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.
TORONTO–(BUSINESS WIRE)–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 and six months ended June 30, 2022. Management will host a conference call to discuss the financial results on August 3, 2022 at 10:00 a.m. (ET).
HIGHLIGHTS
Net income was $171.5 million in Q2 2022, a 7.0% increase when compared to $160.3 million in Q2 2021, primarily due to increases in fair value adjustments to investment properties. The net income in Q2 2022 consists of net rental income of $68.7 million, fair value adjustments to financial instruments of $84.2 million and cumulative other income and expenses of $18.6 million;
Diluted funds from operations (“FFO”) per Unit(1) was $0.22 in Q2 2022, a 12.6% increase when compared to Q2 2021, where the diluted FFO per Unit was $0.19;
Net rental income was $68.7 million in Q2 2022, a 34.5% increase when compared to $51.1 million in Q2 2021. Year-over-year net rental income increased by 49.5% in Ontario, 58.7% in Québec, 5.5% in Western Canada and 277.8% in Europe, primarily driven by acquisitions and comparative properties net operating income (“CP NOI”) (constant currency basis) growth;
CP NOI (constant currency basis)(2) was $46.3 million in Q2 2022, a 10.1% increase when compared to $42.1 million in Q2 2021. The Canadian portfolio posted a year-over-year CP NOI (constant currency basis) growth of 11.7%, predominantly driven by 12.4% and 15.6% CP NOI (constant currency basis) increases in Ontario and Québec, respectively. The European portfolio saw a 5.5% year-over-year CP NOI (constant currency basis) growth;
Total assets were $7.0 billion in Q2 2022, a 15.0% increase when compared to $6.1 billion in Q4 2021;
Total equity (excluding LP B Units)(3) was $4.3 billion in Q2 2022, a 23.7% increase when compared to $3.5 billion in Q4 2021;
Net asset value (“NAV”) per Unit(4) was $16.64 in Q2 2022, a 21.5% increase when compared to Q2 2021, where the NAV per Unit was $13.69. The increase in NAV per Unit largely reflects an increase in investment property values across the Trust’s portfolio as market rents continue to grow and private market demand for industrial assets remains robust.
(1) Diluted FFO per Unit is a non-GAAP ratio. Diluted FFO per Unit is comprised of FFO (a non-GAAP financial measure) divided by the weighted average number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
(2) Comparative properties net operating income (“CP NOI”) (constant currency basis) is a non-GAAP financial measure. The most directly comparable financial measure to CP NOI (constant currency basis) is net rental income. The tables included in the Appendices section of this press release reconcile CP NOI (constant currency basis) for the three and six months ended June 30, 2022 and June 31, 2021 to net rental income. For further information on this non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
(3) Total equity (including LP B Units) is a non-GAAP financial measure. Total equity (including LP B Units) is calculated as the sum of equity per the condensed consolidated financial statements and the subsidiary redeemable units. The tables included in the Appendices section of this press release reconcile total equity (including LP B Units) as at June 30, 2022, December 31, 2021 and June 31, 2021 to total equity (excluding LP B Units). For further information on this non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
(4) NAV per Unit is a non-GAAP ratio. NAV per Unit is comprised of total equity (including LP B Units) (a non-GAAP financial measure) divided by the number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
The Trust continues to make significant progress on strategic initiatives to maximize organic and external growth drivers while maintaining a strong and flexible balance sheet.
Organic growth – Leasing momentum across the Trust’s portfolio remains robust and the Trust signed approximately 1.4 million square feet of renewals and new leases across its portfolio since the beginning of Q2 2022, at an average rental spread of 34% over prior or expiring rents. The Trust’s leasing momentum has resulted in a 40 basis points increase in in-place and committed occupancy from 98.7% as at March 31, 2022, to 99.1% as at June 30, 2022. The Trust continues to expect strong rental rate growth as leases expire. As at June 30, 2022, estimated market rents across the Trust’s portfolio exceeded the average in-place base rent by over 20%.
