TORONTO--(BUSINESS WIRE)--Dream Industrial Real Estate Investment Trust (TSX: DIR.UN) (the “Trust” or the “REIT”) today provided an update on its capital deployment activity and announced the launch of a $200 million senior unsecured debenture offering at an effective fixed interest rate of 2.041% after swapping to Euros.
ACQUISITIONS UPDATE
The Trust’s pace of capital deployment remains strong as it continues to execute on its growth strategy. Since the beginning of 2022, the Trust has closed on three assets totalling 360,000 square feet and one 50-acre land site, for a total purchase price of approximately $99 million. In addition, the Trust has waived on approximately $157 million1 of acquisitions across Canada and Europe, as well as two land sites in Canada for $35 million. Moreover, the Trust has an additional $340 million of acquisitions in exclusive negotiations across Canada and Europe. The average capitalization rate on the income-producing assets that have closed or are firm or in advanced negotiations equates to 4.5%. Subject to satisfactory due diligence, the Trust expects the majority of these acquisitions to close in the first half of 2022.
- In Canada, the Trust closed or waived on 179,000 square feet of income-producing assets located in the Greater Toronto Area (“GTA”) for $40 million. These well-located assets are in close proximity to multiple highways and have the potential to significantly enhance cash flows as the Trust sets rents on expiring leases to market. The average in-place rent at these buildings is approximately 50% below market rent, with a weighted average lease term of 3.5 years. In addition, the Trust has closed or waived on three sites totalling 80 acres in the GTA and the Balzac sub-market of Calgary for approximately $49 million. These sites are expected to support the development of one million square feet of high-quality modern logistics space in the near-to-medium term. Moreover, the Trust is in exclusive negotiations on 625,000 square feet of assets located primarily in the GTA for approximately $174 million.
- In Europe, the Trust closed or waived on 1.3 million square feet of assets totalling €145 million ($201 million) across key markets in Germany and the Netherlands. These assets have strong potential to grow rental rates over the medium term, as well as enhance yields through the development of excess density. In addition, the Trust is in exclusive negotiations on approximately 1.5 million square feet of assets across Germany and the Netherlands for €120 million ($167 million).
“Our geographic diversity provides us with a breadth of opportunities and our on-the-ground team with deep local relationships has a proven track record to source attractive investments, allowing us to add scale at strong economics to the REIT,” said Brian Pauls, Chief Executive Officer of the Trust. “The acquisitions in our pipeline enhance our portfolio quality, add scale in our core markets and position us well to drive steady growth in diluted FFO per unit2 and NAV per unit2 over time.”
Recently completed/waived acquisitions
- A 128,000 square foot single-tenant distribution asset located in the heart of the Randstad, in the Netherlands for €26 million ($36 million). The facility is just off the A12 motorway, providing good accessibility to nearby Rotterdam (~23 km), Utrecht (~24 km) and The Hague (~28 km). Built in 2019, the building has a clear height of 40 feet and is 100% occupied by a tenant in the food and beverage sector with a weighted average lease term (“WALT”) of 10 years. Included in the purchase price was an adjacent 2.5-acre development-ready site, which is expected to support the addition of a 90,000 square foot building. The Trust expects the incremental yield on cost from the expansion (including the cost of the land) to be over 5%.
Randstad Asset
See Figure 1, Randstad Asset
- A 147,000 square foot single-tenant facility located between the Randstad in the Netherlands and the Rhine-Ruhr region in Germany for €19.2 million ($26 million). The asset’s proximity to the A50 and A73 motorways results in easy access to large population centres in the Netherlands and Germany. Built in 2016, the modern logistics building has a clear height of up to 40 feet and is leased to a U.S.-based global manufacturer of power equipment parts, with 9.5 years remaining on the fully indexed lease.
Nijmegen Asset
See Figure 2, Nijmegen Asset
- A 472,000 square foot single-tenant logistics facility located near Hanover in Germany. The asset is located in close proximity to the A2 and A30 motorways and is well-suited for a logistics provider with the clear height ranging up to over 52 feet. It is currently 100% occupied by a logistics company specializing in the pet care and food industry. The Trust expects the purchase price to be €48.5 million ($67 million).
Hanover Asset
See Figure 3, Hanover Asset
- A 119,000 square foot single-tenant logistics facility located in Bavaria, one of the strongest economic regions of Germany. The asset is located in close proximity to the A7 motorway network that provides easy connectivity to Stuttgart (~2 hours), Munich (~3 hours) and Frankfurt (~2 hours). Built in 2017, the asset has a clear height of 36 feet and is 100% occupied by a logistics company and is being acquired through a sale-leaseback transaction. The Trust expects the purchase price to be €19 million ($26 million). There are also nearly 3.2 acres of excess land included in the purchase price that are expected to add approximately 60,000 square feet of incremental gross leasable area (“GLA”) over time.
Bavaria Asset
See Figure 4, Bavaria Asset
- A 213,000 square foot single-tenant distribution asset located in Gütersloh, Germany. The property is directly adjacent to the A2 motorway, one of Germany’s most frequented logistics routes. The property is 100% occupied by a global appliance and electronics brand with a WALT of 9 years with embedded rent steps equating to average annual contractual rental rate growth of 1.5% over the term of the lease. The Trust expects the purchase price to be approximately €17.5 million ($24 million).
