Dream Industrial REIT Reports Strong Q4 2023 and Year-End 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) (the “Trust” or “Dream Industrial REIT” or “Dream Industrial” or “we” or “us”) today announced its financial results for the three months and year ended December 31, 2023. Management will host a conference call to discuss the financial results on February 14, 2024 at 11:00 a.m. (ET).

HIGHLIGHTS

• Diluted funds from operations (“FFO”) per Unit(1) was $0.98 in 2023,a 10.1% increase when compared to $0.89 in 2022. For the quarter, diluted FFO per Unit was $0.24, a 3.9% increase when compared to Q4 2022;
• Comparative properties net operating income (“CP NOI”) (constant currency basis)(2) was $310.0 million in 2023, a 11.3% increase when compared to $278.5 million in 2022. The Canadian portfolio posted a year-over-year CP NOI (constant currency basis) growth of 12.6% and the European portfolio saw 10.5% year-over-year CP NOI (constant currency basis) growth. For the quarter, CP NOI (constant currency basis) was $85.6 million, a 9.6% increase when compared to $78.1 million in Q4 2022, driven by 11.1% CP NOI (constant currency basis) growth in Canada and 8.5% CP NOI (constant currency basis) growth in Europe.
• Net rental income was $334.2 million in 2023, a 18.7% increase when compared to $281.6 million in 2022. For the year, net rental income increased by 20.5% in Ontario, 10.1% in Québec, 5.6% in Western Canada and 22.7% in Europe excluding disposed investment properties, primarily driven by strong CP NOI (constant currency basis) growth in 2023, the impact of acquired investment properties in the past year and higher net property management fees. For the quarter, net rental income was $85.2 million, a 12.8% increase when compared to $75.6 million in Q4 2022, driven by 12.8% in Ontario, 4.3% in Québec, 8.1% in Western Canada and 13.5% in Europe.
• Net income was $104.3 million in 2023, compared to net income of $705.9 million in 2022, mainly driven by fair value adjustments to financial instruments and investment properties. The net income in 2023 was comprised of net rental income of $334.2 million, fair value decrease in investment properties of $66.7 million, fair value decrease in financial instruments of $68.1 million and other expenses of $95.1 million. For the quarter, net loss was $8.8 million, compared to net loss of $34.1 million in Q4 2022.
• Total assets were $7.9 billion as at December 31, 2023, a 7.9% increase when compared to $7.3 billion as at December 31, 2022, driven by investments in the Dream Summit joint venture and development projects.
• Total equity (including LP B Units)(2) and total equity (per consolidated financial statements) was $4.8 billion and $4.6 billion as at December 31, 2023, respectively. This represents a 2.0% increase and 2.7% increase, respectively, when compared to December 31, 2022.
• Net asset value (“NAV”) per Unit(1) was $16.61 as at December 31, 2023, compared to the NAV per Unit of $16.97 as at December 31, 2022.

FINANCIAL HIGHLIGHTS

“Dream Industrial achieved significant milestones in 2023, delivering over 11% of CP NOI growth and over 10% of FFO per Unit growth for the year.” said Alexander Sannikov, President & Chief Executive Officer of Dream Industrial REIT. “The successful integration of the Dream Summit portfolio into our operations has boosted our recurring property management revenue stream, and the advancement of our development and solar programs continues to drive our FFO and NAV growth. With our $7 billion industrial portfolio well-located in tight industrial markets with in-place rents approximately 34% below market rent and staggered lease maturities, the organic growth outlook embedded within our portfolio remains intact with less reliance on near-term market rent growth. Our strong balance sheet allows us to continue focusing on driving cash flow growth and creating significant long-term value for our unitholders.”

ORGANIC GROWTH

• Continued strong leasing momentum at attractive rental spreads – From the end of Q3 2023 until January 31, 2024, the Trust has transacted approximately 1.3 million square feet of leases across its portfolio at an average rental rate spread of 41.6% over prior or expiring rents.
  • In Canada, the Trust signed 948,000 million square feet of leases, achieving an average rental rate spread to expiry of 50.3% and an annual contractual rent growth of over 3%.
  • In Europe, the Trust signed 368,000 square feet of leases at an average rental rate spread of 7%. All of the leases are fully indexed to local consumer price indices (“CPI”) or have contractual rent steps of 2%.

