Brent Chapman - President, Chief Executive Officer Lenis Quan - Chief Financial Officer Michael Cooper - Chief Responsible Officer of Dream Unlimited

Mike Markidis - Desjardins Capital Markets Heather Kirk - BMO Brad Sturges - Industrial Alliance Securities Sam Damiani - TD Securities Dean Wilkinson - CIBC Pammi Bir - Scotia Capital Mark Rothschild - Canaccord Matt Kornack - National Bank Financial

Thank you. Good afternoon, everyone.

Thank you for joining us for the Dream Industrial REIT conference call, which is for the three months ended June 30, 2017. Speaking with me today is Lenis Quan, the Chief Financial Officer of the REIT.

We're also joined today by Michael Cooper, Chief Responsible Officer of Dream Unlimited. Michael will be available there to answer your questions regarding strategic initiatives that we are working on with Dream Asset Management.

Lenis will provide our financial highlights, and I'll wrap up with a few comments on the quarter and an update on the business and our strategies targeted on driving growth and enhancing value, we'll then be happy to fill your questions.

Thank you, Brent. Dream Industrial's operations have met or exceeded our expectations and we are making good progress on our strategic initiative.

Overall Dream Industrial's portfolio delivered financial results for the second quarter, which was in line with our expectations and ahead of the prior quarter. The value of our investment properties was stable at CAD1.6 billion, reflecting an overall cap rate of 6.64%.

Diluted funds from operations, or FFO, per unit for the second quarter was CAD0.23 ahead of both the prior quarter and same quarter of last year. Adjusted funds from operations or AFFO for the quarter was CAD0.21 per diluted unit up 4% from last quarter and 2.5% from the second quarter of last year.

Comparative property NOI increased 1.8% from Q1 largely due to higher occupancy as well as higher recoveries and capital invested in our properties. Year-over-year comparative property NOI increased by 2.4% largely driven by higher occupancy and recoveries in Ontario and Quebec and partially offset by lower occupancy in the West and lower rent and recovery in the East.

We continue to improve our debt metrics with leverage declining by 90 basis points year-over-year to 52.4%. Our interest coverage ratio has improved to 3.3 times and debt to adjusted EBITDA is eight years.

Our weighted average phase interest rate is 3.8% with a weighted term of maturity of 3.8 years. We have been able to improve our payout ratio, reduced leverage and report improved financial results relative to the same quarter of last year even though we have still CAD62 million of assets since June of last year.

Looking at 2017, we now have commitments representing 93% of our 2017 expires, which compares favorably to the 85% at the same time last year. I will now give some guidance on our existing portfolio.

On a comparative property basis, we expect NOI to be flat to slightly up and overall occupancy to be 50 basis points to 75 basis points higher than our 2016 year end. By region Ontario and Quebec have been strong and we expect NOI increases in both regions.

Western Canada is recovering and we expect year end occupancy to be almost flat, but the challenges of last year will result in slightly lower NOI for this year. In Eastern Canada, we have been focused on improving occupancy and have achieved a 270 basis point increase since the beginning of the year, however the NOI contribution from the east we see a bit of timing lag.

In conjunction with our cost reduction initiatives and the recently announced Nissan building acquisition, we are expecting approximately 2% growth this year over our 2016 reported AFFO. We expect overall building and leasing capital to be about 20% lower in 2017 compared to 2016 and some of our larger capital maintenance initiatives were completed in 2016.

We expect to have positive free cash flow in 2017 after plant building capital leasing cost and distribution. We believe that the additional liquidity will provide us with enhanced flexibility and the ability to explore and pursue our strategy.

I will now turn the call back to Brent to give an update on the business.

Thank you, Lenis. I'll open with some brief commentary on the performance of each of our markets and then discuss the growth and value enhancing initiatives we are working on.

The overall Canadian industrial market continues to be very stable with national availability at 4.7% and just 0.7% of new supply and the construction. Vancouver, Toronto, Calgary and Halifax all showed strong positive absorption over the past quarter, well the Edmonton and Montreal markets some modest increases and availability.

Positive economic activity in Halifax came through last quarter with leasing activity driving availability down 90 basis points to 10.9%. As widely reported the industrial sector continues to experience solid fundamentals and it's highly sought after by investors.

Overall the Dream Industrial portfolio delivered solid results for the quarter with total occupancy hitting a four year high of 96.8%. This was driven by improvements in the East and continued strong performance in Ontario.

