Dream Industrial REIT Reports Strong Q2 2024 Financial Results and Announces Over 500,000 Square Feet of Development Leasing

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) or (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, 2024. Management will host a conference call to discuss the financial results on August 7, 2024 at 11:00 a.m. (ET).

HIGHLIGHTS

• Over 500,000 square feet leased or conditionally leased within the Trust’s various development projects during the quarter, including the 209,000 square foot redevelopment in Mississauga, ON which is now fully leased and significant progress on the Trust’s developments near Calgary, AB.

• Diluted funds from operations (“FFO”) per Unit(1) was $0.25 in Q2 2024, a 0.4% increase when compared to Q2 2023.

• Comparative properties net operating income (“CP NOI”) (constant currency basis)(2) was $92.9 million in Q2 2024, a 5.0% increase when compared to $88.5 million in Q2 2023, driven by 6.7% CP NOI (constant currency basis) growth in Canada and 2.3% CP NOI (constant currency basis) growth in Europe. The Dream Summit portfolio produced 6.2% CP NOI growth for the quarter.

• Net rental income was $87.7 million in Q2 2024, a 5.6% increase when compared to $83.0 million in Q2 2023. Year-over-year net rental income increased by 9.5% in Ontario, 7.2% in Québec and 3.1% in Europe, and decreased by 4.2% in Western Canada excluding disposed investment properties, primarily driven by strong CP NOI (constant currency basis) growth in 2024 and 2023.

• Net income was $61.6 million in Q2 2024, compared to net income of $80.4 million in Q2 2023, with the change mainly driven by fair value adjustments to investment properties and financial instruments, and share of net income from equity accounted investments. The net income in Q2 2024 was comprised of net rental income of $87.7 million, fair value loss in investment properties of $7.0 million, fair value increase in financial instruments of $5.1 million and other net expenses of $24.2 million.

• Total assets were $8.0 billion as at June 30, 2024, a 2.1% increase when compared to $7.9 billion as at December 31, 2023, driven by investments in the Dream Summit JV(3) and development projects.

• Total equity (per condensed consolidated financial statements) was $4.7 billion as at June 30, 2024, a 2.0% increase when compared to December 31, 2023. Total equity (including LP B Units)(2) was $4.8 billion as at June 30, 2024, an increase of $74 million when compared to December 31, 2023.

• Net asset value (“NAV”) per Unit(1) was $16.73 as at June 30, 2024,a 0.7% increase when compared to the NAV per Unit of $16.61 as at December 31, 2023.

FINANCIAL HIGHLIGHTS

“Dream Industrial reported strong operating and financial results in the second quarter, delivering 5% CP NOI growth. We continue to see strong leasing activity for our well-located assets and recently completed developments,” said Alexander Sannikov, President & Chief Executive Officer of Dream Industrial REIT. “The outlook for organic NOI growth embedded in our portfolio remains intact, and we expect our development program to more meaningfully contribute to our NOI and FFO as projects are completed and stabilized. We are executing on capital recycling opportunities with approximately $100 million of dispositions completed or in negotiations which allows us to continuously upgrade the quality of our portfolio and improve our FFO, cash flow and total return profile.”

DEVELOPMENT LEASING UPDATE

During the quarter, the Trust completed new leases or conditional new leases on approximately 150,000 square feet of development projects in Ontario and approximately 400,000 square feet of projects in Alberta.

The Trust has successfully leased its entire Courtneypark redevelopment project totalling 0.2 million square feet located in Mississauga to two tenants, with rent expected to commence in September 2024 for both leases. The Trust achieved an attractive average starting rent of $20.95 per square foot with approximately 4% annual contractual rent steps. The stabilized project is expected to contribute over $4.5 million of net operating income to the Trust in the first year of stabilization, achieving an unlevered yield on cost of 6.6%.

During the quarter, the Trust substantially completed its 20-acre development in Balzac. The project comprises two buildings totalling 0.3 million square feet, with early occupancy having begun in the first building during Q2 2024. The Trust leased or conditionally leased approximately 70% of the total project, achieving average rents over $12 per square foot with approximately 3% contractual rent steps. The stabilized project is expected to contribute over $4 million of net operating income to the Trust in the first year of stabilization.

Subsequent to the quarter, the Trust’s development venture substantially completed its first project in Cambridge totalling 0.4 million square feet and has leased out 15% of the property. The Trust is in active leasing discussions on the balance of the space.

