Dream Industrial REIT Reports Strong Q1 2024 Financial Results

Dream Industrial REIT Reports Strong Q1 2024 Financial Results

This press release contains forward-looking information that is based upon assumptions and is subject to risks and uncertainties as indicated in the cautionary note contained within this press release. All dollar amounts are in Canadian dollars unless otherwise indicated.

Dream Industrial Real Estate Investment Trust (DIR.UN-TSX) or (the “Trust” or “Dream Industrial REIT” or “Dream Industrial” or “we” or “us”) today announced its financial results for the three months ended March 31, 2024. Management will host a conference call to discuss the financial results on May 8, 2024 at 11:00 a.m. (ET).

HIGHLIGHTS

• Diluted funds from operations (“FFO”) per Unit(1) was $0.24 in Q1 2024. Excluding $1.1 million of lease termination income received in the prior year comparative quarter, FFO per unit in Q1 2024 was relatively unchanged year-over-year.

• Comparative properties net operating income (“CP NOI”) (constant currency basis)(2) was $87.8 million in Q1 2024, a 7.1% increase when compared to $82.0 million in Q1 2023, driven by 9.7% CP NOI (constant currency basis) growth in Canada and 3.5% CP NOI (constant currency basis) growth in Europe.

• Net rental income was $85.9 million in Q1 2024, a 5.4% increase when compared to $81.5 million in Q1 2023, primarily driven by 10.2% in Ontario, 4.9% in Québec and 6.1% in Western Canada.

• Net income was $74.6 million in Q1 2024, compared to net loss of $17.7 million in Q1 2023, mainly driven by fair value adjustments to financial instruments and share of net income from equity accounted investments. The net income in Q1 2024 was comprised of net rental income of $85.9 million, fair value gain in investment properties of $1.5 million, fair value increase in financial instruments of $10.6 million and other net expenses of $23.4 million.

• Total assets were $8.0 billion as at March 31, 2024, a 1.7% increase when compared to $7.9 billion as at December 31, 2023, driven by investments in the Dream Summit JV(3) and development projects and increase in cash and cash equivalents.

• Total equity (per condensed consolidated financial statements) was $4.6 billion as at March 31, 2024, a 1.3% increase when compared to December 31, 2023. Total equity (including LP B Units)(2) was $4.8 billion as at March 31, 2024, an increase of $50 million when compared to December 31, 2023.

• Net asset value (“NAV”) per Unit(1) was $16.72 as at March 31, 2024, a 0.7% increase when compared to the NAV per Unit of $16.61 as at December 31, 2023.

• Occupancy rate – in place and committed (period end)(4) was 96.4% as at March 31, 2024, a 0.2% increase when compared to 96.2% as at December 31, 2023.

FINANCIAL HIGHLIGHTS

“Dream Industrial had a successful start to 2024, delivering over 7% of CP NOI growth driven by continued healthy leasing momentum.” said Alexander Sannikov, President & Chief Executive Officer of Dream Industrial REIT. “The pace of organic NOI growth in our portfolio continues to exceed any pressure from higher interest rates, translating into improving FFO per Unit. The organic growth outlook embedded within our portfolio remains intact, and we expect our development program to continue contributing to our NOI and FFO as we complete and stabilize these projects.”

ORGANIC GROWTH

• Continued strong leasing momentum at attractive rental spreads – From the beginning of the year until April 30, 2024, the Trust has transacted approximately 2.1 million square feet of leases across its portfolio at an average rental rate spread of 42.7% over prior or expiring rents.
  • In Canada, the Trust signed 1.6 million square feet of leases, achieving an average rental rate spread to expiry of 52.4% and an average annual contractual rent growth of approximately 3%.
  • In Europe, the Trust signed 0.5 million square feet of leases at an average rental rate spread of 10.7%. All of the leases are fully indexed to local consumer price indices (“CPI”) or have contractual rent steps.

As at March 31, 2024, estimated market rents exceeded the average in-place rent by 32% across the Trust’s wholly owned portfolio.

Since the closing of the Dream Summit JV transaction in February 2023, the Trust has successfully integrated the Dream Summit JV’s operations with the Trust’s operating platform and completed or finalized terms on approximately 3.3 million square feet of new leases and renewals at an average spread of over 80% over prior and expiring rents.

• Solid pace of CP NOI (constant currency basis)(1) growth – CP NOI (constant currency basis) for the three months ended March 31, 2024 was $87.8 million, compared to $82.0 million for the three months ended March 31, 2023, representing an increase of 7.1% compared to the prior year comparative quarter.
  
