in the trucking industry. Government is still quite active and then subsidiaries of government use. You're seeing contracts being announced regularly. We're seeing a lot of those subsidiary users out in the market as well too in the GTA. So it's been quite good activity. We've got a pretty robust pipeline as I mentioned as well. About 35 active deals for about 2.5 million square feet to close out the year.

Great. And just following up on that, that was the 35 active deals. That's on the wholly owned portfolio or is that everything in Canada?

That's on everything in Canada right now. The wholly owned portfolio makes up about 65% of that. 65%.

Okay. Great. Thank you very much. I'll turn it back.

Your next question comes from Pammy Beer with RBC. Your line is open.

Thanks. Just hopefully a couple of quick ones for me, but it doesn't seem like it, but I'm just curious if you could share any commentary on what impact any of these new tariffs or the ongoing tariff discussion or uncertainty there is having on any of the leasing velocity or timelines in Canada. And then as well, if you're seeing any changes in the behavior in Europe as this ground conflict sort of continues to unfold.

Thanks, Pami. We are not really seeing change in behavior from occupiers over the last couple of months. Certainly have not seen any material change throughout the year. What we have seen, as Gord suggested, is a meaningful pickup in activity in 26 over 25 so far, and we see that in our portfolio, we see that in the market stats that various brokerage houses put out. So that is continuing. The industries that are most affected by existing tariffs, newly contemplated tariffs, are likely out of the market generally from a new leasing standpoint. We're seeing those kinds of industries tend to be renewing. As Gord said, we're seeing higher retentions, we're seeing options getting exercised. So staying put is, in many cases, the decision that these businesses take but they are already from a new leasing standpoint not in the market and so you know any resolution there any clarity will likely be positive to having these occupiers have been back in the growth mode but it's not affecting kind of the robust momentum that we're seeing already today. As far as Europe goes, we haven't seen impact on leasing activity so far. Where we're starting to see movements is construction costs. So construction costs could be under pressure upwards, and that likely means less supply, or you need to achieve higher rents to justify supply. So that's something that we're watching across our markets. And we talked about inflation. Again, we're not hoping for more inflation in Europe, but our portfolio has inflation protection built in, as you know.

Got it. Okay. And then just in terms of, as you look maybe through the balance of the year, or maybe even more so into 2027, are there any large known non-renewals that you're anticipating from an occupancy standpoint?

Nothing large. There are obviously going to be some non-renewals, but nothing that is going to be material.

Okay. And then just lastly, the leasing spreads, I think we're tracking lower than where we were through Q1. Was that just a function of the mix of what was rolling? And then, you know, how are you thinking about 2027 from a spread standpoint on the renewals?

It really is a function of what's rolling. We had relatively low rents rolling in the first quarter. That impacted the higher spread, especially in Ontario. We do provide an outlook of where our expiring rents are. by market in our MD&A, and we also disclose where we believe average rents are. So on average, the kind of you can model out kind of leasing spread. Again, it's primarily a function of expiring rents in any given quarter.

Thanks very much.

Thank you, Tommy.

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

With regards to retention, just looking at Europe versus the Canadian portfolio, obviously Spain had an impact, and to your point, the rents were low, so it didn't impact NOI as much, but it seems like you're just generally doing better on retention in the Canadian portfolio than Europe. Is there anything structural there, or... is it the type of tenant or asset? And should we expect those two to be kind of similar from a retention standpoint going forward?

The European portfolio just has a higher average tenant size than Canadian portfolio. So what that means is any given lease decision will be much more pronounced when you look at statistics such as occupancy or retention ratio. So we're not really drawing any conclusions there. Generally, we're seeing healthy retention ratios over time. Any given quarter, there will be swings. But when we look at that portfolio's performance over the last five years, retention ratio was pretty consistent in Europe to the Canadian portfolio. Any given quarter, you will just see more swings given the average unit size is larger.

also Europe and again this is kind of new news and the climate's changing quickly everywhere but there was an article today talking about the Rhine River being at all time lows and shipping is being impacted in Germany is that something that you're seeing in terms of tenants or tenants have talked about and I don't know if you can quantify your exposure or how you think about that but I'm just interested if anything's happened on the tenant front with regards to that avenue for transportation.

