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Wall St Week Ahead: Battered U.S. stocks may not be bargains as investors brace for inflation data

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A Wall Street sign is pictured outside the New York Stock Exchange amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., April 16, 2021. REUTERS/Carlo Allegri

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NEW YORK, May 6 (Reuters) – U.S. stocks’ tumble this year is putting an increased focus on equity valuations, as investors assess whether recently discounted shares are worth buying in the face of a hawkish Federal Reserve and widespread geopolitical uncertainty.

With the benchmark S&P 500 index (.SPX) down 13.5% year-to-date, valuations stand at their lowest levels in two years, putting the index’s forward price-to-earnings ratio at 17.9 times from 21.7 at the end of 2021, according to the latest data from Refinitiv Datastream.

Although many investors tended to brush off elevated valuations during the market’s dynamic surge from its post-COVID-19 lows, they have been quick to punish companies viewed as overvalued this year, as the Fed rolls back easy money policies that had kept bond yields low and buoyed equities.

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While recently discounted valuations may boost stocks’ appeal to some bargain hunters, other investors believe equities may not be cheap enough, as the Fed signals it is ready to aggressively tighten monetary policy to fight inflation, bond yields surge, and geopolitical risks such as the war in Ukraine continue roiling markets. read more

“Stocks are getting close to fair valuation … but they’re not quite there yet,” said J. Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Illinois. “If you take into account bond yields, inflation, what is going on with GDP and the broader economy, they’re not quite there yet.”

Wild swings shook markets in the past week after the Fed delivered a widely expected 50 basis point rate increase and signaled similar moves for the meetings ahead as it tries to quell the highest annual inflation rates in 40 years. The index has declined for five straight weeks, its longest losing streak since mid-2011. read more

More volatility could be in store if next week’s monthly consumer price index reading exceeds expectations, potentially bolstering the case for even more aggressive monetary policy tightening from the Fed. read more

“There has … been a healthy reset in valuations and sentiment,” wrote Keith Lerner, co-chief investment officer at Truist Advisory Services, in a recent note to clients.

“For stocks to move higher on a sustainable basis, investors will likely need to have greater confidence in the Fed’s ability to tame inflation without unduly hurting the economy.”

Though valuations have come down, S&P 500’s forward P/E stands above its long-term average of 15.5 times earnings estimates.

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Potentially burnishing stocks’ appeal, S&P 500 companies are expected to increase earnings by about 9% this year, according to Refinitiv data, as they wrap up a better-than-expected first-quarter reporting season.

One likely factor is whether Treasuries extend a sell-off that has lifted the benchmark 10-year note yield, which moves inversely to prices, to its highest since late 2018.

Higher yields in particular dull the allure of technology and other high-growth sectors, as their cash flows are often more weighted in the future and diminished when discounted at higher rates.

The forward P/E for the S&P 500 technology sector (.SPLRCT) has declined from 28.5 times to 21.4 so far this year, according to Refinitiv Datastream data as of Friday morning.

“In terms of growth valuations, they have been hit the hardest and likely the most oversold,” said Art Hogan, chief market strategist at National Securities.

But the sector continues to trade at a nearly 20% premium to the overall S&P 500, above the 15% premium it has averaged over the broader index over the past five years.

If the 10-year yield hovers between 3% to 3.5%, after being a “fraction” of that level for a long period, “that is going to continue to be a weight on the P/E and therefore the discounting mechanism for the growth and technology space,” said John Lynch, chief investment officer for Comerica Wealth Management, which favors value over growth shares.

“To a large extent, (the pressure from higher yields) has been baked in,” Lynch said. “But I don’t think it is going to go away. I think it is going to persist.”

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Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Richard Chang

Our Standards: The Thomson Reuters Trust Principles.

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Dream Industrial REIT Reports Q1 2022 Financial Results and Strong Year-over-year Growth

TORONTO–(BUSINESS WIRE)–Dream Industrial Real Estate Investment Trust (DIR.UN-TSX) (the “Trust” or “Dream Industrial REIT” or “Dream Industrial” or “we” or “us”) today announced its financial results for the three months ended March 31, 2022. Management will host a conference call to discuss the financial results on May 4, 2022 at 11:00 a.m. (ET).

HIGHLIGHTS

  • Net income was $442.9 million in Q1 2022, a 364.9% increase when compared to $95.3 million in Q1 2021, primarily due to increases in fair value adjustments to investment properties. The net income in Q1 2022 consists of net rental income of $65.3 million, fair value adjustments to investment properties of $360.7 million and cumulative other income and expenses of $16.9 million;
  • Diluted funds from operations (“FFO”) per Unit(1) was $0.22 in Q1 2022, a 16.0% increase when compared to Q1 2021, where the diluted FFO per Unit was $0.19. The increase was primarily driven by comparative properties net operating income (“CP NOI”) (constant currency basis)(2) growth, NOI from acquired properties in 2021 and lower interest expense as a result of the Trust’s debt strategy to reduce borrowing costs announced in early 2020;
  • Net rental income was $65.3 million in Q1 2022, a 40.0% increase when compared to $46.7 million in Q1 2021. Year-over-year net rental income growth was primarily driven by 38.8%, 46.5% and 264.9% increases in Ontario, Québec and Europe, respectively;
  • CP NOI (constant currency basis)(2) was $41.8 million in Q1 2022, a 10.0% increase when compared to $38.0 million in Q1 2021. The Canadian portfolio posted a year-over-year CP NOI growth of 11.1%, predominantly driven by 18.2% and 13.6% CP NOI increases in Ontario and Québec, respectively. The European portfolio saw a 5.5% year-over-year CP NOI (constant currency basis) growth;
  • Total assets were $6.7 billion in Q1 2022, a 10.8% increase when compared to $6.1 billion in Q4 2021;
  • Total equity (per condensed consolidated financial statements) was $4.2 billion in Q1 2022, a 19.9% increase when compared to $3.5 billion in Q4 2021. The increase was primarily due to public offering of REIT Units ($320.1 million) and net income earned during the quarter ($442.9 million); and
  • Net asset value (“NAV”) per Unit(3) was $16.48 in Q1 2022, a 8.9% increase when compared to Q4 2021, where the NAV per Unit was $15.13. The increase in NAV per Unit largely reflects  $360.7 million of fair value gains recognized in Q1 2022 across the Trust’s portfolio as private market demand for industrial assets remains robust.
  • The Trust continues to make significant progress on strategic initiatives to maximize organic and external growth drivers while maintaining a strong and flexible balance sheet.

