Dream Industrial REIT (DIR.UN-TSX) (the “Trust” or “DIR” or “Dream Industrial” or “we”) announced today that it has agreed to sell 20 of its U.S. assets (29 buildings in total) (the “Seed Portfolio”) to a private open-ended U.S. industrial fund (the “Fund”) in consideration for approximately C$210 million in cash and an approximately 25% retained interest in the Fund (the “Transaction”). The Trust, together with a group of institutional investors, will be the initial investors in the Fund.

A subsidiary of Dream Asset Management Corporation (“DAM”) will be the investment manager of the Fund and the Trust will continue to pay fees on its 25% interest in the Fund under its current asset management agreement with DAM. No incentive fee, brokerage fee or other fees are payable by DIR as a result of the Transaction. A subsidiary of the Trust is expected to provide property management, construction management, and leasing services to the Fund at market rates. This is expected to provide a growing income stream as the Fund scales in attractive U.S. industrial markets.

Transaction highlights include:

• The Seed Portfolio comprises 29 buildings totalling 7.3 million square feet. The portfolio is 98% occupied with a weighted average lease term of 3.6 years;
• The Seed Portfolio, including customary closing adjustments is estimated to be approximately US$480 million, exceeding its current IFRS carrying value of approximately US$465 million as at March 31, 2021;
• As part of the transaction, the Trust will transfer to the Fund approximately US$225 million of secured mortgages with an average interest rate of 3.6%, saving over US$30 million in estimated yield maintenance costs that it would typically incur in a marketed sale of its entire U.S. portfolio; and
• The Trust is expected to realize an unlevered Internal Rate of Return (“IRR”) of approximately 12% and a levered IRR of 19% on the Seed Portfolio since these assets were acquired, on average, approximately over the past three years, significantly exceeding the Trust’s return hurdle.

As part of the transaction, a special committee of independent trustees of the Trust (the “Special Committee”) was formed to, among other things, review and evaluate the terms of the Transaction, make recommendations to the Board of the Trust (the “Board”) in respect of any proposals, and supervise the negotiation of the Transaction. The Special Committee retained National Bank Financial Inc. as independent financial advisor and Goodmans LLP as independent legal counsel to review and evaluate the financial and legal terms and strategic merits of the Transaction. After consideration of, among other things, the advice of its independent financial and legal advisors and the terms and conditions set forth in the definitive documents for the Fund, the Special Committee unanimously recommended that the Board approve the Transaction. The Board, acting on such unanimous recommendation, has unanimously determined that the Transaction is in the best interest of the Trust and its unitholders, and has unanimously approved the Transaction, with those trustees with an interest in DAM having declared their interest and not participated in the approval.

The expected date of completion of the Transaction (the “Closing Date”) is July 30, 2021, subject to satisfaction of certain closing conditions. The timing of the Closing Date was negotiated by the Trust with the initial institutional investors in the Fund. Under the terms of the agreements governing the Transaction (the “Transaction Agreements”), the Fund will acquire the economic benefit and obligations relating to the Seed Portfolio effective as of July 1, 2021 (the “Effective Date”) and the purchase price payable to the Trust will be increased to reflect the approximate return on equity the Trust would have earned from the Effective Date to the Closing Date, based on the Seed Portfolio’s average expected return on equity over the remainder of 2021. The initial institutional investors in the Fund negotiated the July 1 Effective Date in order to provide the Fund with the benefits and risks of operating the business as of such date, which aligns the effective date of the Transaction with the Fund’s commencement of operations. The July 30 Closing Date provides the Trust greater certainty in respect of the value of the Seed Portfolio and the expected proceeds from the Transaction and limits the period of time between signing of the Transaction Agreements and the Closing Date to the minimum amount of time required to satisfy the conditions to completion. The Trust believes that this expected timing is reasonable in the circumstances given its desire to achieve greater certainty in respect of the value of the Seed Portfolio and to promptly receive the proceeds from the Transaction to redeploy to other opportunities. The Trust announced that it was in advanced negotiations with DAM and a group of institutional investors in connection with the creation and launch of the Fund on June 24, 2021 and in connection with today’s announcement will be filing a material change report in accordance with applicable securities laws today.

The Transaction is expected to generate approximately C$210 million of equity proceeds for the Trust. Following the closing of the Transaction, the Trust expects to sell its remaining U.S. assets to the Fund, comprising two properties located in Cincinnati, Ohio and Indianapolis, Indiana, as well as its 80% interest in the 24.5 acre Range Road project in Las Vegas, Nevada. Overall, the Trust expects to repatriate approximately C$250 million of equity from the Transaction.

