Dream Industrial REIT has acquired a $235-million (all figures Canadian) portfolio of 21 industrial buildings totalling 3.5 million square feet across five major U.S. markets.
The REIT says it has waived all conditions to purchase the properties, located in the midwest markets of Chicago, Cincinnati, Columbus, Indianapolis and Louisville. It expects to close the transaction by the end of this quarter.
Dream (DIR-UN-T) says in a release Monday afternoon the portfolio:
* adds immediate scale in core logistics markets in the Midwest U.S.;
* is supported by large commercial airports, intermodal transport hubs and is accessible to over 50 per cent of the U.S. population within a one-day drive;
* is supported by strong economic fundamentals for e-commerce and logistics with the average vacancy across all markets at 5.4 per cent, and unemployment rates in each market below four per cent;
* includes a mix of single-tenant assets and multi-tenant facilities servicing a broad range of tenant uses and sizes from small bay to large distribution facilities;
* is purchased at a going-in cap rate of six per cent, for about $69 per square foot (below Dream’s estimated replacement cost of $93 per square foot), with three per cent average annual rent escalators built into the leases;
* offers near-term growth opportunity with a recent vacancy of approximately 300,000 square feet in a facility in Louisville. Following lease-up, Dream expects the cap rate to increase to approximately 6.5 per cent.
Dream Industrial expands in U.S.
“Consistent with our communicated strategy, the acquisition adds highly functional assets in key industrial markets that offer attractive yields with strong growth potential, while improving the overall quality of the trust’s portfolio,” said Dream CEO Brian Pauls in the release.
“With a total GLA of 3.5 million square feet, the acquisition portfolio enables us to establish a meaningful footprint in attractive logistics markets in the U.S. and also add scale in our existing markets.”
Upon completion of the acquisition, the trust‘s portfolio will comprise 244 properties with a total GLA of 23.7 million square feet and a gross asset value of $2.3 billion. About $500 million of that is located in the U.S.
“Less than two years after announcing our U.S. expansion, we have successfully acquired seven million square feet of GLA and the U.S. now represents our initial target of approximately 20 per cent of our gross asset value,” Pauls said. “Looking forward, we will continue to add portfolio scale with a primary focus on our target Canadian markets, including Ontario and Quebec.”
The U.S. portfolio is 91 per cent occupied, including the approximately 300,000 square feet recently vacated in Louisville. Dream said it expects that property to lease-up quickly, however. Louisville just recorded its second strongest quarter for industrial absorption in market history, with two million square feet of net absorption.
$144M share offering
As part of its financing of the transaction, Dream Industrial has an agreement to sell, on a bought-deal basis, 12 million shares at $10.45 per unit to a syndicate of underwriters led by TD Securities Inc., for total gross proceeds of $125 million. An over-allotment option would also allow the purchase of up to 1,800,000 additional shares, bringing the total to $144 million.
Closing of the offering is subject to certain customary conditions, including the approval of the Toronto Stock Exchange. The offering is expected to close by Feb. 13.
Dream also received lender approval to amend its existing revolving credit facility, increasing the borrowing capacity from $125 million to $150 million.
“The announced transactions allow us to acquire attractive assets that meet our investment criteria while reducing our leverage and increasing our financial flexibility,” said Lenis Quan, Dream’s chief financial officer, in the release. “We remain focused on driving organic growth and improving the quality of our portfolio.
“For our 2019 renewals contracted to date, we have achieved rental spreads of 9.5 per cent and 11.5 per cent in Ontario and Quebec, respectively. We plan to accelerate our capital recycling program in 2019 and are well-positioned with sufficient liquidity to grow our portfolio primarily in Canada by acquiring or developing best in class industrial assets that have strong income growth potential.”
Dream’s other recent acquisitions
In October, Dream Industrial announced a deal to purchase the Innovation Campus portfolio in Columbus. The two-building purchase in the New Albany International Business Park marked the trust’s initial entry into the Ohio market, and cost $78 million.
They comprise 721,000 of GLA and were fully leased to five tenants.
Dream also made two Canadian purchases in the latter part of 2018, including a 121,000-square-foot distribution facility in the Saint-Laurent sector of Greater Montreal in October. The fully leased, class-A building also offers up to 31,000 square feet of expansion capability.
It also closed on the purchase of 161 The West Mall in Toronto, a 205,000-square-foot, class-A industrial property with a 38-foot clear height. Also fully leased, the building sits on 10 acres of land, with 2.4 acres undeveloped and a purchase option for an additional two acres adjoining the property.