Haven't seen any impact so far. We're watching with no impact on our so far.

And then if we look at your market rent disclosure, you're at kind of around $10 Western Canada, 16, and Ontario, Quebec mid-13s. Can you give a sense if today you were to build in those markets, what kind of rents you would need to make construction work? Just trying to get a sense once kind of existing supply has been soaked up where the natural gravitation would be in terms of where you can deliver rent into the markets.

Well, it really is a function of product as well as it is a function of rent. So for larger bay product or kind of whether it's larger bay or the upper end of mid-box, what we see is we need to kind of see high teens in the market like Toronto to justify call it 18 plus, depending obviously on your land basis, whether you're buying land. Today, whether you bought land a long time ago, you bought land kind of maybe in 20, 22, 20, 21, 22 kind of timeframe. But generally speaking, it's in that high teens range. In Western Canada, you know, at the current rent levels, you can be solving to kind of low sixes in terms of development yield, which, you know, we think is on the lower end of what we would want to pursue. We would want to push for as close to 7% as possible in Canadian context. So we think that there needs to be some rental growth to get there. But we are seeing that rental growth coming through. We're sort of seeing early signs of it. The Calgary market is pretty diverse from a product standpoint and you see pretty significant variability in rents from one asset to another. And so when you're looking at headlines, the picture might be kind of misleading a little bit. You really need to look at every asset and look at what is available and what the asking rents are for each asset to then draw conclusions about rental growth.

Okay, makes sense. Maybe last one for me. There's been some splashy announcements in Western Canada around the data center front, but can you give us a sense as to where you guys stand on that initiative? I know it's a bit of a chicken and the egg scenario, but any chickens or eggs up there?

Targeting both. As you know, our data center, our powered land portfolio is focused on the GTA at the moment. We have opportunities in other markets, including Calgary or Alberta broadly, including Quebec, but for now we're focusing on a relatively small but meaningful, relatively small number of assets with meaningful power in the GTA. in the 250 megawatt range across three sites. As we commented in our remarks, we're seeing more engagement from occupiers. We've responded to more RFPs in Q2 than we have throughout the entire 2025. So we're seeing more engagement and we're advancing the work with various utilities to make that powered opportunity contractual. and we'll keep the market updated as we make progress.

Okay, thanks guys.

Your next question comes from Tal Woolley with CIBC. Your line is open.

Hey, good morning. You know, it's been a minute, obviously, since you raised the distribution last. I'm just wondering if you can talk a little bit about the deliberations on that front and what prompted the change. And, Lenis, based on your sort of commentary, it sounds like investors might be able to expect a more frequent cadence of increase going forward.

Sure. Thanks, Tal. I mean certainly the you know we've been building out all the various growth drivers in the business our FSO and comparative properties and our growth has been very consistent and payout ratio has been reduced as well accordingly so we're now in the low sixties sort of trending in that low sixties to mid sixty percent FFO payout ratio so we've made a lot of progress in terms of the business itself and you know just sort of given the confidence that we have in the outlook and the progress on the growth drivers we just felt it was it had been several years since the last increase so we felt the business was at a point in time where it was it was we were ready to do that and I think we also communicated in terms of how we think about you know going forward is that we want to continue you know growing the cash flow that's retained in the business and that way for reinvesting in the business and and so we would look to you know any future increases to be at a rate that is you know inside of where we think that our FSO and free cash flow is growing okay but that's I would just say like just to be clear like you're not you're not committing to an annual cadence at this point but it sounds like it's certainly possible exactly we're not we're not saying it's going to be annual I think we've got we've laid the groundwork and the outlook that you know it is certainly in the realm of consideration but we're not committing to that we want to you know again execute on the growth drivers and see that that progress on the FFO and free cash flow growth and and you know it's always under consideration as well but we'll continue on executing and and we'll see in 12 months from now.