As at December 31, 2023, estimated market rents exceeded the average in-place rent by nearly 34% across the Trust’s overall portfolio, excluding U.S. assets held in a private U.S. industrial fund (the “U.S. Fund”) and assets held in a joint venture between GIC and the Trust in which the Trust has a 10% interest (the “Dream Summit JV”).

Since the closing of the Dream Summit JV transaction in February 2023, the Trust has successfully integrated Dream Summit JV’s operations with the Trust’s operating platform and completed or finalized terms on approximately 2.3 million square feet of new leases and renewals at an average spread of 90% over prior and expiring rents.

• Solid pace of CP NOI (constant currency basis)(1) growth – CP NOI (constant currency basis) for the three months and year ended December 31, 2023 was $85.6 million and $310.0 million, respectively. For the same periods in 2022, CP NOI (constant currency basis) was $78.1 million and $278.5 million, respectively. This represents an increase of 9.6% and 11.3% for the three months and year ended December 31, 2023, respectively, compared to the prior year comparative periods.

The Canadian portfolio posted a year-over-year CP NOI (constant currency basis) growth of 11.1% for the three months ended December 31, 2023, driven by 14.1%, 11.5% and 5.5% CP NOI growth in Ontario, Québec and Western Canada, respectively. For the year, CP NOI (constant currency basis) growth was 12.6% compared to 2022, driven by 18.3%, 10.0% and 6.6% 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, which increased the average in-place base rent by 15.5% and 15.2% for the three months and year ended December 31, 2023, respectively.

In Québec, year-over-year CP NOI (constant currency basis) growth was driven primarily by higher average in-place base rents of 15.9% and 14.7% for the three months and year ended December 31, 2023, respectively, in addition to the lease-up of two completed expansions in the Greater Montréal Area.

In Europe, year-over-year CP NOI (constant currency basis) growth was 8.5% and 10.5% for the three months and year ended December 31, 2023, respectively. The increase was driven by the lease-up of expansions at the Trust’s properties in Dresden, Germany, and The Hague, Netherlands, in addition to CPI indexation, resulting in a 11.0% and 8.9% increase in in-place base rent for the three months and year ended December 31, 2023, respectively.

Excluding the impact of expansions in Canada and Europe, the year-over year CP NOI (constant currency basis) growth for the entire portfolio would have amounted to 7.8% and 9.2% for the three months and year ended December 31, 2023, respectively.

• Strong occupancy levels – The Trust’s in-place and committed occupancy remained strong at 96.2% as at December 31, 2023, compared to 97.2% as at September 30, 2023 and 98.9% as at December 31, 2022. The decrease was primarily attributable to the recently completed 154,000 square foot development in Caledon, which is 55% leased, and transitory vacancies, including the 225,000 square foot vacancy near the Port of Montréal and expected expiries in Europe. We are in discussions with prospective tenants and we expect significant opportunities to capture strong income growth as these spaces are leased.

Over the next two years, the Trust has nearly 8.4 million square feet of GLA maturing. Approximately 6 million square feet of this space is located in Canada, of which approximately 73% is located in Ontario and Québec where the average market rent is approximately double that of in-place rent.

• Continued growth in net rental income for the quarter and year-to-date – Net rental income for the three months and year ended December 31, 2023 was $85.2 million and $334.2 million, respectively, representing an increase of $9.6 million, or 12.8%, and $52.6 million, or 18.7%, relative to the prior year comparative periods. For the quarter, net rental income increased by 12.8% in Ontario, 4.3% in Québec, 8.1% in Western Canada and 13.5% in Europe, excluding disposed investment properties. For the year, net rental income increased by 20.5% in Ontario, 10.1% in Québec, 5.6% in Western Canada and 22.7% in Europe. The increase was mainly driven by strong CP NOI (constant currency basis) growth in 2023, 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 strengthens the Trust’s property management and leasing fee stream.

During the quarter, the Dream Summit JV acquired six income-producing assets located in the GTA totalling 0.9 million square feet. Furthermore, the Dream Summit JV is in exclusive negotiations or under contract to acquire ten assets totalling 2.5 million square feet.

