Dream Industrial REIT Reports Strong Q2 2023 Financial Results

Dream Industrial Real Estate Investment Trust (DIR.UN-TSX) (the “Trust” or “Dream Industrial REIT” or “Dream Industrial” or “we” or “us”) today announced its financial results for the three and six months ended June 30, 2023. Management will host a conference call to discuss the financial results on August 2, 2023 at 1:00 p.m. (ET).

HIGHLIGHTS

• Diluted funds from operations (“FFO”) per Unit⁽¹⁾ was $0.25 in Q2-2023, a 14.0% increase when compared to $0.22 in Q2-2022;
• Comparative properties net operating income (“CP NOI”) (constant currency basis)⁽²⁾ was $78.5 million in Q2-2023, a 11.4% increase when compared to $70.5 million in Q2-2022. The Canadian portfolio posted a year-over-year CP NOI (constant currency basis) growth of 12.1%. The European portfolio saw a 11.4% year-over-year CP NOI (constant currency basis) growth.
• Net rental income was $83.0 million in Q2-2023, a 20.8% increase when compared to $68.7 million in Q2-2022. Year-over-year net rental income increased by 24.4% in Ontario, 14.2% in Québec, 2.6% in Western Canada and 24.6% in Europe excluding disposed investment properties, primarily driven by strong comparative properties NOI (constant currency basis) growth in 2023 and 2022 and the impact of acquired investment properties in the past year.
• Net income was $80.4 million in Q2-2023, a decrease of $91.1 million when compared to net income of $171.5 million in Q2-2022, mainly driven by fair value adjustments to financial instruments. The net income in Q2-2023 comprised of net rental income of $83.0 million, fair value adjustments to investment properties of $2.0 million, fair value adjustments to financial instruments of $9.1 million and other expenses of $13.7 million;
• Total assets were $7.8 billion as at June 30, 2023, a 6.9% increase when compared to $7.3 billion as at December 31, 2022, driven by acquisitions and higher investment property values;
• Total equity (including LP B Units)⁽²⁾ and total equity (per condensed consolidated financial statements) was $4.7 billion and $4.5 billion as at June 30, 2023, respectively. This represents a 0.6% increase and 1.3% increase, respectively, when compared to December 31, 2022;
• Net asset value (“NAV”) per Unit⁽¹⁾ was $16.97 as at June 30, 2023, a 2.0% increase when compared to the NAV per Unit of $16.64 as at June 30, 2022.

FINANCIAL HIGHLIGHTS

“DIR’s strong second quarter results reflect our recent strategic initiatives as we continue to deliver strong CP NOI and FFO per unit growth,” said Brian Pauls, Chief Executive Officer of Dream Industrial REIT. “The Dream Summit JV continues to positively impact our financial results and we are seeing the benefits of the added scale and enhanced market positioning. Our strong and flexible balance sheet, which is further improved by the resumption of our ATM program, allows us to execute on accretive capital deployment opportunities that strengthen the outlook of our business.”

ORGANIC GROWTH

• Continued strong leasing momentum at attractive rental spreads – Since the end of Q1 2023, the Trust has transacted approximately 1.4 million square feet of leases across our portfolio at an average spread of 47% over prior or expiring rents.
  • In Canada, the Trust signed 951,500 square feet of leases, achieving an average spread to expiry of 60.8% and an annual contractual rent growth of over 4%.
  • In Europe, the Trust signed 427,000 square feet of leases at an average spread of 4%. All of the leases are fully indexed to local consumer price indices (“CPI”) or have contractual rent steps of 2%.

Since the closing of the Dream Summit JV transaction, the Trust has successfully integrated Dream Summit's operations with the Trust's operating platform and completed or finalized terms on over one million square feet of new leases and renewals at an average spread of approximately 125% over prior and expiring rents.

• Solid pace of CP NOI (constant currency basis)⁽¹⁾ growth – CP NOI (constant currency basis) for the three and six months ended June 30, 2023 was $78.5 million and $151.7 million, respectively. For the same periods in 2022, CP NOI (constant currency basis) was $70.5 million and $135.1 million, respectively. This represents an increase of 11.4% for the three months ended June 30, 2023 and 12.3% for the six months ended June 30, 2023 compared to the prior year comparative periods.
  
  The Canadian portfolio posted a year-over-year CP NOI (constant currency basis) growth of 12.1%, driven by 19.4%, 8.5% and 4.9% CP NOI growth in Ontario, Québec and Western Canada, respectively.
  