Okay. And then this bigger picture, it's not really signaling any kind of change in investment strategy. Like investors should not be reading any sort of change to investment strategy as a result of this. This should be sort of more viewed as like a catch-up after several years of not or sort of reorienting the business to its new model.

I wouldn't call it a catch-up, Tal. I think it's an evolution of the total return model. We think that growing dividend that is sustainable and that allows us to increase our retained cash flow is an important element of our total return model. While we're not committing to it to be annual, we've been laying the groundwork to be able to contemplate that as suggested and that's very much is being contemplated. This increases kind of a start of a new total return model that DIR is going to look to deliver to unit holders.

Got it. And then I can't remember if it was you, Gord, that made reference earlier to just some of the demand in Canada coming from the governments. Do you know like the exact use there? I mean I think the presumption is that you know with all the take up in defense spending that that would be the prominent driver or the predominant driver but maybe you can just offer a little bit more color on what they're looking for and why.

Yeah, hey Tal, it's Gord. There's kind of three buckets with the government on activity that we're seeing so defense is definitely one of them. they're looking for secure warehousing and storage and some light manufacturing along major corridors across the TransCanada. The other group that we're seeing is we're seeing requests for some climate controlled space with Health Canada I think is out looking on different requirements and then we get some inquiries from groups that work with the tech service from Research Services Canada. There's some requests and groups that are doing contracts with them. More around power procurement requests, getting a pulse on what buildings have what output for power, and just a lot of inbound calls, not necessarily translating to RFPs or anything, but we are getting calls and inquiries on a variety of different uses. So we are seeing some activity from the government, and it's not just the federal government. The provincial government has also been relatively active in the GTA.

Got it. That's very helpful. And just lastly, Lenis, yields have been bouncing around all over the place, but can you just talk a little bit about estimated borrowing costs right now in Canadian dollars and in the Euro?

Sure. I think if we're looking at the five-year part of the curve, we're seeing Euro equivalent debt in and around 4% right now, and Canadian equivalent is probably in and around 4.15-ish, 4.20-ish range. And yes, they have been bouncing around, so we always try to be opportunistic when we can as well.

And at the margin, you're still preferring to swap to Euros at this point in time?

Yeah, we do. I think our Euro debt ratio is sort of in that low to mid-80% range, so we definitely have Euro debt capacity, and all in rates are still lower than Canadian, and allows us, as you know, to hedge some of the currency exposure.

Got it. Okay, that's great. Thanks, everybody.

Once again, if you have a question, it is star 1. Your next question comes from Sam Damiani with TD Cowen. Your line is open. Sam, perhaps your line is on mute.

Indeed it is. Apologies. So thank you for taking this last question. I just wanted to clarify from, I guess, the question from five minutes ago or so, talk about The distribution, this is the first one in 13 years, but it almost sounded like it wasn't necessarily going to be a recurring one. I know you can't commit, but if the actual growth is mid to upper single digits, is there anything preventing the REIT from raising the distribution by some portion of that growth?

Yeah, thank you for the follow-up, Sam. I just want to be clear. The short answer is no, nothing prevents us, and we've We've been building out the balance sheet of DIR over the last five years to have low leverage, have low payout ratio, growing FFO so that we could then get to a total return model that includes recurring distribution growth. It's very much what we are looking to do. it's not something that we're committing to do annually but this is very much what we're looking to do and the governor for that will be growth in our free cash flow so that there is the growth that we're passing on to our unit holders is sustainable but the business continues to retain cash that we can reinvest and compound so I just want to be very clear on that so thank you for the follow up

I appreciate that, Claire. Yes, it does. Thank you very much for the clarification. I'll turn back. Thank you. Thank you.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Sannikov for any closing remarks.

Thank you. Thank you, everyone, for your interest and support of Dream Industrial REIT. We'll look forward to reporting on our progress next quarter. Goodbye.

This brings to close today's conference call. You may now disconnect. Thank you for participating and have a pleasant day.