ORGANIC GROWTH

• Continued strong leasing momentum at attractive rental spreads – Since the end of Q1 2024, the Trust has transacted approximately 2.4 million square feet of leases across its portfolio at an average rental rate spread of 56.4% over prior or expiring rents.
  
  
  • In Canada, the Trust signed 1.7 million square feet of leases, achieving an average rental rate spread to expiry of 79.9% and an average annual contractual rent growth of over 3%.
    
    
  • In Europe, the Trust signed 0.8 million square feet of leases at an average rental rate spread of 10.6%. All of the leases are fully indexed to local consumer price indices (“CPI”) or have contractual rent steps.

As at June 30, 2024, estimated market rents exceeded the average in-place rent by over 30% across the Trust’s wholly owned portfolio.

Since the closing of the Dream Summit JV transaction in February 2023, the Trust has successfully integrated the Dream Summit JV’s operations with the Trust’s operating platform and completed or finalized terms on over 4.0 million square feet of new leases and renewals at an average spread of over 80% 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, 2024 was $92.9 million and $174.4 million, respectively. For the same periods in 2023, CP NOI (constant currency basis) was $88.5 million and $164.6 million, respectively. This represents an increase of 5.0% for the three months ended June 30, 2024 and 6.0% for the six months ended June 30, 2024, compared to the prior year comparative periods.
  
  The Canadian portfolio posted year-over-year CP NOI (constant currency basis) growth of 6.7% for the three months ended June 30, 2024, driven by 8.9%, 8.0% and 1.1% CP NOI growth in Ontario, Québec and Western Canada, respectively.
  
  In Europe, year-over-year CP NOI (constant currency basis) growth was 2.3% for the three months ended June 30, 2024. The increase was driven by higher rental rates on new and renewed leases, in addition to CPI indexation, resulting in a 5.8% increase in in-place base rent for the three months ended June 30, 2024.
  
  
• Healthy occupancy levels – The Trust’s in-place and committed occupancy was 95.4% as at June 30, 2024, compared to 96.4% as at March 31, 2024. The anticipated decrease quarter-over-quarter was driven primarily by a few expected transitory vacancies across the Greater Toronto Area (“GTA”), Québec and Europe. The Trust continues to be in active discussions with prospective tenants and it expects significant opportunities to capture strong income growth as spaces are leased.
  
  Subsequent to quarter-end, the Trust has signed three conditional new leases representing approximately 20% of its existing vacancies in Canada.
  

• Continued growth in net rental income for the quarter – Net rental income for the three and six months ended June 30, 2024 was $87.7 million and $173.5 million, respectively, representing an increase of $4.6 million, or 5.6%, and $9.0 million, or 5.5%, relative to the relative to the prior year comparative periods. For the quarter, year-over-year net rental income increased by 9.5% in Ontario, 7.2% in Québec and 3.1% in Europe, and decreased by 4.2% in Western Canada, excluding disposed investment properties. The increase was mainly driven by strong CP NOI (constant currency basis) growth in 2024, the impact of acquired investment properties in the past year and higher net property management fees.

INVESTMENT UPDATE

During the quarter, the Trust completed the disposition of six non-strategic assets totalling 0.3 million square feet located in Regina, Saskatchewan, for total gross proceeds of $41.6 million, representing a 12% premium over the carrying value. Consideration included a vendor take-back mortgage totalling $29 million, bearing interest at 6.5% over a 2-year term. Furthermore, the Trust disposed of an asset in the Netherlands for gross proceeds of $4.8 million.

Subsequent to the quarter, the Trust completed an additional disposition in the Netherlands for gross proceeds of $3.9 million. The two European dispositions were completed at an average premium of 5% over the carrying value. Additionally, the Trust is currently in discussions to dispose an additional $50 million of assets across Canada and Europe.

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 strengthen the Trust’s property management and leasing fee stream.

During the quarter, the Dream Summit JV acquired four income-producing assets located in the GTA totalling 0.5 million square feet, bringing the total acquisitions to nearly $550 million since the formation of the Dream Summit JV. Additionally, the Dream Summit JV disposed of a non-strategic income-producing asset located in the GTA totalling 0.1 million square feet.

“We continue to uncover attractive opportunities to add to our high-quality portfolio in core Canadian markets such as Toronto, Montréal and Calgary; we are also starting to look at opportunities in Vancouver,” said Bruce Traversy, Chief Investment Officer of Dream Industrial REIT. “We are seeing strong buying interest from users as well as public and private investors for urban industrial assets across all markets, with users often willing to offer the most attractive pricing. Within our large industrial portfolio, we are actively looking to recycle capital from non-strategic assets and markets and re-invest proceeds towards opportunities that are neutral to accretive on a total return basis. So far in 2024, we have completed approximately $70 million of dispositions across the Dream Industrial and Dream Summit portfolios at prices exceeding carrying values, and we are actively engaged with interested buyers to dispose of further non-strategic assets.”

