Mr. Brian Pauls reports

DREAM INDUSTRIAL REIT REPORTS STRONG Q1 2023 FINANCIAL RESULTS

Dream Industrial Real Estate Investment Trust has released its financial results for the three months ended March 31, 2023. Management will host a conference call to discuss the financial results on May 3, 2023, at 1 p.m. ET.

Highlights

• Diluted funds from operations (FFO) per unit was 25 cents in Q1 2023, a 13.3-per-cent increase when compared with 22 cents in Q1 2022;
• Comparative properties net operating income (CP NOI) (constant currency basis) was $74.8-million in Q1 2023, a 13.0-per-cent increase when compared with $66.2-million in Q1 2022. The Canadian portfolio posted a year-over-year CP NOI (constant currency basis) growth of 14.3 per cent, driven by 22.3 per cent, 9.6 per cent and 7.3 per cent CP NOI (constant currency basis) increases in Ontario, Western Canada and Quebec, respectively. The European portfolio saw a 12.2-per-cent year-over-year CP NOI (constant currency basis) growth.
• Net rental income was $81.5-million in Q1 2023, a 24.7-per-cent increase when compared with $65.3-million in Q1 2022. Year-over-year net rental income increased by 30.1 per cent in Ontario, 14.3 per cent in Quebec, 8.3 per cent in Western Canada and 32.3 per cent in Europe, primarily driven by acquisitions and growth in CP NOI (constant currency basis);
• Net loss was $17.7-million in Q1 2023, a decrease of $460.6-million when compared with net income of $442.9-million in Q1 2022, consisting of net rental income of $81.5-million, fair value adjustments to investment properties of $8.7-million, fair value adjustments to financial instruments of ($64.6)-million and other expenses of $43.3-million;
• Total assets were $7.8-billion as at March 31, 2023, a 7.3-per-cent increase when compared with $7.3-billion as at Dec. 31, 2022, driven by acquisitions and higher investment property values;
• Total equity (including LP B units) and total equity (per condensed consolidated financial statements) was $4.7-billion and $4.4-billion as at March 31, 2023, respectively. This represents a 0.7-per-cent increase and 0.6-per-cent decrease, respectively, when compared with Dec. 31, 2022;
• Net asset value (NAV) per unit was $17.03 as at March 31, 2023, a 3.3-per-cent increase when compared with the NAV per unit of $16.48 as at March 31, 2022, driven by higher investment property values across the trust's portfolio due to continued growth in market rents.

"Dream Industrial had a strong start to 2023 with several initiatives completed during the quarter," said Brian Pauls, chief executive officer of Dream Industrial REIT. "The acquisition of Summit has positioned us as one of the largest industrial platforms in the country with opportunities to grow accretively through our private capital partnerships and achieve synergies with tenants. Industrial fundamentals continue to be robust and our high-quality global portfolio continues to outperform. For the quarter, we delivered 13-per-cent CP NOI and FFO per unit growth, while preserving balance sheet quality and flexibility. Looking forward, we are well positioned to continue to deliver sector-leading organic growth and create value for our unitholders."

Organic growth

• Robust leasing momentum at attractive rental spreads -- Since the end of Q4 2022, the trust has signed approximately 900,000 square feet of new leases and renewals at an average spread of 41 per cent over prior or expiring rents.
  • In Canada, the trust signed 692,500 square feet of leases, achieving an average spread to expiry of 48.5 per cent and an annual contractual rent growth of over 3 per cent.
  • In Europe, the trust signed 253,000 square feet of leases at an average spread of 13.1 per cent. All of the leases are fully indexed to CPI.
• The Dream Summit JV completed or finalized terms on over 500,000 square feet of new leases and renewals at an average spread of 150 per cent over prior/expiring rents, since the closing of the transaction on Feb. 17, 2023.
  • Solid pace of CP NOI (constant currency basis) growth -- CP NOI (constant currency basis) for the three months ended March 31, 2023, was $74.8-million, compared with $66.2-million in the prior-year quarter. This represents an increase of 13.0 per cent for the three months compared with the prior year comparative period.
    • In Canada, CP NOI growth for the quarter was 14.3 per cent, led by a 22.3-per-cent year-over-year increase in CP NOI in Ontario for the three months ended March 31, 2023. This was driven primarily by increasing rental spreads on new and renewed leases where the average in-place base rent increased by 15.1 per cent, along with a 160-basis-point increase in average occupancy.
    • In Quebec, year-over-year CP NOI (constant currency basis) growth was 7.3 per cent for the three months ended March 31, 2023. The year-over-year CP NOI growth and occupancy were impacted by vacancy at a 225,000-square-foot property located near the Port of Montreal. The vacancy was anticipated by the trust for over a year; in early 2022, the trust identified this property as a redevelopment and expansion opportunity, given the site's significant excess land component. Due to the overall strength of the Montreal market as well as the significant demand for properties that offer outside storage possibilities, the trust is also evaluating the prospects of leasing the property on an "as-is" basis. The trust currently estimates the market for the existing property to exceed the prior rent by up to 50 per cent. Excluding this property, CP NOI growth for the Quebec portfolio and the overall Canadian portfolio would have increased to 14.9 per cent and 16.6 per cent, respectively.
    • In Europe, lease-up of an expansion at the trust's property in Dresden, Germany and the Hague in Netherlands, in addition to CPI indexation, drove year-over-year CP NOI (constant currency basis) growth of 12.2 per cent for the three months ended March 31, 2023.
  • In-place and committed occupancy -- The trust's in-place and committed occupancy remained strong at 98.6 per cent, compared with 98.9 per cent as at Dec. 31, 2022, slightly impacted by the aforementioned vacancy in Montreal. The trust has 6.9 per cent of its portfolio GLA maturing in 2023, including over 1.5 million square feet in Ontario and Montreal, providing the trust with significant opportunities to capture rent increases in these markets.
  • Net rental income for the quarter and year to date -- Net rental income for the three months ended March 31, 2023, was $81.5-million, representing an increase of $16.1-million or 24.7 per cent relative to the prior-year comparative period. The increase was mainly driven by strong comparative properties NOI (constant currency basis) growth in 2023 and the impact of acquired investment properties in the past year. Included in net rental income for the three months ended March 31, 2023, was $1.1-million of lease termination income related to an anticipated vacancy at a 190,000-square-foot building in Europe.