Gütersloh Asset
See Figure 5, Gütersloh Asset
- A 94,000 square foot single-tenant building located in the GTA, just north of the Queen Elizabeth Way highway, in Burlington. The asset is 100% occupied with in-place rent 44% below market. This acquisition fits the Trust’s clustering strategy to add scale in strong sub-markets which are exhibiting strong rental rate growth. The Trust expects the purchase price to be $18 million.
DEVELOPMENTS UPDATE
The Trust expects to invest over $150 million to fund development and value-add initiatives over the balance of this year.
- The Trust is currently underway on the construction of approximately 850,000 square feet of development and intensification projects across Canada and Europe, most of which are expected to be completed over the balance of 2022. As of December 31, 2021, the Trust incurred costs totalling $33 million (including cost of land purchased for new development projects as well as associated closing costs) and estimates the remaining costs on these projects to be $104 million. Overall, the Trust expects these projects to result in an unlevered yield on cost of 6.6%.
- The Trust intends to commence construction on its first redevelopment project in the GTA in mid-2022. The Trust currently owns a cluster of three buildings along Courtney Park Drive in Mississauga totalling 212,000 square feet. The buildings are situated on 10 acres of land located in close proximity to Highways 401 and 410, near Dixie Road in Mississauga. This is one of the strongest industrial sub-markets in the country with the average industrial availability rate well under 1%. The Trust intends to redevelop the complex into a brand-new state-of-the art logistics facility with completion expected in 2023. The Trust is evaluating the feasibility of developing a net zero carbon facility upon completion. With an overall construction cost budget of approximately $30 million, the Trust expects to achieve unlevered yield on cost of above 5%, including the current IFRS carrying value of the assets.
GTA Redevelopment
See Figure 6, GTA Redevelopment
- The Trust has waived on a 20-acre site in the Balzac sub-market of Calgary for a purchase price of $12 million. The site has excellent connectivity to the airport as well as downtown Calgary. Combined with the Trust’s recent acquisition of a 50-acre site for $14 million in the same sub-market, the two sites can support the development of approximately 800,000 square feet of modern urban logistics product. The Trust expects unlevered yield on cost of approximately 6% on stabilization.
FINANCING UPDATE
The Trust announced today that it has priced a private placement of senior unsecured debentures (the “Offering”) consisting of C$200 million aggregate principal amount of 3.968% Senior Unsecured Debentures, Series E maturing on April 13, 2026 (the “Series E Debentures”). The Offering is the Trust’s third “green bond”, following C$650 million of issuances in 2021.
The Series E Debentures are being offered on an agency basis by a syndicate of agents led by TD Securities Inc., Scotia Capital Inc., RBC Dominion Securities Inc. and CIBC. The Series E Debentures are being offered on a private placement basis in each of the provinces of Canada in reliance upon exemptions from the prospectus requirements under applicable securities legislation.
Upon closing of the Offering, the Trust plans to convert the proceeds into Euros through cross-currency interest rate swap arrangements, which is expected to result in an effective fixed interest rate of 2.041%. The closing of the Offering is expected to take place on April 13, 2022.
The Series E Debentures will be issued at a price equal to $1,000 per $1,000 principal amount and bear interest at a rate of 3.968% per annum and will mature on April 13, 2026. Interest is payable on the Series E Debentures on April 13 and October 13 of each year commencing on October 13, 2022. The Series E Debentures will be direct senior unsecured obligations of the Trust and will rank equally and rateably with all other unsecured and unsubordinated indebtedness of the Trust, except to the extent prescribed by law.
The Series E Debentures are expected to be rated BBB (stable) by DBRS Limited. An amount equal to the net proceeds from the Offering is expected to be utilized to finance and/or refinance eligible green projects within the meaning of the Trust’s Green Financing Framework (“Framework”) established in June 2021. Prior to allocation of the net proceeds of this Offering to eligible green projects, the net proceeds may be initially used to fund future acquisitions and development costs, repay existing indebtedness, and for general trust purposes. The Trust’s Framework has been reviewed by DNV, a global leader in pioneering green, social, and sustainable frameworks, and is aligned with the International Capital Markets Association Green Bond Principles 2018 and the Loan Market Association Green Loan Principles 2021.
“We continue to incorporate sustainability and impact investing principles to how we do business and create long term value for our stakeholders,” said Lenis Quan, Chief Financial Officer of Dream Industrial REIT. “We have already allocated or committed close to $500 million of proceeds from our Green Bond issuances last year, well ahead of schedule. We continue to see significant opportunities to add energy efficient buildings to our portfolio through our acquisition program and rapidly expanding development pipeline, while also investing in energy efficient lighting, sustainable roofing as well as renewable power infrastructure within our existing portfolio.”
