Dream Industrial Real Estate Investment Trust

Welcome to the Dream Industrial REIT fourth quarter conference call for Wednesday, February 19th, 2025. Please be advised that all participants are currently in listen-only mode and the conference is being recorded. After the presentation, there will 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 REIT's 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 security-selected regulators, including its latest annual information form and MD&A. These filings are also available on Dream Industrial REITs website at www.dreamindustrialreit.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 for Dream Industrial REIT's year-end 2024 conference call. Speaking with me today is Lennis Kwon, our Chief Financial Officer. In the room with us is Bruce Traversy, our Chief Investment Officer. DIR was successful in achieving its operation and financial targets for the fourth quarter and the full year of 2024. Our results demonstrate the resilience of our business. We have a highly diversified occupier base, a functional urban portfolio designed to service a broad range of users, multiple drivers of organic growth, and a solid balance sheet. Despite reducing leverage on net debt to EBITDA basis from 7.7 times last year to 7 times in 2024, and dealing with 600,000 square feet of unplanned lease terminations, 2024 marked our fourth consecutive year of FFO per unit and free cash flow growth. Our average in place rents increased by 7% in 2024. This growth in rents outpaced the pressure from lower occupancy, driving comparative properties NOI growth of 4.6% for the full year. We signed over 7.3 million square feet of leases in 2024, exceeding 2023 in total leasing volume while achieving consistent spreads. This leasing momentum carried into the first quarter of 2025, was close to 2 million square feet of new leases signed or in advanced negotiations. Our in-place and committed occupancy was 95.8% at the end of the year, a 30 basis points increase from the prior quarter with a healthy 75% tenant retention ratio in line with historical norms. We made significant progress on our development pipeline with substantial completion of four projects at an average expected yield on cost of 6.3%. adding more than 1.6 million square feet of high-quality space to our wholly owned and managed portfolio. We have increased our near-term development pipeline of projects in various stages of planning by 600,000 square feet, including several built-to-suit expansions. We continued with our program of high-grading our portfolio while maintaining discipline capital allocation. During the year, we completed 261 million of acquisitions and 140 million of dispositions across our wholly owned and managed portfolio. Subsequent to the year end, we closed on additional $400 million of acquisitions in the Dream Summit venture, including a 27.5-acre industrial outside storage asset in Vancouver. Our property management and leasing platform generated more than $11 million in net fees for the year, over $2 million higher than 2023, and we expect our fees to grow as we add scale to our ventures. Turning to the occupier market, 2024 was a transitional year. Although the pace of rental growth continued to normalize following the height of the pandemic-driven leasing, we have been encouraged by the uptick in demand for industrial space across our markets. In Canada, while availability rates are higher compared to 2022 levels, the absolute levels of vacancy are amongst the lowest in North America. Demand from small to mid bay users remained healthy and we have seen growing interest from larger users in Q4 and into the first quarter of 2025. At the same time, the national construction pipeline has fallen by over 25 million square feet since mid 2023 as deliveries have outpaced new construction starts. The total supply currently under construction has slowed to the levels last seen in 2021 and 2022. Within our income-producing portfolio, rental spreads on contracted leases remain strong. From the beginning of 2024 to the end of January 25, we signed 4.5 million square feet of leases in Canada at an average rental spread of 55%, with an average annual escalators of more than 3%. Although the Montreal market has experienced several quarters of negative absorption, vacancy rates appear to have begun leveling off. New supply levels have fallen and we have seen an increase in interest from larger users since the start of 2025. We're currently in new leasing discussions on over 700,000 square feet of space across the Montreal portfolio. In Calgary, we continue to see healthy demand and we're making good progress on the lease-up of our 1 million square feet of new developments that came online in the Balzac sub-market. We're currently in negotiations on over 400,000 square feet of new leases for these projects. We have also seen an uptick in leasing activity in Edmonton with over 300,000 square feet of new leases in advanced negotiations across the platform. The GTA market remains healthy with deep user demand for small and mid-bay facilities with multiple leasing data points reinforcing our assessment of market rents as disclosed in RMDNA. In 2024, we completed approximately 3 million square feet of leases in the GTA at an average spread of 73% across our platform and at rents otherwise in line with our budget. In addition, we have successfully re-let over 500,000 square feet of unexpected terminations. Even though some of these terminated leases had been recently re-geared to market, the average releasing spread were still healthy at 20% with eight months of downtime on average. We are also seeing larger requirements coming back to the GTA market, and we completed one million square feet of large bay leases in our wholly owned and managed portfolio in Q4 alone. The fundamentals in Europe remain solid, especially for urban mid-sized assets. Subsequent to the quarter end, we signed a new lease for our 140,000 square foot facility near Paris. This