    • Organic growth – Leasing momentum across the Trust’s portfolio continues to accelerate and the Trust has signed approximately 2.8 million square feet of renewals and new leases across its portfolio since the beginning of the year, at an average rental spread of 21.3% over prior or expiring rents. The Trust’s leasing momentum has resulted in a 50 basis points increase in in-place and committed occupancy from 98.2% as at December 31, 2021, to 98.7% as at March 31, 2022. The Trust continues to expect strong rental rate growth as leases expire. As at March 31, 2022, estimated market rents across the Trust’s portfolio exceeded the average in-place base rent by over 20%.
    • Development pipeline – Phase 1 of the Trust’s 228,000 square foot expansion at 401 Marie-Curie Boulevard in Montréal is substantially complete with the Trust signing a lease at $10 per square foot, resulting in an unlevered yield on construction costs of 8.9%. The Trust has commenced construction or is in the final planning stages of commencing construction on over one million square feet of projects in the next 60–90 days. Overall, the Trust’s development and expansion pipeline totals approximately 3.5 million square feet, located in land-constrained markets in Canada and Europe.
    • Greater Toronto Area (“GTA”) and Greater Golden Horseshoe Area (“GGHA”) development partnership – Subsequent to quarter-end, the Trust, along with Dream Unlimited Corp., formed a $1.5 billion develop-to-hold joint venture (the “Joint Venture”) with a leading global sovereign wealth fund (the “Partner”) to acquire land and build modern best-in-class logistics assets in the GTA and the GGHA. The Joint Venture will target $500 million of land with the Partner committing to an ownership interest of 75% and the Trust retaining the remaining interest. The Trust contributed two assets to the Joint Venture, being the 30-acre Brampton East Lands for $70.5 million (representing a gain of 100% over the purchase price paid by the Trust in April 2021) and the 28-acre Maple Grove Road site located in Cambridge, Ontario for $27.5 million which was acquired in late-December 2021. In addition, the Joint Venture closed on a 10-acre site located immediately adjacent to the Brampton East Lands for a purchase price of $23 million at the end of April 2022.
    • Strong pace of external growth – During the quarter, the Trust acquired $116.4 million of assets in Canada and Europe, which added over 450,000 square feet of income-producing assets as well as 50 acres of development land in the Balzac sub-market of Calgary. Subsequent to quarter-end, the Trust closed on five additional assets in Canada and Europe totalling $110.2 million.
    • Strengthening the balance sheet and enhancing liquidity – During the quarter, the Trust completed a $230 million equity offering and raised $90.1 million through its at-the-market program (“ATM Program”). Proceeds were utilized to fund acquisitions during the quarter, development costs, and for general trust purposes. The Trust ended Q1 2022 with total available liquidity (12) of $638 million. Subsequent to Q1 2022, the Trust issued $200 million of Series E Unsecured Debentures at an effective fixed interest rate of 2.04%, after swapping to Euros. The issuance of the debentures and the formation of the GTA and GGHA Joint Venture subsequent to quarter-end boosted the Trust’s liquidity to over $900 million.

(1) Diluted FFO per Unit is a non-GAAP ratio. Diluted FFO per Unit is comprised of FFO (a non-GAAP financial measure) divided by the weighted average number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(2) Comparative properties net operating income (“CP NOI”) (constant currency basis) is a non-GAAP financial measure. The most directly comparable financial measure to CP NOI (constant currency basis) is net rental income. The table included in the Appendices section of this press release reconcile CP NOI (constant currency basis) for the three months ended March 31, 2022 and March 31, 2021 to net rental income. For further information on this non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(3) NAV per Unit is a non-GAAP ratio. NAV per Unit is comprised of total equity (including LP B Units) (a non-GAAP financial measure) divided by the number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

FINANCIAL HIGHLIGHTS

 

SELECTED FINANCIAL INFORMATION

 

 

 

 

 

(unaudited)

Three months ended

 

 

March 31,

 

 

March 31,

(in thousands of dollars except per Unit amounts

 

2022

 

 

2021

Operating results

 

 

 

 

 

Net rental income

$

65,313

 

$

46,662

Comparative properties net operating income (“NOI”) (constant currency basis)(1)

 

41,784

 

 

37,986

Net income

 

442,889

 

 

95,264

Funds from operations (“FFO”)(2)

 

56,638

 

 

34,908

Per Unit amounts

 

 

 

 

 

FFO – diluted(3)(4)

$

0.22

 

$

0.19

Distribution rate

 

0.17

 

 

0.17

See footnotes at end.

 

 

 

 

 

PORTFOLIO INFORMATION

 

 

 

 

 

 

 

 

(unaudited)

 

As at

 

 

March 31,

 

 

December 31,

 

 

March 31,

(in thousands of dollars)

 

2022

 

 

2021

 

 

2021

Total portfolio

 

 

 

 

 

 

 

 

Number of assets(5)(6)

 

244

 

 

239

 

 

186

Investment properties fair value

$

6,025,654

 

$

5,696,607

 

$

3,573,045

Gross leasable area (“GLA”) (in millions of sq. ft.)(6)

 

44.4

 

 

43.0

 

 

28.8

Occupancy rate – in-place and committed (period-end)(7)

 

98.7%

 

 

98.2%

 

 

97.2%

Occupancy rate – in-place (period-end)(7)

 

97.6%

 

 

97.7%

 

 

95.7%

See footnotes at end.

 

 

 

 

 

 

 

 

FINANCING AND CAPITAL INFORMATION

 

 

 

 

 

 

 

 

(unaudited)

 

As at

 

 

March 31,

 

 

December 31,

 

 

March 31,

(in thousands of dollars except per Unit amounts)

 

2022

 

 

2021

 

 

2021

FINANCING

 

 

 

 

 

 

 

 

Credit rating- DBRS

 

BBB (mid)

 

 

BBB (mid)

 

 

BBB (mid)

Net total debt-to-total assets (net of cash and cash equivalents) ratio(8)

 

25.8%

 

 

31.4%

 

 

28.7%

Net total debt-to-normalized adjusted EBITDAFV ratio (years)(9)

 

6.9

 

 

8.0

 

 

6.0

Interest coverage ratio (times)(10)

 

10.4

 

 

8.0

 

 

4.8

Weighted average face interest rate on debt

 

0.85%

 

 

0.83%

 

 

2.44%

Weighted average remaining term to maturity on debt (years)

 

3.5

 

 

4.8

 

 

5.1

Unencumbered investment properties(11)

$

4,494,354

 

$

4,154,925

 

$

2,050,976

Cash and cash equivalents

$

290,088

 

$

164,015

 

$

80,797

Available liquidity (period-end)(12)

$

637,775

 

$

511,612

 

$

395,172

CAPITAL

 

 

 

 

 

 

 

 

Total equity (excluding LP B Units)

$

4,194,925

 

$

3,499,423

 

$

2,212,689

Total equity (including LP B Units)(13)

$

4,494,352

 

$

3,818,886

 

$

2,461,655

Total number of Units (in thousands)(14)

 

272,725

 

 

252,417

 

 

191,973

Net asset value (“NAV”)per Unit(15)

$

16.48

 

$

15.13

 

$

12.82

Unit price

$

16.14

 

$

17.22

 

$

13.42

See footnotes at end.

“Dream Industrial had a strong start to 2022 and we reported solid operating results for the quarter. Our capital allocation strategy remains disciplined with high-quality acquisitions across our target markets as well as the advancement of our developments,” said Brian Pauls, Chief Executive Officer of Dream Industrial REIT. “Despite higher inflationary pressures putting upward pressure on interest rates, industrial fundamentals have continued to strengthen and we believe that there is a long runway for rental rate growth across all of our markets. Our high-quality portfolio located in irreplaceable locations is well-positioned to benefit and should allow us to generate healthy diluted FFO per Unit(1) and NAV per Unit(2) growth over the long term.”

ORGANIC GROWTH

  • Robust leasing momentum at attractive rental spreads and solid contractual rent growth – Since the end of Q4 2021, the Trust has signed approximately 2.8 million square feet of new leases and renewals at an average spread of 21.3%.

    • In Canada, the Trust signed approximately 1.6 million square feet of leases at an average spread of 24.7%; and
    • In Europe, the Trust signed approximately 1.2 million square feet of leases at an average spread of 16.0%.

In addition to strong rental spreads, the Trust continues to add contractual rent growth to its leases. In its Canadian portfolio, the current leases have embedded contractual rent growth of over 2.5%. In the Trust’s European portfolio, approximately 90% of the leases are indexed to the consumer price index (“CPI”) and an additional 8% have an average contractual rent growth of 2%. During Q1 2022, CPI indexation on European leases resulted in an approximately 3% increase in in-place rent from the European portfolio.

The Trust expects to achieve strong rental rate growth over time as it sets rents on expiring leases to market. As at March 31, 2022, current market rents exceed the average in-place base rent across the Trust’s portfolio by over 20%.

  • Solid pace of CP NOI (constant currency basis)(1) growth – CP NOI (constant currency basis) for the three months ended March 31, 2022 increased by 10.0% when compared to the prior year comparative quarter.

