TORONTO--(BUSINESS WIRE)--Dream Industrial REIT (TSX: DIR.UN) (“Dream Industrial”, “DIR”, or the “Trust”) today announced that it has closed on the previously announced acquisition of shares of a corporation that owns a portfolio of 31 institutional quality, logistics properties across Europe (the “Acquisition”). The purchase price for the Acquisition was approximately $850 million, excluding customary closing adjustments. The total value of the real estate in connection with the Acquisition is approximately €880 million or $1.3 billion which implies a going in capitalization rate in the low 4% range, inclusive of excess land.
The portfolio is 100% leased, has an average construction date in the mid-2000s and an average clear height of 34.5 feet. This fully indexed portfolio has a weighted average lease term of 5.3 years. A majority of the properties have strong income growth potential with in-place rents estimated to be on average 10% below market. Those properties with longer term leases have stable tenants with strong covenants, including multi-national corporations and investment grade credits. Food distribution and third-party logistics tenants represent 50% of the portfolio by net rent.
“This transaction allows us to gain significant scale in strong European industrial markets and accelerate our long-term capital allocation targets in the region. Since announcing our European expansion in early 2020, we have amassed one of the largest publicly traded European logistics portfolios globally, and are well positioned for strong organic growth, which should drive solid FFO and net asset value per unit growth for our unitholders,” said Brian Pauls, Chief Executive Officer of Dream Industrial REIT. “Following this transaction, Dream Industrial will own a $5 billion portfolio of high-quality, well-diversified assets located in some of the most sought-after logistics markets in the world.”
This transaction provides a unique and transformational opportunity to accelerate Dream Industrial’s European expansion strategy. It significantly enhances quality and scale in top European industrial markets and establishes a comprehensive pan-European real estate platform, including in-house development capabilities. Following the transaction, Dream Industrial’s gross asset value increases to $5 billion and Europe will account for approximately 37% of total assets from approximately 14% as at March 31, 2021, which is consistent with its strategy of growing in markets that have significant barriers to entry and provide strong organic growth potential. With the larger asset base and enhanced platform, the Trust has the opportunity to pursue investment and asset management opportunities that are of higher quality and deliver higher returns.
Pro forma Combined Portfolio
Portfolio Metrics |
As at March 31,
|
Acquisition
|
Pro Forma2 |
||||
Number of properties |
286 |
31 |
317 |
||||
Investment properties fair value (millions of dollars) |
3,673 |
1,305 |
4,977 |
||||
Gross leasable area (thousands of square feet) |
29,541 |
8,903 |
38,446 |
||||
Number of tenants |
1,128 |
33 |
1,161 |
||||
Average tenant size (thousands of square feet) |
26 |
270 |
33 |
||||
Occupancy rate (including committed occupancy) |
96.9% |
100.0% |
97.6% |
||||
Average remaining lease term (years) |
4.2 |
5.3 |
4.5 |
||||
Average clear height (feet) |
25.5 |
34.5 |
27.6 |
||||
Development pipeline (millions of square feet) |
~2.0 |
1.1 |
>3.0 |
“Our significant expertise in sourcing and executing on investment opportunities in Europe, along with our strong balance sheet and access to capital allowed us to successfully execute on this rare opportunity to acquire high-quality properties in top European industrial markets at scale,” said Alex Sannikov, Chief Operating Officer of Dream Industrial REIT. “The institutional-grade quality of the assets and strong organic growth potential driven by contractual rental escalators, significant upside over current in-place rents, and over 1 million square feet of development opportunities, will allow us to deliver strong FFO and net asset value per unit growth for our unitholders, while enhancing the overall quality and stability of our portfolio and the business.”
The purchase price of the Acquisition was approximately $850 million, excluding customary closing adjustments. The Acquisition was financed by net proceeds from the $287.5 million subscription receipts offering completed on May 31, 2021, a portion of net proceeds from the $800 million unsecured debenture offering completed on June 17, 2021, as well as cash on hand.
In connection with the Acquisition, the Trust issued $800 million aggregate principal amount of unsecured debentures (the "Offering") which closed on June 17, 2021. The Offering consisted of three separate tranches, including a $200 million re-opening of the 1.662% Series A Debentures maturing in 2025, $200 million of three month Canadian Dollar Offered Rate (“CDOR”) plus 0.35% Series B Debentures maturing in 2024 and $400 million of 2.057% Series C Debentures (the “Green Bonds”) maturing in 2027 (collectively the “Debentures”). Subsequent to the completion of the Offering, the Trust entered into cross currency interest rate swap arrangements to swap the proceeds of the Offering to Euros that resulted in an average all-in interest rate of only 0.35% over the approximately 5-year average term of the Debentures. The net proceeds from the Offering were utilized to fund a portion of the purchase price of the Acquisition and, with respect to the net proceeds from the sale of the Green Bonds, will also be used to finance and/or refinance eligible green projects within the meaning of the Trust’s recently announced Green Financing Framework. The Trust may use a portion of the net proceeds to repay existing indebtedness.
“Over the past year, we have transformed DIR to operate under a largely unsecured financing model which has significantly increased financial flexibility. Driven by our access to European debt, our debt strategy has lowered our average interest rate on total debt outstanding by approximately 200 basis points or over 50%, accelerating the achievement of our goal set when we announced our European expansion nearly 18 months ago,” said Lenis Quan, Chief Financial Officer of Dream Industrial REIT. “This Acquisition also allowed us to introduce green bonds to our capital stack as we increasingly focus on capital allocation towards green buildings and sustainable initiatives within our current portfolio.”
