Dream Industrial Real Estate Investment Trust (DIRUN) Earnings Call Transcript & Summary

Good morning, and welcome to the Annual Meeting of Unitholders of Dream Industrial REIT. Your host for today is Ms. Vincenza Sera, Chair of the Board of Dream Industrial REIT. Ms. Sera, please go ahead.

Thank you, and good morning, everyone. As this meeting is held virtually via live audio webcast, for the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Registered unitholders and duly appointed proxy holders will be asked to vote on each business item. At any time during the meeting, registered unitholders who have not already provided voting instructions or appointed a proxy holder that are logged on and wish to vote their units may do so by clicking on the Vote Here button on your screen and following the instructions provided. Proxy holders may also vote now using the same method. The polls will remain open until just before the conclusion of the formal business of the meeting. If you voted your units prior to the start of the meeting, your vote has been received by the scrutineers and there is no need to vote those units during the meeting, unless you wish to revoke or change your vote. We have been asked -- advised by Broadridge Financial Solutions, Inc. that based on the proxies already deposited with them, enough votes have been cast to carry each of the motions. [Operator Instructions] We will respond to questions received on the matters of formal business just prior to closing the polls for voting. Questions that are not received by that time or which do not relate to the formal business of the meeting will be addressed in the question-and-answer session following the conclusion of the meeting. If unitholders or proxy holders wish to ask questions about the REIT's business, you may do so at any time during the meeting or during the question-and-answer session following the conclusion of the formal business of the meeting. We will now proceed with the formal portion of today's meeting. To expedite the formal part of the meeting, I will move, and Shannon Macri will second all motions. I will act as Chair of the meeting, Robert Hughes will act as secretary of the meeting. For the purposes of this meeting, I appoint Leanne Branston and Rosemary Colakic of Broadridge Financial Solutions, Inc. to act as scrutineers to compute the votes of any polls taken at this meeting and to report thereon. The Board of Trustees fixed April 16, 2021 as the record date for determining unitholders entitled to vote at this meeting. An affidavit has been delivered from Broadridge attesting to the mailing of the notice of availability of proxy materials and the voting instruction form or form of proxy. Our circular and other meeting materials were made available through the notice and access system. I would ask the secretary to place the affidavit before the meeting and to keep the affidavit with the corporate records. I am pleased to announce that there are present by proxy a sufficient number of the voting units of the REIT to constitute a quorum. Accordingly, this meeting is duly called to order and properly constituted for the transaction of business. After our formal business is concluded, our CEO will provide a few brief remarks and then there will be an opportunity to ask questions. Please hold questions that do not relate to the formal business of the meeting until that time. The first item of business is the presentation of the REIT's 2020 Annual Report, which contains the REIT's audited financial statements for 2020. I note that the secretary has placed before the meeting a copy of the 2020 Annual Report. The next item of business is the election of trustees. The 8 trustees to be elected by the unitholders of the REIT shall hold office until the close of business of the first annual meeting of unitholders of the REIT following election or until their successors are elected or appointed. The 8 nominees are: R. Sacha Bhatia, Michael J. Cooper, J. Michael Knowlton, Ben Mulroney, Brian Pauls, Vicky Schiff, Sheldon Wiseman and myself. Each of the persons nominated has confirmed that he or she is prepared to serve as a trustee. Mr. Hughes, have we received any other nominations?

No, we have not.

Since there are no other nominations, I declare the nominations closed, and I move a motion to elect the trustees. The next item of business is the appointment of auditors. The Audit Committee and the Board of Trustees have recommended the reappointment of PricewaterhouseCoopers LLP Chartered Professional Accountants as auditors. I move that PricewaterhouseCoopers LLP be appointed auditors of the REIT until the next annual meeting of unitholders and that the Board of Trustees be authorized to fix their remuneration. May I have a seconder?

I second the motion.

Thank you. We will be closing the polls for voting momentarily. Before we do so, I will ask Mr. Hughes whether we have received any questions relating to the formal business of -- formal items of business on our agenda today.

No, we have not.

Now that everyone has had the opportunity to vote, I now declare the polls for the 2021 Annual Meeting of Unitholders of Dream Industrial REIT closed. I have been advised by the scrutineers that a significant majority of the proxies received by management prior to the meeting have been voted for the election of trustees and the appointment of auditors. I therefore confirm that the 8 nominees for election as trustees have been elected as trustees and that the motion to appoint the auditors has carried. I would ask that the scrutineer compile the report regarding the results of voting on all business matters and results will be published on SEDAR and by press release later today. The formal items of business as set out in the notice of meeting have now been dealt with. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. I now invite Mr. Brian Pauls, CEO of the REIT, to provide a few brief remarks. After Mr. Pauls' remarks, we will have a question period. [Operator Instructions] We will answer as many questions as time permits. Mr. Pauls, please go ahead.