    The growth in CP NOI (constant currency basis) was led by a 18.2% and 13.6% year-over-year increase in CP NOI in Ontario and Québec, respectively. This was driven primarily by increasing rental spreads on new and renewed leases where the average in-place base rent increased by 9.6% and 6.3% for Ontario and Québec, respectively, along with a 480 basis points increase in average occupancy for both regions. In Europe, a 4.9% increase in in-place base rent drove year-over-year CP NOI (constant currency basis) growth of 5.5%.

  • Net rental income for the three months ended March 31, 2022 increased by $18.7 million, or 40.0%, over the prior year comparative quarter. Year-over-year net rental income increased by 38.8% in Ontario, 46.5% in Québec and 264.9% in Europe. The increase was mainly driven by strong CP NOI (constant currency basis) growth in 2022 and the impact of acquired investment properties in 2022 and 2021, partially offset by the impact of investment properties disposed of in 2021.

(1) Diluted FFO per Unit is a non-GAAP ratio. Diluted FFO per Unit is comprised of FFO (a non-GAAP financial measure) divided by the weighted average number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(2) NAV per Unit is a non-GAAP ratio. NAV per Unit is comprised of total equity (including LP B Units) (a non-GAAP financial measure) divided by the number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

DEVELOPMENT UPDATE

The Trust’s development pipeline provides a significant opportunity to add high-quality assets in core markets at attractive economics to the Trust. The Trust has approximately 3.5 million square feet of projects that are currently underway or in planning stages.

The Trust is currently underway on 0.7 million square feet of projects across the GTA, Greater Montréal Area, and Europe. With a total expected cost of approximately $122 million, the Trust expects unlevered yield on cost of approximately 6.3% upon completion. The Trust expects all of these projects to be completed in the next 9–12 months.

The Trust has an additional 1.9 million square feet of projects at its shares that are in the final stages of planning with targeted completion in the coming 2 to 3 years. With a total cost of approximately $411 million, the Trust expects unlevered yield on cost of approximately 5.7% on average.

In addition to the above projects, the Trust is in the preliminary stages of planning for approximately 0.9 million square feet of near-term expansion and redevelopment opportunities.

(1) Comparative properties net operating income (“CP NOI”) (constant currency basis) is a non-GAAP financial measure. The most directly comparable financial measure to CP NOI (constant currency basis) is net rental income. The table included in the Appendices section of this press release reconcile CP NOI (constant currency basis) for the three months ended March 31, 2022 and March 31, 2021 to net rental income. For further information on this non-GAAP financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

Joint venture with sovereign wealth fund Subsequent to quarter-end, the Trust, along with Dream Unlimited Corp., announced the formation of a develop-to-hold Joint Venture with a leading global sovereign wealth fund. The Trust and the Partner are committed to contribute up to a combined total of $1.5 billion into the Joint Venture. The Joint Venture will target to buy $500 million of well-located development sites in the GTA and other select markets within the GGHA, to build high-quality, best-in-class industrial assets with the intention to hold the properties following stabilization. The Partner will commit to a 75% ownership interest in the Joint Venture with the Trust maintaining a 25% ownership interest. The Joint Venture intends to keep the development projects unlevered within the venture, with each party utilizing debt on their respective balance sheets to fund their respective share of the land acquisition and construction costs.

The Trust believes that this Joint Venture allows it to build up more scale in longer-term development sites as well as be competitive in acquiring near-term development sites. As a result, the Trust can participate in the upside of a larger number of development projects, improving the overall quality of its business and its development program while diversifying its development risk. Furthermore, the Joint Venture will significantly expand the Trust’s footprint in the GTA and GGHA over time.

A subsidiary of Dream Asset Management Corporation (“DAM”) will be the asset manager for the Joint Venture and the Trust would continue to pay fees on its 25% interest under its current asset management agreement with DAM. The Trust is expected to provide property management, capital expenditure oversight, and leasing services to the Joint Venture at market rates, providing a growing income stream as the Joint Venture completes its development projects.

On April 28, 2022, the Trust contributed two development sites located in the GTA (Brampton East Lands) and Cambridge (Maple Grove Road) at a price of $98 million.

  • The 30-acre Brampton East Lands site was contributed to the Joint Venture at a price of $70.5 million, representing a 100% gain over the price paid for the site by the Trust in April 2021.
  • The 28-acre Maple Grove Road site was contributed to the Joint Venture at a price of $27.5 million. The site was acquired by the Trust in late December 2021.
  • In addition, the Joint Venture has closed on a 10-acre site located immediately adjacent to the Brampton East Lands for a purchase price of $23 million on April 29, 2022.

Upon the initial vend-in of the two land parcels and the acquisition of the 10-acre site, the Trust realized net proceeds of over $67 million. The Joint Venture will continue to source attractive land opportunities in the GTA and GGHA that meet its investment criteria.

ACQUISITIONS

During the quarter, the Trust acquired $116.4 million of properties in Canada and Europe, which added over 450,000 square feet of income-producing assets as well as 50 acres of development land in the Balzac sub-market of Calgary.  Subsequent to quarter-end, the Trust closed on five additional assets in Canada and Europe totalling $110.2 million and has an additional approximately $500 million of assets that are under contract or in exclusive negotiations.

For further details on the Trust’s capital deployment activity, please refer to the Trust’s press release published on March 31, 2022 here.

“Our portfolio continues to outperform the market with respect to occupancy and rental rate growth,” said Alexander Sannikov, Chief Operating Officer of Dream Industrial REIT. “Our strong pace of portfolio growth has allowed us to amass a global, high-quality portfolio with scale in land-constrained markets that are above the average quality of our portfolio and are accretive to our return profile. Our active asset management strategies allow us to maximize rental rate growth over the long-term through upfront strong rental spreads and embedded contractual growth.”

CAPITAL STRATEGY

The Trust continues to maintain significant financial flexibility as it executes on its strategy to grow and upgrade portfolio quality. Over the past 24 months, the Trust has successfully transitioned its debt profile to be largely unsecured, with the proportion of secured debt(16) dropping to 8.1% of total assets and to approximately 28% of total debt(17), compared to 61.4% one year ago. On a year-over-year basis, its average cost of debt decreased 159 basis points from 2.44% in Q1 2021 to 0.85% in Q1 2022.

During the quarter, the Trust completed a $230 million equity offering at an issue price of $16.30 per Unit. Since the beginning of 2022, the Trust has utilized its ATM Program to raise approximately $90.1 million, at an average unit price of $16.46. The net proceeds from the equity offering as well as the ATM Program were utilized to fund acquisitions completed during the quarter, over $20 million in building improvements and development costs, and general trust purposes.

Subsequent to the quarter, the Trust issued $200 million of Series E Unsecured Debentures with net proceeds expected to be allocated towards funding eligible green projects under the Trust’s Green Financing Framework, taking the Trust’s total Green Bonds outstanding to $850 million. The Trust has already deployed $295 million towards eligible green projects and identified $200 million in additional eligible green projects, with a further $300 million of projects in feasibility or preliminary stages. On April 14, 2022, the Trust published its inaugural annual Green Bonds Use of Proceeds report, which can be found on the Trust’s website here.

The Trust ended Q1 2022 with total available liquidity(12) of approximately $638 million. Subsequent to quarter-end, the issuance of the Series E Unsecured Debentures and the formation of the GTA and GGHA Joint Venture boosted its liquidity to over $900 million.

“We have focused on enhancing the flexibility of our balance sheet by transitioning to a primarily unsecured financing model,” said Lenis Quan, Chief Financial Officer of Dream Industrial REIT. “This approach also allows us to access capital at the most optimal rate. Our geographic diversity is a key advantage in our capital allocation strategy and we continue to access European debt at rates that are 200 basis points lower than North American debt. We retain ample liquidity and balance sheet capacity to continue to improve the overall quality of our business.”

