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Dream in talks to buy $1.3B European industrial portfolio

Dream Industrial REIT (DIR-UN-T) reported Wednesday morning it is in “advanced discussions” to ac...

IMAGE: Dream Industrial REIT logo.Dream Industrial REIT (DIR-UN-T) reported Wednesday morning it is in “advanced discussions” to acquire shares of a corporation which owns 31 logistics properties across Europe for about $1.3 billion Cdn.

In a release, Dream reports the portfolio includes “institutional- quality” assets located mainly in Germany, the Netherlands and France. If the negotiations continue to go well and an agreement is struck, the acquisition could close within the next 60 days.

The portfolio comprises approximately 8.9 million square feet, is 100 per cent occupied and has average clear height of 35 feet. The weighted average remaining lease term is 5.3 years.

The portfolio also has significant excess land offering intensification opportunities of more than one million square feet.

All the assets are well-located in their respective geographies, Dream says, with easy access to transportation networks and are well-poised for growth in income and value.

News reports identify the vendor as Clarion Partners, a subsidiary of Franklin Resources Inc., which placed the portfolio on the sale block several months ago.

Dream’s ongoing European expansion

“The trust believes this portfolio provides a unique and transformational opportunity to accelerate its European expansion strategy, which enhances its institutional asset management, leasing and in-house development platform,” Dream reports in the release.

“This platform will enable the trust to source and execute on acquisitions and value-add opportunities that are of higher quality and can provide higher returns to our unitholders. Additionally, the trust has identified a significant development and redevelopment pipeline within the portfolio on which it can execute in the near- to mid-term.”

Dream announced its expansion into the European light industrial and logistics market early in 2020. Its original acquisitions involved about $347 million worth of properties in seven separate transactions in and around January 2020.

During the past 15 months, the REIT has acquired a total of about $490 million of such properties in Germany and the Netherlands. Dream Industrial’s mid-term goal had been to build its European holdings into approximately 25 per cent of its overall portfolio.

Financing the acquisition

The portfolio has approximately $500 million of in-place debt. Dream says it has “considerable liquidity” available to fund the transaction including $150 million in cash and $350 million of capacity on its revolving line of credit.

The trust is also negotiating dispositions and joint venture strategies, primarily involving its U.S. portfolio, and anticipates this activity will repatriate over $250 million of equity.

However, Dream intends to issue unsecured bonds, which would be swapped to euros, at a rate below one per cent for terms up to seven years (at current rates), to optimize the permanent financing. It is also leaving open the possibility of raising new equity while maintaining leverage within its target in the mid- to high-30 per cent range.

The release says Dream will not be providing any further comment until the negotiations are concluded.

Dream Industrial REIT is based in Toronto.

The trust owns and operates a portfolio of 186 industrial assets (280 properties) comprising approximately 28.8 million square feet of gross leasable area in key markets across North America and a growing presence in strong European industrial markets.

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