By region occupancy in Western Canada was 96.5%, Ontario 99.5%, Quebec 96.7% and Eastern Canada at 92.5%. As previously announced, we have entered into an agreement to purchase the 717,000 square foot global parts distribution center for Nissan in Nashville, Tennessee for CAD60 million.

This is a modern Class A 32 foot clear building with 93 doors on all four sides and centrally located to serve the ten regional distribution buildings Nissan operates in North America. The property is a critical part of Nissan's infrastructure located near Nissan's North American head office and in between its two main assembly plants in Tennessee.

The Nissan lease has nine years of term remaining with options to extend the building by 485,000 square feet. Regarding in capitalization rate is 6.3% averaging 6.5% over the term.

We are expecting the transaction to close in Q4. In addition to the Nissan acquisition, we also announced several strategic initiatives that we are pursuing to drive growth and increase the value of our business with our asset manager Dream Unlimited.

We are working with Dream's industrial development group to develop new buildings on Dream's land bank of approximately 180 acres designated for industrial with the potential of three million square feet of space. We are also leveraging Dream's relationships to pursue opportunities in Canada and in the U.S.

to acquire modern income producing assets. Dream is also currently exploring joint venture partnerships and development opportunities in major U.S.

and Canadian markets on behalf of DIR. With Dream, we've effectively established a preferential acquisition pipeline to new industrial properties.

Allow preliminary we are excited by the various opportunities we are seeing and as we continue to advance our work, we will share the progress with you in the upcoming quarters. Overall we are pleased that our portfolio and operations are able to deliver solid results, the value of our assets remains stable, and we are making significant progress on our initiatives to grow and add value to the business.

That concludes the formal part of our call. We thank you for your time today.

And we're now happy to take your questions.

Hi, thanks, good afternoon everybody. Just with respect to the strategic initiatives and leveraging the Dream platform, is it possible to shed some light on what the involvement might be, I mean the land bank is Dream Unlimited would Dream Industrial be purchasing finished product or would it be a financing partner in a development just trying to get a sense of what that might look like?

Hi Mike, it's Michael Cooper. We're approaching it on the basis that Dream Unlimited will take all the risk and when we're finish if the Industrial REIT would like it, they can buy it basically 2.5% discount in market based on that transaction costs.

Okay. And to get that 2.5% discount would Dream Industrial be providing any financing on that business?

No.

No, okay.

We're trying to use resources of Dream Unlimited to manifest the Industrial REIT to make it better and better, so all of these we're talking about are really as easy as possible for the Industrial REIT and its board, they decided they want to do something. So Dream has it on their balance sheet now and we progress if the Industrial REIT we'd like to buy with the [indiscernible].

Okay. So when do you think the first, I think there's a couple hundred thousand square feet that are either in progress or in the various stages of planning, when do you think the first development opportunity might be made available for the REIT?

Yes, I just go through that, I think they can get to 50,000 or 100,000 square feet a year within 24 months.

Okay. And then Michael, the development group that got recently established within Dream it sound like that was more on the industrial development expertise.

Could you shed some light on the relationship to Dream Unlimited has in the U.S. and how deep those are in terms of acquiring assets so to the board?

Yeah, we've got, historically we've had some partnerships down there and we've got the partnership with Canadian Pacific Railway, so we just started to work on those relationships to see if can make progress for Dream Industrial to get a pipeline of assets.

Okay. And last one here before I turn it back, just there's a fairly significant trash of converts outstanding, they don't mature until 2019, but I see there's a par car redemption that you could potentially exercise at the end of this year.

So I just wondering how you guys are looking at that relative to you desire to grow or establish group of REIT and potentially take advantage of panels down and replacing that with something mortgage financing is little bit cheaper?

Okay, hi Mike its Lenis. So with regards to that larger trash of debentures which don't mature, they don't actually mature until the end of December 2019 like you said.

Coming next year we're going to be able to repay them or replace them either with secured debt or drawdown on our line that would result in obviously in some significant interest savings. We are evaluating our options with respect to our refinancing strategy in conjunction with our growth initiatives.

And however with our unencumbered assets of CAD127 million, the CAD100 million on the credit facility positive free cash flow after distribution, and we've got sufficient liquidity to address these debentures.

Okay, that's great. Thanks very much.

In terms of land my understanding is primarily in Western Canada, do you have any other land in other geographies or in the U.S. at all?

Dream Unlimited has a lot of land on Western Canada on its balance sheet, there's also land for Canadian Pacific is not on our balance sheet pretty much in Western Canada, in the states.

