dream industrial REIT
TSX : DIR.UN

dream industrial REIT

November 11, 2014 17:24 ET

Dream Industrial Reports 7.4% Growth in Year-to-Date AFFO per Unit and Announces the Appointment of New President and Chief Executive Officer

TORONTO, ONTARIO--(Marketwired - Nov. 11, 2014) - This news 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.

DREAM INDUSTRIAL REIT (TSX:DIR.UN) today announced its financial results for the three and nine months ended September 30, 2014.

HIGHLIGHTS

  • Adjusted Funds From Operations ("AFFO") per unit increased by 1.0% from Q3 2013 - AFFO for the three months ended September 30, 2014 was 19.6 cents compared to 19.4 cents for the three months ended September 30, 2013 and 19.9 cents for the three months ended June 30, 2014. Year-to-date, AFFO per unit is 7.4% ahead of 2013.

  • Strong leasing pipeline maintained - Approximately 653,000 square feet of new leasing and renewals commenced in the quarter at rates 6.7% higher than rates on expiries. Commitments have been obtained for 790,000 square feet of new leasing and renewals commencing in the remainder of 2014 compared to 721,000 square feet of expiries.

  • Occupancy of 95.5% at September 30, 2014 compared to 95.6% at June 30, 2014 and 95.1% at September 30, 2013 - Occupancy at September 30, 2014 includes 276,000 square feet of commitments on vacant space, more than 93% of which commences in the fourth quarter of 2014.

  • AFFO payout ratio decreases to 88.7% - The AFFO payout ratio is 88.7% year-to-date compared to 94.2% in the same period in the prior year, reflecting the growth in cash flow from the portfolio.

  • Increased portfolio size by 9.1% to 17 million square feet - Completed accretive acquisitions of two separate portfolios totalling 1.35 million square feet of industrial properties.

  • Stable capital structure - Leverage of 52.8% at September 30, 2014 with interest coverage of 3.0 times and a weighted average term to maturity on debt of 4.1 years.

  • Continued opportunities for rent growth - Estimated market rents exceed in-place rents by approximately 5.0%.

SELECTED FINANCIAL INFORMATION
(unaudited) Three Months Ended Nine Months Ended
($000's except unit and per unit amounts) September 30, 2014 June 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013
Investment properties revenue $ 40,319 $ 40,428 $ 37,842 $ 121,661 $ 101,795
Net operating income ("NOI")(1) 28,026 27,534 27,221 82,775 71,867
Funds from operations ("FFO")(1) 17,345 17,262 17,077 51,651 44,642
Adjusted funds from operations ("AFFO")(1) 14,276 14,205 13,729 42,487 35,534
Investment properties value 1,687,005 1,544,433 1,536,125 1,687,005 1,536,125
Debt 918,029 843,553 838,151 918,029 838,151
Per unit data(2)
AFFO - basic and diluted $ 0.196 $ 0.199 $ 0.194 $ 0.592 $ 0.551
FFO - basic 0.239 0.242 0.241 0.719 0.692
FFO - diluted 0.233 0.236 0.236 0.704 0.681
Distributions 0.175 0.175 0.175 0.525 0.519
FFO payout ratio (%)(3) 73.2 % 72.3 % 72.6 % 73.0 % 75.0 %
AFFO payout ratio (%)(3) 89.3 % 87.9 % 90.2 % 88.7 % 94.2 %
Units (period-end)
REIT Units 57,936,869 55,181,466 54,784,387 57,936,869 54,784,387
LP Class B Units 18,551,855 16,282,096 16,282,096 18,551,855 16,282,096
Total number of units 76,488,724 71,463,562 71,066,483 76,488,724 71,066,483
Portfolio gross leasable area (square feet) 17,026,940 15,613,687 15,661,717 17,026,940 15,661,717
Occupied and committed space 95.5 % 95.6 % 95.1 % 95.5 % 95.1 %
Average occupancy for the period 93.9 % 94.7 % 94.5 %
See footnotes on page 4.

"Our strong leasing pipeline continues to reflect the development of our platform, the multi-tenant nature of our portfolio and the hard work of our people," said John Todd, Chief Financial Officer. "Our accretive acquisitions completed in the quarter increase our presence in our major markets, further enhancing our ability to capitalize on strong Canadian industrial fundamentals."