As the escrow release conditions relating to the Trust’s subscription receipts (the “Subscription Receipts”) have been satisfied, one unit of the Trust will be issued for each issued and outstanding Subscription Receipt without payment of additional consideration and the net proceeds from the sale of the Subscription Receipts will be released from escrow. Trading in the Subscription Receipts is expected to be halted on the Toronto Stock Exchange this afternoon. The Trust expects that the Subscription Receipts will be delisted from the Toronto Stock Exchange after the close of markets today and that the units issued in exchange for the Subscription Receipts will commence trading on the Toronto Stock Exchange on Friday, June 25, 2021 under the symbol “DIR.UN”. Holders of Subscription Receipts will receive units of the Trust prior to the record date of June 30, 2021 for the Trust’s June distribution. The June distribution will be payable on July 15, 2021 to unitholders of record as at June 30, 2021.
Update on U.S. Portfolio Strategic Partnership
The Trust is in advanced negotiations with its asset manager, Dream Asset Management Corporation (“DAM”), and a group of institutional investors in connection with the creation and launch of a private U.S. industrial investment fund (the “Fund”). Under the contemplated arrangement, the Trust will contribute its U.S. portfolio to the Fund allowing the repatriation of over $250 million of equity at values in excess of March 31, 2021 IFRS carrying values as well as a retained 25% interest in the Fund at the time of closing.
The Trust intends to grow its investment in the U.S. through the Fund and will be able to pursue higher quality acquisition and development opportunities in strategic markets, and expects to maintain an approximate 25% ownership interest in the Fund. It is anticipated that DAM will be the investment manager of the Fund and the Trust would continue to pay fees on its 25% interest under its current asset management agreement with DAM. The Trust is expected to become the property manager for the partnership and earn profits from the property management platform which will enhance its returns on equity invested in the United States going forward.
About Dream Industrial Real Estate Investment Trust
Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at March 31, 2021, Dream Industrial REIT owns and operates a portfolio of 186 industrial assets (280 properties) comprising approximately 28.8 million square feet of gross leasable area in key markets across North America and a growing presence in strong European industrial markets. Dream Industrial REIT’s objective is to continue to grow and upgrade the quality of its portfolio and to provide attractive overall returns to its unitholders. For more information, please visit www.dreamindustrialreit.ca
Forward Looking Information
This news release may contain forward-looking information within the meaning of applicable securities legislation. Forward-looking information generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “would”, “could”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, or “continue”, or similar expressions suggesting future outcomes or events. Some of the specific forward-looking information in this news release may include, among other things, the development and expansion potential of our properties, including the going in capitalization rate in the low 4% range, that the assets are well located and are well-poised for growth in FFO and NAV per unit; our ability to capture significant upside over current in-place rents; the expected growth of our portfolio; our combined portfolio on a pro forma basis after giving effect to the completion of the Acquisition; negotiations with DAM and a group of institutional investors to partner and invest in the Trust’s United States portfolio and the expected terms of the contemplated partnership, including the anticipated repatriation of over $250 million of equity at values in excess of IFRS carrying values; the growth of our industrial platform in the United States; the pursuit of higher quality investment and development opportunities in strategic markets; that DAM will continue as the asset manager and that the Trust will become the property manager for the partnership; that the Trust believes its strategy would enhance returns on equity invested in the United States going forward; the intended use of proceeds from the Series C Debentures to finance and/or refinance eligible Green projects; expansion of the Trust’s capabilities into new markets; the opportunity for us to deliver strong growth in FFO and net asset value per unit for our unitholders; the exchange of the Subscription Receipts for units and the release of the net proceeds from escrow; the halting in trading of the Subscription Receipts and subsequent delisting; the trading of the units issued in exchange for the Subscription Receipts; and the entitlement of holders of Subscription Receipts to distribution equivalent payments. Forward looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Industrial REIT’s control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, global and local economic and business conditions; uncertainties surrounding the COVID-19 pandemic; the financial condition of tenants; leasing risks, including those associated with the ability to lease vacant space; interest and currency rate fluctuations; competition; and the risk that there may be unforeseen events that cause the Trust’s actual capital structure, overall cost of debt and results of operations to differ from what the Trust currently anticipates. Our objectives and forward-looking statements are based on certain assumptions with respect to each of our markets, including that the general economy remains stable, the gradual recovery and growth of the general economy continues over the remainder of 2021, interest rates remain stable, conditions within the real estate market remain consistent, competition for and availability of acquisitions remains consistent with the current climate, the capital markets continue to provide ready access to equity and/or debt, the timing and ability to sell certain properties remains in line with the Trust’s expectations, valuations to be realized on property sales will be in line with current IFRS values, occupancy levels remain stable, and the replacement of expiring tenancies will remain consistent. All forward-looking information in this news release speaks as of the date of this news release. Dream Industrial REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise except as required by law. Additional information about these assumptions and risks and uncertainties is contained in Dream Industrial REIT’s filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at Dream Industrial REIT’s website at www.dreamindustrialreit.ca.
1 Inclusive of six acquisitions that closed subsequent to March 31, 2021
2 Combined portfolio as at March 31, 2021, inclusive of the six properties referred to in note 1 above, and giving effect to the completion of the Acquisition
