Dream Industrial REIT
(DIR.UN-T) C$14.63
Q1/23 First Look: Results Beat on Record SPNOI Growth
Event
Q1/23 Results. Conference call is at 1:00 pm. (Click here for webcast). Impact: SLIGHTLY POSITIVE
Our Take: DIR reported solid Q1 results, with record +13.0% SPNOI growth and some very strong initial leasing performance on the Summit assets.
Results (see Exhibit):
Q1/23 diluted FFO/unit of $0.247 (+13% y/y, +6% q/q) was slightly ahead of our estimate/consensus at $0.236/$0.24, even when excluding ~$1.1mm of lease termination fees ("LTF"). AFFO/unit (our calculation) of $0.208 was +11% y/y and +7% q/q, and nearly 5% above our $0.199 estimate.
In-place occupancy was +20bps q/q to 98.1%, while committed occupancy was 30bps lower to 98.6% due to a known vacancy near the Port of Montreal where management expects to re-lease the space at up to 50% higher rents, or redevelop the property.
Y/Y SPNOI growth (constant currency basis) was a record-high +13.0% (+10.6% excluding expansions — still a record growth rate), with Canada at +14.3% driven by +22.3% in Ontario and high-single-digit growth in both Western Canada and Quebec. Europe SPNOI also achieved growth at +12.2%, aided by nearly all leases being tied to CPI.
Market Rents and Uplifts. Market rents in Canada were +4% q/q to $13.38 and stand 53.6% above in-place rents (Q1/22: 29.6%), while in Europe they were +0.4% and +6.6% above expiring. Blended (new and renewal) leasing rental uplifts were +48.5% in Canada (Ontario +80.3%, Quebec +75.6%), while Europe was +13.1%. On the Summit JV assets, DIR achieved blended rental rate uplifts of +150% on over 500,000sf of leases completed or finalized since the February 17 closing, which compares favourably to +53% average uplifts achieved by SMU.un in FY2022.
Balance Sheet and Fair Values:
Reflecting the Summit JV acquisition's debt financing, net-debt/assets increased +430bps q/q to 36.0% — in-line with our forecast. The weighted average rate on all debt increased +75bps q/q to 1.96% (slightly above our forecast). With a WADM of 2.9 years, we continue to expect DIR's average interest rate to increase steadily going forward (although at a much slower pace than in Q1). IFRS NAV/unit was +0.4% q/q to $17.03.