CAPITAL STRATEGY

The Trust continues to maintain significant financial flexibility as it executes on its strategic initiatives. The Trust’s proportion of secured debt(16) is 6.2% of total assets and represents 16.9% of total debt(17). The Trust’s unencumbered asset pool(11) totalled $5.7 billion as at June 30, 2024, representing 81.6% of the Trust’s investment properties value as at June 30, 2024.

The Trust refinanced its maturing $200 million Series B floating rate debentures in June 2024 with a €153 million unsecured term loan at a rate of 4.014%, approximately 50 bps lower than the rate of the maturing debentures. The Trust ended Q2 2024 with available liquidity(12) of $596 million, including $103.4 million of cash and cash equivalents, and an additional $250 million that could be exercised through the accordion on its unsecured credit facility. The Trust’s net total debt-to-total assets (net of cash and cash equivalents) ratio was 35.9% as at June 30, 2024, compared to 36.0% as at December 31, 2023.

Subsequent to the quarter, the Trust extended the maturity of its $200 million unsecured term loan by two years from February 2026 to March 2028, further enhancing its debt maturity profile. The loan was swapped last year to a fixed rate of 4.85% out to March 2028 and no changes were made to the rate or other substantive terms.

“With one remaining European mortgage maturity at the end of August that we expect to repay, we have effectively addressed all our 2024 debt maturities. With the successful refinancing of our largest 2024 debt maturity at favourable rates, we remain focused on executing on our organic growth initiatives which we expect will exceed the pressure from higher interest rates, translating into FFO per unit growth,” said Lenis Quan, Chief Financial Officer of Dream Industrial REIT. “With total available liquidity of nearly $600 million, we retain sufficient balance street strength and are well-positioned to execute on our strategic initiatives.”

CONFERENCE CALL

Senior management will host a conference call to discuss the financial results on Wednesday, August 7, 2024, at 11:00 a.m. (ET). To access the conference call, please dial 1-844-763-8274 in Canada or 647-484-8814 elsewhere. 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.com.

Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at June 30, 2024, Dream Industrial REIT owns, manages and operates a portfolio of 339 industrial assets (546 buildings) comprising approximately 71.9 million square feet of gross leasable area in key markets across Canada, Europe, and the U.S. Dream Industrial REIT’s objective 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.

FOOTNOTES

Non-GAAP financial measures and 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, 2024, dated August 6, 2024 (the “Q2 MD&A 2024”) 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 2024 and can be found under the section “Supplementary financial measures and ratios and other disclosures”. The Q2 MD&A 2024 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 outlook for organic NOI growth embedded in the Trust’s portfolio and expectations for its development program to more meaningfully contribute to its NOI and FFO as projects are competed and stabilize; dispositions and related opportunities to upgrade the Trust’s portfolio quality and improve FFO, cash flow and total return profile; the seeking of opportunities to recycle capital from non-core assets and markets and re-invest proceeds towards opportunities that are accretive on a total return basis; debt maturities; organic growth initiative and the Trust’s expectations that it will exceed pressure from higher interest rates, translating into FFO per unit growth; the Trust's continued evaluation of investments that meet its objectives; the Trust's maintenance of significant financial flexibility; the Trust’s goal of delivering 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; the performance and quality of its portfolio; 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 status of lease negotiations and expectation to capture strong income growth as spaces are leased; the Dream Summit JV and the opportunities provided by the venture to pursue acquisitions and boost its property management and leasing fee stream; 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 and six months ended June 30, 2024 and June 30, 2023 to net rental income.

Appendices

Reconciliation of FFO to net income
The table below reconciles FFO for the three and six months ended June 30, 2024 and June 30, 2023 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 June 30, 2024, December 31, 2023 and June 30, 2023.

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 June 30, 2024, December 31, 2023 and June 30, 2023.

Reconciliation of total debt to non-current debt
The table below reconciles total debt to non-current debt as at June 30, 2024, December 31, 2023 and June 30, 2023.

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 equivalent) to total assets as at June 30, 2024, December 31, 2023 and June 30, 2023.

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 ended June 30, 2024, December 31, 2023 and June 30, 2023, for the six months ended June 30, 2024, June 30, 2023 and June 30, 2022, and for the years ended December 31, 2023 and December 31, 2022.

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