Development pipeline – Construction commenced on two projects over the quarter, at the Trust’s inaugural 154,000 square foot ground-up development in Caledon in the Greater Toronto Area (“GTA”) as well as a 120,000 square foot expansion in Montréal. The Trust is currently under construction on over 680,000 square feet of projects across Canada and Europe and is in the final stages of advancing the construction of 800,000 square feet of projects in the near term. Overall, the Trust’s development and expansion pipeline totals approximately 3.4 million square feet, located in land-constrained markets in Canada and Europe. During the quarter, The Trust signed a lease at its 43,000 square foot expansion in the GTA at a rental rate of $15.50 per square foot, resulting in an unlevered yield on cost of over 11%. The lease is expected to commence in Q4 2022. Subsequent to quarter-end, the Trust completed a new lease for its 120,000 square foot expansion in Montreal resulting in an expected yield on cost of over 8%.
Continued upgrading of portfolio quality – Since the end of Q1 2022, the Trust completed approximately $368 million of previously announced acquisitions in Canada and Europe, which added nearly 1.9 million square feet of income-producing assets.
Significant balance sheet capacity and ample liquidity – The Trust ended Q2 2022 with total available liquidity(1) of $429 million. The Trust’s net total debt-to-total-assets (net of cash and cash equivalents) ratio(2) was 29.7% as at June 30, 2022, which provides over $500 million of balance sheet capacity before the Trust’s net total debt-to-total-assets (net of cash and cash equivalents) ratio(2) reaches the Trust’s target in the mid-30% range. During Q2 2022, DBRS Morningstar confirmed the Trust’s BBB-mid investment grade credit rating.
(1) Available liquidity is a non-GAAP financial measure. The tables included in the Appendices section of this press release reconcile available liquidity as at June 30, 2022, December 31, 2021 and June 31, 2021 to cash and cash equivalents. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
(2) Net total debt-to-total assets (net of cash and cash equivalents) is a non-GAAP ratio. Net total debt-to-total assets (net of cash and cash equivalents) ratio is comprised of net total debt (a non-GAAP financial measure) divided by total assets (net of cash and cash equivalents) (a non-GAAP financial measure). For further information on this non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
FINANCIAL HIGHLIGHTS
SELECTED FINANCIAL INFORMATION
(unaudited)
Three months ended
Six months ended
June 30,
June 30,
June 30,
June 30,
(in thousands of dollars except per Unit amounts)
2022
2021
2022
2021
Operating results
Net rental income
$
68,729
$
51,095
$
134,042
$
97,757
CP NOI (constant currency basis)(1)
46,345
42,076
85,056
77,325
Net income
171,480
160,295
614,369
255,559
Funds from operations (“FFO”)(2)
58,925
39,158
115,563
74,066
Per Unit amounts
FFO – diluted(3)(4)
$
0.22
$
0.19
$
0.43
$
0.38
Distribution rate
0.17
0.17
0.35
0.35
See footnotes at end.
PORTFOLIO INFORMATION
(unaudited)
As at
June 30,
December 31,
June 30,
(in thousands of dollars)
2022
2021
2021
Total portfolio
Number of assets(5)(6)
257
239
215
Investment properties fair value
$
6,407,001
$
5,696,607
$
4,689,801
Gross leasable area (“GLA”) (in millions of sq. ft.)(6)
46.0
43.0
38.5
Occupancy rate – in-place and committed (period-end)(7)
99.1%
98.2%
98.0%
Occupancy rate – in-place (period-end)(7)
98.6%
97.7%
97.4%
See footnotes at end.
