CIBCAlso have a $16.00 target. GLTA
EQUITY RESEARCH
November 6, 2024 Earnings Update
DREAM INDUSTRIAL REIT
Underlying Growth Intact
Our Conclusion
We did not see anything in the quarter that causes us to question Dream’s
growth outlook. A couple of the moderating trends, such as leasing spreads
in Montreal and occupancy in the Dream Summit JV, reflect one-off or
transient situations. We believe the release of the 2025 outlook (with Q4
results) could give the market more reassurance around SPNOI growth. We
continue to highlight Dream for its FFO/unit growth, and with units trading at
~16% below NAV, we view valuation as attractive.
Key Points
Q3/24 Results: DIR reported FFO/unit of $0.26, which was in line with our
estimate and consensus of $0.25. SPNOI ex. foreign exchange was up
3.3% (3.2% exc. expansions). Committed occupancy increased 10 bps Q/Q
to 95.5%. Occupancy Y/Y was down from 97.2%.
2024 Outlook Confirmed: DIR reiterated its guidance of mid-single-digit
growth in SPNOI for 2024. The REIT expects committed occupancy to be flat
Q/Q in Q4. Market rents were slightly higher than Q2 and management
expects further growth in 2025. In 2025, management expects an
acceleration in NOI to outpace the impact of higher interest rates.
Leasing Colour: Leasing spreads remained wide at ~25%, albeit moderated
from recent quarters, reflecting certain renewals in Montreal where the
expiring rent was high relative to overall in-place rents. DIR is also continuing
to achieve solid steps on renewals, approximating ~4% in ON, ~3% in QC
and 2.5% in Western Canada. The REIT noted an uptick in activity, including
demand for larger units, as occupiers emerge from the sidelines.
Capital Recycling Activity: During the quarter, DIR divested a ~30k sq. ft.
non-strategic asset in the Netherlands for ~$4MM, representing an 8%
premium to carrying value. The Development JV is under contract to acquire
$226MM of assets across Canada, with DIR’s share being $35MM.
Subsequent to the quarter, DIR sold a ~90k sq. ft. asset in Montreal for
~$20MM, at a 17% premium to carrying value, and the Dream Summit JV
disposed of a ~128k sq. ft. asset for ~$49MM. DIR is funneling proceeds
towards existing developments, its solar program, and to its private capital
partnerships.
Balance Sheet And Liquidity: Net debt to total assets was 36.3%, stable on
both a sequential and Y/Y basis. Interest coverage was 5.2x and DIR had
~$821MM in available liquidity. In July, DIR extended its $200MM unsecured
term loan by two years to March 2028, with no change to the interest rate at
4.85%. Additionally, DIR upsized its unsecured revolving facility from
$500MM to $750MM, extending it by two years.