Through both acquisitions and development, Dream Industrial REIT is in the midst of adding over a million square feet to its Greater Montreal portfolio. That’s just one of the highlights in its most recent update, which reports $329 million in global acquisitions in 2021.
That figure includes $191 million of previously unannounced acquisitions in Canada and Europe.
The activity in the Montreal region includes the purchase of a 366,000-square-foot, class-A distribution and warehousing asset in Terrebonne for $62 million, adding to the $114-million purchase of 401 Marie-Curie Street earlier this year in Vaudreuil-Dorion. Dream is also expanding the fully leased, 525,922-square-foot Marie-Curie property by an additional 132,226 square feet.
“Toronto and Montreal are the primary (Canadian) target areas for us,” Dream Industrial’s (DIR-UN-T) chief operating officer Alexander Sannikov told RENX in an interview. “We like both markets. We think they are in slightly different phases of the development and rental growth story, but we like both.
“Montreal is behind Toronto in terms of the rental growth story, but that probably means it has more runway; that’s what our position is.”
Dream Industrial’s Terrebonne acquisition
The Terrebonne property, at 3055 Anderson St., was built in 2003 and expanded by 138,000 square feet of 32-foot clear warehouse space in 2020. It’s fully occupied by tenants primarily in the logistics and health-care sectors.
Average in-place rents are 10 per cent below market rents and the weighted average remaining lease term is 3.5 years.
“We’ve been in Montreal for a number of years and we are expending our footprint as we are finding good opportunities,” Sannikov said.
The Marie-Curie property will ultimately be expanded by well over 200,000 square feet in two phases. The second phase of that intensification is to start this fall. Dream reports it expects to achieve a yield on construction costs of over 6.5 per cent on the project.
The acquisitions and development are indicative of Dream’s multi-pronged strategy to grow the portfolio.
Multiple strategies to grow portfolio
“What we are doing for the Toronto portfolio and also in Montreal, as you can see with the Marie-Curie acquisition, we are adding that development component to our strategy. We are intensifying what we own, redeveloping in some cases what we own,” Sannikov explained.
“As far as product itself goes, it’s two pillars primarily. No. 1 we are expanding the footprint that we’ve got . . . it’s almost like a cluster strategy; clusters in Laval, clusters in Lachine and we are gradually adding to those clusters.”
“The second component, the second pillar is adding more e-commerce class-A warehouses and last-mile facilities. A lot more modern logistics as well, larger-box, larger-bay.”
In the announcement, CEO Brian Pauls said Dream Industrial is seeking larger properties with tenants who are taking bigger blocks of space: “Our portfolio is now more modern and logistics-oriented, with buildings that are on average 25 per cent larger and leased to tenants that are 75 per cent larger, with over 40 per cent of our base rent coming from tenants occupying spaces larger than 100,000 square feet.”
Other acquisitions by Dream Industrial
The update included several other purchases in Canada and Europe, as well as development updates. New developments and intensification are projected to cost $90 million in 2021 and add about a million square feet of space.
Dream also just closed an equity raise of $201 million through the issuance of just over 14.8 million new units.
Included among the new acquisitions are:
– a new mid-bay logistics facility in Arnhem, the Netherlands for $31 million. The fully tenanted 159,000-square-foot building has a clear height of 48 feet and is located near major Dutch and German markets;
– and five assets closed for $51 million in addition to three assets where all conditions have been waived for $47 million in Ontario, Quebec and Europe, adding 671,000 square feet to the portfolio.
“We have a sizeable footprint in many different markets,” Sannikov said of Dream’s Ontario holdings. “We have many, many clusters in Mississauga, Brampton, we’ve got clusters in places like Cambridge and Kitchener, so we’re adding to those clusters.
“Some of the smaller deals we are doing in let’s say Cambridge and Kitchener they are literally next door to assets that we own. So there are land assembly plays, there are larger synergies from just building a larger presence in a node that is well-performing and we have operating history.”
The acquisitions so far in 2021 add 1.9 million square feet of logistics space to the trust’s portfolio.
Industrial demand, rents continue to rise
This has kept Dream Industrial’s senior vice-president and head of investments Bruce Traversy hopping.
“Certainly there was a bit of pause when COVID hit, but it very quickly became apparent this sector was poised for growth and was really going to be a net winner of the whole coronavirus situation so we went pretty hard to tie stuff up,” he said.
“I think we sort of saw that there was going to be a lot of capital chasing real estate on the one hand.
“But, also we were seeing it within our own portfolio; demand for space, rental rate growth was there and we wanted to position ourselves to be ready to benefit from that.”
The trust is also currently under contract or in exclusive negotiations on approximately $160 million of assets in Ontario, the Midwest U.S., Germany and the Netherlands. These acquisitions are expected to close in the next 60 days.
The Dream Industrial acquisition pipeline contains over $300 million of additional properties.
“It may seem like we’ve been doing a lot of acquisitions,” Traversy said, “but we filter through a lot of opportunities. We really focus on and hone in on those assets that we think, within our platform, are going to deliver what we need them to deliver.
“The number of deals we take a look at and reject is far larger than the ones we actually end up focusing on.”