DBRS Limited (DBRS Morningstar) assigned an Issuer Rating of BBB with a Stable trend to Dream Industrial Real Estate Investment Trust (Dream Industrial or the REIT). As of October 22, 2020, Dream Industrial had no rated senior unsecured debt outstanding; if the REIT issues rated senior unsecured debt in the future, DBRS Morningstar expects such issuance to be on terms and conditions that are consistent with market practice and satisfactory to DBRS Morningstar.
The rating is supported by (1) average-quality assets that should provide an average level of cash flow stability; (2) superior tenant, property, and geographic diversification; (3) robust interest coverage as measured by DBRS Morningstar's near- to medium-term expectation for EBITDA interest coverage in the 4.5 times (x) range; and (4) leverage commensurate with the rating as measured by DBRS Morningstar's near- to medium-term expectation for total debt-to-EBITDA in the 7.5x range. The rating is constrained by (1) a below-average portfolio size as measured by EBITDA ($141 million in the last 12 months ended June 30, 2020 (LTM 2020)) and a limited market position in its trade areas with a portfolio geographically diversified across Canada, the United States, and Europe; (2) relatively concentrated lease maturities with a weighted-average lease term to maturity of 4.1 years combined with elevated counterparty risk relative to DBRS Morningstar's real estate coverage universe with a broad range of smaller nonrated tenants, notwithstanding several multinationals among the REIT's largest tenants; and (3) asset-type concentration as a pure play in the industrial real estate segment.
The rating considers the ongoing Coronavirus Disease (COVID-19) pandemic and related public health measures, which DBRS Morningstar believes Dream Industrial is relatively well positioned to weather because of its exposure to robust industrial real estate fundamentals and its sound balance sheet with robust access to liquidity, which provide financial flexibility. DBRS Morningstar's expectations do not incorporate material negative impacts from the coronavirus on Dream Industrial's operations.
The Stable trend considers DBRS Morningstar's expectation for continued acquisitive growth in Dream Industrial's portfolio, with the REIT looking to fund such growth with multiple sources of capital, including potentially in the unsecured debt markets, while continuing to grow its portfolio of unencumbered assets. DBRS Morningstar expects that such debt-financed growth will result in modest deterioration in total debt-to-EBITDA from 6.2x in the LTM 2020.
DBRS Morningstar could take a negative rating action if leverage deteriorates significantly more than expected, such that total debt-to-EBITDA increases above 7.8x combined with a material deterioration in EBITDA interest coverage, on a sustained basis and all else equal. DBRS Morningstar would likely require a substantive improvement in its business risk assessment of Dream Industrial to consider a positive rating action.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Entities in the Real Estate Industry (June 4, 2020) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at firstname.lastname@example.org.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at email@example.com.
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