CONFERENCE CALL

Senior management will host a conference call to discuss the financial results on Wednesday, May 4, 2022, at 11:00 a.m. (ET). To access the conference call, please dial 1-866-455-3403 in Canada or 647-484-8332 elsewhere and use passcode 29629219#. To access the conference call via webcast, please go to Dream Industrial REIT’s website at www.dreamindustrialreit.ca and click on the link for News, then click on Events. A taped replay of the conference call and the webcast will be available for ninety (90) days following the call.

OTHER INFORMATION

Information appearing in this press release is a select summary of financial results. The condensed consolidated financial statements and management’s discussion and analysis for the Trust will be available at www.dreamindustrialreit.ca and on www.sedar.com.

Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at March 31, 2022, Dream Industrial REIT owns, manages and operates a portfolio of 244 industrial assets (358 buildings) comprising approximately 44.4 million square feet of gross leasable area in key markets across Canada, Europe, and the U.S. Dream Industrial REIT’s objective is to continue to grow and upgrade the quality of its portfolio which primarily consists of distribution and urban logistics properties and to provide attractive overall returns to its unitholders. For more information, please visit www.dreamindustrialreit.ca.

FOOTNOTES

(1)

CP NOI (constant currency basis) is a non-GAAP financial measure. The most directly comparable financial measure to CP NOI is net rental income. The table included in the Appendices section of this press release reconcile CP NOI (constant currency basis) for the three months ended March 31, 2022 and March 31, 2021 to net rental income. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(2)

 

FFO is a non-GAAP financial measure. The most directly comparable financial measure to FFO is net income. The table included in the Appendices section of this press release reconcile FFO for the three months ended March 31, 2022 and March 31, 2021 to net income. For further information on this non-GAAP measure, pleasWe refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(3)

 

Diluted FFO per Unit is a non-GAAP ratio. Diluted FFO per Unit is comprised of FFO (a non-GAAP financial measure) divided by the weighted average number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(4)

 

A description of the determination of diluted amounts per Unit can be found in the Trust’s Management’s Discussion and Analysis for the three months ended March 31, 2022, in the section “Supplementary financial measures and ratios and other disclosures”, under the heading “Weighted average number of Units”.

(5)

“Number of assets” comprise a building, or a cluster of buildings in close proximity to one another attracting similar tenants.

(6)

Includes the Trust’s owned and managed properties as at March 31, 2022 and December 31, 2021.

(7)

Includes the Trust’s share of equity accounted investments as at March 31, 2022 and December 31, 2021.

(8)

 

Net total debt-to-total assets (net of cash and cash equivalents) ratio is a non-GAAP ratio. Net total debt-to-total assets (net of cash and cash equivalents) ratio is comprised of net total debt (a non-GAAP financial measure) divided by total assets (net of cash and cash equivalents) (a non-GAAP financial measure). For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(9)

 

Net total debt-to-normalized adjusted EBITDAFV is a non-GAAP ratio. Net total debt-to-normalized adjusted EBITDAFV is comprised of net total debt (a non-GAAP financial measure) divided by normalized adjusted EBITDAFV (a non-GAAP financial measure). For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures and ratios and supplementary financial measures” in this press release.

(10)

 

Interest coverage ratio is a non-GAAP ratio. Interest coverage ratio is comprised of trailing 12-month period adjusted EBITDAFV (a non-GAAP financial measure) divided by trailing 12-month period interest expense on debt and other financing costs. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures and ratios and supplementary financial measures” in this press release.

(11)

Unencumbered investment properties is a supplementary financial measure. For further information on this supplementary financial measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(12)

 

Available liquidity is a non-GAAP financial measure. The most directly comparable financial measure to available liquidity is cash and cash equivalents. The table included in the Appendices section of this press release reconcile available liquidity to cash and cash equivalents as at March 31, 2022, December 31, 2021 and March 31, 2021. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(13)

 

Total equity (including LP B Units) is a non-GAAP financial measure. The most directly comparable financial measure to total equity (including LP B Units) is total equity (per condensed consolidated financial statements). The table included in the Appendices section of this press release reconcile total equity (including LP B Units) to total equity (per condensed consolidated financial statements) as at March 31, 2022, December 31, 2021 and March 31, 2021. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(14)

Total number of Units includes 18.6 million LP B Units that are classified as a liability under IFRS.

(15)

NAV per Unit is a non-GAAP ratio. NAV per Unit is comprised of total equity (including LP B Units) (a non-GAAP financial measure) divided by the number of Units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(16)

Secured debt is a supplementary financial measure. Please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

(17)

 

Total debt is a non-GAAP financial measure. The most directly comparable financial measure to total debt is non-current debt. The table included in the Appendices section of this press release reconcile total debt to non-current debt as at March 31, 2022, December 31, 2021 and March 31, 2021. For further information on this non-GAAP measure, please refer to the statements under the heading “Non-GAAP financial measures, ratios and supplementary financial measures” in this press release.

Non-GAAP financial measures, ratios and supplementary financial measures

The Trust’s condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-GAAP financial measures and ratios, including FFO, diluted FFO per Unit, CP NOI (constant currency basis), total debt, net total debt-to-total assets (net of cash and cash equivalents) ratio, net total debt-to-normalized adjusted EBITDAFV ratio, interest coverage ratio, available liquidity, total equity (including LP B Units) and NAV per Unit as well as other measures discussed elsewhere in this press release. These non-GAAP financial measures and ratios are not defined by IFRS and do not have a standardized meaning under IFRS. The Trust’s method of calculating these non-GAAP financial measures and ratios may differ from other issuers and may not be comparable with similar measures presented by other income trusts. The Trust has presented such non-GAAP financial measures and ratios as Management believes they are relevant measures of the Trust’s underlying operating and financial performance. Certain additional disclosures such as the composition, usefulness and changes, as applicable, of the non-GAAP financial measures and ratios included in this press release have been incorporated by reference from the management’s discussion and analysis of the financial condition and results from operations of the REIT for the three months ended March 31, 2022, dated May 3, 2022 (the “MD&A for the first quarter of 2022”) and can be found under the sections “Non-GAAP Financial Measures” and “Non-GAAP Ratios” and respective sub-headings labelled “Funds from operations (“FFO”)”, “Diluted FFO per Unit”, “Comparative properties NOI (constant currency basis)”, “Net total debt-to-total assets (net of cash and cash equivalents) ratio”, “Net total debt-to-normalized adjusted EBITDAFV”, and “Interest coverage ratio”, “Available Liquidity”, “Total equity (including LP B Units or subsidiary redeemable units”) and “Net asset value (“NAV”) per Unit”. The composition of supplementary financial measures included in this press release have been incorporated by reference from the MD&A for the first quarter of 2022 and can be found under the section “Supplementary financial measures and ratios and other disclosures”. The MD&A for the first quarter of 2022 is available on SEDAR at www.sedar.com under the Trust’s profile and on the Trust’s website at www.dreamindustrialreit.ca under the Investors section. Non-GAAP financial measures and ratios should not be 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.