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 2.8 million square feet of development projects that are recently completed, currently underway or in advanced planning stages.

• Over the past 18 months, the Trust has completed and substantially completed approximately 0.9 million square feet of development projects across Canada and Europe. These completed developments are more than 92% leased and the Trust is targeting to achieve an unlevered yield of 7.4% upon full stabilization.
• The Trust currently has 1.7 million square feet of projects underway across Canada including the Trust’s share of projects held in its Development JV. With total estimated costs to completion of $125 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 6–18 months and is currently engaging with prospective tenants. The Trust recently signed a 10-year conditional lease at its 209,000 square foot redevelopment project in Mississauga for over 60% of the space, achieving a starting rent of over $20 per square foot with annual contractual rent growth of approximately 4%.

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 7.4% of total assets and represents 20.5% of total debt(17). The Trust’s unencumbered asset pool(11) totalled $5.4 billion as at December 31, 2023, representing 78% of the Trust’s investment properties value as at December 31, 2023.

The Trust ended 2023 with available liquidity(12) of $492 million, including $50 million of cash and cash equivalents, and an additional $250 million that could be exercised through the accordion on its unsecured credit facility. Subsequent to year-end, the Trust closed on its additional issuance of $200 million of Series F unsecured debentures at an offering yield to maturity of 5.259%. The proceeds will be utilized 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 general Trust purposes. The Trust’s net debt-to-total asset (net of cash and cash equivalents) ratio was 36.0% as at December 31, 2023, compared to 35.1% as at September 30, 2023.

“Notwithstanding the higher interest rate environment, our focus on optimizing our cost of debt and maintaining financial flexibility have allowed us to successfully advance our development and solar pipeline, contribute towards our private capital partnerships, and execute on strategic initiatives that are accretive to our total return profile,” said Lenis Quan, Chief Financial Officer of Dream Industrial REIT. “Pro forma the $200 million Series F reopening, our total available liquidity is nearly $700 million, positioning us well to deal with our near-term debt maturities while continuing to drive robust FFO per Unit growth.”

CONFERENCE CALL

Senior management will host a conference call to discuss the financial results on Wednesday, February 14, 2024, at 11:00 a.m. (ET). To access the conference call, please dial 1-800-806-5484 (toll free) or 416-340-2217 (toll) and enter passcode 1104570#. 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 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 December 31, 2023, Dream Industrial REIT owns, manages and operates a portfolio of 327 industrial assets totaling approximately 71.4 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 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.

Non-GAAP financial measures, ratios and supplementary financial measures

The Trust’s 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 and year ended December 31, 2023, dated February 13, 2024 (the “Q4 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 Q4 MD&A 2023 and can be found under the section “Supplementary financial measures and ratios and other disclosures”. The Q4 MD&A 2023 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 impact of the Trust’s development and solar programs on FFO and NAV growth; 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 continued evaluation of investments that meet its objectives; the use of proceeds from the re-opening of the Series F debentures; the value-creation potential from growth opportunities and the expected results from private capital partnerships; the Trust’s opportunities to enhance the quality and organic cash flow growth profile while preserving balance sheet quality and flexibility; the Trust’s goal of delivering 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 growth in its net asset value and cash flow per unit; the performance and quality of its portfolio; the Trust’s ability and expectations to achieve strong rental growth over time as it sets rents on expiring leases to market; 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; the Trust’s opportunities to access debt financing; the strength, flexibility and liquidity of the Trust’s balance sheet; 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 reconcile CP NOI (constant currency basis) for the three months and year ended December 31, 2023 and December 31, 2022 to net rental income.

Appendices

Reconciliation of FFO to net income
The table below reconciles FFO for the three months and year ended December 31, 2023 and December 31, 2022 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 December 31, 2023 and December 31, 2022.

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 December 31, 2023 and December 31, 2022.

Reconciliation of total debt to non-current debt
The table below reconciles total debt to non-current debt as at December 31, 2023 and December 31, 2022.

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 equivalents) to total assets as at December 31, 2023 and December 31, 2022.

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 and year ended December 31, 2023 and December 31, 2022:

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