Okay, so there could be some potential for development in the U.S. as well?

Yes.

Okay. Just on the drip participation, which is really spiked up pretty materially just wanted to get your thoughts on your commitments to keeping the drip place and also on the 3% discount?

Well, as you've noticed our drips at about 36% right now, and we e believe it's actually a cost effective way for us in terms of providing additional liquidity as we pursue our growth initiatives. So there's no consideration of any change at this point.

Okay. And just moving to the operations, can you comment a little bit on the rent declines and what you've mentioned in the disclosure that it was related to some competitive markets and just curious to know what was specifically?

So on our actual expiring rents that on occupied space. We did have positive leasing spreads in all regions other than in Western Canada.

We had like three mid to large pay tenants that were renewal in, we are seeing a little bit more competition in that areas and market. I think if we excluded those three - those spreads on our renewals are actually positive for the rest of the portfolio.

Okay. Do you have a number for exactly what that would have been?

For the rest of the portfolio if we excluded those three units, I believe it was about a 1.4% increase.

And just in terms of entry into United States, what's the thinking in terms of where this goes to the percentage of the portfolio, with this is opportunistic given the opportunities with Dream Unlimited or do you have that target for how the balance between Canada and the U.S. is going to look?

We don't have a real number, but I think that to have any scale with work towards like 20% and right now we probably do a lot of recycling capital from assets that we get good prices and investment in the states.

And do you have a specific geography that you'd be concentrating on?

We pick that variety of cities that we like as opposed to geography. So I think we mentioned to be four we don't we think national is a pretty special place, so lot of reasons it's really booming there and Chicago couldn't can get there we're looking for Southern Las Vegas, Atlanta and Dallas, but there's a number of desirable markets and if we can find a good way to ask that one of the better markets we'd like to do that.

Thanks very much.

Hi there. Just continuing on the U.S.

on the market there on the acquisition strategy, is it based on your comment about looking a modern product is that the national asset essentially what we should be thinking about in terms of what you're looking to acquire at this stage until you get a bigger foothold in the market?

I think so. I think we're looking for assets that are well leased and have some good lease turn.

Okay. And this and so you get a bigger size and then would something similar to what you have product wise and in terms of the smaller bay multi-tenant as it is that something will be on the table down the road or are you looking to kind of shift the strategy a little bit from the type of asset perspective?

I think it's a great question, because we like the multi bays, but it really hands on grind into manage it, so we're comfortable here, I'm not sure it will get comfortable in state, depend on the ranges we have done there, so this point we're not looking multi bay in the U.S.

Okay. Okay.

That's good. And then just from the development program just to clarify at this stage it's not going to be anything on balance sheet for the REIT specifically it's more just with the Dream Unlimited at this stage?

Yeah. So what we're dealing with the Dream Unlimited we have the significant communities at west and we're doing more and more to building ourselves.

And I think that perspective if the Industrial REIT we'd like to buy them and help the Industrial REIT as good. So there is no obligation on the Industrial REIT at all we try to make it as beneficial for the Industrial REIT as possible.

Great. I'll turn in back.

Thanks a lot.

Thanks. Good afternoon.

Just sticking with the debt profile with the Nissan acquisition leverage will pick up a little bit, what is the strategy on leverage sort of on an overall basis going forward?

Sam you're correct, after the Nissan acquisition our leverage will increase temporarily, but it's still within a 50% to 55% target range. And we would expect leverage would come down over time with free cash flow after distributions in some capital recycling.

Okay. And what's the status of the asset sale and I think there's what two assets on the balance sheet right now?

Yeah, they're both have paper on them. One is close to being firm and closing I would say in the next 30 to 60 days, so they're both in play.

And there is very little income coming of those, right now as I understand it?

Correct.

And so I don't know if you've mentioned that, but what is the interest rate on the mortgage on the Nissan facility?

So with the complicated debt structure, we've figured out a structure that both beneficial for ourselves and office. So the debt will be assumed at market rates for comparable term.

And there is four years left on that mortgage.

Those two mortgages are secured by two properties in Edmonton, so we would expect to see similar rate in Alberta, but not for properties in the rest of Canada. And that was also done at the beginning negotiated at the beginning of the year things to be thing with Alberta stabilizing I think we could potentially push and get a better rate.

Okay. Thank you.

Thanks, afternoon, everyone. Could you just walk us through how you struck the valuation on buying the asset from Office into Industrial?

