Dream Industrial Real Estate Investment Trust

Welcome to the Dream Industrial REIT second quarter 2024 results conference call on Wednesday, August the 7th, 2024. Please be advised that all participants are currently in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. 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 available on Dream Industrial REITs website at www.dreamindustrialrete.ca. Your host for today will be Mr. Alexander Sanikov, CEO of Dream Industrial REIT. Mr. Sanikov, please proceed.

Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's second quarter 2024 conference call. Speaking with me today is Lennis Kwon, our Chief Financial Officer. In the second quarter, we continued to focus on executing on our key growth drivers. We reported 5% year-over-year comparative properties and a wide growth for the quarter, which drove FFO per unit of 25 cents, in line with our guidance. We have made good progress in our development leasing, with over half a million square feet of projects leased or conditionally leased at strong rents across Ontario and Alberta, including our recently completed Courtney Park redevelopment, which is now fully leased. We're executing on capital recycling to continuously upgrade our portfolio quality with the completion of $50 million of dispositions across Canada and Europe at above pre-sale IFRS values. With nearly $600 million of available liquidity and our marginal cost of debt declining by over 50 basis points since the last quarter, our balance sheet remains strong. Starting with broader market observations, the pace of demand across our industrial market has continued to normalize compared to 24 months ago. In addition, there has been some limited new supply delivered to the market, which along with the rise in sublease options has resulted in an uptick in availability. Based on the current subleasing pipeline we see in the market, we expect availability rates to continue trending upwards for the next quarter or two. Sub-leasing activity usually spikes in response to any economic disruption, but drops off fairly quickly as broader demand picks up pace. As such, we do not expect this particular supply driver to impact the market for the medium term. Current supply under construction represents only a minor fraction of existing market inventory, and we are seeing new construction starts dropping rapidly across our market. With that, we expect our core operating markets in Canada and Europe will remain undersupplied in the context of structural demand drivers for industrial products over the next near to medium term, leading to low vacancy rates and upward pressure on rents. Over the last quarter, we saw higher leasing activity in our development pipeline. During the quarter, we completed our conditional on 150,000 square feet of projects in Ontario, and 400,000 square feet in Alberta. Our recently completed redevelopment project at Courtney Park in Mississauga is now fully leased to two tenants. We achieved an average starting rent of $21 per square foot and annual steps of approximately 4%. We expect this asset to contribute over $4.5 million to our annual NOI on a run rate basis with rent commencement in September 2024. During the quarter, we substantially completed our 20-acre project in Balzac. The project is comprised of two buildings, and approximately 70% of the project is leased or conditionally leased. And we achieved an average starting rent of $12 a foot and annual steps of approximately 3%. We expect the stabilized project to contribute over $4 million of annual NOI on a run rate basis. Spread on contracted leases remains strong. Since the end of Q1, we have signed 2.4 million square feet of new leases and renewals at an average spread of 57%. In Canada, we signed 1.7 million square feet of leases at an average spread of 80%, including a 180,000 square foot tenant in the GTA, who we renewed at a spread of over 200%. In Europe, we signed 800,000 square feet of leases at an average spread of 11%, and we have been able to realize solid rental steps on all of these deals. Our approach to prioritizing rental growth in our leasing strategy has proven to be rewarding despite the temporary drag on occupancy. Our 100,000 square foot property in the GTA is a good example of this strategy. The previous tenant was paying mid $14 rent and was terminated in Q3, 2023. A few months ago, we received an offer in the $15 range, which we passed on and recently signed an offer for a five-year lease for 100% of the building at a rent of $18 a foot with 3.5% step. This new lease is expected to commence in Q3. While patient approach to leasing is appropriate for some assets, we are evaluating all scenarios on an asset by asset basis. For our 200,000 square foot property in the Port of Montreal, we were looking to achieve premium rents for significant outside storage component. Based on the response from the market so far, we currently expect that intensification and reconfiguration of the asset to accommodate multiple tenants will result in stronger returns. As such, we're likely going to pivot towards intensifying and refurbishing the asset in the near term as opposed to leasing as-is. Another approach that we are increasingly exploring is user sales. We have seen significant demand from owner-occupiers in many of our vacant buildings, both in DIR's wholly-owned portfolio and in our private ventures. We are in discussions or have closed on over $100 million of user sales at prices representing a cap rate of approximately 5% on market rent for these buildings, which is accretive to our total returns. As we communicated previously, we are increasingly focusing on opportunities to recycle capital out of non-strategic assets into our core business and markets at accretive returns. During the quarter, we disposed of six non-strategic assets located in Regina at total proceeds of $42 million, representing a 12% premium over carrying value. The consideration included a two-year vended take-back mortgage totaling $29 million and bearing an interest rate of 6.5%. This effectively allows us to continue generating cash flow from these assets for the next two years in addition to $12 million of proceeds up front. We are open to opportunities to sell our remaining Regina assets over time at compelling pricing metrics. As we recycle capital from these assets, our capital allocation priorities remain intact. We plan to reinvest the proceeds towards completing our existing development pipeline, executing on our solar program, and contributing towards our private capital partnerships. which are all accretive from a total return standpoint. To date, in 2024, we have completed over $100 million of acquisitions in the Dream Summit venture. We continue to focus on growing our industrial portfolio in strategic Canadian markets such as Toronto, Montreal, Calgary, and we are starting to explore opportunities in Vancouver. Our business is well-funded to pursue these initiatives on a leverage-neutral basis through existing liquidity and retained cash flow. While the current environment is less certain compared to 24 months ago, all of our growth drivers remain intact. The demand for high quality urban industrial space remains solid and structural supply demand drivers are intact. We expect that our results for 2024 will be consistent with previously communicated outlook and we continue to expect reacceleration of same property NOI and FFO per unit growth into 2025. I will now turn it over to Lennis to discuss our financial highlights.