  Year-over-year CP NOI (constant currency basis) growth in Ontario was primarily driven by increasing rental spreads on new and renewed leases and the lease-up of our completed expansion in the Greater Toronto Area (“GTA”) which increased the average in-place base rent by 14.6%, along with a 20 basis points (“bps”) increase in average occupancy.
  
  In Québec, year-over-year CP NOI (constant currency basis) growth was driven primarily by higher rents and two completed expansions in the Greater Montreal Area.
  
  In Europe, the lease-up of an expansion at our properties in Dresden, Germany, and The Hague, Netherlands, in addition to CPI indexation, led to a 7.5% and 8.2% increase in in-place base rent for the three and six months ended June 30, 2023, respectively, which drove year-over-year CP NOI (constant currency basis) growth of 11.4% and 11.9%, respectively.

• In-place and committed occupancy – The Trust’s in-place and committed occupancy remained strong at 98.0%, compared to 98.6% as at March 31, 2023. The Trust has approximately 4% of its portfolio’s GLA maturing in 2023, including over 0.7 million square feet in Ontario and Québec, providing the Trust with significant opportunities to capture rent increases in these markets.

• Continued growth in net rental income for the quarter and year-to-date – Net rental income for the three and six months ended June 30, 2023 was $83.0 million and $164.5 million, respectively, representing an increase of $14.3 million, or 20.8%, and $30.5 million, or 22.7%, relative to the prior year comparative periods. Year-over-year net rental income increased by 24.4% in Ontario, 14.2% in Québec, 2.6% in Western Canada and 24.6% in Europe, excluding disposed investment properties. The increase was mainly driven by strong comparative properties NOI (constant currency basis) growth in 2023 and 2022, and the impact of acquired investment properties in the past year.

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 significantly boosts the Trust’s property management and leasing fee stream.

During the quarter, the Dream Summit JV acquired a 26-acre site located in the GTA, in close proximity to the QEW and Highway 403, which should allow for the development of over 380,000 square feet of industrial product. Subsequent to the quarter, two additional assets were acquired by the Dream Summit JV in the GTA West sub-market, including a 21-acre land parcel leased for outside storage in Caledon, and a 150,000 square foot income-producing property in Brampton.

Additionally, the Dream Summit JV is in exclusive negotiations or under contract to acquire six assets located in the GTA totalling 0.9 million square feet.

In total, the Trust’s equity investment to fund these acquisitions is expected to be approximately $25 million. Combined with the associated property management and leasing income, the Trust expects the income-producing assets to generate a going-in yield on equity in excess of 7.5% with further upside as the Trust estimates current market rents to be approximately 40% higher than in-place rents.

DEVELOPMENT UPDATE

The Trust’s development pipeline provides a significant opportunity to add high-quality assets in core markets at attractive economics to the Trust. The Trust has approximately 3.0 million square feet of development projects that are either currently underway or in planning stages.

• Over the past 12 months, the Trust has completed and substantially completed approximately 0.9 million square feet of development projects across Canada and Europe at an unlevered yield of 7.5%. During the quarter, the Trust substantially completed the Trust’s inaugural 154,000 square foot greenfield development in Caledon and remains on track to generate an unlevered yield on cost of over 7%.
• The Trust currently has an additional 1.7 million square feet of projects underway across Canada including the Trust’s share of projects held in our development joint venture (the “Development JV”). With a total expected cost of approximately $359 million (estimated costs to completion of $226 million), the Trust expects unlevered yield on development cost of approximately 6.4% upon completion. The Trust expects these projects to be completed in the next 12 to 24 months.

“Our high-quality portfolio continues to produce double-digit organic NOI growth with a strong runway for further growth,” said Alexander Sannikov, President and Chief Operating Officer of Dream Industrial REIT. “Our growing private capital partnerships as well as our development and value-add projects are increasingly contributing to our results and enhancing our overall business. With one of the largest industrial platforms in the country, we are focused on providing best-in-class service to our customers and surfacing value from our significant footprint.”

CAPITAL STRATEGY

The Trust continues to maintain significant financial flexibility as it executes on its strategy to grow and upgrade portfolio quality. During the quarter, €106 million of European mortgages matured and were temporarily refinanced using the Trust’s unsecured revolving credit facility. The Trust has executed a non-binding term sheet with an existing relationship lender for approximately €110 million in new financing to replace these matured mortgages. In addition, the Trust has executed a non-binding term sheet for a new €40 million mortgage financing in Germany and a binding term sheet for a €70 million refinancing to address the remaining 2023 mortgage maturities. Based on current interest rates, the Trust expects a weighted average interest rate of approximately 4.8% on these mortgages.