“Since announcing our U.S. expansion strategy in July 2017, we quickly assembled a high-quality U.S. portfolio that has attracted significant institutional interest and allowed us to achieve our targeted allocation of 20% of portfolio value in the U.S.,” said Brian Pauls, Chief Executive Officer of the Trust. “This transaction represents the next chapter of our growth in the U.S. alongside our institutional capital partners and provides a valuable recurring revenue stream from the new property management platform. Further, it allows the Trust to continue to grow in attractive U.S. industrial markets, improving overall portfolio quality and diversification, while maintaining an enhanced geographic mix.”

Through its retained 25% interest in the Fund, the Trust will continue to pursue long-term growth and upside in the U.S. industrial market alongside strong institutional partners, enhance the overall quality and diversification of its portfolio and increase its exposure to developments and value-add investments that are expected to stabilize as best-in-class assets upon completion.

Pro forma this Transaction, the Trust’s net debt-to-assets ratio is expected to decline to the mid-30% range and the Trust will retain acquisition capacity of over C$200 million. The Trust’s pipeline of opportunities remains strong, and it expects to deploy the proceeds from the Transaction in the near-term, with a significant portion allocated towards adding scale in strong European industrial markets. This is consistent with the Trust’s strategy to establish an institutional platform and creates scale that will drive synergies, higher returns, and better opportunities that can be used to reduce the weighted average cost of debt for the Trust.

“Our geographically diverse portfolio and local acquisition and asset management platforms allow us to effectively allocate capital to the regions which present the most attractive relative returns,” said Alex Sannikov, Chief Operating Officer of the Trust. “This transaction allows us to crystallize gains in asset values on our U.S. portfolio, establishes a platform to grow competitively in the U.S. and frees capital to invest in markets that will allow us to continue our trajectory of robust cash flow as well as NAV growth and to position Dream Industrial as the premier industrial REIT in each of our operating markets. In Europe, we have significantly increased scale and with our recent transformational acquisition, have established a comprehensive pan-European platform that will allow us to execute on our asset management strategies to drive NAV per unit and cash flow growth, while continuing to lower our cost of debt. In Canada, the Trust’s largest operating region, we will continue to grow in our target markets of Ontario and Quebec, with over C$300 million of assets that have closed or been contracted in these markets thus far in 2021. Private market pricing for stabilized industrial properties in these markets continue to exceed record levels and we will remain opportunistic in sourcing properties that are attractive against our target hurdles and screen well against economic rent and replacement cost. Where pricing exceeds those indicators, we will aim to develop new buildings and redevelop existing buildings to create a better portfolio. We expect these strategies will improve the overall quality of the portfolio and enable the Trust to continue to create long-term value for its unitholders.”

About Dream Industrial Real Estate Investment Trust

Dream Industrial REIT is an unincorporated, open-ended real estate investment trust. As at June 30, 2021, Dream Industrial REIT owns and operates a global portfolio comprising over 38 million square feet of gross leasable area in key markets across North America and Europe. 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 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, that, as part of the transaction, the Trust will transfer approximately US$225 million of secured mortgages with an average interest rate of 3.6%, saving over US$30 million in estimated yield maintenance costs that it would typically incur in a marketed sale of the entire portfolio; that the Trust is expected to realize an unlevered Internal Rate of Return (“IRR”) of approximately 12% and a levered IRR of 19% since the assets were acquired, on average, approximately over the past three years; that the transaction is expected to close during the third quarter of 2021 and is expected to generate approximately C$210 million of equity proceeds for the Trust; that, following the closing of the transaction, the Trust expects to sell its remaining U.S. assets to the Fund, comprising two properties located in Cincinnati, Ohio and Indianapolis, Indiana, as well as its 80% interest in the 24.5 acre Range Road project in Las Vegas, Nevada; that, overall, the Trust expects to repatriate approximately C$250 million of equity from the transaction; that, through its retained 25% interest, the Trust will continue to pursue long-term growth in the U.S. alongside strong institutional partners, enhance the overall quality and diversification of its portfolio and increase its exposure to developments and value-add investments that are expected to stabilize as best in class assets upon completion; that, pro forma this transaction, the Trust’s net debt-to-assets ratio is expected to decline to the mid-30% range and the Trust will retain acquisition capacity of over C$200 million following this transaction; and that the Trust expects to deploy the proceeds in the near-term, with a significant portion allocated towards adding scale in strong European industrial markets. 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; the uncertainties around the timing and amount of future financings; uncertainties surrounding the COVID-19 pandemic and government measures related thereto; the financial condition of tenants; leasing risks, including those associated with the ability to lease vacant space; rental rates 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, 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.

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Dream Industrial REIT

Brian Pauls
Chief Executive Officer
(416) 365-2365
bpauls@dream.ca

Lenis Quan
Chief Financial Officer
(416) 365-2353
lquan@dream.ca

Alexander Sannikov
Chief Operating Officer
(416) 365-4106
asannikov@dream.ca