FINANCING AND CAPITAL INFORMATION
(unaudited)
As at
June 30,
December 31,
June 30,
(in thousands of dollars except per Unit amounts)
2022
2021
2021
FINANCING
Credit rating- DBRS
BBB (mid)
BBB (mid)
BBB (mid)
Net total debt-to-total assets (net of cash and cash equivalents) ratio(8)
29.7%
31.6%
37.9%
Net total debt-to-normalized adjusted EBITDAFV ratio (years)(9)
7.8
8.0
8.6
Interest coverage ratio (times)(10)
12.7
8.0
5.2
Weighted average face interest rate on debt
1.01%
0.83%
1.49%
Weighted average remaining term to maturity on debt (years)
3.3
3.8
4.4
Unencumbered investment properties(11)
$
4,916,710
$
4,154,925
$
2,322,719
Cash and cash equivalents
$
81,311
$
164,015
$
313,249
Available liquidity (period-end)(12)
$
429,062
$
511,612
$
663,249
CAPITAL
Total equity (excluding LP B Units)
$
4,328,951
$
3,499,423
$
2,841,735
Total equity (including LP B Units)(13)
$
4,553,057
$
3,818,886
$
3,215,207
Total number of Units (in thousands)(14)
273,552
252,417
228,367
Net asset value (“NAV”)per Unit(15)
$
16.64
$
15.13
$
13.69
Unit price
$
12.08
$
17.22
$
15.28
See footnotes at end.
“Dream Industrial’s Q2-2022 operating results with double digit FFO per unit and CP NOI (constant currency basis) growth continue to showcase the quality and stability of our business as well as the inherent growth opportunities embedded in our portfolio,” said Brian Pauls, Chief Executive Officer of Dream Industrial REIT. “Despite a volatile economic backdrop, private market demand for well-located industrial assets continues to be strong and we continue to successfully execute on our strategic pillars of enhancing organic growth and improving portfolio quality, while maintaining a strong and flexible balance sheet.”
ORGANIC GROWTH
Robust leasing momentum at attractive rental spreads and solid contractual rent growth – Since the end of Q1 2022, the Trust has signed approximately 1.4 million square feet of new leases and renewals at an average spread of 34%.
In Canada, the Trust signed approximately 1.1 million square feet of leases at an average spread of 39%; and
In Europe, the Trust signed approximately 0.3 million square feet of leases at an average spread of 11%.
The Trust has provided a summary of its recent leasing highlights below:
The Trust signed two renewals for a combined 125,000 square feet in Quebec while achieving more than a 110% premium over the expiring rents with an average 3.3% annual contractual rental growth.
In Ontario, the Trust signed three renewals for a combined 115,000 square feet while doubling the rent and securing 3.5% annual contractual rental growth over the term.
The Trust signed a new lease with one of Canada’s largest necessity retailers at its 43,000 square foot expansion in the GTA expected to be completed in November 2022. The Trust achieved a rental rate of $15.50 with 3% annual contractual rent growth for a 10-year term, which resulted in an unlevered yield on cost of over 11%.
Subsequent to quarter-end, the Trust signed a new lease at its 120,000 square foot expansion in Montreal expected to be completed in Spring 2023. The Trust achieved a rental rate of $14.00 with 4% annual contractual rent growth for a 5-year term, which is expected to result in an unlevered yield on cost of over 8%.
In addition to strong rental spreads, the Trust continues to add contractual rent growth to its leases. In its Canadian portfolio, the current leases have embedded contractual rent growth of over 2.5%. In the Trust’s European portfolio, approximately 90% of the leases are indexed to the consumer price index (“CPI”).
The Trust expects to achieve strong rental rate growth over time as it sets rents on expiring leases to market as market rents continue to increase across the Trust’s operating markets. During the quarter, the estimated market rent of properties in the Trust’s portfolio increased by 8% compared to March 31, 2022. As at June 30, 2022, current market rents exceed the average in-place base rent across the Trust’s portfolio by over 20%.
Solid pace of CP NOI (constant currency basis)(1) growth – CP NOI (constant currency basis) for the three and six months ended June 30, 2022 was $46.3 million and $85.1 million, respectively. For the same periods in 2021, CP NOI (constant currency basis) was $42.1 million and $77.3 million, respectively. This represents an increase of 10.1% for the three months ended June 30, 2022, and 10.0% for the six months ended June 30, 2022 compared to the prior year comparative periods.