Forward looking information

This press release may contain forward-looking information within the meaning of applicable securities legislation, including statements regarding the Trust’s objectives and strategies to achieve those objectives; the Trust’s ability to acquire high-quality assets and its acquisition pipeline; expectations regarding strong rental rate growth as leases expire and the Trust sets rents on expiring leases to market; the terms of the Joint Venture, including expected duration for holding the properties and expected ownership interests; the Trust’s expectations regarding the Joint Venture; the sourcing of attractive land opportunities by the Joint Venture; the Trust’s ability to generate healthy FFO per Unit and NAV per Unit growth over the long term; the expected magnitude of CPI-linked indexation in its European portfolio; the anticipated timing of closing of the acquisitions referred to in this press release, including the anticipated closing, purchase price and value of acquisitions under contract or in exclusivity; the ability of the Trust to maintain exclusive negotiations on certain assets and the Trust’s ability to close on such negotiations; the Trust’s development pipeline and its ability to provide a significant opportunity to add high-quality assets in core markets at attractive economics; the sufficiency of the Trust’s available liquidity; expectations regarding cash flow and growing cash flow over time; the Trust’s ability to access capital and to maintain its strong growth trajectory; the Trust’s development, expansion and redevelopment plans, including the timing of construction and expansion, expectations regarding stabilization of expansions, timing of completion of the Trust’s developments and anticipated yields; the anticipated commencement of certain leases and the average spread thereof and the Trust’s ability to maintain annual rental rate escalators in future leases and renewals; ability to lease completed developments; the use of net proceeds from any financings, including the net proceeds from the issuance of Series E Unsecured Debentures to be utilized towards eligible green investments under the Trust’s Green Financing Framework; expected debt and liquidity levels and unencumbered investment properties pool and the Trust’s ability to outperform in 2022 and beyond. 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 the Trust’s control, which 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, general and local economic and business conditions; employment levels; mortgage and interest rates and regulations; uncertainties around the timing and amount of future financings; uncertainties surrounding the COVID-19 pandemic; geopolitical events, including disputes between nations, war and international sanctions; the financial condition of tenants; leasing risks, including those associated with the ability to lease vacant space; rental rates and the strength of rental rate growth on future leasing; and interest and currency rate fluctuations. The Trust’s objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable, interest rates remain stable, conditions within the real estate market remain consistent, historically low rates and rising replacement costs in the Trust’s operating markets remain steady, competition for acquisitions remains consistent with the current climate and that the capital markets continue to provide ready access to equity and/or debt. All forward-looking information in this press release speaks as of the date of this press release. The Trust 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 the Trust’s filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at the Trust’s website at www.dreamindustrialreit.ca.

Appendices

Reconciliation of CP NOI (constant currency basis) to net rental income

The table below reconciles CP NOI (constant currency basis) for the three months ended March 31, 2022 and March 31, 2021 to net rental income.

 

Three months ended

 

 

March 31,

 

March 31,

 

(in thousands of dollars)

 

2022

 

 

2021

 

Ontario

$

14,211

 

$

12,027

 

Québec

 

7,908

 

 

6,960

 

Western Canada

 

10,952

 

 

10,770

 

Canadian portfolio

 

33,071

 

 

29,757

 

European portfolio (constant currency basis)

 

6,681

 

 

6,333

 

U.S. portfolio (constant currency basis)

 

2,032

 

 

1,896

 

Comparative properties NOI (constant currency basis)

 

41,784

 

 

37,986

 

Impact of foreign currency translation on comparative properties NOI

 

 

 

465

 

NOI from acquired properties – Canada

 

5,969

 

 

878

 

NOI from acquired properties – Europe

 

17,829

 

 

70

 

NOI from acquired properties – U.S.

 

631

 

 

29

 

NOI from disposed share of properties

 

(2

)

 

7,074

 

Net property management and other income

 

1,211

 

 

 

Straight-line rent

 

1,457

 

 

468

 

Amortization of lease incentives

 

(628

)

 

(503

)

Lease termination fees and other

 

(157

)

 

217

 

COVID-19 related adjustments and provisions

 

(16

)

 

(22

)

Less: NOI from equity accounted investments

 

(2,765

)

 

 

Net rental income

$

65,313

 

$

46,662

 

Appendices

Reconciliation of FFO to net income

The table below reconciles FFO for the three months ended March 31, 2022 and March 31, 2021 to net income.

 

Three months ended March 31,

 

 

 

2022

 

 

2021

 

Net income for the period

$

442,889

 

$

95,264

 

Add (deduct):

 

 

 

 

 

Fair value adjustments to investment properties

 

(360,696

)

 

(74,601

)

Fair value adjustments to financial instruments

 

(27,661

)

 

1,874

 

Share of net income from equity accounted investment

 

(18,394

)

 

 

Interest expense on subsidiary redeemable units

 

3,246

 

 

3,246

 

Amortization and write-off of lease incentives

 

628

 

 

503

 

Internal leasing costs

 

1,091

 

 

898

 

Fair value adjustments to deferred trust units included in G&A

 

101

 

 

10

 

Foreign exchange loss

 

10

 

 

706

 

Share of FFO from equity accounted investment

 

1,994

 

 

 

Deferred income taxes expense

 

13,430

 

 

3,949

 

FFO for the period before the undernoted adjustment

 

56,638

 

 

31,849

 

Debt settlement costs

 

 

 

3,059

FFO for the period

$

56,638

$

34,908

Reconciliation of available liquidity to cash and cash equivalents

The table below reconciles available liquidity to cash and cash equivalents as at March 31, 2022, December 31, 2021 and March 31, 2021.

Amounts per condensed consolidated financial statements

March 31, 2022

December 31, 2021

 

March 31, 2021

Cash and cash equivalents

$

290,088

$

164,015

$

80,797

Undrawn unsecured revolving credit facility(1)

 

347,687

 

347,597

 

314,375

Available liquidity

$

637,775

$

511,612

$

395,172

(1) Net of letter of credits totalling $2,313, $2,403 and $nil as at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

Reconciliation of total equity (including LP B Units) to total equity (excluding LP B Units)

The table below reconciles total equity (including LP B Units) to total equity (excluding LP B Units) as at March 31, 2022, December 31, 2021 and March 31, 2021.

 

As at

 

March 31, 2022

 

 

December 31, 2021

 

 

March 31, 2021

 

Number of

Units

 

Amount

 

 

Number of

Units

 

Amount

 

 

Number of

Units

 

Amount

REIT Units and unitholders’ equity

254,173,170

$

3,076,757

 

 

233,864,845

$

2,756,156

 

 

173,420,935

$

1,860,189

Retained earnings

 

1,146,968

 

 

 

746,848

 

 

 

 

346,332

Accumulated other comprehensive income (loss)

 

(28,800

)

 

 

(3,581

)

 

 

6,168

Total equity per condensed consolidated financial statements

254,173,170

 

4,194,925

 

 

233,864,845

 

3,499,423

 

 

173,420,935

 

2,212,689

Add: LP B Units

18,551,855

 

299,427

 

 

18,551,855

 

319,463

 

 

18,551,855

 

248,966

Total equity (including LP B Units)

272,725,025

$

4,494,352

 

 

252,416,700

$

3,818,886

 

 

191,972,790

$

2,461,655

Reconciliation of total debt to non-current debt

The table below reconciles total debt to non-current debt as at March 31, 2022, December 31, 2021 and March 31, 2021.

Amounts per condensed consolidated financial statements

March 31, 2022

 

December 31, 2021

 

March 31, 2021

 

Non-current debt

$

1,912,214

 

$

2,006,647

 

$

1,074,828

 

Current debt

 

111,821

 

 

38,349

 

 

42,607

 

Fair value of cross-currency interest rate swaps(1)(2)

 

(78,157

)

 

(32,514

)

 

(6,752

)

Total debt

$

1,945,878

 

$

2,012,482

 

$

1,110,683

 

(1) As at March 31, 2022, the cross-currency interest rate swaps were in a net asset position and $85,629 were included in “Derivatives and other non-current assets” and $7,472 in “Derivatives and other non-current liabilities” in the condensed consolidated financial statements (December 31, 2021 – the cross-currency interest rate swaps were in an asset position and $38,939 were included in “Derivatives and other non-current assets” and $6,425 in “Derivatives and other non-current liabilities” in the consolidated financial statements).

(2) As at March 31, 2021, the cross-currency interest rate swaps were in an asset position and $6,752 were included in “Other non-current assets” in the condensed consolidated financial statements.

 

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As Fed Prepares to Raise Rates, Global Economy Sinks Deeper Into Turmoil 

Jason Furman, an economist at Harvard University, said many forecasters had been doing what investors sometimes refer to as “pricing to perfection”: assuming that everything is going to go well, even if that is not the most likely outcome.