The Trust’s proportion of secured debt⁽¹⁶⁾ is 4.6% of total assets and represents approximately 13% of total debt⁽¹⁷⁾, compared to 7.6% and 25.2% one year ago, respectively. The Trust’s unencumbered asset pool⁽¹¹⁾ totalled $5.9 billion as at June 30, 2023, representing approximately 86% of the Trust’s investment properties value as at June 30, 2023.

The Trust ended Q2 2023 with available liquidity⁽¹²⁾ of $243 million, and an additional $250 million that could be exercised through the accordion on its unsecured credit facility.

Subsequent to the quarter-end, the Trust resumed its at-the-market program (“ATM”). Since June 30, 2023, the Trust has issued 3.7 million units at an average price of $14.28 for total proceeds of $52.5 million. Proceeds were utilized to reduce the existing balance on the Trust’s credit facility which bore interest at a rate of just under 7%, and lowered the Trust’s net total debt-to-total assets (net of cash and cash equivalents) ratio by nearly 70 basis points.

“We continue to focus on maintaining a strong and flexible balance sheet with ample liquidity as we execute on our strategic initiatives,” said Lenis Quan, Chief Financial Officer of Dream Industrial REIT. “We have recently raised $52 million through our ATM Program and used the proceeds to repay debt in the near term which was accretive to cash flows and lowered leverage by nearly 70 bps. This has enhanced the strength and flexibility of the balance sheet, creating additional capacity to fund strategic acquisitions, our private market joint ventures as well as our development and solar program.”

CONFERENCE CALL

Senior management will host a conference call to discuss the financial results on Wednesday, August 2, 2023, at 1:00 p.m. (ET). To access the conference call, please dial 1-800-319-4610 (toll free) or 416-915-3239 (toll). 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.

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.ca.

Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at June 30, 2023, Dream Industrial REIT owns, manages and operates a portfolio of 321 industrial assets totalling approximately 70.3 million square feet of gross leasable area in key markets across Canada, Europe, and the U.S. Dream Industrial REIT’s goal is to deliver strong total returns to its unitholders through secure cash flows underpinned by its high-quality portfolio and an investment grade balance sheet as well as driving growth in its net asset value and cash flow per unit. For more information, please visit www.dreamindustrialreit.ca.

