Investor Presentation September 2020 Presentation Overview - - PowerPoint PPT Presentation
Investor Presentation September 2020 Presentation Overview Section 1 Our Company & Strategy Section 2 Business Update Section 3 Investment Highlights Section 4 Portfolio Overview Section 5 Financial Highlights Appendix 1
September 2020
Section 1 Section 2 Section 3 Section 4 Section 5 Appendix 1 Appendix 2 Appendix 3 Our Company & Strategy Business Update Investment Highlights Portfolio Overview Financial Highlights Environmental, Social and Governance European Strategy Market Fundamentals
Company Snapshot
Dream Industrial REIT (DIR) owns and operates a diversified portfolio of logistics, warehousing and urban light industrial properties across Canada, U.S. and Europe, supported by a platform with a proven track record of long-term value creation
Canada U.S. Europe
4.1 yrs
WALT
262
Properties
96%
Committed Occupancy
28%
Net debt-to-Assets
26M SF
GLA
$1.2B
Unencumbered Assets2
10%1
1 – As a % of Investment Properties (“IP”) Value at June 30, 2020 2 – Following the repayment of a $17M mortgage in July 2020 3 – Distribution yield is a non-GAAP measure and is calculated as annual distributions per unit divided by unit price as at September 8, 2020 4 – Discount-to-IFRS NAV is calculated as 1 minus net asset value per unit as at June 30,2020 divided by unit price as at September 8,202069%1 21%1
6.4%
Distribution Yield3
7.4%
Discount-to-IFRS NAV4
Our Strategy
5
Global Acquisition Platform
Local on the ground teams with a strong track record
industrial opportunities across Canada, the United States, and Europe Value Enhancing Growth
Selective Capital Recycling
Selective recycling program and redeployment of capital into higher quality properties that are less management and capital intensive Improve Portfolio Quality
Asset Management
Drive organic NOI and NAV growth by executing creative asset management strategies, initiating and executing on developments Maximizing Property Value
Conservative Financial Policy
Maintain conservative leverage, build up high quality unencumbered assets pool, while reducing interest expense and preserving liquidity Strong Balance Sheet & Liquidity Position
Local Platforms + Strategic Relationships
6 Dream provides expertise on acquisitions, strategic transactions, capital and portfolio allocation, capital markets as well as access to its Canadian development platform. Dream provides a dedicated local acquisition and asset management team along with long-standing relationships with the European real estate brokerage network.
Canada Europe
PAULS Corp. provides DIR a local U.S.
platform to obtain unique access to acquisition and development pipelines in the U.S.
United States
Over the past three years, the population in markets we invest in has grown from 37 million to ~ 900 million1. We have a local on-the-ground track record, experience and relationships to help deliver above average returns for unitholders
1 – Source: United Nations, Department of Economic and Social Affairs
Portfolio Transformation
Adding scale and increasing presence in target markets
7
We have completed over $1 billion in acquisitions over the past three years that have added over 12 million square feet of well- located properties in strong industrial markets
$1.6M $1.7M $2.1M $2.4M $2.9M 1.0 1.5 2.0 2.5 3.0 2016 2017 2018 2019 H1-2020
Billions CAD
DIR announces expansion into U.S. and the appointment of Brian Pauls as CEO DIR adds scale in the U.S. and target Canadian markets with $243M of acquisitions DIR upgrades quality of portfolio through $371M of acquisitions and $273M of dispositions DIR announces European expansion, completes $425M of acquisitions across Canada and Europe, with an additional $136M of assets across Canada and Europe in exclusivity/under contract
Significant Value Creation for Unitholders
Total return since execution of strategic initiatives
8
Since year-end 2016, DIR has significantly outperformed the broader equity market as well as the REIT index
COVID-19
66% 12% 17%
0% 20% 40% 60% 80% 100% 120% Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 DIR S&P/TSX REIT Index S&P/TSX Composite Index
September 2020 Business Update
10
Operations update
after adjusting for agreed-upon deferrals and Canada Emergency Commercial Rent Assistance (“CECRA”)
contractual gross rent for Q2 2020, of which approximately 40% has since been repaid
Strong liquidity position
Limited leasing risk
Significant acquisition capacity
contract or in exclusive negotiations
* Following the repayment of a $17M mortgage in July 2020
Continuing to High-Grade the Portfolio
11
Closed/waived all conditions on two assets in Germany
Pro forma the closing of acquisitions that are exclusive/under contract, DIR will have completed $600 million in acquisitions in 2020
five assets across the Netherlands, Greater Toronto Area, and Ottawa
representing a going-in cap rate of 5.2%
million in assets currently
0.6M sf
GLA
6.1%
Rate
30 ft.