  The Canadian portfolio posted a year-over-year CP NOI (constant currency basis) growth of 9.7% for the three months ended March 31, 2024, driven by 9.7%, 16.4% and 3.1% CP NOI growth in Ontario, Québec and Western Canada, respectively.
  
  In Europe, year-over-year CP NOI (constant currency basis) growth was 3.5% for the three months ended March 31, 2024. The increase was driven by higher rental rates on new and renewed leases, in addition to CPI indexation, resulting in a 7.4% increase in in-place base rent for the three months ended March 31, 2024.

• Strong occupancy levels – The Trust’s in-place and committed occupancy remained strong at 96.4% as at March 31, 2024, compared to 96.2% as at December 31, 2023. The increase quarter-over-quarter was driven primarily by a new lease totalling 138,000 square feet at its previously vacant property in France that took occupancy during the quarter. The Trust continues to be in active discussions with prospective tenants and it expects significant opportunities to capture strong income growth as spaces are leased.
  
  For the remainder of 2024 and 2025, the Trust has nearly 7.1 million square feet of GLA maturing. Approximately 5 million square feet of the lease maturities is located in Canada, of which approximately 72% is located in Ontario and Québec, where the average market rent is approximately 99% and 73% higher than in-place rent, respectively.

• Continued growth in net rental income for the quarter – Net rental income for the three months ended March 31, 2024 was $85.9 million, representing an increase of $4.4 million, or 5.4%, relative to the prior year comparative period. Net rental income increased by 10.2% in Ontario, 4.9% in Québec and 6.1% in Western Canada, and decreased by 0.1% in Europe, excluding disposed investment properties. The increase was mainly driven by strong CP NOI (constant currency basis) growth in 2024, the impact of acquired investment properties in the past year and higher net property management fees.

INVESTMENT UPDATE

The Trust continues to evaluate investments that meet its objective of improving the cash flow growth profile and overall quality of the portfolio, while preserving balance sheet flexibility. The Dream Summit JV provides a new source of growth capital for the Trust to pursue strategic acquisitions and strengthen the Trust’s property management and leasing fee stream.

During the quarter, the Dream Summit JV acquired four income-producing assets located in the Greater Toronto Area totalling 0.3 million square feet. Furthermore, subsequent to the quarter, the Dream Summit JV acquired an additional four assets totalling 0.5 million square feet, bringing the total acquisitions to nearly $550 million in the Greater Toronto Area since the formation of the Dream Summit JV.

CAPITAL STRATEGY

The Trust continues to maintain significant financial flexibility as it executes on its strategy to grow and upgrade portfolio quality. The Trust’s proportion of secured debt(16) is 6.7% of total assets and represents 18.3% of total debt(17). The Trust’s unencumbered asset pool(11) totalled $5.6 billion as at March 31, 2024, representing 79.8% of the Trust’s investment properties value as at March 31, 2024.

The Trust closed on its additional issuance of $200 million of Series F unsecured debentures at an offering yield to maturity of 5.259%, utilizing the proceeds to repay existing mortgage maturities and reduce the outstanding balance on the Trust’s credit facility that bore an average interest rate of approximately 6.9%, as well as for general Trust purposes. The Trust ended Q1 2024 with available liquidity(12) of $609 million, including $116 million of cash and cash equivalents, and an additional $250 million that could be exercised through the accordion on its unsecured credit facility. The Trust’s net total debt-to-total assets (net of cash and cash equivalents) ratio was 36.1% as at March 31, 2024, compared to 36.0% as at December 31, 2023.

“We remain focused on optimizing our cost of debt” said Lenis Quan, Chief Financial Officer of Dream Industrial REIT. “We are advancing work on a new unsecured term loan to refinance our Series B debenture maturity at an all-in interest rate that we expect would be approximately 50 bps below the maturing rate, based on today's market environment. Our total available liquidity is over $600 million, positioning us well to navigate our near-term debt maturities while continuing to execute on our strategic initiatives to drive FFO per Unit growth and improve the overall quality of our portfolio and growth profile of our business. Looking further out, 93% of our 2025 debt maturities occur in November and December 2025 and we remain confident in the organic growth potential of our business and our balance sheet strength and capacity to refinance those upcoming maturities while continuing to deliver growth in FFO per Unit.”