The growth in CP NOI (constant currency basis) was led by a 12.4% and 15.2% year-over-year increase in CP NOI (constant currency basis) in Ontario for the three and six months ended June 30, 2022, respectively. This was driven primarily by increasing rental spreads on new and renewed leases where the average in-place base rent increased by 9.2% and 9.4%, respectively, along with a 160 and 320 basis points increase in average occupancy, respectively, for the three and six months ended June 30, 2022.
In Québec, year-over-year CP NOI (constant currency basis) growth was 15.6% and 14.1% for the three and six months ended June 30, 2022, respectively. As a result of significant rental spreads and contractual rent escalations from existing leases, the average in-place rent increased by 10.5% and 7.3% for the three and six months ended June 30, 2022, respectively
In Europe, strong leasing activity and CPI indexation resulted in a 4.6% and 5.1% increase in in-place base rent which drove year-over-year CP NOI (constant currency) growth of 5.5% and 5.6% for the three and six months ended June 30, 2022, respectively. During Q2 2022, CPI indexation on European leases resulted in an approximately 2.5% increase in comparative properties NOI growth.
In-place and committed occupancy – The Trust’s leasing momentum has resulted in a 40 basis points increase in in-place and committed occupancy from 98.7% as at March 31, 2022 to 99.1% at June 30, 2022. The Trust’s portfolio remains essentially full and uncommitted expiries over the balance of 2022 represent less than 3.5% of the Trust’s portfolio.
Net rental income for the quarter and year-to-date – Net rental income for the three and six months ended June 30, 2022 was $68.7 million and $134.0 million, respectively, representing an increase of $17.6 million, or 34.5%, and $36.3 million, or 37.1% relative to the prior year comparative periods. Year-over-year net rental income increased by 49.5% in Ontario, 58.7% in Québec, 5.5% in Western Canada and 277.8% in Europe. The increase was mainly driven by strong comparative properties NOI (constant currency basis) growth in 2022 and the impact of acquired investment properties in 2022 and 2021.
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 3.4 million square feet of projects that are currently underway or in planning stages.
The Trust is currently underway on 683,000 square feet of projects across the GTA, Greater Montréal Area, and Europe. With a total expected cost of approximately $114 million, the Trust expects unlevered yield on cost of approximately 7.3% upon completion. The Trust expects all of these projects to be completed in the next 9–12 months.
The 8-acre Abbotside site is attractively located in close proximity to Highway 410 in Caledon. The Trust is currently underway on the development of a 154,000 square foot logistics facility. Construction has commenced with completion targeted for the first half of 2023 with a forecast unlevered yield on cost of over 7%.
The Trust is currently under construction on a 241,000 square foot logistics facility in Germany which should improve site density by approximately 20%, with an estimated yield on cost of 6.5%. Construction commenced during Q2-2022 with completion expected in 2022. The Trust is in advanced negotiations with several tenants to lease the entire expansion.
The Trust is advancing a 120,000 square foot expansion of an existing building in Montreal. Construction commenced over the quarter and completion is expected in early 2023. Subsequent to quarter-end, the Trust finalized a lease for the entire expansion which should result in an unlevered yield on cost of over 8%.
The Trust recently completed a 65,000 square foot expansion comprised of two buildings at its recently acquired 600,000 square foot high-tech and industrial cluster in The Hague, Netherlands. The expansions have been leased with occupancy starting during the second quarter, with an unlevered yield on construction costs of approximately 6.2%.
The Trust has an additional 1.9 million square feet of projects at its share that are in the final stages of planning with targeted completion in the coming 2 to 3 years. With a total cost of approximately $433 million, the Trust expects unlevered yield on cost of approximately 6.0% on average.
In addition to the above projects, the Trust is in the preliminary stages of planning for approximately 0.9 million square feet of near-term expansion and redevelopment opportunities.
ACQUISITIONS
Since the end of Q1 2022, the Trust acquired approximately $368 million of properties in Canada and Europe, which added nearly 1.9 million square feet of income-producing assets as well as 19.5 acres of development land in the Balzac sub-market of Calgary.
