DBRS Morningstar Confirms Ratings on Summit Industrial Income Real Estate Investment Trust Following Announcement

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debentures rating on Summit Industrial Income Real Estate Investment Trust (Summit) at BBB. All trends remain Positive. These rating actions follow Summit’s November 7, 2022, announcement whereby Summit has agreed to be acquired by GIC in partnership with Dream Industrial Real Estate Investment Trust (Dream Industrial, rated BBB, Stable, by DBRS Morningstar; together with GIC, the Joint Venture) in an all-cash transaction valued at approximately $5.9 billion (the Transaction).

The Joint Venture will acquire all of the assets and assume all of the liabilities of Summit by way of a limited partnership (the Purchaser), and Summit will use the cash proceeds to redeem all of its units. A subsidiary of Dream Unlimited Corporation (a related party to Dream Industrial) will be the asset manager for the Joint Venture, and Dream Industrial will provide property management, construction management, and leasing services. The Transaction is expected to close in the first quarter of 2023, subject to customary conditions.

DBRS Morningstar understands that the Purchaser, as successor to Summit, will assume Summit’s outstanding Senior Unsecured Debentures amounting to $925 million, and intends to assume Summit’s existing mortgages, subject to lender consent. As backstop for nonconsenting mortgage lenders, the Joint Venture has arranged committed bank financing. The Purchaser will also have access to a new $400 million committed revolving credit facility for future liquidity requirements, which is expected to be largely undrawn at closing.

DBRS Morningstar expects the credit risk profile of the Purchaser to remain generally consistent with that of Summit as a result of the following expectations: (1) the Transaction will not introduce additional structural subordination from the perspective of the Senior Unsecured Debentures and (2) the Transaction will not result in a material shift in operational or financial strategy necessitating a change in DBRS Morningstar’s business or financial risk assessments or overlay factors (i.e., low proportion of secured debt relative to total debt).

DBRS Morningstar will consider rating upgrades within the next 12 months if Summit or its successor can demonstrate a financial risk profile (including total debt-to-EBITDA and secured debt-to-total debt) consistent with DBRS Morningstar’s expectations outlined in its September 13, 2022, rating action. DBRS Morningstar would consider changing the trends to Stable should Summit’s or its successor’s total debt-to-EBITDA fail to improve as expected or if Summit or its successor reverses course on the progress already made with respect to unencumbering its balance sheet (e.g., its low secured debt-to-total debt ratio).

DBRS Morningstar anticipates revisiting the ratings when the Transaction closes, at which time DBRS Morningstar anticipates assigning new BBB ratings to the Purchaser consistent with and replacing Summit’s current ratings.

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Entities in the Real Estate Industry (April 20, 2022; https://www.dbrsmorningstar.com/research/395563) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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 [email protected].

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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