Dream Industrial Real Estate Investment Trust

Good afternoon, ladies and gentlemen. Welcome to the DREAM Industrial REIT fourth quarter conference call for Wednesday, February 15, 2023. During this call, management of DREAM Industrial REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. 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 DREAM Industrial REITs control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in DREAM Industrial REITs filings with securities regulators, including its latest annual information form and MD&A These filings are also available on Dream Industrial REIT's website at www.dreamindustrialreit.ca. Later in the presentation, we will have our question and answer session. To queue up with your question, please press star 1-1 on your telephone keypad. Your host for today will be Mr. Brian Pauls, CEO of Dream Industrial REIT. Mr. Pauls, please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us today for Dream Industrial REIT's year-end 2022 conference call. Speaking with me today is Lennis Kwon, our Chief Financial Officer, and Alex Sanikoff, our Chief Operating Officer. 2022 was another strong year for industrial real estate. Despite several macro headwinds during the year, the operating fundamentals of our markets have not skipped a beat and have continued to strengthen. The outlook remains robust. Vacancy across our Canadian and European markets remains at record lows. We have seen strong market rent growth in Ontario, Quebec, and in Europe. In Western Canada, rental growth is starting to accelerate. Supply remains limited in all our markets with building restrictions and rising replacement costs. We have significant growth opportunities embedded in our portfolio as in-place rents are well below market. Against this attractive backdrop, in 2022, we delivered strong operating and financial results and completed a number of key strategic initiatives that enhance our growth trajectory going forward. We reported 9.6% comparative properties NOI growth during the quarter and 10.5% for the year, which was ahead of the guidance issued at the beginning of the year. FFO per unit was 23 cents in Q4, up 10% year over year. We reported 89 cents for a the full year, up 9% year over year, also at the upper end of our guidance. We completed over half a million square feet of developments during the year at an average yield on cost of above 7.5%. Over the past three years, we've positioned our business to have a strong and flexible balance sheet, allowing us to pursue strategic initiatives while adding multiple drivers of growth across the portfolio. Our results and initiatives in 2022 reflect this effort. Our portfolio quality is the strongest it's ever been following strategic recycling out of low-quality, capital-intensive, and low-growth assets into modern logistics properties located in Toronto, Montreal, and some of the best markets in Europe. Our portfolio has strong occupancy at nearly 99% with a balanced lease rollover profile allowing us to focus on capturing upside while managing risk effectively. We increased our average contractual rent steps across our Canadian portfolio to above 2.5%, currently up from 2% in 2021. Our European leases are largely indexed to CPI. Our development program started to contribute to our FFO and NAV per unit this year. We expect this contribution to grow as we complete projects in our pipelines. We are pursuing value-added projects across the portfolio, ranging from refurbishing buildings to solar panes. In addition to these organic growth drivers, since 2021, we were actively focused on expanding our strategic partnerships with private capital markets. These partnerships allow us to grow the scale of our platform, enhance the returns on capital invested through fee income, and access investment opportunities that would be difficult for us to pursue otherwise without reliance on capital markets. In 2021, we seeded the U.S. Industrial Fund and maintained a 25% share in the fund as it continued to add scale in the U.S. and improve asset quality. As the property and leasing manager of the fund, DIR earns PM and leasing fees. The net margin on this fee business was $3.6 million in 2022. In April 2022, we formed a $1.5 billion developed to hold joint venture with a leading sovereign wealth fund to further scale our greenfield development program and increase our presence in the greater Toronto area and greater Golden Horseshoe area. Through this partnership, we'll have access to high quality development opportunities in our primary markets. As these development projects reach stabilization, we will be earning leasing and property management fees, enhancing our development returns further. Most recently, the formation of Dream Summit's joint venture with GIC allowed us to increase scale in some of the tightest markets globally, deploy our balance sheet into a high-quality portfolio with significant embedded upside while generating immediate accretion to our FFO per unit. Subsequent to the transaction, we will co-own and manage one of the largest portfolios of industrial real estate in Canada with 43 million square feet of high-quality properties primarily located in Ontario and Quebec. We will also have exposure to over 6 million square feet of near-term development projects in Canada. Proforma, the Dream Summit venture, our co-owned and managed portfolio, will grow to over 69 million square feet across Canada, U.S., and Europe, with 46% of the GLA in Ontario and Quebec, up from 33% a year ago. In addition to development upside, we believe that Summit's portfolio offers strong organic growth prospects. While the mark-to-market potential in DIR's Canadian portfolio is strong at over 50%, we believe that the embedded upside within the Summit portfolio is significantly higher. Beyond the significant merits of the real estate itself, our programmatic JV with GIC provides an incredible opportunity to continue growing in our core markets and attractive economics to the REIT. With the property management and leasing fee income, we expect the summit transaction to be one to two cents accretive to our FFO per unit for 10 months in 2023. We expect the accretion from the transaction to more than double over the next three to four years as we grow the NOI of the portfolio organically and as the property management and leasing fee stream increases with higher rents and income. Overall, our outlook for 2023 and beyond remains positive as we continue focusing on executing on our growth strategies across our entire platform. I'll now turn it over to Alex to talk about our operations.