asset was one of the unplanned vacancies we were addressing in 2024. The new lease was signed at a spread of 12% relative to prior rents, despite the fact that prior lease had already been indexed by over 14% during the lease term. Additionally, we completed several other leases in Europe, increasing our committed occupancy by over 110 basis points this quarter. Concurrently, we are seeing an uptick in demand for expansions from our existing occupiers. Last week, we signed an early renewal with an existing 289,000 square foot tenant in our Dutch portfolio. This tenant is looking to consolidate the operations and require additional 120,000 square feet of space. We'll be pursuing this expansion on the neighboring site and will upgrade the existing asset at a combined yield on cost of 7% with an additional lease term of 10 years commencing after completion, which is expected in the first half of 2026. Similarly, in our private venture, we recently signed a 10-year lease renewal with a large global automotive occupier at a 340,000 square foot facility in the GTA. As part of the agreement, we'll be activating the site's excess land potential, expanding the building by over 100,000 square feet. These are sizable space commitments demonstrating the willingness of major occupiers to make long-term decisions. For example, The GTA renewal will amount to approximately $100 million of net rent payments over the lease term. We intend to actively pursue these opportunities to enhance our portfolio while meeting our tenants' needs. Our wholly owned portfolio includes over 180 acres of excess land that can facilitate built-to-suit and expansion requirements. And we have over 60 acres of undeveloped excess land across our private ventures that we can activate over time. Supported by a balance sheet strength, we have been actively deploying capital into our private ventures. Since the beginning of 2024, we completed over 582 million of acquisitions within the Dream Summit Venture, which includes a 27.5 industrial outside storage site in Vancouver, leased to a diverse range of users, and a portfolio of seven assets in the GTA, totaling almost one million square feet, that offers significant upside industrial outside storage opportunities, and repositioning opportunities. Within our development JV, we acquired a 32-acre infill site located in Brampton. This site is shovel-ready and can support a 680,000 square foot logistics facility, demisable into 70 to 100,000 square foot units. Broadly speaking, private market demand for industrial assets remains strong, with multiple data points across Canada and Europe supporting our assessment of value of our assets. Against this backdrop, we remain focused on capital recycling program. Since the beginning of 2024, we have completed over $80 million of dispositions across a wholly owned portfolio at an average 12% premium to the carrying value. Additionally, we completed over $65 million of dispositions within our private ventures at an average price over $360 per square foot. Additionally, we've made progress on our value-add initiatives. Our solar program now consists of 23 completed projects with 21 megawatt capacity, which generated $1.5 million of NOI in 2024. We're currently underway with an additional 60 projects undergoing feasibility. We also continue to pursue opportunities to convert some of our existing assets for data center users. We have submitted power applications on four sites totaling 200 megawatts. We expect to receive preliminary feedback from the respective utility providers in the second quarter of 2025. Over the past few years, we've made substantial strides in our transformation of the business by enhancing the quality of our owned and managed portfolio, developing over 3.5 million square feet of best-in-class buildings, expanding a geographic presence, launching new private partnerships, and exploring new value-add initiatives while strengthening our balance sheet. Our portfolio by 80% is comprised of urban industrial assets, is well-located and highly functional, providing us with significant repositioning opportunities to accommodate a more diverse user base over time. The limited supply of new urban product coupled with stated occupier demand continues to inform our constructive outlook. When assessing our near-term outlook, we need to take into account the ongoing uncertainty with respect to trade in North America and Europe. As we mentioned before, our occupier base is highly diverse. We have recently reviewed the trade exposure across our main tenants. While many of our occupiers are participating in the broader supply chains, the direct cross-border trade exposure within our portfolio is limited. Market rents for our assets in Canada are 35% above in place rents, providing both upside potential and mitigating any downside in the event of distress. We're also in active dialogue with over 300 of our key tenants in Canada. Through the course of these discussions, we again have not identified significant trade concerns. In fact, we've begun exploring opportunities with some of our occupiers to accommodate potential additional space requirements. stemming from higher inventory levels. While trade uncertainty will inevitably lead to some volatility in the near term, we expect that one of the positive outcomes of this uncertainty will be reinforcement of supply chain resiliency, resulting in consistent and growing requirements for industrial and warehouse space. That said, we're factoring this near-term uncertainty into our 2025 outlook. We expect the pace of CP&OI to accelerate to 6% to 8% growth on a constant currency basis in 2025. Our CP&OI growth expectation is largely predicated on the timing of lease up of our transitory vacancies. We expect the average occupancy for 2025 to remain relatively consistent with the current levels with some expected fluctuations quarter to quarter. We expect average occupancy for – I will now turn it over to Lennis to discuss our financial highlights.

