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Dream Industrial REIT makes $347M move into Europe

Dream Industrial REIT (DIR-UN-T) is under contract or in exclusive negotiations to acquire $347 m...

IMAGE: Dream Industrial REIT is under contract to purchase $347M in European industrial properties, including these four assets in The Netherlands. (Courtesy Dream Industrial)

Dream Industrial REIT is under contract to purchase $347 million in European industrial properties, including these four assets in the Netherlands. (Courtesy Dream Industrial)

Dream Industrial REIT (DIR-UN-T) is under contract or in exclusive negotiations to acquire $347 million worth of light industrial and logistics assets in the Netherlands and Germany through seven separate transactions.

“We are very excited to announce our European expansion strategy which will allow Dream Industrial to diversify its portfolio into Europe by acquiring high-quality assets at attractive risk-adjusted returns, pair them with low-cost debt and achieve attractive overall returns for Dream Industrial’s unitholders,” said a statement from Dream Industrial CEO Brian Pauls.

Toronto-based Dream Industrial likes Europe because the fundamentals of the industrial and logistics markets remain attractive. The sector is being driven by the continued growth in e-commerce fueling demand from logistics operators, coupled with a low supply of high-quality and suitable product.

The trust believes the healthy rental growth potential, paired with limited new supply under construction, provides a tailwind for strong performance over the next five to 10 years.

Dream Industrial management is confident modern logistics assets and urban light industrial properties are highly desired by institutional investors, saying they offer superior risk-adjusted returns compared to other asset classes.

Continued Dutch, German expansion

Dream Industrial intends to continue expanding its portfolio in Germany and the Netherlands, which it calls Europe’s most sought-after and liquid logistics markets.

It will also evaluate investment opportunities in other core logistics markets in Western Europe offering compelling returns and the ability to build scale.

The Dutch and German portfolios have a weighted average going-in capitalization rate of 6.1 per cent, a weighted average lease term of 5.3 years and in-place rents below estimated market rents. Dream Industrial intends to fund the acquisitions with cash on hand.

Over the medium term, Dream Industrial is looking to increase its exposure in Europe to approximately 25 per cent of its total portfolio value, from 12 per cent, following the acquisition of the German and Dutch portfolios.

Netherlands market and portfolio

The Netherlands industrial market benefits from healthy economic growth and record-low unemployment levels. It is home to the Port of Rotterdam, the largest container port in Europe and among the 15 largest ports in the world.

Amsterdam’s Schiphol Airport is one of the busiest cargo airports globally.

The strong infrastructure for freight transport, coupled with the development of the e-commerce sector, continues to boost demand for well-located warehouse and logistics space in the Netherlands.

Declining vacancy rates and a low to moderate level of incoming supply have continued to put upward pressure on rental rates.

Dream Industrial’s new Dutch portfolio comprises 34 properties primarily concentrated in major urban centres, including Amsterdam and Rotterdam. More than 80 per cent are located within 30 kilometres of their respective city centres.

The portfolio spans 2.4 million square feet and is 96 per cent leased to more than 70 tenants.

German market and portfolio

IMAGE: Dream Industrial REIT CEO Brian Pauls. (Courtesy Dream)

Dream Industrial REIT CEO Brian Pauls. (Courtesy Dream)

New supply remains insufficient to fulfill the growing demand from distribution and logistics users in Germany, as most of the new construction is already pre-leased. This has led to higher rental rates in most markets.

The German portfolio is near Frankfurt and Dresden and was secured by the acquisition team through an off-market channel. It’s comprised of three properties that combine for 738,000 square feet of space and have an average occupancy rate of 92 per cent.

The properties are leased to 18 tenants and located in strong urban logistics locations with excellent transportation access.

The transactions are expected to close in the first half of 2020.

Canadian and American activity

In addition to the European acquisitions, Dream Industrial has nearly $170 million of properties that have recently closed, are under contract, or are part of exclusive negotiations in Canada. These consist of seven separate transactions, primarily in the Greater Toronto Area.

Upon completion of its acquisitions in the Netherlands, Germany and Canada, Dream Industrial’s portfolio will comprise 264 properties with a gross leasable area of 26.3 million square feet and a pro forma gross asset value of $2.8 billion.

Thirty-one per cent will be in Ontario, 22 per cent in Western Canada, 15 per cent in Quebec, 20 per cent in the United States and 12 per cent in Europe.

Dream Industrial remains committed to growing and improving the value of its portfolio across target markets in Canada and the U.S., with acquisition, leasing and portfolio management teams dedicated to each region.

Dream Industrial will continue to leverage its local platform and strategic relationship with The PAULS Corporation to access acquisition and development pipelines in its target markets in the U.S.

In announcing its financial results through three quarters last year, Dream Industrial said it and PAULS were in exclusive negotiations to acquire an interest in approximately 24 acres of development land in Las Vegas. PAULS was expected to serve as development manager.

Dream Global REIT sale

Dream Industrial REIT is an affiliate of Toronto-headquartered Dream Unlimited Corp. (DRM-T), a real estate company with approximately $9 billion of assets under management.

Dream Unlimited’s asset management business includes three Toronto Stock Exchange-listed trusts and institutional partnerships.

While Dream Unlimited has been active in Europe since 1998, it sold all of Dream Global REIT’s subsidiaries and assets — comprised of office and industrial properties in Western Europe, with a focus on Germany and the Netherlands — for $6.2 billion in cash to affiliates of real estate funds managed by The Blackstone Group Inc. in December.

Upon closing of the Blackstone deal, the non-compete clause for acquiring commercial properties in Europe came to an end. Dream Unlimited can now dedicate resources to supporting Dream Industrial’s European expansion program.

Dream Industrial management additions

The European acquisition asset management team which used to be responsible for Dream Global is now committed to sourcing transactions for Dream Industrial. Alexander Sannikov and Bruce Traversy have joined the trust in senior operating and investment roles.

Sannikov was previously chief operating officer of Dream Global and had oversight of its operating performance, portfolio strategy and capital allocation.

Traversy was previously senior vice-president and head of investments for Dream Global and oversaw its investment strategy and execution across Europe.

“Alex and Bruce were invaluable members in helping Dream Global become one of the leading public real estate platforms and brands in Europe since its inception,” Pauls said in a Dream Industrial news release.

“Now, Dream Industrial can leverage Dream’s skills and relationships to spearhead our new European industrial business, improve operations across Canada and work closely with our U.S. industrial platform to help us to continue to deliver long-term value to our unitholders.”

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