Dream Industrial Real Estate Investment Trust

Good morning, ladies and gentlemen. Welcome to the Dream Residential REIT second quarter conference call for Thursday, August 3, 2023. During this call, management of Dream Residential 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 Residential REACH control that could cause actual results to differ materially from those that are disclosed or in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Residential REACH filings with securities regulators, including its MD&A. These filings are also available on Dream Residential REACH website at www.dreamresidentialREIT.ca. Later in the presentation, we will have a question and answer session. To queue up for a question, press star one on your telephone keypad. Your host for today will be Mr. Brian Pauls, Chief Executive Officer of Dream Residential REIT. Mr. Pauls, please go ahead.

Good morning, everyone, and thank you for joining us today for Dream Residential REIT's second quarter 2023 conference call. Speaking with me today are Scott Schuman, our Chief Operating Officer, and Derek Lau, our Chief Financial Officer. We are pleased with this quarter's results and report NOI for Q2 2023 of $6.1 million and FFO per unit of $0.18. Both are consistent with the previous IPO forecast. Following the second quarter, we have now concluded our inaugural year and 12-month IPO forecast. We have successfully delivered NOI that was consistent with our IPO forecast and FFO per unit of 66 cents, which is a penny ahead of forecast. Our in-house ability to add value and drive growth continues to be a contributor to our financial performance. Broader Sunbelt markets are showing signs of moderation with new supply pressures. However, our rents have continued to grow across all markets, and the new supply is largely geared toward luxury-style apartments compared to our focus on garden-style communities. We remain confident in our ability to drive rental rate growth, and our value add initiatives continue to be a differentiator. We will continue to use our strong cash flow and balance sheet to invest in our properties to improve quality and facilitate rent growth. In addition, with nearly 30 percent of our portfolio rents from Cincinnati, we have exposure to one of the strongest rent growth areas in the United States. With the interest rate environment that appears that it will be higher for longer, our portfolio is well-positioned to remain strong during this time. Our balance sheet is safe with low leverage combined with a lengthy and staggered debt maturity profile. We remain focused on maintaining balance sheet flexibility and investing capital prudently. I will now turn it over to Scott to provide an operations update for the quarter. Go ahead, Scott. Scott Walker Thank you, Brian.

Management is excited to report that we have completed our first full four-quarter year of operations in line with the original IPO forecast that was finalized nearly two years ago in late 2021. Actual net operating income of $23.34 million exceeded the original forecast NOI of $23.31 million, leading to a 14% same property NOI compound annual growth rate. While operating expenses rose 5% during the forecast period, revenue increased more than 9% on an annualized basis since the original forecast was released. This is an important milestone for management and for our shareholders. In early 2022, we publicly marketed down to the dollar what the forward-looking first year post-IPO would look like. In 2023, we delivered on that forecast. Over the past 18 months of economic conditions, I think our unit holders will find this achievement reaffirming looking back and encouraging looking forward. The second quarter, standalone, ended in line with forecast net operating income of $6.1 million, improving 1% higher than Q1, while sustaining a 51% operating margin. Revenue of $11.96 million reflected a continual healthy growth rate, closing 1.8% above forecast and 2.7% higher than the first quarter. Total rental income sustained better than expected growth, driven by 8.8% renewal tradeouts and 21% value-add premiums. Year-to-date revenue of $23.6 million and NOI of $12.2 million positioned DRR to finish in the upper tier of forecast range for calendar year 2023. DRR portfolio occupancy was 94.1% on June 30th, with approximately 43 apartments underway on renovations. Even with nearly 2% of available apartments intentionally drafted into our high return renovation program, the DRR vacancy rate remained 130 basis points stronger than the 7.2% national vacancy rate reported by ApartmentList at the end of Q2. ApartmentList also described national year-to-date rent growth as positive 2.4% and year-over-year rent growth as flat. By comparison, Dream Residential grew rents 3.9% over the first six months and held double digits at positive 10.2% year-over-year rent growth. Spring season lease tradeouts elevated each month of the quarter. 8.4% blended tradeouts in June pulled the quarter average of blended tradeouts up to 7.2% overall. The Midwest is in the news for some of the nation's leading rent growth. Our Cincinnati portfolio reflects that with region-leading 10.1% blended tradeouts for the quarter, 10.1% year-over-year rent growth, and 3.1% higher rent than Q1, only three months earlier. Our Dallas-Fort Worth portfolio maintained its resilience with 4.9% blended tradeouts and 1.7% rent growth over the quarter. DFW is holding well in the aggregate with positive 9.5% year-over-year rent growth across our communities, and July rents are pushing upwards. DRR's Oklahoma assets set the mean with 7.2% blended trade-outs, 2.9% quarterly rent growth, and portfolio-leading 10.9% annual rent growth. Portfolio-wide in-place rent increased $104, or 10.2%, from Q2 2022 up to $1,122 per suite, sustaining 2.5% quarter-over-quarter rent growth to start the strong leasing season. During the second quarter, DRR's internal property management team introduced across the platform new lease and revenue management software that integrates artificial intelligence into our on-site leasing operations. The AI-based application provides more advanced optimization and forecasting tools, as well as improved value-add integrations directly to the fingertips of our community directors and regional leaders. We have already observed fluid adaptations to dynamic market conditions and increased asking rents, which better reflect our value-add rental growth premiums. Shareholders understand that one of DRR's execution strengths and value drivers is the vertically integrated renovation and construction capability. Year-to-date, our internal value-add teams have upgraded 203 apartments from classic condition into modern finished suites. Over the first six months of 2023, average renovation trade-out premiums exceeded $230 21% higher than expiring leases. In our Sunbelt markets, upgrade return margins lifted above our 12% to 16% window into the high teens, even as organic growth normalized, making it even more compelling case to incrementally reposition our communities. Our experience affirms that renovations create better living experiences, improve property conditions and resident demographics, increase net income, and boost asset value. We project to start over 100 new suite renovations during Q3 and target an estimated 400 by year end. DRR will continue to focus on operational excellence and value creation. Multifamily across the United States is showing signs of stabilization. The supply pipeline is strong, and yet net absorption rebound is positive in each of the past two quarters. Vacancy and rent growth appear to be steadying near long-term norms. At the same time, new permits and construction starts have been declining, and for-sale housing unaffordability set new highs once again. With historic levels of new supply absorbing now and economic conditions pointing more households towards for-lease solutions, apartment homes in communities like ours and markets like ours remain resilient in the near term and positioned to outperform over the long run. The transaction market persists as a standoff between buyers and sellers. Multifamily accounted for the largest share of commercial real estate transactions, but its volume is estimated 65% lower than Q2 last year and about 30% below the quarterly average from 2013 to 2019. We continue to actively evaluate opportunities in both our existing and our target growth markets. Management is excited to have achieved our IPO forecast and is pleased with the accomplishments and performance over the first half of the year. We project 2023 to finish in the upper tier of our initial guidance range from upper $23 million to mid $24 million of net operating income. In addition, the state of Texas recently passed property tax revisions that are expected to positively benefit the DRR portfolio this calendar year. DRR projects annual net operating income in the form of reduced 2023 property taxes, amounting to between $100,000 and $200,000 more. The legislative provisions are expected to be passed by public vote approval in November, and once the final 2023 millage rates are set during Q4, final adjustments will be added to NOI at the end of the year. Management's year-end forecast does not yet include this favorable upward addition to net operating income that is now likely to be booked during Q4. DRR continues to focus on operations, value creation, and delivering strong results for unit holders. Our first full year is a testament to that business plan. It is now a pleasure to introduce Derek Lau, our Chief Financial Officer.