Investment update

On Feb. 17, 2023, Dream Summit Industrial LP, a limited partnership owned by a joint venture, between GIC and the trust in which the trust has a 10-per-cent interest, acquired all of the assets and assumed all of the liabilities of Summit Industrial Income REIT in a transaction valued at approximately $5.9-billion. The trust acquired a 10-per-cent interest, representing an approximately $473-million total equity contribution, and provides property management and leasing services to the Dream Summit JV on market terms. The Dream Summit JV is expected to provide a new source of growth capital for the trust to pursue strategic acquisitions and significantly boosts the trust's property management and leasing fee stream. For the quarter, including fees earned from the U.S. Industrial Fund and the Dream Summit JV since the close of the transaction on Feb. 17, 2023, the trust's total property management and leasing margin was $1.6-million, 36 per cent higher year over year. The trust expects this income stream to continue to grow over time.

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 3.8 million square feet of development projects that are either currently under way or in planning stages.

• Over the past 12 months, the trust has completed and substantially completed approximately 697,000 square feet of development projects across Canada and Europe at an unlevered yield of nearly 8 per cent. During the quarter, the trust substantially completed and leased a 120,000-square-foot expansion at a property in Montreal, which resulted in an unlevered yield on cost of 8.4 per cent.
• The trust currently has an additional 800,000 square feet of projects under way across Canada including the trust's share of projects held in the development JV. With a total expected cost of approximately $199-million (estimated costs to completion of $89-million), the trust expects unlevered yield on development cost of approximately 6.4 per cent upon completion. The trust expects these projects to be completed in the next 12 to 18 months.
• The trust has an additional 1.4 million square feet of projects at its share that are in the final stages of planning with targeted completion in the coming two years. In addition, the trust is in the preliminary stages of planning for approximately 900,000 square feet of near-term expansion and redevelopment opportunities in Europe.
• The trust holds a 10-per-cent interest in the Dream Summit JV, which has exposure to approximately 2.6 million square feet of development projects. This development pipeline is comprised of 1.8 million square feet of projects under way as well as 800,000 square feet in advanced stages of preconstruction, mainly located the Greater Toronto Area and Greater Montreal Area.

"Comparative properties NOI growth from our portfolio strengthened further in the first quarter of 2023, after a record 2022," said Alexander Sannikov, chief operating officer of Dream Industrial REIT. "The gap between in-place and market rents remains wide and should allow for healthy organic growth as tenant demand for industrial space continues to remain strong. In addition to robust organic growth outlook, our development and solar panel program are accretive drivers of cash flow and NAV growth while improving the overall quality of our portfolio. Our increased focus on private capital partnerships has been successful and we now property manage 33 million square feet of industrial GLA for our institutional partners in Canada and the U.S., resulting in a strong and predictable revenue stream."

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 is 6.7 per cent of total assets and represents 18.4 per cent of total debt, compared with 27.9 per cent one year ago. Additionally, the trust's unencumbered asset pool totalled $5.4-billion as at March 31, 2023, representing approximately 79.1 per cent of the trust's investment properties value as at March 31, 2023.

During the quarter, the trust enhanced its liquidity with the issuance of $200-million Series F unsecured debentures at an interest rate of 5.383 per cent. The trust utilized the proceeds to partly repay the outstanding balance on its unsecured credit facility. The trust ended Q1 2023 with total available liquidity of $430.6-million including cash and cash equivalents of $77.7-million. In addition, the trust has access to an additional $250-million of liquidity through the accordion on its unsecured credit facility.

"We continue to focus on maintaining a strong and flexible balance sheet with ample liquidity as we execute on our strategic initiatives," said Lenis Quan, chief financial officer of Dream Industrial REIT. "Our near-term capital deployment opportunities are centred around funding our development and solar program, as well as growing through our private capital partnerships, both of which generate attractive returns and improve the overall quality of our portfolio and business."

Management update

The trust announced effective today the promotion of Alexander Sannikov to president and chief operating officer. Mr. Sannikov has been the chief operating officer for over three years and has progressively expanded his responsibilities including most recently the oversight of the trust's property management and leasing platform for the Dream Summit JV. Mr. Pauls will continue his role as chief executive officer.

Conference call

Senior management will host a conference call to discuss the financial results on Wednesday, May 3, 2023, at 1 p.m. ET. To access the conference call via webcast, please go to Dream Industrial REIT's website 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 90 days following the call.

About Dream Industrial Real Estate Investment Trust

Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at March 31, 2023, Dream Industrial REIT owns, manages and operates a portfolio of 321 industrial assets totalling approximately 70.4 million square feet of gross leasable area in key markets across Canada, Europe and the United States. Dream Industrial REIT's goal is to deliver 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 driving growth in its net asset value and cash flow per unit.

We seek Safe Harbor.