FINANCIAL HIGHLIGHTS

  • AFFO Growth - AFFO for the quarter was $14.3 million or 19.6 cents on a per unit basis. AFFO per unit for the quarter was 1.0% higher than the same period in the prior year. AFFO per unit for the quarter is 0.3 cents lower than the second quarter, primarily due to a decrease in comparative property NOI. Consistent with what was previously communicated, average occupancy in the third quarter was lower than the second quarter, primarily because of the high volume of expiries in the second quarter and the resulting lower occupancy starting point for Q3. Year-to-date, AFFO per unit is 59.2 cents per unit, which is 7.4% higher than the same period in the prior year.

  • Increase in FFO per unit - Year-to-date, FFO per unit was 71.9 cents per unit, which is 3.9% ahead of the same period in the prior year. FFO for the quarter was $17.3 million or 23.9 cents per unit. FFO per unit for the quarter decreased by approximately 1% when compared to the same period in the prior year and to the second quarter of 2014. The factors which increased AFFO per unit for the quarter were offset by lower straight-line rent and amortization of fair value adjustments on debt assumed on acquisition.

  • Total NOI of $28.0 million for the quarter - Total NOI has grown 3.0% for the quarter compared to the same period last year, primarily as a result of acquisitions completed in the third quarter of 2014. Year-to-date, comparative property NOI is ahead of the same period in the prior year by 2.7%. Comparative property NOI compared to the second quarter of 2014 decreased by 0.8% due to the decrease in average occupancy for the quarter.

OPERATIONAL HIGHLIGHTS

  • Leasing Profile - Leasing activity during the third quarter included 206,000 square feet of new leases, 448,000 square feet of renewals and a net increase in committed space for future occupancy of 32,000 square feet, compared to 649,000 square feet of expiries and 49,000 square feet of early terminations. At period-end, the Trust had 1,046,000 square feet of vacant space, of which 276,000 square feet is committed for future occupancy. The average remaining lease term at September 30, 2014 is 4.5 years.

  • Portfolio occupancy remains high at 95.5% - Overall occupancy (including committed space) was 95.5% compared to 95.6% at end of the second quarter of 2014 and 95.1% at September 30, 2013.

  • Growth in rents per square foot - On a comparative portfolio basis, in-place rents increased to $7.05 per square foot at September 30, 2014, compared to $7.04 at June 30, 2014, as a result of positive spreads on leasing. Including the impact of acquisitions, in-place rents decreased marginally to $7.03 in the quarter. The average rate on all new and renewal leases commencing in the quarter was $7.93 per square foot, compared to $7.43 on all expiries and terminations. Renewals were completed at $8.13 per square foot, which is $0.48 above expiring rates for these spaces.

  • Estimated market rents 5.0% above average in-place rents - At quarter-end, estimated market rents were approximately 5.0% above the Trust's current average in-place rental rate of $7.03 per square foot (June 30, 2014 - $7.04). The 5.0% difference between in-place and market rent provides the Trust with opportunities for continued rental rate growth.

GLA
(million sq. ft.)
Occupancy
(%)
Average lease
term (years)
Average in-place
rent (per sq. ft.)
Estimated market
rent (per sq. ft.)
Western Canada 4.9 96.8 4.5 $ 8.81 $ 9.67
Ontario 5.1 97.8 4.2 6.05 6.17
Quebec 4.2 92.7 5.9 6.02 6.16
Eastern Canada 2.8 93.1 3.4 7.18 7.35
Total 17.0 95.5 4.5 $ 7.03 $ 7.38

CAPITAL STRUCTURE

The Trust's capital structure remained stable during the quarter, with leverage at 52.8% and interest coverage of 3.0 times.

Key performance indicators(4) September 30, 2014 June 30, 2014
Level of debt (debt-to-total assets)(1) 52.8 % 52.4 %
Interest coverage ratio(1) 3.0 times 3.0 times
Weighted average face interest rate on all debt 4.11 % 4.16 %
Weighted average effective interest rate on all debt 3.86 % 3.82 %
Debt - weighted average term to maturity (years) 4.1 4.1
See footnotes on page 4

During the quarter, the Trust completed acquisitions of two separate portfolios for a total of 1.35 million square feet for $127.7 million. One portfolio of 248,000 square feet was acquired from an affiliate of Dream Office REIT. The acquisitions were financed by new and assumed mortgages totalling $78.1 million at a weighted average effective interest rate and face rate of 3.55% and 3.60%, respectively. In order to finance the acquisitions, the Trust also issued 2.7 million of REIT Units and 2.3 million of subsidiary redeemable units at $9.40 per unit.