So we had each of office and industrial we obtained independent third party appraisal, so the value on the acquisition price was within the range of those two independent appraisals.

Okay. Where were they materially different I assume that you sort of split the difference?

No, they weren't materially different.

Okay. And is that the only asset that Office had down in the States in form in the form of industrial properties like I believe it may have been but I'm not entirely sure on that?

Yes.

Okay. And then Lenis you mentioned that you expect the occupancy into the year-end 50 basis points to 75 basis points higher than year-end 2016.

Would that imply a slight downtick from where we are right now including the committed space?

I think our level of commitments is fairly high particularly in the East, we would expect that come down I think on in place basis were pretty comfortable in maintaining the level if not a slight increase between now and year-end.

Between now and year-end. Okay, perfect.

And then on the last 374,000 feet in Western Canada, it looks like that's coming off a about a dollar higher than market rent under your disclosure. So should we expect a similar dynamic for that as we saw in Q2 for the leases you rolled there?

Yes.

Which was business down about a buck there?

Right. So what's driving the negative spreads like Office units in Alberta.

So and we've split that into our guidance and our assumption within our guidance for the rest of the year.

Okay. Perfect.

And we are seeing positive price in the other region, so I guess it good have a diversified portfolio.

That's what you did it right? And last one for Michael.

I guess it's more a dream question, looking at the opportunities to build on the existing land bank versus say perhaps going down into the states buying land and construction costs usually are cheaper down there. Would there be a thought perhaps for DRM to independent of say the CP partnership or anything like that build up a bit of a land bank not as extensive as you've got in Western Canada, but south of the border?

We would not do Dream Unlimited would not go and buy land like that if we had an arrangement with a partner that could help Dream Industrial REIT. We would take a look at that although I think the Industrial REIT might be the owner of the land if we did that.

Okay. So nothing on spec and so do it would just be if you had a specific use that you do that?

Like Dream Industrial could enter into your relationship with the U.S. developer maybe.

But I don't know if there's a reason why Dream would be involved in that.

Okay. That's fair.

That's it for me. Thanks everyone.

Thank you.

Thanks. Good afternoon.

Just with respect to the capital recycling program have you gone through sort of the broader portfolio exercise and sort of come up with the overall program of targeted sales and what could that look like over the next couple years?

Yeah, we have been going through the exercise, right now we have the two assets out for sale which is really the only two that were marketing right now. We don't have a number that we can say is a target that we were to look to dispose of the safe to say they will be net acquires as we done over the last year.

So yeah no specific number for you other than or will be net acquire.

I mean if I think about what it would be reasonable to think of sort of sales kind of in the $50 million range per year or does that seem a bit late?

I'm not sure, I think what we're going to focus on is being able to create out of one that the value quite high that we will that we can do a lot more to invest in something else we have upside I think it may be driven. If we found incredible opportunities then we would be deeper in our Canadian portfolio to free up the capital for, but we're not really we're not looking at a portfolio and say we want to have some kind of turn over the portfolio.

I think it's really on an individual building base where we think we can do better unless there's a bigger transaction we need to pay more capital.

Okay. Got it.

And just when you think about what sort of range of capital you can redeploy in the U.S. beyond the first acquisition.

How would that compare with what you could sell out you think in Canada? What sort of spread are you looking at?

If there are really efficient markets, so what we're seeing is generally it's hard to pick up as spread. However, if a tenant once own a building before they invest a lot of money in to their operations we can do better, if somebody wants use the building for different purpose.

So I think what we're really trying to do is find those opportunities where we can sell at a purchase price and really doesn't relate to a cap rate. But generally I think it's around the table anybody have a different views that is fairly comparable.

In the U.S. there's quite a spread between different markets and I think in Canada there is two.

Right. But the end goal is you would be upgrading the asset quality if you think based on what you'd be buying in the U.S.

relative to what you'd be selling in Canada even if they are call it let's say for the moment for argument safe to say cap in rate?

Yeah, I think just to think, we would do the same in Canada, we would sell an asset that we're going to upgrade in Canada as well as sell to do in states. So I think we're going to be pretty active, but a lot of its driven by what opportunities we can find, I think that's the real scarcity now.

Okay. Maybe just switching gears, we're seeing better momentum from the same property NOI perspective, but looking a little bit maybe further out into 2018 for Eastern Canada and Western Canada, does it feel like you've turned the corner there or do you sort to see some bumps along the way over the next call at 18 months?