Thank you, Alex. We ended 2024 with solid financial results, which demonstrate the strength of our business and our portfolio. We reported diluted FFO per unit of 26 cents for the fourth quarter, which was 5.8% higher than the prior year quarter. For the full year, diluted FFO per unit was $1, representing a 2% increase year over year. The solid year-over-year growth was primarily driven by strong comparative properties NOI growth of 3.3% for the quarter and 4.6% for the year, early renewals of existing tenants, development leasing coming online in addition to the fee income generated from our property management platform. The full year CP NOI growth was in line with the initial guidance for the year, while the FFO per unit growth was on the lower end of our initial guidance issued last February As a result of unplanned lease terminations, which we discussed earlier, higher average cash balances throughout 2024 and lower average net leverage. Our net asset value per unit at the quarter end was $16.79, slightly higher than the prior quarter. We continue to actively pursue financing initiatives to optimize our cost of debt and maintain a strong and flexible balance sheet with ample liquidity. We successfully addressed our 2024 debt maturities. During Q3, we also increased the limit on our unsecured revolving credit facility from $500 million to $750 million and extended its maturity to August 2029. In addition, we extended the maturity date of our $200 million unsecured term facility to March 2028, enhancing both our liquidity and debt maturity profile. During the fourth quarter, DBRS confirmed our credit rating and improved the trend from stable to positive. We ended 2024 with leverage in our targeted mid-30% range and net debt to EBITDA ratio of seven times, nearly a turn lower than the prior year. Our debt maturities for 2025 include $60 million of European mortgages, which we will be repaying at the end of February. Our two remaining maturities are later in Q4 of 2025, and comprise our U.S. $250 million unsecured term facility and $450 million Series A debentures. We are currently in advanced discussions for the early refinancing of the U.S. $250 million term facility on a blend and extend basis, which we believe would further strengthen the balance sheet and free up liquidity. We currently expect to achieve a blended rate of approximately 3 percent on this facility while extending the maturity by three or four years. We believe that this will further enhance our credit profile, positioning DIR stronger for a credit rating upgrade, which in turn will benefit our cost of capital for the remaining upcoming debt maturities. We expect that this early refinancing would have a one to one and a half cent impact on our 2025 FFO, while increasing our FFO per unit in 2026 onwards by the same amount. With growing cash flow generated from the business and total available liquidity of over $822 million, we retain sufficient capital to fund our value-add and strategic initiatives, including funding our development pipeline, solar program, and contributing to our private capital partnerships. Our business is well-positioned to continue delivering sustained FFO and free cash flow growth, not just in 2025, but over the long term. As we have communicated previously, we expect that CP NOI growth and FFO per unit growth will accelerate into 2025 and 2026 compared to 2024. In determining our expectations for 2025, we believe it's prudent to incorporate higher reserves than we typically do as a result of the uncertain trade environment. We are expecting comparative properties NOI growth in the range of 6 to 8 percent We are also incorporating the impact of the potential early refinancing of our term loan in our outlook. Putting this all together, we expect FFO per unit growth of 6% to 9% in 2025. Equally as important is the outlook for 2026, which fully takes into account the upcoming debt maturities. We currently expect at least a comparable rate of growth in 2026 in our FFO per unit. Our FFO growth expectation is predicated on current foreign exchange rates, leverage levels, and interest rate expectations, as well as the expected timing of the lease-up of our transitory vacancies. I will turn it back to Alex to wrap up.