DREAM INDUSTRIAL REIT NAMES BRENT CHAPMAN AS NEW PRESIDENT AND CHIEF EXECUTIVE OFFICER

The Board of Trustees of Dream Industrial REIT announced today the appointment of Brent Chapman as President and Chief Executive Officer of Dream Industrial REIT, effective January 5, 2015. Mr. Chapman replaces Randy Cameron, who retired as President and CEO on October 31, 2014.

Mr. Chapman has over 28 years of experience across all facets of the real estate industry and comes to Dream Industrial REIT from Guardian Capital Real Estate where he is Managing Director. Prior to being with Guardian, Brent was President and CEO of GPM Investment Management and a director of Integrated Asset Management, the parent company of GPM. His career includes holding various senior positions in asset management, leasing, property management, acquisitions, financing and development with Oxford Properties and Talisker Corporation.

"Brent is a proven leader and well qualified to fill the role of President and Chief Executive Officer left open by Mr. Cameron's retirement. Brent joins Dream Industrial to lead the overall business and will increase our focus on active asset management and capital recycling in managing our business." said Jane Gavan, President of Dream Asset Management Corporation, the REIT's asset manager.

CONFERENCE CALL

Senior management will host a conference call to discuss the results tomorrow, November 12, 2014 at 2:00 p.m. (ET). To access the conference call, please dial 1-866-229-4144 in Canada and the United States or 416-216-4169 elsewhere and use passcode 9411 711#. 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 & Events, then click on Calendar of 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 news release is a select summary of 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. Dream Industrial REIT owns a portfolio of 220 primarily light industrial properties comprising approximately 17.0 million square feet of gross leasable area in key industrial markets across Canada. Its objective is to build upon and grow its portfolio and to provide stable, sustainable and growing cash distributions to its unitholders. For more information, please visit www.dreamindustrialreit.ca.

FOOTNOTES

(1) NOI, FFO, AFFO, level of debt (debt-to-total assets) and interest coverage ratio are non-GAAP measures used by Management in evaluating operating performance. Please refer to the cautionary statements under the heading "Non-GAAP Measures" in this press release.
(2) A description of the determination of basic and diluted amounts per unit can be found in our Management's Discussion and Analysis for the three and nine months ended September 30, 2014 under the heading "Non-GAAP Measures and Other Disclosures".
(3) Payout ratios for FFO and AFFO are calculated as the ratio of distribution rate to basic FFO and AFFO per unit, respectively.
(4) The key performance indicators include the results of operations for the three months ended September 30, 2014 and June 30, 2014.

Non-GAAP Measures

The Trust's condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-GAAP financial measures, including Net Operating Income ("NOI"), Funds From Operations ("FFO"), Adjusted Funds From Operations ("AFFO"), Level of debt (debt-to-total assets) and Interest coverage ratio as well as other measures discussed elsewhere in this release. These non-GAAP measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. The Trust has presented such non-GAAP measures as Management believes they are relevant measures of the Trust's underlying operating performance and debt management. Non-GAAP measures should not be considered as alternatives to net income, cash generated from (utilized in) operating activities or comparable metrics determined in accordance with IFRS as indicators of the Trust's performance, liquidity, cash flow, and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the "Non-GAAP Measures and Other Disclosures" in Dream Industrial REIT's Management's Discussion and Analysis for the three and nine months ended September 30, 2014.

Forward-looking information

This press release may contain 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, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic and business conditions; the financial condition of tenants; our ability to refinance maturing debt; leasing risks, including those associated with the ability to lease vacant space; and interest and currency rate functions. Our objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable, interest rates remain stable, conditions within the real estate market remain consistent, competition for acquisitions remains consistent with the current climate and that the capital markets continue to provide ready access to equity and/or debt. All forward-looking information in this press release speaks as of the date of this press release. Dream Industrial REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise except as required by law. Additional information about these assumptions and risks and uncertainties is contained in Dream Industrial REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at Dream Industrial REIT's website at www.dreamindustrialreit.ca.

Contact Information

  • Dream Industrial REIT
    Michael Cooper
    Chairman, Executive Committee
    (416) 365-5145
    mcooper@dream.ca

    Dream Industrial REIT
    John Todd
    Chief Financial Officer
    (416) 365-8963
    jtodd@dream.ca