The Series E Debentures have not been and will not be qualified for sale to the public under applicable securities laws in Canada and, accordingly, any offer or sale of the Series E Debentures in Canada will be made on a basis which is exempt from the prospectus requirements of such securities laws. The Series E Debentures will not be listed on any stock exchange and there will be no market for such securities. The Series E Debentures have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States and may not be offered or sold to other persons who are not residents of a province of Canada.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series E Debentures in any jurisdiction in which such offer, solicitation or sale would be unlawful.
About Dream Industrial Real Estate Investment Trust
Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at December 31, 2021, Dream Industrial REIT owns, manages and operates a portfolio of 239 industrial assets (351 buildings) comprising approximately 43 million square feet of gross leasable area in key markets across Canada, Europe, and the U.S. Dream Industrial REIT’s objective is to continue to grow and upgrade the quality of its portfolio which primarily consists of distribution and urban logistics properties and to provide attractive overall returns to its unitholders. For more information, please visit www.dreamindustrialreit.ca.
Non-GAAP ratios
The Trust’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-GAAP ratios, including diluted FFO per Unit and NAV per Unit as well as other measures discussed elsewhere in this press release. Diluted FFO per Unit is comprised of FFO (a non-GAAP financial measure) divided by the weighted average number of Units. NAV per Unit is comprised of total equity (including LP B Units) (a non-GAAP financial measure) divided by the total number of Units. These non-GAAP ratios are not defined by IFRS and do not have a standardized meaning under IFRS. The Trust’s method of calculating these non-GAAP ratios may differ from other issuers and may not be comparable with similar measures presented by other issuers. Certain additional disclosures such as the composition, usefulness and changes, as applicable, of the non-GAAP ratios included in this press release have been incorporated by reference from the management’s discussion and analysis of the financial condition and results from operations of the REIT for the three months and year ended December 31, 2021, dated February 15, 2022 (the “MD&A for the fourth quarter of 2021”) and can be found under the sections “Non-GAAP Financial Measures" and "Non-GAAP Ratios” and respective sub-headings labelled “Funds from operations (“FFO”)”, "Diluted FFO per Unit” and “Net asset value (“NAV”) per Unit”. The MD&A for the fourth quarter of 2021 is available on SEDAR at www.sedar.com under the Trust’s profile and on the Trust’s website at www.dreamindustrialreit.ca under the Investors section. Non-GAAP ratios should not be considered as alternatives to comparable metrics determined in accordance with IFRS as indicators of the Trust’s performance, liquidity, cash flow, and profitability.
Forward Looking Information
This press 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”, “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 press release may include, among other things, statements regarding the intended use of proceeds of the Offering; statements regarding the Trust’s objectives and strategies to achieve those objectives; the Trust’s strategy to upgrade its portfolio quality; the Trust’s ability to acquire high-quality assets; the Trust’s ability to deliver attractive overall returns to its unitholders; the anticipated timing of closing of the acquisitions referred to in this press release, including the anticipated closing, purchase price and value of acquisitions under contract or in exclusivity; the expected rating of the Series E Debentures; the anticipated closing of the Offering; the ability of the Trust to maintain exclusive negotiations on certain assets and the Trust’s ability to close on such negotiations; the Trust’s acquisition pipeline; the Trust’s pipeline of capital deployment opportunities and its ability to generate compelling returns; the size and successful outcomes of any of the Trust’s plans for development and value-add initiatives; expectations regarding cash flow and the potential of the Trust’s assets to increase cash flow over time; expectations regarding growth in rental rates; the addition of incremental GLA over time; the Trust’s expectations and plans for the development of buildings, including a high-quality modern logistics space in the near-to-medium term; the Trust’s plans for developing a net zero carbon facility; the Trust’s ability to access capital and to maintain its strong growth trajectory; the Trust’s development, expansion, redevelopment and intensification plans, including the timing of construction and expansion, expectations regarding redevelopment potential, costs, timing of completion of the Trust’s developments and anticipated yields; the Trust’s plans to convert the proceeds of the Offering into Euros through cross-currency interest rate swap arrangements; the ranking of the Series E Debentures and the Trust’s expectations regarding growth in diluted FFO per unit and NAV per unit over time. 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 the Trust’s control, which 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, general and local economic and business conditions; employment levels; mortgage and interest rates and regulations; uncertainties around the timing and amount of future financings; uncertainties surrounding the COVID-19 pandemic; geopolitical events, including disputes between nations, war and international sanctions; the financial condition of tenants; leasing risks, including those associated with the ability to lease vacant space; rental rates and the strength of rental rate growth on future leasing; and interest and currency rate fluctuations. The Trust’s objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable, interest rates remain stable, conditions within the real estate market remain consistent, historically low rates and rising replacement costs in the Trust’s operating markets remain steady, competition for acquisitions remains consistent with the current climate and that the capital markets continue to provide ready access to equity and/or debt. All forward-looking information in this press release speaks as of the date of this press release. The Trust 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 the Trust’s filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at the Trust’s website at www.dreamindustrialreit.ca.
1 Expected purchase price of European assets that are firm or in exclusive negotiations translated to Canadian dollars using an exchange rate of €1.00=C$1.3881
2 Diluted FFO per unit and NAV per unit are non-GAAP ratios. For further information on these non-GAAP ratios, please refer to the statements under the heading “Non-GAAP ratios” in this press release.