CONFERENCE CALL

Senior management will host a conference call to discuss the financial results on Wednesday, May 8, 2024, at 11:00 a.m. (ET). To access the conference call, please dial 1-844-763-8274 in Canada or 647-484-8814 elsewhere. To access the conference call via webcast, please go to Dream Industrial REIT’s website at www.dreamindustrialreit.ca and click on the link for News, then click on Events. A taped replay of the conference call and the webcast will be available for ninety (90) days following the call.

ANNUAL MEETING OF UNITHOLDERS

The Trust’s 2024 Annual Meeting of Unitholders (“AGM”) will be held on Wednesday, June 12, 2024 at 10:00a.m. (ET), located at the TMX Market Centre, 120 Adelaide Street West, Toronto, Ontario, M5H 1S3. The audio webcast and digital replay can be accessed here.

Other information

Information appearing in this press release is a select summary of financial results. The condensed consolidated financial statements and management’s discussion and analysis for the Trust will be available at www.dreamindustrialreit.ca and on www.sedarplus.com.

Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at March 31, 2024, Dream Industrial REIT owns, manages and operates a portfolio of 330 industrial assets (550 buildings) comprising approximately 71.8 million square feet of gross leasable area in key markets across Canada, Europe, and the U.S. Dream Industrial REIT’s objective is to deliver strong total returns to its unitholders through secure distributions as well as growth in net asset value and cash flow per unit underpinned by its high-quality portfolio and an investment grade balance sheet. For more information, please visit www.dreamindustrialreit.ca.

FOOTNOTES

Non-GAAP financial measures and ratios and supplementary financial measures
The Trust’s condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non- GAAP financial measures and ratios, including FFO, diluted FFO per Unit, CP NOI (constant currency basis), total debt, net total debt-to-total assets (net of cash and cash equivalents) ratio, net total debt, total assets (net of cash and cash equivalents), net total debt-to-normalized adjusted EBITDAFV ratio, adjusted EBITDAFV, normalized adjusted EBITDAFV – annualized, interest coverage ratio, available liquidity, total equity (including LP B Units) and NAV per Unit as well as other measures discussed elsewhere in this press release. These non-GAAP financial measures and ratios are not defined by IFRS and do not have a standardized meaning under IFRS. The Trust’s method of calculating these non-GAAP financial measures and ratios may differ from other issuers and may not be comparable with similar measures presented by other issuers. The Trust has presented such non-GAAP financial measures and ratios as Management believes they are relevant measures of the Trust’s underlying operating and financial performance. Certain additional disclosures such as the composition, usefulness and changes, as applicable, of the non-GAAP financial measures and ratios included in this press release have been incorporated by reference from the management’s discussion and analysis of the financial condition and results from operations of the Trust for the three months ended March 31, 2024, dated May 7, 2024 (the “Q1 MD&A 2024”) and can be found under the sections “Non-GAAP Financial Measures" and "Non-GAAP Ratios” and respective sub-headings labelled “Funds from operations (“FFO”)”, "Diluted FFO per Unit", "Comparative properties net operating income (“CP NOI”) (constant currency basis)”, “Net total debt-to-total assets (net of cash and cash equivalents) ratio”, “Net total debt-to- normalized adjusted EBITDAFV ratio (years)”, and “Interest coverage ratio”, “Available Liquidity”, "Total equity (including LP B Units or subsidiary redeemable units"), “Total debt”, “Net asset value (“NAV”) per Unit”, “Net total debt and total assets (net of cash and cash equivalents)”, “Adjusted earnings before interest, taxes, depreciation, amortization and fair value adjustments (“Adjusted EBITDAFV”) and Normalized adjusted EBITDAFV – Annualized”. The composition of supplementary financial measures included in this press release have been incorporated by reference from the Q1 MD&A 2024 and can be found under the section “Supplementary financial measures and ratios and other disclosures”. The Q1 MD&A 2024 is available on SEDAR+ at www.sedarplus.com under the Trust’s profile and on the Trust’s website at www.dreamindustrialreit.ca under the Investors section. Non-GAAP financial measures and ratios should not be considered as alternatives to net income, net rental income, cash flows generated from (utilized in) operating activities, cash and cash equivalents, total assets, non-current debt, total equity, or comparable metrics determined in accordance with IFRS as indicators of the Trust’s performance, liquidity, cash flow, and profitability.

