Dream Industrial REIT (DIR-UN-T) will acquire two industrial properties in Germany and is in exclusive negotiations to buy two further assets in the Netherlands and in Montreal.

The two German properties will be acquired for $56 million, while the Netherlands and Montreal properties would cost $52 million.

Dream waived conditions on the Germany properties, which will be purchased at a cap rate of approximately 6.1 per cent, with closing expected in Q3 2020.

Comprising 575,000 square feet with an average clear height of 29 feet, these two properties are located close to major transportation corridors. They are 95 per cent occupied by tenants primarily in the logistics and food and beverage industries.

Dream says the in-place rental rates are 17 per cent below current market rent, with a weighted average lease term of 3.5 years. The properties also offer excess land for future development, which could add 500,000 square feet of additional GLA.  

The Netherlands and Montreal properties would be acquired at a weighted average cap rate of 5.7 per cent and remain subject to due diligence. This transaction is anticipated to close in Q4 2020.

Dream Industrial financial update

“In conjunction with maintaining a strong and flexible balance sheet, DIR continues to allocate capital towards high-quality investment opportunities that improve the overall quality of the portfolio,” said Lenis Quan, CFO of Dream Industrial REIT, in a release.

“We retain the capacity to complete at least $300 million of additional acquisitions before leverage increases to our mid-to-high-30 per cent target range.

“We continue to see interest rates on Euro-denominated, fixed-rate debt approximately 150 basis points lower than North American debt.

“Pro forma the acquisitions that are firm or exclusive, our leverage will be 31 per cent and we look forward to deploying our significant balance sheet capacity and improving our FFO per unit growth outlook.”

Dream Industrial REIT closed on a new $336-million unsecured credit facility, which replaced its $150-million secured credit facility. This boosted borrowing capacity to $340 million, resulting in overall liquidity of approximately $400 million.

The new facility is currently undrawn.

With the new unsecured facility, the REIT’s unencumbered assets increased by $270 million to $1.1 billion, representing 38% of its investment properties value. The REIT’s leverage was at 28 per cent as of March 31, 2020.

“The strength of our operating platform, financial flexibility, and relationships with our tenants have enabled us to successfully navigate through the challenging environment brought on by the COVID-19 pandemic over the past few months,” said chief executive officer Brian Pauls in the release.

“We have maintained occupancy, continued leasing momentum, and rent collections have been good. Given the current optimism and the fact that economies are starting to re-open in a number of our markets, we continue to actively position DIR to emerge stronger as supply chains return.”

Leasing and rent collections

On the leasing front, Dream Industrial has leased 1.1 million square feet of space since the beginning of the pandemic at an average spread of four per cent, compared to prior rental rates.

Included is a five-year early renewal of one of the trust’s largest tenants in the Greater Toronto Area for a 317,000-square-foot production facility in Aurora. Committed occupancy is at 95 per cent, with leases representing only three per cent of its portfolio gross leasable area expiring over the balance of 2020.

“Over the past few weeks, we have seen a substantial increase in touring activity across our portfolio, while the market rents remain steady,” said Dream’s COO Alexander Sannikov in the release.

“With business activity picking up pace, we are actively pursuing value-add and growth initiatives across the portfolio including redevelopment and intensification of several properties in the GTA, ground-up development of our Las Vegas site as well as a solar power program in the Netherlands.

“We are also looking at opportunities to upgrade the quality of our portfolio, including selectively selling assets in Western Canada that do not meet our return thresholds and reinvesting proceeds into higher-quality assets in our target markets.”

Rent collections also remain strong, with over 95 per cent collected during April and May (adjusting for agreed-upon deferrals). To date, June collections are at about 90 per cent, Dream said.

Dream Industrial has agreed to rent deferral arrangements with 75 tenants totaling $2.3 million, approximately 3.5 per cent of its gross rent for Q2 2020.

It’s also working with small business tenants who qualify for the Canada Emergency Commercial Rent Assistance program, reviewing requests from approximately 100 tenants. They represent approximately $600,000 of total rent relief, less than half of one per cent of DIR’s annualized gross rent.

About Dream Industrial REIT

Dream Industrial REIT is an unincorporated, open-ended real estate investment trust.

The trust owns and operates a portfolio of 262 industrial properties comprising approximately 25.8 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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