Dream Industrial REIT (DIR-UN-T) released a series of updates this week reporting $188 million in closed and pending acquisitions, 1.3 million square feet of leasing activity, and its first financial rating from DBRS Morningstar – BBB with stable trend.
Dream Industrial anticipates the investor-grade rating will allow it to reduce borrowing costs by 25 basis points on future draws on its $330-million revolving credit facility, and by five basis points on its standby fee.
“We are pleased to have achieved this investment-grade credit rating from DBRS,” said Brian Pauls, Dream Industrial’s CEO, in the announcement. “We believe the rating from DBRS reflects our continued focus on building a high- quality portfolio, diversifying the business throughout Canada, the United States and Europe and strengthening our balance sheet.
“This initiative provides opportunities for DIR to access new sources of capital as we continue to execute on our growth strategy.”
Loan strategy lowers debt costs
Also on the financial side of things, Dream Industrial has obtained a $200-million unsecured three-year loan from a Canadian chartered bank, which it intends to swap into debt in Euros at an interest rate of about 0.90 per cent.
This facility is scheduled to close in Q4 2020, bringing Dream Industrial’s debt to about 50 per cent of its European property values.
This would open up more room for future acquisitions, the repayment of higher-debt North American mortgages and other credit facilities, the announcement states.
“With our portfolio showing resilience during the COVID-19-related disruption, we have resumed the execution of our capital deployment and debt strategy announced earlier in the year,” said Lenis Quan, chief financial officer of Dream Industrial, in the release.
“The commencement of our European debt strategy is a unique driver of cash-flow-per-unit growth for (Dream).
“The average interest rate on our total outstanding debt is poised to decline by approximately 10 per cent by year-end 2020 as we obtain Euro-denominated debt, and we expect it to reduce further over time.”
Dream Industrial acquisitions
On the acquisitions and leasing front, the trust has acquired properties in Canada and the Netherlands, and is in firm or exclusive negotiations to acquire several more in coming weeks. It also closed on a previously announced $25-million acquisition in Germany.
“Despite the market disruption this year, we continue to increase occupancy, grow rental rates, and are poised to close on over $600 million of acquisitions this year in Toronto, Kitchener, Montreal and our core European markets,” said Pauls in announcing the acquisitions.
In Breda, the Netherlands, Dream acquired a 300,000-square-foot, single-tenant logistics building that was extensively renovated in 2018. With a clear height of 42.7 feet, it’s leased to a third-party logistics provider involved in e-commerce fulfillment.
The remaining lease term is 9.3 years and the going-in cap rate is 5.8 per cent.
In Mississauga just west of Toronto, Dream has purchased a class-A industrial building on Financial Drive, near Highways 401 and 407. Built in the mid-1990s, the 116,000-square-foot building has a clear height of 30 feet.
Approximately 100,000 square feet is expected to be vacated in Q4 2020 and Q1 2021. With market rents over 60 per cent higher than expiring rents, Dream Industrial hopes to capitalize on the robust demand for distribution space to acquire new tenant(s) and stabilize the asset at a cap rate of over 5.5 per cent in 2021.
The total purchase price for the three properties (Germany, the Netherlands, Mississauga) was $86 million.
The trust is also firm or exclusive on four assets in Europe and one in Ontario, for a total purchase price of $102 million. Subject to diligence and any other required conditions, it hopes to close on these properties by the end of 2020.
Looking further ahead, the acquisition pipeline is “robust,” with $500 million of acquisitions in Canada, Europe and the U.S. under consideration.
“Pro forma these acquisitions, the trust will have acquired over $600 million of assets in 2020, showcasing the strength of its acquisition platform and its unique expertise in sourcing high-quality opportunities in North America and Europe, through off-market deals at attractive economics,” said Quan in the release.
“We expect that we could complete approximately $300 million in additional acquisitions before reaching our target leverage levels.”
Leasing highlights in Toronto, U.S.
Among the leasing highlights, Dream Industrial has filled a couple of large vacancies and has been completing many of its leasing deals at spreads 30 to 60 per cent higher than previous rates.
It leased a 98,000-square-foot vacancy in the GTA to a U.S.-based logistics company at a rate 50 per cent higher than the prior rental. That is among 300,000 square feet of new leasing since the end of Q2.
In Louisville, another new lease is pending with a “Fortune 500 company” on a 303,000-square-foot vacancy. The trust expects to finalize the new tenant before the end of 2020.
Dream Industrial also completed 650,000 square feet of renewals since the end of Q2.
“Our leasing activity in the third quarter highlights the strength of our portfolio and reinforces our investment thesis as occupiers across Canada, the U.S. and Europe continue to seek modern, high-quality industrial space in urban locations,” said Alexander Sannikov, Dream Industrial’s chief operating officer, in the release.
About Dream Industrial
Dream owns and operates a portfolio of 266 industrial properties comprising approximately 26.6 million square feet of gross leasable area in key markets in Canada and the United States.
Based in Toronto, the REIT also has a growing presence in strong European industrial markets.