Height
$58M
Purchase price
20%
Market vs. In-place Rent
Investment Highlights
13 Secure cash flows underpinned by high quality portfolio and strong balance sheet Multiple drivers of cash flow and NAV growth
Attractive distribution yield of 6.4%1, ~170 bps higher than peer average2 High quality, well-diversified portfolio Conservative leverage, ample liquidity In-place rents ~9% below market; annual rental escalators average ~2% for the entire portfolio Ability to lower average cost of debt by at least 20% in 12-24 months by accessing European debt Increase FFO per unit by over $0.03 by leasing ~0.6M sf of vacancy in the GTA and the U.S. Capacity to complete ~$300 million of acquisitions before leverage exceeds 35%
1Distribution yield is a non-GAAP measure and is calculated as annual distributions per unit divided by unit price as at September 8, 2020 2Peer group reflects Canadian listed pure-play industrial REITsRobust fundamentals for industrial real estate
DIR is well-positioned to continue to create long-term value for its unitholders
14
Well-Diversified Portfolio by Asset Type
Distribution
43% of total IP Value
Urban Logistics
39% of total IP Value
Light Industrial
18% of total IP Value
Portfolio comprises functional, well-located properties that are well-positioned to benefit from rising e-commerce penetration
*As at June 30, 2020
Canada,$ 569M, 46% U.S., $528M, 42% Europe, $146M, 12% Canada, $949M, 84% U.S., $75M, 7% Europe, $105M, 9% Canada, $490M, 93% Europe, $36M, 7%
15
*Tenants in the Diversified industries segment produce, assemble or distribute goods to various industries As at June 30, 2020
Tenant Base Highly Diversified Across Multiple Industries
No one industry accounts for more than 12% of annualized base rent with the Energy sector accounting for only 1%
Diversified Industries, 15% Residential, 12% Apparel and Consumer, 10% Auto, 11% Food and Beverage, 11% Logistics, 9% Paper, Printing, and Packaging, 7% Technical Services, 7% Other Services, 5% Construction (non-residential), 5% Miscellaneous, 3% Healthcare, 2% Recreational Services, 2% Agriculture, 1% Energy, 1%
16
Attractive Mix of Large and Small Tenants
✓ Diversified tenant base with approximately 1,150 tenants ✓ Top ten tenants represent approximately 15% of Gross Rental Revenue and include high-quality investment-grade covenants ✓ Predictable income with WALT of 4.4 years from top 10 tenants and 4.1 for the entire portfolio
Tenants occupying <10K sf 4K sf
Avg. tenant size
15%
base rent
714
Number of tenants
Tenants occupying >100K sf
22K sf
Avg. tenant size
42%
base rent
52
Number of tenants
As at June 30, 2020
Healthy Outlook for Internal Growth
17
+8.9% Market vs. In-place rent - %
rent growth +9.4% +4.5% 2.0% 2.5% 1.5%
With contractual rent escalators that average ~2% for the overall portfolio and in-place rents well below current market rents, DIR is well- positioned to generate healthy internal growth over the long-term.
As at June 30, 2020
$7.38 US$3.95 € 5.16 $8.04 US$4.32 € 5.39 $0.00 $2.50 $5.00 $7.50 $10.00 Canada U.S. Europe In-place and committed base rent (psf) Estimated market rent (psf)
Strong Balance Sheet Provides Stability and Opportunity to Pursue Value-Enhancing Growth
18
~20% leverage reduction since year-end 2017; capacity to complete $300M of acquisitions before leverage exceeds 35%
53.8% 52.5% 47.9% 43.5% 23.7% 28.2% 28.1% 8.4x 8.4x 7.8x 7.2x 4.3x 5.3x 5.4x
Net Debt To Adjusted EBITDAFV Net Debt To Assets
Net Debt To Assets Net Debt To Adjusted EBITDAFV
52% 48%
~2% Weighted Avg. Interest Rate 3.6% Weighted Avg. Interest Rate 3.8% Weighted Avg. Interest Rate
Transitioning Towards Optimal Capital Structure
19
European platform will allow us transform our debt composition and reduce our overall cost of debt which we expect will improve our ROE by ~15%1.
