Dream Industrial REIT announced the promotion of president and chief operating officer Alexander Sannikov to chief executive officer while revealing its third-quarter financial and operating results during a Nov. 8 conference call.
Sannikov joined Dream Asset Management Corporation, the trust’s asset manager, in 2008. He joined the REIT in 2019 and will now succeed Brian Pauls, the CEO for the past six years, on Jan. 1.
“Alex has done an incredible job since joining the DIR team in 2019 and has continued to add value and grow his responsibilities throughout the last four years,” Pauls said to open the call.
“DIR is in strong financial shape and is in great management hands to navigate the future, keep the company safe and capitalize on opportunities that materialize.”
Pauls will remain close to the team as he focuses on Dream’s multifamily operations in the United States as CEO of Dream Residential REIT.
“I want to take this opportunity to thank Brian for his leadership of DIR over the past six years,” said Sannikov.
“It has been a great honour working side by side with him and the entire management team in a true spirit of partnership over the last four years as we have transformed our business to be not only the largest industrial platform in Canada, but a sizable player in Europe as well.
“We have established a significant development program and solidified our balance sheet, all while delivering sector-leading total returns to our unitholders. I'm very excited about the prospects of our platform going forward.”
Dream Industrial’s (DIR-UN-T) comparative properties net operating income was $84.6 million in the third quarter, a 10.4 per cent increase from the same period a year earlier.
Net rental income was $84.5 million in Q3, up 17.4 per cent from Q3 in 2022. Net income was $50.5 million, a decrease of $75.2 million, mainly driven by fair value adjustments to financial instruments.
The REIT’s total assets were $7.9 billion on Sept. 30, up 7.9 per cent from Dec. 31, 2022. The increase was due to acquisitions and higher investment property values.
Dream Industrial ended Q3 with available liquidity of $527 million and an additional $250 million that could be exercised through the accordion on its unsecured credit facility.
Since the end of Q2, Dream Industrial has transacted approximately 1.2 million square feet of leases across its portfolio at an average rental rate spread of 41 per cent over prior or expiring rents.
Estimated market rents exceeded the average in-place rents across the trust’s Canadian portfolio by nearly 48 per cent, with average contractual annual rent rate growth of more than 2.8 per cent.
“In the small to mid-space segment, leasing momentum remains healthy and we are continuing to push rates,” Pauls observed. “However, we're currently seeing a slowdown in leasing velocity in larger-bay product across our markets compared to 18 months ago.”
“Our properties are designed to be flexible and accommodate these changing demand patterns,” Sannikov added. “We remain encouraged by the level of interest for both existing assets and new development projects.”
Dream Industrial’s in-place and committed occupancy was 97.2 per cent on Sept. 30 compared to 98 per cent on June 30.
The decrease was primarily attributable to transitory vacancies, including a recently completed development in Caledon, Ont., and a 225,000-square-foot vacancy near the Port of Montreal.
The trust expects significant opportunities to capture rent increases across its markets as it re-leases spaces.
“Rental growth that we projected for 2023 as a whole has already been achieved,” Sannikov said.
Dream Industrial has more than 8.5 million square feet of gross leasable area maturing over the next two years.
More than six million of that is in Canada, of which approximately 74 per cent is in Ontario and Quebec, where the average market rent is approximately double that of in-place rent.
Dream Summit joint venture
Dream Industrial acquired Summit Industrial Income REIT in an all-cash transaction valued at $5.9 billion in February.
Since the closing of the Dream Summit transaction, the REIT has integrated Summit’s operations with its operating platform and completed or finalized terms on approximately 1.8 million square feet of new leases and renewals at an average spread of more than 100 per cent over prior and expiring rents.
The Dream Summit venture acquired a 19-acre land site and a 150,000-square-foot income-producing property in the Greater Toronto Area (GTA) during the third quarter.
It acquired four additional income-producing assets totalling 600,000 square feet subsequent to the quarter.
“We remain focused on expanding the Dream Summit JV in our target markets with the acquisition of six assets in the GTA for a total purchase price of approximately $272 million,” Pauls said.
“In addition, the venture is in exclusive negotiations or under contract to acquire two additional assets located in the GTA, totalling 250,000 square feet, for approximately $50 million.”
Development is slowing
Dream Industrial has approximately 2.8 million square feet of development projects recently completed, underway or in advanced planning stages.
“We have already seen the future development pipeline slowed down with limited spec starts this year and a number of projects getting pushed out to future years,” Pauls said.
“Development returns have been under pressure due to higher financing costs and we expect this to continue to keep a check on new supply.”
“While availability rates have increased somewhat from the start of the year, the supply pipeline — which is already limited — is shrinking as projects get delivered,” Sannikov said.
“We expect limited new spec starts and a substantially lower development pipeline in the near term.”