Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dream Industrial Real Estate Investment Trust (DREUF, Financial) reported a 5% year-over-year comparative properties NOI growth for Q2 2024.
- The company achieved FFO per unit of $0.25, in line with guidance.
- Over half a million square feet of projects were leased or conditionally leased at strong rents across Ontario and Alberta.
- The Corporate Park redevelopment in Mississauga is now fully leased, contributing over $4.5 million to annual NOI.
- DREUF completed $50 million of dispositions across Canada and Europe at above pre-sale IFRS values, enhancing portfolio quality.
Negative Points
- The pace of demand across the industrial market has normalized compared to 24 months ago, leading to an uptick in availability.
- There has been an increase in sublease options, which is expected to continue trending upwards for the next quarter or two.
- The company expects a slight decline in in-place occupancy for Q3 2024.
- Higher cap rates in Europe partially offset the increase in net per unit value.
- The current environment is less certain compared to 24 months ago, impacting broader market observations.
Q & A Highlights
Q: What is your confidence level in regaining occupancy by year-end to set up for 2025?
A: We expect in-place occupancy to slightly decline in Q3, with committed occupancy remaining flat or slightly up by September. We anticipate a recovery in Q4, trending back to the starting point for the year. Our portfolio's diverse rent generation means some spaces contribute more significantly than others.
Q: Have we seen the peak of negative absorption in Canada, or should we expect more significant negative absorption into year-end?
A: We expect availability to trend slightly upwards due to subleasing activity, but we don't foresee significant pressures on vacancy. The vacancy rate will likely remain consistent or trend downwards as new stock gets leased.
Q: Are you looking to expand or monetize your European portfolio given the improving transaction environment?
A: We are encouraged by the demand for urban, well-located assets in Europe and continue to look for opportunities to add to this segment. We might recycle capital out of larger Bay products or markets like Spain over time.
Q: What are your views on a unit buyback program given the stock's significant discount to book value?
A: Our immediate capital priorities are our development program. We will consider share buybacks after completing these initiatives, likely in the next quarter or two.
Q: Can you provide more context on sublet activity within your portfolio?
A: We see some sublet activity from third-party logistics users optimizing their footprint. This is consistent with broader market trends and informs our outlook for availability rates.
Q: What is your outlook for same-property NOI growth and FFO per unit growth into 2025?
A: Despite downward occupancy pressure, we expect mid-single-digit like-for-like NOI growth. As occupancy stabilizes and spreads on re-leasing remain strong, we anticipate reacceleration in these metrics.
Q: What are your expectations for refinancing euro-denominated debt maturing in 2025?
A: Our 2025 maturities are towards the end of the year. Current euro-equivalent debt rates are around 4% for five-year terms. We expect organic growth to offset higher interest rates.
Q: Can you provide more color on the types of tenants driving current in-place occupancy pressure and expected recovery?
A: We see broad-based demand from manufacturing, traditional distribution, and food and beverage sectors. Third-party logistics users are giving back space but remain active in new leasing and subleasing.
Q: What is your sense of getting the balance of the Balsamic property leased up and interest in the Cambridge site?
A: We are encouraged by the level of activity and expect the properties to be fully leased soon. The Balsamic project is seeing strong demand at $12 per square foot, and we are in advanced discussions for the Cambridge site.
Q: How are you thinking about market rents in Toronto and Montreal, and their impact on rent mark-to-market opportunities?
A: We expect market rents to remain consistent with our disclosures. Our internal metrics reflect a weighted average market rent for each building, which has remained stable. We anticipate upward pressure on rents in the near to medium term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