Q2 2017 Conceptual Debt Mix1
North American Debt ` European Debt Equity
25% 8% 67%
Q2 2020
1 – For illustrative purposes only, actual results may differ. ROE is calculated as free cash flow divided by book value of equity
28% 72%
21
Canada United States Europe
$2.0 Billion $602 million $287 million 4.0 years 4.0 years 5.4 years 96.4% 94.0% 95.6%
Geographically Diverse Portfolio*
$2.9 Billion 4.1 years 95.6%
Total
IP Value WALT Committed Occupancy 198 29 35 # Properties 262
* As at June 30, 2020 Investment Strategy to Increase the Overall Quality of Our Portfolio
22
High Quality 1
Assets that are well-located, with easy access to transportation networks, population centres and key business nodes
Functional 2
Industrial properties that are attractive to a wide variety of tenants with various business uses. We are targeting good quality logistics facilities that house mission-critical, distribution related business functions
Attractive Economics 4
Focus on going-in, 5 and 10-year cap rates, in-place vs. market rent, free cash flow yield and unlevered total returns to ensure our investments exceed our return hurdles
Well Located 3
Focused on allocating capital towards investments that improve the overall quality of our portfolio
Asset Management
Disciplined investment strategy to grow free cash flow and net asset value
23
Experienced Platforms 1
Combined over 50 years of experience acquiring and managing industrial real estate between Dream and PAULS Corp
IRR Model 3
Evaluate and benchmark each individual asset in our portfolio, assessing historical and future performance as well as value
Disciplined Capital Allocation 4
Prudently invest capital in properties with potential for free cash flow and value growth over the long term
Asset Recycling 2
Identify select opportunities to recycle assets within our portfolio and reinvest the proceeds into higher quality assets that will provide superior long-term value
24
We recycled over ~$280 million of assets in the past 30 months with proceeds being deployed in over $1 billion of higher quality assets with stronger free cash flow yields
12K sf
size
21.6 ft.
height
YE 2016
22K sf
size
24.5 ft.
height
Q2 2020
6.7%
IFRS Cap rate
5.9%
IFRS Cap rate
67%
Net rental income margin
71%
Net rental income margin**
NOI margin reflects data from the 12 month period ended 2019 *** NOI margin is a non-GAAP measure defined as net rental income as a percentage of investment property revenue
Portfolio Transformation
Improving asset quality 16M sf
GLA
24%
ABR* from tenants >100K sf
26M sf
GLA
42%
ABR* from tenants >100K sf
Portfolio Transformation - Quality
25
9601 156th Avenue, Grand Prairie 131 Ilsley Avenue, Halifax 439 Sovereign Road, London 40 Thornhill Drive, Halifax 8860 Smith’s Mill Road, Columbus 1602 Tricont Avenue, Whitby Dutch Portfolio, Netherlands 1250-1280 Humber Place, Ottawa
We recycled over ~$280 million of assets in the past 30 months with proceeds being deployed in over $1 billion of higher quality assets with stronger free cash flow yields
Portfolio Transformation – Geography
26
We have significant scope and reach to execute on the best industrial opportunities in markets experiencing strong fundamentals with high potential for NAV growth
For illustrative purposes only, actual results may differ
% of total IP Value Q2 2017 Q2 2020 Target Portfolio Mix1 Ontario/GTA 28% 33% 30%-40% Quebec 18% 15% 10%-15% U.S.
15%-25% Europe
20%-30% Western Canada 39% 21% ~10% Eastern Canada 15%
Initiating Developments
27
Experienced Partners
Dream and PAULS Corp have an extensive track record in commercial development, with PAULS Corp having developed over 16 million square feet of real estate across Canada and the U.S. (including Las Vegas), DIR will not be required to pay a promote to the development managers
Portfolio “High-grading”
Opportunity to add high-quality Class A industrial product at attractive economics to the REIT. We are targeting development yields in the high 5s and low 6s, which is ~100 bps higher than estimated cap rates on comparable stabilized properties
Attractive Markets Initial Development
24.5-acre site well-located in North Las Vegas. The site should support a ~450,000 sf building and DIR has an 80% ownership interest with an expected development yield of ~6%. Pursue development opportunities in the REIT’s target markets in Canada as well as strong U.S. markets where PAULS Corp. has significant experience in building industrial product
