Also have a $19.50 target. GLTA
May 3, 2022
Dream Industrial REIT
Q1 as advertised; solid organic growth, big FV gains
Impact: Neutral
Our view: Overall, in line, but solid results from DIR. Fundamentals are in strong form, with SP NOI growth hitting double digits. The development program also took a step forward with the formation of a new $1.5B JV, while DIR’s IFRS NAV rose a strong 9% QoQ on substantial portfolio fair value gains. C/C May-4 (11AM ET; 1-866-455-3403; passcode 29629219).
First impression
• Results in line. DIR reported Q1/22 FFOPU of $0.22, in line with RBC/ Street at $0.22E/$0.22E, vs. $0.19 last year (+16% YoY).
• Constant currency SP NOI: +10% YoY (CDA +11.1%/EUR +5.5%/US +7.2%) • Committed occupancy: 98.7% (+50 bps QoQ, +150 bps YoY), with in-place at 97.6% (-10 bps QoQ, +190 bps YoY).
• IFRS NAV: $16.48 (+9% QoQ, +29% YoY) vs. our $16 NAVPU. IFRS cap rate 4.92% (-10 bps QoQ, -77 bps YoY) vs. our 4.5% NAV cap/4.9% implied. • Debt/GBV: 25.8% (-560 bps QoQ, -290 bps YoY).
Results in line; solid organic growth and significant portfolio mark-up. SP NOI rose a solid 10% YoY, led by ON (+18.2%) and QC (+13.6%), with growth principally driven by higher rents on new and renewal leasing and higher occupancy. In Q1, DIR recorded $361MM ($1.39/unit) of portfolio fair value gains, mainly from cap rate compression and higher rents.
A strong round of leasing with solid spreads and rising occupancy. Since the start of the year, DIR has signed 2.8MM sf of leases at average new/ renewal spreads of 21%, including +25% in Canada and +16% in Europe. Committed occupancy increased to 98.7%, led by a 100 bps QoQ increase in Canada, flat growth in the Europe, and -50 bps in the US. Notably, DIR estimates market rents are ~20% above in-place.
Development program advances. DIR’s near-term development pipeline expanded to $547MM (+10% QoQ) at an attractive 5.9% unlevered yield. In addition, as recently announced, DIR established a $1.5B “build-to-hold” JV with a global sovereign wealth fund through a 75% (sovereign fund)/25% (DIR) ownership mix. The JV aims to deploy $500MM toward development sites in Ontario to construct modern logistics properties. DIR contributed two assets in Brampton and Cambridge (58 acres) to the JV valued at $98MM, with the JV acquiring another 10-acre site in April for $23MM. DIR realized a net $67MM of proceeds from the transactions. Dream Asset Management will serve as the JV’s asset manager, while DIR will provide property management, capital oversight, and leasing services.
Acquisition pipeline remains active, along with ATM. DIR completed $116MM of acquisitions in Q1 in Canada and Europe, with a further $110MM purchased in April. Another $500MM of purchases are under contract or in talks. In addition to the $230MM equity raise ($16.30/unit) in March, DIR issued $90MM of equity (@$16.46/unit) in Q1 through its ATM program.