I think looking forward, we have turned a corner certainly Calgary. Halifax seems to have stabilized and turning in the right direction.

Edmonton is lagging a little bit just because in certain sub markets in Edmonton, Nisku and a couple of others would do where it's heavy energy service companies, there's still kind of a recovery going on there, so but definitely the trend is positive and we see a major bump along the road.

Great that's helpful. Thanks very much.

Thanks and good afternoon. I just want to understand the strategy, leverage will increase slightly with this first acquisition in the U.S.

going forward is the plant to fund acquisitions with completely with asset sales or would you look to raise leverage or is this equity going to be something that's part of the strategy as well to grow?

You know, I think all of those are things that are available, I don't really want to rate our leverage. Right now we are in between having sold some assets buy some assets sold some assets our leverage hasn't really moved around much, I think we're looking to recycle and there may be opportunities issue equity the market is supportive with the opportunities we find.

Okay. And you've spoke about maybe high grain to portfolio, are there markets in Canada where you'd in particular like to reduce your exposure, because obviously with the unit price where it is showing equity is not accretive and units are trading at discount to net asset value, so where would you really be looking to reduce your exposure?

It's Brent here. I don't think we're not looking at any specific reason.

We're kind of comfortable with the balance of the portfolio, so as we evaluate the assets is really more building by building specific and looking at asset that we think we've kind of got the most out of them, that maybe there's not a lot of lift left in them or maybe there's CapEx that's going to be a big requirement going forward, so we're really looking more on a building by building basis as opposed to changing our waiting in any geography.

Okay, thank you very much.

Hi guys. Lenis just a quick question in terms of your guidance on FFO, do you say that you expect 2% growth in 2017 for the year?

That on adjusted funds from operations AFFO.

Okay, okay. And so not - and so FFFO would you expect it to be flat as in the past or more bullish on that front given the acquisition activity?

Yeah, I think it's going to be relatively flattish maybe slightly up, but the guidance I had given was on adjusted funds from operations.

And do you anticipate or in that guidance is there any incremental acquisition activity or is it just the Nashville acquisition at this point?

Yeah, just Nissan at this point.

Okay. With regards to the fair value you took a write down in the quarter, but cap rates compressed slightly is down on rent expectations or what exactly would have driven there?

There's a few moving parts in there, the cap rate compression was largely driven by Ontario region and that was driven by external and supported by external appraisal as well that information from our external on that stuff that we're valuing internally. In the west and the east we have some property specific adjustments leasing assumption driven cash flow driven, market rents as well as leasing activity, so that would have been driving the declines from those two regions.

Okay. And then final question with regards to Alberta the rent spreads have come down and as much as things have stabilized you're still comparing to leases that were signed five or so maybe longer years ago.

Do you anticipate that comes down further at this point should we start to see those spreads wide to note again?

Yeah the spreads the market rents come down in this quarter or some specific properties or higher flex off it components so those we're kind of what we're driving down the average in Western Canada as you've said a lot of the leases that are in place now are signed in five years ago or so. But I think at this point in time we're still seeing some pressures on the rent, but think with Albertan stabilizing, we hope that over Nashville can't predictive the next four months we hope we start to see some gains in that market.

Okay, thanks.

Thanks. I just want to clarify and I think you've touched on responses and questions already, but in terms of growth by acquisition you can do the radar screen it's just that you're factoring in the U.S.

now, is that right, you're still looking at acquisitions in Canada?

Yeah, correct. There were actively pursuing acquisitions in Canada.

Okay. And just secondly there's a couple of your largest tenants with relatively short remaining lease terms, how are I guess the talks going with the leases at this point, if maybe is not release too early?

Well, without getting into any specific tenants we're pretty confident in any big ones that we have, we're fairly confident that they'll be sticking around some of them the smaller weights looking at it more than a year, it's too early to be talking to them, but certainly the big tenants that were well engaged with.

Perfect, thank you.

Just a quick follow. I'm just wondering if there's any update on CEO transition and where that it?

I think it's not appropriate me to answer that unless Brent wanted to do, and Brent to pick somebody.

No we have been working a lot on where the company we're working closely with the board and our intention hasn't been to really start until the fall.

Okay. And is this going to be an external take or would you be looking at somebody internally as well?

We're setting up, I think we announced in the spring that we would invite internal people and external people.

Okay, thanks.

Okay, well thank you again everybody for participating and we forward to speaking to you next quarter.