Thank you, Madam Chair. Good morning, everyone, and thanks for joining us today. The past year will go down as one of the most uniquely challenging periods that we will all face in our professional lives. I would like to express my gratitude to our Dream Industrial team for keeping our tenants and building safe, navigating our business through the initial uncertainty and subsequently completing significant strategic initiatives to enhance our business on all fronts. Industrial fundamentals have been a significant beneficiary of the pandemic. Availability rates have already dropped to pre-pandemic lows and cap rates continue to compress across all our operating regions. With current e-commerce trends forecast to persist, we expect demand for well-located industrial real estate to continue to accelerate from both occupiers and investors. Our portfolio is well positioned to take advantage of these trends. We have significant scale in strong industrial markets across Canada, the U.S. and Europe. We have boots on the ground in each of these markets, which provides access to a deeper pool of investment opportunities than our peers. This allows us to acquire or contract over $1 billion of high-quality assets in just 18 months across our target markets. We focus on increasing scale in markets that have significant barriers to entry, providing strong organic growth potential. Over the past year, we have expanded into Europe and have added significant scale in the Greater Toronto and Montreal areas, which will allow us to capture significant upside in cash flows and asset values over time. Our recently announced transformational acquisition of a $1.3 billion portfolio in Europe will allow us to further expand our European platform while adding scale in attractive markets and significantly improving portfolio quality. Our European expansion has also allowed us to transform our financing model and significantly lower our leverage -- our average interest rate. Last year, we obtained a BBB investment-grade credit rating from DBRS and raised nearly $450 million of unsecured debt at an average interest rate of only 0.65%, which has resulted in a 100 basis point drop in the average interest rate on our total outstanding debt. With euro equivalent debt at rates well below 1% and a strong acquisition pipeline, we expect our average interest rate to continue to reduce further. Over the past year, industrial asset values have continued to rise. And in many of our markets, high-quality, well-located assets are selling above replacement cost. This has resulted in significant NAV per unit growth within our portfolio. Looking forward, we have increased our focus on development as a strategy to add high-quality, best-in-class logistics space. We have 3 pillars of our development strategy: greenfield development, expansion opportunities at our current sites, and redevelopment. We currently have 2 greenfield land parcels totaling nearly 55 acres in the GTA and Las Vegas, Nevada that can add 1 million square feet of new state-of-the-art logistics space. We are forecasting a yield on cost of approximately 6% on these projects, which is at least 200 basis points above cap rates on new stabilized product. We have also identified over 20 sites across our portfolio with over 60 acres of excess land, providing an opportunity to add up to 1.5 million square feet of additional density in our target markets, with yield on construction cost in excess of 7%. In addition, we have several existing properties that present near-term redevelopment opportunities. These sites are located primarily in the GTA and Montreal, where we plan to redevelop the existing properties to accommodate modern logistics use as well as increase the density by 300,000 square feet. Over time, we expect our development pipeline to represent 5% of the balance sheet, and we foresee this to be a significant driver of NAV and FFO per unit over the long term. In addition to our investment and operations strategy, we continue to advance significant sustainability and impact initiatives for Dream Industrial. For 2021, we have an ambitious ESG framework focusing on multiple areas of the business. We are investing significant capital towards sustainable initiatives within our existing portfolio, including lighting, roofing and landscaping. We have advanced our solar investment projects in Canada and the Netherlands, with a target of over 45,000 panels, which will result in over 10% of our portfolio being powered by renewable energy. The overall project could total approximately $20 million in capital investment over the next couple of years and will generate mid-single-digit unlevered returns. Earlier this morning, we released a Green Financing Framework, which will improve our access to capital that will be deployed towards sustainability initiatives. We believe these measures will improve the overall quality of our portfolio and our business as well as allow our stakeholders to assess our progress on this front. In closing, it has been an incredibly transformational year for Dream Industrial. We continue to take strategic steps to position DIR as the premier industrial REIT in each of our operating regions and create long-term sustainable value for our unitholders. We'd now be happy to take any questions.

Mr. Pauls, we have received no questions. You may conclude the meeting.

Thank you. I want to thank, everybody -- thank you, everybody, for your time today and your interest in Dream Industrial. We'll bring the meeting to a close now. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.