“You can look at the individual items: There’s been a lot of: What if inflation in X, Y, Z goes down?” he said. “And not: What if inflation in A, B, C goes up?”

Many of the factors prompting economists to mark up their inflation forecasts now are not even tied to supply chains.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, recently revised up his inflation projections because rent costs are rising so rapidly in the Consumer Price Index. Between that and wage growth, he thinks, high inflation will last unless the Fed intervenes.

“For a while, inflation forecasters had been anticipating that the goods side of things would return to more normal dynamics” just as service prices, like rent, began to increase, he said. Services prices have indeed picked up, but normalization in good prices keeps getting “pushed out.”

Consumers continue to spend a bigger share of their budgets on goods instead of services — purchases like travel and manicures — compared with before the pandemic. That has meant global producers are still struggling to keep up with demand. Even potentially short-lived disruptions, like the ones taking place in China, can add to a snowball of delays and shortages.

Data released this month showed that the U.S. trade deficit hit a record in January, the height of the Omicron wave, in part because of surging imports of cars and energy. The average time to ship a container from a Chinese factory to a U.S. warehouse had stretched to 82 days in February, according to Freightos, a logistics platform, up from 45 days two years before.

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Inflation Rises to 7.9 Percent for February 2022

Prices climbed at the fastest pace in decades in the month leading up to the war in Ukraine, underlining the high stakes facing the United States — along with many developed economies — as the conflict promises to drive costs higher.

The Consumer Price Index rose by 7.9 percent through February, the fastest pace of annual inflation in 40 years. Rising food and rent costs contributed to the big increase, the Bureau of Labor Statistics said, as did a nascent surge in gas prices that will become more pronounced in the March inflation report.

The February report caught only the start of the surge in gas prices that came in response to Russia’s invasion of Ukraine late last month. Economists expect inflation to pick up even more in March because prices at the pump have since jumped to record-breaking highs. The average price for a gallon of gas was $4.32 on Thursday, according to AAA.

Rapidly climbing costs are hitting consumers in the pocketbook, causing confidence to fall and stretching household budgets. Rising wages and savings amassed during the pandemic have helped many families continue spending despite rising prices, but the burden is falling most intensely on lower-income households, which devote a big chunk of their budgets to daily necessities that are now swiftly becoming more expensive.

signaled it will raise interest rates by a quarter percentage point at its meeting next week, probably the first in a series of moves meant to increase the cost of borrowing and spending money and slow down the economy. By reducing consumption and slowing the labor market, the Fed is able to take some pressure off inflation over time.

Broadening price pressures and high gas costs could become a serious issue for central bank policymakers if they help convince consumers that the run-up in prices will last. If people begin expecting inflation, they may change their behavior in ways that make it more permanent: accepting price increases more readily, and asking for bigger raises to keep up.

“It was another bad report,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “Inflation was already way too high before the invasion of Ukraine.”

keep shipping routes tangled and parts scarce. Ukraine is an important producer of neon, which could keep computer chips in short supply, perpetuating the shortages that have plagued automakers. Higher energy costs could ricochet through other industries.

Even without further supply chain troubles, there are signs that inflation is widening beyond a few pandemic-affected sectors, an indication that they could last as the latest virus surge fades from view. Rent of primary residences, for instance, climbed by 0.6 percent from the prior month — the fastest monthly pace of growth since 1999.

Price gains have been rapid around much of the world, causing many central banks to scale back how much help they are providing to their economies. The European Central Bank on Thursday decided to speed up its exit from its bond-buying program as it tries to counter rising inflation. Europe’s push to end its energy dependence on Russia promises to raise costs at a time when inflation is already nearly triple the central bank’s target.

a separate inflation index, but one that is also up considerably.

loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

For someone who was a longtime Manhattanite, that’s a real loss, Mr. Gutbrod, 61, said. He used to enjoy three restaurant brunches or dinners each week. Now it’s more like one every two weeks.

“I used to go on relaxing drives,” he said, but now joy rides are unaffordable. “I’m on a shoestring budget, and I work pretty hard. For anyone who doesn’t make a lot of money, you have to be intelligent and start cutting corners.”

As it disturbs everyday lives, inflation is likely to dog Democrats and the administration as they fight to retain control of Congress in November. Despite plentiful jobs and quickly rising wages, consumer confidence has fallen to itslowest level since the summer of 2011, when the economy was clambering back from the global financial crisis and Congress was bickering over lifting the nation’s debt ceiling.

That probably at least partly reflects the reality that pay is not quite keeping up with inflation for the typical worker, and that consumers are paying more at the pump, which tends to be a very salient cost for Americans.

In February, the cost of food rose, which is also difficult for consumers on tight budgets. Over the past year, grocery prices have increased by 8.6 percent, the largest yearly jump since the period ending in April 1981. Fresh fruit and dairy products became notably more expensive last month.

The White House has emphasized that it is trying to offset rising costs to the degree that it can.

“We’ve taken steps to address bottlenecks in the supply chain, to reduce those bottlenecks,” Jen Psaki, the White House press secretary, said this week.

But those changes have mostly helped around the edges, and as prices have shown little sign of moderating on their own, Fed officials have coalesced around the view that they will need to use their policies to cool off demand and keep today’s rapid inflation from becoming entrenched. That may limit the central bank’s room to react to any slowdown in growth prompted by uncertainty and high gas prices.

“They need to stay on track,” said Ms. Rosner-Warburton. “They don’t have as much leeway to respond to these risks, given how elevated inflation is.”

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Rising Gas Prices Have Drivers Asking, ‘Is This for Real?’

After months of working from home, Caroline McNaney, 29, was excited about going back to work in an office, even if her new job in Trenton, N.J., meant commuting an hour each way.

But when she spent $68 filling the tank of her blue Nissan Maxima this week, she felt a surge of regret about switching jobs.

“Is this for real?” Ms. McNaney recalled thinking. “I took a job further from home to make more money, and now I feel like I didn’t do anything for myself because gas is so high.”

The recent rise in gas prices — which the war in Ukraine has pushed even higher — has contributed to her sense of disappointment with President Biden. “I feel like he wants us to go out and spend money into the economy, but at the same time everything is being inflated,” she said.

higher heating bills. Natural gas reserves are running low, and European leaders have accused Russia’s president, Vladimir V. Putin, of reducing supplies to gain a political edge.

While oil prices worldwide have shot up since the Russian invasion of Ukraine, President Biden and Democrats, who hold control of Congress, have faced consumers’ ire.

Cat Abad, 37, who lives in the San Francisco area, where prices have hit nearly $6 for the highest-grade gas, said she saw stickers on the pumps at one local station saying that Mr. Biden was responsible for the rise. She took the stickers off, she said, believing that he was not at fault.

Still, she said, “It’s a good time to have a Prius,” as she filled up for her commute down the peninsula to Foster City.

Inflation is already proving a perilous issue for Mr. Biden and fellow Democrats as the midterm elections approach, with many voters blaming them for failing to control the rising cost of living. The higher gas prices add further political complexity for Mr. Biden, who has vowed to curb the nation’s dependence on fossil fuels.

In light of the war in Ukraine, the energy industry is pushing the Biden administration to support more domestic oil production by opening up drilling in federal lands and restarting pipeline projects.

“This moment is a reminder that oil and natural gas are strategic assets and we need to continue to make investments in them,” said Frank Macchiarola, a senior vice president at the American Petroleum Institute, a trade group.

There is a chance that the strain on consumers may be temporary as global oil supply and demand are rebalanced. And, in the near term, lower consumer spending may have some benefits. Reduced spending could help constrain inflation, but at the expense of slower economic growth.

Even before Russia invaded Ukraine, rapidly rising energy prices were contributing to the fastest inflation in 40 years. Energy prices — including not just gasoline but home heating and electricity as well — accounted for more than a sixth of the total increase in the Consumer Price Index over the 12 months ending in January.