1 2 3 4
Consistently High Occupancy
29
Well-diversified portfolio with a strong leasing team has resulted in healthy retention and consistently high occupancy
96% 96% 96% 95% 95% 97% 97% 96% 96% 96% 97% 98% 98% 96% 95% 95% 94% 95% 73% 70% 67% 63% 71% 80% 78% 74% 81% 20% 40% 60% 80% 100% 20% 40% 60% 80% 100% 2012 2013 2014 2015 2016 2017 2018 2019 H2 2020
Retention Ratio Committed Occupancy
Committed Occupancy Committed Occupancy - Western Canada Retention Ratio
Limited Near-Term Lease Maturities*
30
WALT of 4.1 years and with staggered lease expiries provides cash flow stability; ~13% of GLA expiring in the next 18 months at below market rents
*As at June 30, 2020
Expiries - U.S., 0.4% Expiries - U.S. 1.1% Expiries - Europe, 0.1% Expiries - Europe, 0.6% 2.5% 8.0% 97.0% 90.3% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% Remainder of 2020 2021
% of GLA
Expiries - U.S. Expiries - Europe Expiries - Canada Committed GLA
Strong Unencumbered Asset Pool Increases Balance Sheet Flexibility
31
Unencumbered assets total $1.2 billion, representing 40% of investment properties value, positioning us well to achieve an investment grade credit rating
$0.1B $1.2B $0.4B $0.3B $0.3B
$0.1B
$0.0B $0.5B $1.0B $1.5B YE 2019 2020 Acquisitions (Q2-2020 IFRS Value) Prepaying mortgage debt Converting credit facility to unsecured Repayment of mortgage debt Unencumbered asset pool
$112 $44 $98 $473 $11M $21M $19M $16M $66M $0 $250 $500 $750 Remainder of 2020 2021 2022 2023 2024+ Millions CAD Balance due at maturity Principal repayments
Ample liquidity available to address upcoming debt maturities and contractual cash obligations
Well-Staggered Debt Maturity Profile
32
5.6 years
WATM1
3.6%
WAIR2
$38M
Cash-on-hand3
US$250M
Credit facility availability
1- WATM : Weighted average remaining term to maturity as at June 30, 2020 2- WAIR : Weighted average interest rate as at June 30, 2020 3 - Following repayment of a $17M mortgage on July 2, 2020
3
Opportunity to Reduce Cost of Capital and Further Improve Balance Sheet Quality
Conservative Leverage
Targeting average net debt-to-assets in the mid-30% range over the long term
Cross Currency Hedging
Over the medium-term, increase Euro denominated debt while reducing debt in Canada to reduce our borrowing cost and currency risk
Capitalizing on Yield Spreads
5-year Euro debt ~150 bps lower on a comparative basis than North American rates; could reduce overall cost of debt by over 20% in 12-24 months
Unencumbered Asset Pool + Credit Rating
Recently increased unencumbered asset pool to 40% of IP Value, positioning us well for an investment grade credit rating
3 1 4 2
Implementation of our debt and hedging strategies on our initial European portfolio is expected to generate ~$0.02 - $0.03 of accretion per unit to our results on an annualized basis without increasing leverage
Sustainability Highlights
36
75% 25% National sponsor 449 gifts ~$302,000 ~1,300+ shoeboxes ~$11,000 ~$700,000 7 239 MW Energy efficiency
*Social highlights are based on all Dream entities combined
Employee Development Community Engagement Tenant Focused – Peer Recognition Energy efficiency Tenant Engagement Employee Well Being
Experienced Management Team and Strong Operating Platform
37 ~80 employees dedicated to acquisitions, portfolio management, accounting, and finance On-the-ground resources dedicated to sourcing acquisition opportunities, portfolio management, and leasing U.S. platform provides on-the-ground resources dedicated to asset management and sourcing unique investment opportunities in our target markets
23 years Experience 20 years Experience 15 years Experience
Brian Pauls Lenis Quan Alexander Sannikov
Chief Executive Officer Chief Financial Officer Chief Operating Officer
38
Relative Logistics Market Size – Europe Versus North America
39
Population Density (People Per km2)1 Comparison – Europe Versus U.S.
Europe
3.4 Billion Square Feet 4.3 sf Per Capita
European logistics square feet per capita is significantly lower than the United States Higher population density in Germany + Netherlands is a driver of increased demand for last-mile logistics solutions
United States
9.8 Billion Square Feet 30 sf Per Capita
4 36 237 511 Canada United States Germany Netherlands
Why Invest in Europe?