Thank you, Alex. We're pleased with our solid financial results for the second quarter. We reported diluted FFO per unit of 25 cents for the quarter, driven by solid comparative properties and a wide growth of 5% and over 2.5 million of net fees generated from our property management and leasing platform. Our NAV per unit at quarter end was $16.73. a slight increase compared to the prior quarter, primarily due to leasing activity driving higher market values in Canada, partially offset by higher cap rates in Europe. We continue to actively pursue financing initiatives to optimize our cost of debt and maintain a strong and flexible balance sheet with ample liquidity. During the quarter, we completed the refinancing of our $200 million Series B floating rate debentures with a new Euro 153 million unsecured term loan. The new term loan bears interest at a rate of 4.01%, approximately 50 basis points lower than the maturing rate. The Canadian equivalent is approximately $225 million, and the incremental $25 million of financing proceeds will be earmarked to repay our European mortgage maturing at the end of August, our last debt maturity for the year. We ended Q2 with leverage in our targeted mid-30% range and net debt to EBITDA ratio of 8.1 times. With total available liquidity of approximately $600 million, we retained sufficient capital to execute our strategic initiatives, including funding our development pipeline and contributing to our private capital partnerships. In July, we extended the maturity date of our $200 million unsecured term loan by two years to match the associated interest rate swap from February 2026 to March 2028, further enhancing our debt maturity profile. No changes were made to the rate or any other substantive terms. Having completed these financing initiatives, we have effectively addressed all of our debt maturities for 2024. The debt markets have become more constructive and recent changes in the underlying rates have resulted in our marginal cost of debt declining by over 50 basis points since the last quarter. Our outlook for the remainder of the year remains intact and in line with our previously issued guidance on comparative properties NOI and FFO per unit. We continue to expect that our occupancy will trend upwards by the end of 2024. Based on the new leasing pipeline and timing of lease commencement, for the third quarter, we expect in-place occupancy to decline slightly, while committed occupancy to remain largely flat to slightly up compared to Q2 2024. Looking beyond 2024, we expect that the pace of organic growth within our portfolio will accelerate and will continue to exceed the pressure from higher interest rates, translating into sustained FFO per unit growth. I will turn it back to Alex to wrap up.