The recent jump in energy prices will only make the problem worse. Forecasters surveyed by FactSet expect the February inflation report, which the Labor Department will release on Thursday, to show that consumer prices rose 0.7 percent last month, and are up 7.9 percent over the past year. The continued run-up in gasoline prices over the past week suggests overall inflation in March will top 8 percent for the first time since 1982.

Some drivers said the higher gas prices were a necessary result of taking a hard line on Mr. Putin.

Alan Zweig, 62, a window contractor in San Francisco, said: “I don’t care if it goes to $10 a gallon. It’s costing me dearly, but not what it’s costing those poor people in Ukraine.”

Destiny Harrell, 26, drives her silver Kia Niro hybrid about 15 minutes each day from her home in Santa Barbara to her job at a public library. She is now considering asking her boss if she can spend some days working from home.

She said the rise in prices has contributed to her anger at Mr. Putin and his decision to invade Ukraine.

“It’s super frustrating that a war that shouldn’t even really affect us has global reach.”

Ben Casselman, Coral Murphy Marcos and Clifford Krauss contributed reporting.

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Federal Reserve Not Likely to Change Course After Ukraine Invasion

Federal Reserve officials are turning a wary eye to Russia’s invasion of Ukraine, though several have signaled in recent days that geopolitical tensions are unlikely to keep them from pulling back their support for the U.S. economy at a time when the job market is booming and prices are climbing rapidly.

Stock indexes are swooning and the price of key commodities — including oil and gas — have risen sharply and could continue to rise as Russia, a major producer, responds to American and European sanctions.

That makes the invasion a complicated risk for the Fed: On one hand, its fallout is likely to further push up price inflation, which is already running at its fastest pace in 40 years. On the other, it could weigh on growth if stock prices continue to plummet and nervous consumers in Europe and the United States pull back from spending.

The magnitude of the potential economic hit is far from certain, and for now, central bank officials have signaled that they will remain on track to raise interest rates from near-zero in a series of increases starting next month, a policy path that will make borrowing money more expensive and cool down the economy.

invasion could disrupt the post-Cold War world order and warned that the jump in energy prices and fallout from sanctions “will complicate the ability of central banks on both sides of the Atlantic to engineer a soft landing from the pandemic inflation surge.”

Economists have been warning that a “soft landing” — in which central banks guide the economy onto a sustainable path without causing a recession — might be difficult to achieve at a time when prices have taken off and monetary policies across much of Europe and North America may need to readjust substantially.

“The shock of war adds to the enormous challenges facing central banks worldwide,” Isabel Schnabel, an executive board member at the European Central Bank, said during a Bank of England event on Thursday. She added that policymakers are monitoring the situation in Ukraine “very closely.”

Inflation is high around much of the world, and though it is slightly less pronounced in Europe, and E.C.B. policymakers are reacting more slowly to it than some of their global counterparts, recent high readings there have prompted some officials to edge toward policy changes.

dizzying spikes in prices for energy and food and could spook investors. The economic damage from supply disruptions and economic sanctions would be severe in some countries and industries and unnoticed in others.

“The current situation is different from past episodes when geopolitical events led the Fed to delay tightening or ease because inflation risk has created a stronger and more urgent reason for the Fed to tighten today,” researchers at Goldman Sachs wrote in an analysis note.

Plus, with wages rising and consumers increasingly expecting high inflation in the coming years, the fact that the conflict has the potential to further elevate prices could strike the central bank as problematic.

“Further increases in commodity prices might be more worrisome than usual,” they wrote.

Some economists warned that the Russian invasion in some ways echoed the inflationary episode of the 1970s: Back then, price increases were already rapid, and a sharp oil price increase pushed inflation up further and made it stick around. The Arab oil embargo of 1973-74 and the Iranian revolution of 1979 both contributed to an oil supply shortage.

“There is something eerily reminiscent of the 1970s and the surge in energy prices associated with Russia’s invasion of the Ukraine,” Diane Swonk, chief economist at Grant Thornton, wrote on Twitter Thursday. “It couldn’t happen at a worse time as it is pouring fuel over an already kindled fire of inflation.”

Economists have released varying estimates of how much an oil price shock could bolster inflation in the coming months.

If oil increases to $120 per barrel by the end of February, past the $95 mark it hovered around last week, inflation as measured by the Consumer Price Index could climb close to 9 percent in the next couple of months, instead of a projected peak of a little below 8 percent, said Alan Detmeister, an economist at UBS who formerly led the prices and wages section at the Fed.

The Goldman researchers said that as a rule of thumb, a $10 per barrel increase in the price of oil would increase headline inflation in the United States by about a fifth of a percentage point, and lowers gross domestic product growth by just under 0.1 percentage point.

“The growth hit could be somewhat larger if geopolitical risk tightens financial conditions materially and increases uncertainty for businesses,” they wrote.

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What the Conflict in Ukraine Means for the U.S. Economy

Russia’s threatened invasion of Ukraine could have economic repercussions globally and in the United States, ramping up uncertainty, roiling commodity markets and potentially pushing up inflation as gas and food prices rise around the world.

Russia is a major producer of oil and natural gas, and the brewing geopolitical conflict has sent prices of both sharply higher in recent weeks. It is also the world’s largest wheat exporter, and is a major food supplier to Europe.

The United States imports relatively little directly from Russia, but a commodities crunch caused by a conflict could have knock-on effects that at least temporarily drive up prices for raw materials and finished goods when much of the world, including the United States, is experiencing rapid inflation.

Global unrest could also spook American consumers, prompting them to cut back on spending and other economic activity. If the slowdown were to become severe, it could make it harder for the Federal Reserve, which is planning to raise interest rates in March, to decide how quickly and how aggressively to increase borrowing costs. Central bankers noted in minutes from their most recent meeting that geopolitical risks “could cause increases in global energy prices or exacerbate global supply shortages,” but also that they were a risk to the outlook for growth.

contending with quickly rising prices, businesses are trying to navigate roiled supply chains and people report feeling pessimistic about their financial outlooks despite strong economic growth.

“The level of economic uncertainty is going to rise, which is going to be negative for households and firms,” said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics, noting that the effect would be felt most acutely in Europe and to a lesser degree in the United States.

A major and immediate economic implication of a showdown in Eastern Europe ties back to oil and gas. Russia produces 10 million barrels of oil a day, roughly 10 percent of global demand, and is Europe’s largest supplier of natural gas, which is used to fuel power plants and provide heat to homes and businesses.

The United States imports comparatively little Russian oil, but energy commodity markets are global, meaning a change in prices in one part of the world influences how much people pay for energy elsewhere.

It is unclear how much a conflict would push up prices, but energy markets have already been jittery — and fuel prices have risen sharply — on the prospect of an invasion.

loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

If a conflict drives global uncertainty and causes investors to pour money into dollars, pushing up the value of the currency, it could actually make United States imports cheaper.

Other trade risks loom. Unrest at the nexus of Europe and Asia could pose risk for supply chains that have been roiled by the pandemic.

Phil Levy, the chief economist at Flexport, said that Russia and Ukraine were far less linked into global supply chains than a country like China, but that conflict in the area could disrupt flights from Asia to Europe. That could pose a challenge for industries that move products by air, like electronics, fast fashion and even automakers, he said at an event at the National Press Foundation on Feb. 9.

“Air has been a means of getting around supply chain problems,” Mr. Levy said. “If your factory was going to shut because you don’t have a key part, you might fly in that key part.”

Some companies may not yet realize their true exposure to a potential crisis.

Victor Meyer, the chief operating officer of Supply Wisdom, which helps companies analyze their supply chains for risk, said that some companies were surprised by the extent of their exposure to the region during the Russian invasion of Ukraine in 2014, when it annexed Crimea.

Mr. Meyer noted that if he were a chief security officer of a company with ties to Ukraine, “I would militate rather strongly to unwind my exposure.”