Low Supply 1 Large + Attractive Economy 3
The European Union represents 22% of World GDP1 with a population size of over 500 million2. Industrial fundamentals are benefiting from economic growth, low unemployment and increasing demand from distribution as well as logistics users
Rent Indexation 4
Most leases are inflation indexed, providing embedded rental rate increases to drive cash flow growth Low supply of quality light industrial and logistics product as well as increasing user demands are expected to support healthy rental rate growth
E-Commerce 2
Lower levels of e-commerce penetration compared to U.S. and Canada are expected to result in strong relative demand for logistics and distribution space
40
1 – Source: Eurostat, Gross Domestic Product 2 – Source: United Nations, Department of Economic and Social Affairs
Our Unique Advantages in Europe
41
Dream has been active in Europe since 1998 In 2011, Dream Global REIT was created and quickly amassed a high quality portfolio of European office + industrial assets The sale of Dream Global REIT in December 2019 for $6.2 billion was a successful outcome for unitholders, delivering total annualized returns of 15% since its IPO Dream Global REIT’s key team members have joined DIR to execute on its European expansion strategy Leveraging expertise, deep local relationships with tenants, lenders and brokers to support DIR’s growth and success in Europe 3 1 4 2
E-commerce Demand Continuing to Accelerate
43
Population growth in our target markets…
30% 11% 8% 16% 0% 10% 20% 30% 40% 2010 2015 2020 2025 2030 2035 Canada US Germany Netherlands
… supporting increased e-commerce penetration
8.9% 14.7% 7.5% 14.1% 7.8% 12.1% 4.0% 8.0% 12.0% 16.0% 2017 2018 2019 2020 2021 2022 United States Canada Europe
Sources – www.OECD.org, E-Marketer e-commerce report, CBRE
44
5.5% 2.9% 9.4% 7.2% 8.3% 4.3%
0% 2% 4% 6% 8% 10% 2014 2015 2016 2017 2018 2019
Canada US Europe
Declining availability…
33.8% 27.6% 10.6% 0% 10% 20% 30% 40% 2014 2015 2016 2017 2018 2019
Canada US Europe
…leading to higher rental rates
Driven by increasing demand from e-commerce users, availability rates have continued to decline with a corresponding rise in rental rates
Source: CBRE, Cushman and Wakefield; JLL
Industrial Fundamentals Poised to Strengthen Further
Forward Looking Information
This investor presentation may contain forward-looking information within the meaning of applicable securities legislation. Forward-looking information generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, or “continue”, or similar expressions suggesting future outcomes or events. Some of the specific forward-looking information in this investor presentation may include, among other things, our ability to execute our strategy, our ability to deliver above average returns; our ability to benefit from rising e-commerce demand; strategies and plans to increase the overall quality of our portfolio and grow our free cash flow and net asset value; our ability to access and execute on industrial opportunities in markets with potential for NAV growth; our expectations on the European industrial market, including expected rental growth and demand for industrial and distribution space; the effect of our European expansion strategy and hedging and debt strategies on our results and financial position; our hedging and debt strategies, including our ability to hedge our entire Euro capital exposure by borrowing 100% of the Euro value of the Trust’s portfolio and the estimated interest rates relating to such financing over a five-year term; expectations regarding accretion to FFO; and our ability to obtain an investment grade credit rating. 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. These risks and uncertainties include, but are not limited to, global and local economic and business conditions; mortgage and interest rates and regulations; the uncertainty around the timing and amount of future financings; uncertainties surrounding the COVID-19 impact on the economic, financial, and real estate market; the risk that the actual accretion to FFO as described may differ from what is estimated; the financial condition of tenants; leasing risks, including those associated with the ability to lease vacant space; our ability to refinance or repay maturing debt; our ability to execute our strategic plans and meet financial obligations; risks associated with our anticipated real estate operations and investment holdings in general, including environmental risks, market risks, and risks associated with inflation; interest and currency rate fluctuations and other financial exposures. Our objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable; there are no unforeseen changes in the legislative and operating framework for our business will occur, including unforeseen changes to tax laws or governmental regulations in Canada, the U.S. or Europe; interest rates remain stable (including that interest rates in Europe remain below North American rates); conditions within the real estate market (including cap rates) remain consistent; our future level of indebtedness and our future growth potential will remain consistent with our current expectations; the capital markets continue to provide ready access to equity and/or debt; and our hedging and debt strategies achieve their intended goals. All forward-looking information in this investor presentation speaks as of the date of this investor presentation. 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.
Non-GAAP Measures
The Trust’s condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). In this investor presentation, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-GAAP financial measures, including leverage or level of debt (also known as net debt-to-assets ratio), NAV per unit, net debt to adjusted EBITDAFV and unencumbered assets, as well as other measures discussed elsewhere in this investor presentation. 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
considered as alternatives to net income, net rental income, cash flows generated from (utilized in) operating activities, cash and cash equivalents, total assets, non-current debt, total equity, 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 MD&A for the quarter ended June 30th, 2020 and within this investor presentation.