Forward looking information

This press release may contain forward-looking information within the meaning of applicable securities legislation, including statements regarding the Trust’s objectives and strategies to achieve those objectives; the organic growth outlook embedded in the Trust’s portfolio; the impact of the Trust’s strong balance sheet on its continued focus on driving cash flow growth and creating significant long-term value for unitholders; the Trust’s evaluation of several value-add and strategic opportunities across its portfolio, especially in Europe, and the goals of such opportunities; the Trust's continued evaluation of investments that meet its objectives; the Trust's maintenance of significant financial flexibility as it executes on its strategy to grow and upgrade portfolio quality; the Trust's various pillars for strong organic growth; the Trust’s goal of delivering strong total returns to its unitholders through secure distributions as well as growth in net asset value and cash flow per unit underpinned by its high-quality portfolio and an investment grade balance sheet; the performance and quality of its portfolio; maturing GLA; the Trust’s development pipeline and its expectations with respect to the opportunity provided by such development pipeline; the Trust’s development, expansion and redevelopment plans, including the timing of construction and expansion, costs, square footage, unlevered yields and anticipated yields; the Dream Summit JV, the status of new leases and renewals, the opportunities provided by the venture to pursue acquisitions and boost its property management and leasing fee stream, and potential acquisitions; the Trust’s expectations for further growth, growing cash flows, net asset value and overall returns to unitholders; and similar statements concerning anticipated future events, financials, future leasing activity, including those associated with user demand relative to supply of quality industrial product in the Trust’s operating markets, the ability to lease vacant space, results of operations, performance, business prospects and opportunities, and the real estate industry in general.

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 the Trust’s control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic and business conditions; employment levels; mortgage and interest rates and regulations; inflation; risks related to a potential economic slowdown in certain of the jurisdictions in which we operate and the effect inflation and any such economic slowdown may have on market conditions and lease rates; uncertainties around the timing and amount of future financings; uncertainties surrounding public health crises and epidemics; geopolitical events, including disputes between nations, war and international sanctions; the financial condition of tenants; leasing risks, including those associated with the ability to lease vacant space; rental rates and the strength of rental rate growth on future leasing; and interest and currency rate fluctuations. The Trust’s objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable; inflation and interest rates will not materially increase beyond current market expectations; conditions within the real estate market remain consistent; competition for acquisitions remains consistent with the current climate; and the capital markets continue to provide ready access to equity and/or debt. All forward-looking information in this press release speaks as of the date of this press release. The Trust does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise except as required by law. Additional information about these assumptions and risks and uncertainties is contained in the Trust’s filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at the Trust’s website at www.dreamindustrialreit.ca.

Appendices

All dollar amounts in the Appendices are presented in thousands of Canadian dollars, except for per square foot amounts, per Unit amounts, or unless otherwise stated.

Reconciliation of CP NOI (constant currency basis) to net rental income
The tables below reconciles CP NOI (constant currency basis) for the three months ended March 31, 2024 and March 31, 2023 to net rental income.

Appendices

Reconciliation of FFO to net income
The table below reconciles FFO for the three months ended March 31, 2024 and March 31, 2023 to net income.

Reconciliation of available liquidity to cash and cash equivalents
The table below reconciles available liquidity to cash and cash equivalents as at March 31, 2024, December 31, 2023 and March 31, 2023.

Reconciliation of total equity (including LP B Units) to total equity (excluding LP B Units)
The table below reconciles total equity (including LP B Units) to total equity (excluding LP B Units) as at March 31, 2024, December 31, 2023 and March 31, 2023.

Reconciliation of total debt to non-current debt
The table below reconciles total debt to non-current debt as at March 31, 2024, December 31, 2023 and March 31, 2023.

Reconciliation of net total debt to non-current debt and total assets (net of cash and cash equivalents) to total assets
The table below reconciles net total debt to non-current debt and total assets (net of cash and cash equivalent) to total assets as at March 31, 2024, December 31, 2023 and March 31, 2023.

Reconciliation of adjusted EBITDAFV to net income (loss) and normalized adjusted EBITDAFV
The table below reconciles adjusted EBITDAFV to net income (loss) for the three months ended March 31, 2024, December 31, 2023 and March 31, 2023 and for the years ended December 31, 2023 and December 31, 2022.

Dream Industrial REIT

Alexander Sannikov
President & Chief Executive Officer
(416) 365-4106
asannikov@dream.ca

Lenis Quan
Chief Financial Officer
(416) 365-2353
lquan@dream.ca

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