In Canada, the Trust acquired seven income-producing assets totalling 491,000 square feet for $136 million. These assets are primarily located in the GTA, and
In Europe, the Trust acquired eight income-producing assets totalling 1.4 million square feet for $221 million.
Acquisitions completed during Q2-2022
See Figure 1, Acquisitions completed during Q2 2022.
“We continue to balance our strategy of maximizing organic growth and focused capital deployment,” said Alexander Sannikov, Chief Operating Officer of Dream Industrial REIT. “Industrial market fundamentals remain robust, and we continue to see tight supply, low availability, and strong capital values. Our asset management strategy is focused on maximizing rental rate growth across all our markets and surfacing value from our portfolio through our development pipeline.”
CAPITAL STRATEGY
The Trust continues to maintain significant financial flexibility as it executes on its strategy to grow and upgrade portfolio quality. Over the past 24 months, the Trust has successfully transitioned its debt profile to be largely unsecured, with the proportion of secured debt(16) dropping to 7.6% of total assets and to approximately 25% of total debt(17), compared to 47.6% one year ago. On a year-over-year basis, the Trust’s average cost of debt decreased 48 basis points from 1.49% in Q2 2021 to 1.01% in Q2 2022. Additionally, the Trust’s unencumbered asset pool totalled $4.9 billion as at June 30, 2022, representing approximately 77% of the Trust’s investment properties value.
The Trust ended Q2 2022 with total available liquidity(12) of approximately $429 million including cash and cash equivalents of $81.3 million, with an additional $150 million of liquidity provided by the accordion feature on the Trust’s unsecured operating facility. During the quarter, DBRS Morningstar Limited confirmed the Trust’s BBB-mid Investment Grade rating, reflecting the quality and stability of the Trust’s portfolio and the strength and flexibility of the Trust’s balance sheet.
“We continue to focus on maintaining a strong and flexible balance sheet,” said Lenis Quan, Chief Financial Officer of Dream Industrial REIT. “Our conservative financial policies have resulted in low leverage and significant balance sheet capacity to execute on upgrading the quality of our portfolio. We continue to maintain one of the strongest balance sheets in the Canadian REIT sector and are well-positioned to continue to grow NAV and FFO per unit”.
CONFERENCE CALL
Senior management will host a conference call to discuss the financial results on Wednesday, August 3, 2022, at 10:00 a.m. (ET). To access the conference call, please dial 1-866-455-3403 in Canada or 647-484-8332 elsewhere and use passcode 91266919#. 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.sedar.com.
Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at June 30, 2022, Dream Industrial REIT owns, manages and operates a portfolio of 257 industrial assets (372 buildings) comprising approximately 46.0 million square feet of gross leasable area in key markets across Canada, Europe, and the U.S. Dream Industrial REIT’s objective is to continue to grow and upgrade the quality of its portfolio which primarily consists of distribution and urban logistics properties and to provide attractive overall returns to its unitholders. For more information, please visit www.dreamindustrialreit.ca.
FOOTNOTES
CP NOI (constant currency basis) is a non-GAAP financial measure. The most directly comparable financial measure to CP NOI (constant currency basis) is net rental income. The table included in the Appendices section of this press release reconcile CP NOI (constant currency basis) for the three and six months ended June 30, 2022 and June 30, 2021 to net rental income. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
FFO is a non-GAAP financial measure. The most directly comparable financial measure to FFO is net income. The tables included in the Appendices section of this press release reconcile FFO for the three and six months ended June 30, 2022 and June 30, 2021 to net income. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.
Contacts
Dream Industrial REIT
Brian Pauls
Chief Executive Officer
(416) 365-2365
bpauls@dream.ca
Lenis Quan
Chief Financial Officer
(416) 365-2353
lquan@dream.ca
Alexander Sannikov
Chief Operating Officer
(416) 365-4106
asannikov@dream.ca