Thank you, Brian. Good afternoon, everyone. 2022 was an exciting year for DIR as we outperformed our leasing and portfolio management goals. Tenant demand for industrial product remains robust across our market. During Q4, we transacted 1.5 million square feet of leases across our portfolio, achieving a rental spread of nearly 60%. More than half of these leases were in Ontario and Quebec, where we more than doubled the rents. For the year, we transacted 7.2 million square feet at an average spread of over 30%. In Canada, we transacted 4.6 million square feet at an average spread of 47%, led by Ontario at 87%, and Quebec at 62%. Toronto and Montreal markets continue to display robust fundamentals, and we expect rents to continue increasing. Our Western Canada markets, particularly Calgary, have performed well. We're starting to see accelerating rental growth as vacancy rates tighten and supply remains constrained. Our asset management strategies have allowed us to drive 11% comparative properties NOI growth in Canada for 2022. We expect the space of organic growth in Canada to continue, driven by strong contractual rent steps and mark-to-market of leases on rollover. In Europe, the macroeconomic sentiment has improved considerably over the course of the year, while industrial rents continued increasing with limited vacancy and new supply. Our portfolio remains essentially full at over 99% occupancy, as we transacted 2.6 million square feet of leases at a 7% spread to expiring rents. These rental rate increases are above and beyond the CPI indexation that we captured on our European leases over the course of 2022. CPI indexation had a significant contribution to our 9.2% CPI growth for the year. We continue to see strong demand from occupiers. For example, in our portfolio alone, we are currently in discussions with several tenants in the Netherlands, France, and Germany regarding possible expansions on excess land totaling approximately half a million square feet. We expect 2023 CP NOI growth in Europe to remain strong in the mid to high single-digit range driven by CPI rent adjustments and rent mark-to-market. Overall, we expect our comparative properties NOI growing at 8 to 10 percent in 2023. As Brian mentioned in his remarks, we achieved strong development yields on our initial slate of projects and outperformed our underwriting. We have a number of projects that are currently underway and 2023 will be another active year on the development front. We're in advanced stages of construction on our 155,000 square foot ground up development in Caledon. We expect completion in mid 2023 and are currently engaging with prospective tenants. We commence construction for a ground up development project in Cambridge. This 440,000 square foot building is part of our GTA land joint venture. We expect to finish construction in the first half of 2024 and are forecasting yield on cost well above 6% before any property management and leasing fees. We're currently underway on our redevelopment of a three-building cluster on a 10-acre site in Mississauga into a 210,000-square-foot net-zero design state-of-the-art logistics facility. The rendering of this project is featured on the cover of our annual report. We commence the demolition of the current buildings in late 2022 and expect to finish construction in the first half of 2024. We are already receiving strong tenant interest, and with that, we expect this project to deliver an unlevered yield on cost well in excess of 6% as well. Including projects in advanced stages of planning, we have over 2.2 million square feet of active projects that are expected to be completed over the next 12 to 30 months. Incremental costs on these projects are expected to be approximately $350 million, with a forecast yield on incremental capital of over 9%. Through our Dream Summit venture, we will get access to an additional 3 million square foot pipeline of projects currently underway, primarily located in the GTA and southwestern Ontario. We also expect strong returns from these development projects that will be further enhanced through the leasing and property management of these streams. To wrap up, I wanted to highlight that over the past few years, we have curated the portfolio strategically with the goal of maximizing the organic growth profile of our business. Our asset management strategies, development, and sustainability initiatives are all expected to be accretive to our returns and surface value from our assets. This year's strong results showcase the level of organic growth that can be produced by our portfolio. With the Dream Summit venture, we are positioned to be one of the top three industrial landlords and managers in Canada across public and private markets. We expect that this scale will allow us to be more efficient as we execute on our asset management and development initiatives and build strategic relationships with our tenants across the country. I will now turn it over to Lennis to talk about our financial highlights.