There could also be other indirect effects on the economy, including rattling consumer confidence.

Households are sitting on cash stockpiles and probably could afford higher prices at the pump, but climbing energy costs are likely to make them unhappy at a moment when prices overall are already climbing and economic sentiment has swooned.

“The hit would be easily absorbed, but it would make consumers even more miserable, and we have to assume that a war in Europe would depress confidence directly too,” Ian Shepherdson at Pantheon Macroeconomics wrote in a Feb. 15 note.

Another risk to American economic activity may be underrated, Mr. Obstfeld said: The threat of cyberattack. Russia could respond to sanctions from the United States with digital retaliation, roiling digital life at a time when the internet has become central to economic existence.

“The Russians are the best in the world at this,” he said. “And we don’t know the extent to which they have burrowed into our systems.”

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U.S. Economy Grew 1.7% in 4th Quarter, Capping a Strong Year

A Gallup survey conducted this month found that Americans view the economy more negatively than positively — with only 29 percent saying that the economy is improving, while 67 percent believe it is getting worse.

Still, 72 percent say it is a good time to find a quality job.

“It’s all about what you prioritize,” said Allison Schrager, an economist and senior fellow at the Manhattan Institute, a conservative think tank. Policymakers in Washington decided to err on the side of delivering too much pandemic aid rather than too little — and Ms. Schrager is among the analysts who say the trade-offs of that decision are becoming evident. If there had been less stimulus, she said, “inflation wouldn’t be as bad as it is.”

At a news conference on Wednesday, Jerome H. Powell, the Fed chair, conceded that “bottlenecks and supply constraints are limiting how quickly production can respond to higher demand in the near term” and that “these problems have been larger and longer lasting than anticipated.”

As analysts mull the direction and degree of price increases this year, many see the spring months as a crucial pivot point, said Ellen Zentner, a managing director and the chief U.S. economist at Morgan Stanley. This is partly because the Consumer Price Index reports in March and April of this year will provide the first relatively stable year-over-year comparisons that experts will have seen in three years: 2020 data was juxtaposed with the prepandemic normal of 2019; reports in 2021 after the economy reopened were measured against the abnormal, partly depressed environment of the vaccine-less economy in 2020.

“The hope is that changes as we’re getting into the second quarter,” Ms. Zentner said. And that high-single-digit inflation “doesn’t drag on further into the year.”

During quarterly earnings calls, JPMorgan Chase and Bank of America, which serve a combined 140 million households, have reported that families’ finances are technically better off than before the pandemic. Bank of America said its customers spent a record $3.8 trillion in 2021, a 24 percent jump from 2019 levels. But analysts note that dwindling savings and continuing price increases — along with any new coronavirus variants — could curb consumption.

The report on Thursday indicated that the cash reserves many Americans were able to build up during the pandemic continued to dwindle: Real disposable personal income decreased by 5.8 percent in the fourth quarter, and the personal saving rate — the percentage of overall disposable income that goes into savings each month — was 7.4 percent, compared with 9.5 percent in the third quarter.

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Rapid Inflation Fuels Debate Over What’s to Blame: Pandemic or Policy

The price increases bedeviling consumers, businesses and policymakers worldwide have prompted a heated debate in Washington about how much of today’s rapid inflation is a result of policy choices in the United States and how much stems from global factors tied to the pandemic, like snarled supply chains.

At a moment when stubbornly rapid price gains are weighing on consumer confidence and creating a political liability for President Biden, White House officials have repeatedly blamed international forces for high inflation, including factory shutdowns in Asia and overtaxed shipping routes that are causing shortages and pushing up prices everywhere. The officials increasingly cite high inflation in places including the euro area, where prices are climbing at the fastest pace on record, as a sign that the world is experiencing a shared moment of price pain, deflecting the blame away from U.S. policy.

But a chorus of economists point to government policies as a big part of the reason U.S. inflation is at a 40-year high. While they agree that prices are rising as a result of shutdowns and supply chain woes, they say that America’s decision to flood the economy with stimulus money helped to send consumer spending into overdrive, exacerbating those global trends.

The world’s trade machine is producing, shipping and delivering more goods to American consumers than it ever has, as people flush with cash buy couches, cars and home office equipment, but supply chains just haven’t been able to keep up with that supercharged demand.

by 7 percent in the year through December, its fastest pace since 1982. But in recent months, it has also moved up sharply across many countries, a fact administration officials have emphasized.

“The inflation has everything to do with the supply chain,” President Biden said during a news conference on Wednesday. “While there are differences country by country, this is a global phenomenon and driven by these global issues,” Jen Psaki, the White House press secretary, said after the latest inflation data were released.

the euro area. Data released in the United Kingdom and in Canada on Wednesday showed prices accelerating at their fastest rate in 30 years in both countries. Inflation in the eurozone, which is measured differently from how the U.S. calculates it, climbed to an annual rate of 5 percent in December, according to an initial estimate by the European Union statistics office.

“The U.S. is hardly an island amidst this storm of supply disruptions and rising demand, especially for goods and commodities,” said Eswar Prasad, a professor of trade policy at Cornell University and a senior fellow at the Brookings Institution.

But some economists point out that even as inflation proves pervasive around the globe, it has been more pronounced in America than elsewhere.

“The United States has had much more inflation than almost any other advanced economy in the world,” said Jason Furman, an economist at Harvard University and former Obama administration economic adviser, who used comparable methodologies to look across areas and concluded that U.S. price increases have been consistently faster.

The difference, he said, comes because “the United States’ stimulus is in a category of its own.”

White House officials have argued that differences in “core” inflation — which excludes food and fuel — have been small between the United States and other major economies over the past six months. And the gaps all but disappear if you strip out car prices, which are up sharply and have a bigger impact in the United States, where consumers buy more automobiles. (Mr. Furman argued that people who didn’t buy cars would have spent their money on something else and that simply eliminating them from the U.S. consumption basket is not fair.)

Administration officials have also noted that the United States has seen a robust rebound in economic growth. The International Monetary Fund said in October that it expected U.S. output to climb by 6 percent in 2021 and 5.2 percent in 2022, compared with 5 percent growth last year in the euro area and 4.3 percent growth projected for this year.

“To the extent that we got more heat, we got a lot more growth for it,” said Jared Bernstein, a member of the White House Council of Economic Advisers.

$5 trillion in spending in 2020 and 2021. That outstripped the response in other major economies as a share of the nation’s output, according to data compiled by the International Monetary Fund.

Many economists supported protecting workers and businesses early in the pandemic, but some took issue with the size of the $1.9 trillion package last March under the Biden administration. They argued that sending households another round of stimulus, including $1,400 checks, further fueled demand when the economy was already healing.

Consumer spending seemed to react: Retail sales, for instance, jumped after the checks went out.

loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation costs and toys.

Americans found themselves with a lot of money in the bank, and as they spent that money on goods, demand collided with a global supply chain that was too fragile to catch up.

Virus outbreaks shut down factories, ports faced backlogs and a dearth of truckers roiled transit routes. Americans still managed to buy more goods than ever before in 2021, and foreign factories sent a record sum of products to U.S. shops and doorsteps. But all that shopping wasn’t enough to satisfy consumer demand.

stop spending at the start of the pandemic helped to swell savings stockpiles.

And the Federal Reserve’s interest rates are at rock bottom, which has bolstered demand for big purchases made on credit, from houses and cars to business investments like machinery and computers. Families have been taking on more housing and auto debt, data from the Federal Reserve Bank of New York shows, helping to pump up those sectors.

But if stimulus-driven demand is fueling inflation, the diagnosis could come with a silver lining. It may be easier to temper consumer spending than to rapidly reorient tangled supply lines.

People may naturally begin to buy less as government help fades. Spending could shift away from goods and back toward services if the pandemic abates. And the Fed’s policies work on demand — not supply.

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