FOOTNOTES

1. CP NOI (constant currency basis) is a non-GAAP financial measure. The most directly comparable financial measure to CP NOI (constant currency basis) is net rental income. The table included in the Appendices section of this press release reconcile CP NOI (constant currency basis) for the three and six months ended June 30, 2023 and June 30, 2022 to net rental income. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
2. FFO is a non-GAAP financial measure. The most directly comparable financial measure to FFO is net income. The tables included in the Appendices section of this press release reconcile FFO for the three and six months ended June 30, 2023 and June 30, 2022 to net income. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
3. Diluted FFO per Unit is a non-GAAP ratio. Diluted FFO per Unit is comprised of FFO (a non-GAAP financial measure) divided by the weighted average number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
4. A description of the determination of diluted amounts per Unit can be found in the Trust’s Management’s Discussion and Analysis for the three and six months ended June 30, 2023 and June 30, 2022, in the section “Supplementary financial measures and ratios and other disclosures”, under the heading “Weighted average number of Units”.
5. “Number of assets” comprise a building, or a cluster of buildings in close proximity to one another attracting similar tenants.
6. Includes the Trust’s owned and managed properties as at June 30, 2023, December 31, 2022 and June 30, 2022.
7. Includes the Trust’s share of equity accounted investments as at June 30, 2023, December 31, 2022 and June 30, 2022.
8. Net total debt-to-total assets (net of cash and cash equivalents) ratio is a non-GAAP ratio. Net total debt-to-total assets (net of cash and cash equivalents) ratio is comprised of net total debt (a non-GAAP financial measure) divided by total assets (net of cash and cash equivalents) (a non-GAAP financial measure). The most directly comparable IFRS financial measure to net total debt is non-current debt, and the most directly comparable IFRS financial measure to total assets (net of cash and cash equivalents) is total assets. The tables included in the Appendices section of this press release reconcile net total debt to non-current debt and total assets (net of cash and cash equivalents) to total assets as at June 30, 2023, December 31, 2022 and June 30, 2022. For further information on this non-GAAP ratio and these non-GAAP financial measures, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
9. Net total debt-to-normalized adjusted EBITDAFV is a non-GAAP ratio. Net total debt-to-normalized adjusted EBITDAFV is comprised of net total debt (a non-GAAP financial measure) divided by normalized adjusted EBITDAFV (a non-GAAP financial measure). The most directly comparable IFRS financial measure to normalized adjusted EBITDAFV is net income. The tables included in the Appendices section of this press release reconcile adjusted EBITDAFV to net income (loss) for the three months ended June 30, 2023, December 31, 2022 and June 30, 2022, for the six months ended June 30, 2023, June 30, 2022 and June 30, 2021, and for the years ended December 31, 2022 and December 31, 2021. For further information on this non-GAAP ratio and this non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures and ratios and supplementary financial measures” in this press release.
10. Interest coverage ratio is a non-GAAP ratio. Interest coverage ratio is comprised of trailing 12-month period adjusted EBITDAFV (a non-GAAP financial measure) divided by trailing 12-month period interest expense on debt and other financing costs. The most directly comparable IFRS financial measure to adjusted EBITDAFV is net income. For further information on this non-GAAP ratio and non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures and ratios and supplementary financial measures” in this press release.
11. Unencumbered investment properties is a supplementary financial measure. For further information on this supplementary financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
12. Available liquidity is a non-GAAP financial measure. The most directly comparable financial measure to available liquidity is cash and cash equivalents. The tables included in the Appendices section of this press release reconcile available liquidity to cash and cash equivalents as at June 30, 2023, December 31, 2022 and June 30, 2022. For further information on this non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
13. Total equity (including LP B Units or subsidiary redeemable units) is a non-GAAP financial measure. The most directly comparable financial measure to total equity (including LP B Units) is total equity (per condensed consolidated financial statements). The tables included in the Appendices section of this press release reconcile total equity (including LP B Units) to total equity (per condensed consolidated financial statements) as at June 30, 2023, December 31, 2022 and June 30, 2022. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
14. Total number of Units includes 13.3 million LP B Units that are classified as a liability under IFRS.
15. NAV per Unit is a non-GAAP ratio. NAV per Unit is comprised of total equity (including LP B Units) (a non-GAAP financial measure) divided by the total number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
16. Secured debt is a supplementary financial measure. Please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
17. Total debt is a non-GAAP financial measure. The most directly comparable financial measure to total debt is non-current debt. The tables included in the Appendices section of this press release reconcile total debt to non-current debt as at June 30, 2023, December 31, 2022 and June 30, 2022. For further information on this non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

Non-GAAP financial measures, 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 and six months ended June 30, 2023, dated August 1, 2023 (the “Q2 MD&A 2023”) 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 Q2 MD&A 2023 and can be found under the section “Supplementary financial measures and ratios and other disclosures”. The Q2 MD&A 2023 is available on SEDAR+ at www.sedarplus.ca 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 Trust’s opportunities to enhance the quality and organic cash flow growth profile while preserving balance sheet quality and flexibility the near-term capital deployment opportunities; the opportunities provided by the Trust’s diverse sources of capital; the strength of the industrial market; the performance and quality of our portfolio; the Trust’s ability to grow organically and create value for unitholders; the Trust’s ability and expectations to achieve strong rental growth over time as it sets rents on expiring leases to market; the Trust’s expectations relating to the benefits to be realized from demand drivers for industrial space, including market rent increases; the expectation that our development pipeline is an accretive driver of cash flow and NAV growth; 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, including the integration of the venture, the status of new leases and renewals, the opportunities provided by the venture to pursue acquisitions and boost our property management and leasing fee stream, potential acquisitions and related average in-place cap rate, and the Trust’s expected investment and return on equity; the Trust’s expectations for further growth, growing cash flows, net asset value and overall returns to unitholders; the Trust’s accretive driver of growth; the process of refinancing upcoming European mortgage maturities; the Trust’s opportunities to access financing at attractive rates; the Trust’s ability to add high-quality assets in core markets at attractive economics; our development and intensification pipelines; the Trust’s objective of and expected ability to provide attractive overall returns and long term value to unitholders; the expected growth of the Trust’s property management and leasing business; expectations regarding the quality of the Trust’s portfolio and the Trust’s strategy to upgrade portfolio quality; the strength, flexibility and liquidity of the Trust’s balance sheet; the Trust’s capital deployment opportunities, including in respect of funding its development and solar program and growing capital partnerships, and expected returns and improvemen