Morningstar DBRS Changes Trends on Dream Industrial Real Estate Investment Trust to Positive from Stable, Confirms Credit Ratings at BBB

DBRS, Inc. (Morningstar DBRS) changed its trends on Dream Industrial Real Estate Investment Trust's (Dream Industrial or the REIT) credit ratings to Positive from Stable and confirmed both the REIT's Issuer Rating and the credit rating on its Senior Unsecured Debentures at BBB.

KEY CREDIT RATING CONSIDERATIONS
The Positive trends reflect Dream Industrial's improvement on its leverage metrics measured by total debt-to-EBITDA and visibility toward further improvement. As of the last 12 months (LTM) ended September 30, 2024, Dream Industrial's total debt-to-EBITDA was at 9.4 times (x) compared to 9.9x the year before. Morningstar DBRS expects the REIT's total debt-to-EBITDA to continue to improve to the mid-8.0x range by YE2025.

The credit ratings reflect Dream Industrial's institutional-quality industrial assets that continue to provide cash flow stability; superior tenant, property, and geographic diversification in its portfolio; and a strong EBITDA interest coverage. Morningstar DBRS expects industrial fundamentals to remain stable in the near term and for the imbedded mark-to-market opportunity in Dream Industrial's leases to remain strong in its portfolio, which should contribute to mid-to-high single digit same property net operating income (NOI) growth.

CREDIT RATING DRIVERS
Morningstar DBRS would consider a credit ratings upgrade should Dream Industrial's total debt-to-EBITDA improve comfortably below 9.2x on a sustained basis, while maintaining a low secured debt-to-total debt ratio, all else being equal. Morningstar DBRS would consider returning the trends to Stable if total debt-to-EBITDA were to remain above 9.2x on a sustained basis, all else being equal.

FINANCIAL OUTLOOK
Morningstar DBRS expects Dream Industrial's leverage, as measured by total debt-to-EBITDA, will improve to the mid-8.0x range by YE2025, given the aforementioned mark-to-market opportunity in leases as well NOI growth from completed developments. Morningstar DBRS expects EBITDA interest coverage to decline modestly from current levels from 4.3x at LTM September 30, 2024 to low-4.0x range in the next 12-24 months as the REIT will see higher interest rates in future refinancings.

CREDIT RATING RATIONALE
Dream Industrial's credit ratings remain supported by (1) its institutional-quality industrial assets that continue to provide cash flow stability; (2) superior tenant, property, and geographic diversification; and (3) a strong EBITDA interest coverage as the REIT has demonstrated the ability to swap Canadian dollar denominated debt underwritten in Canada for euro-denominated debt at relatively low rates.

The credit ratings remain constrained by (1) elevated leverage for the BBB credit rating category; (2) asset-type concentration as a pure play in the industrial real estate segment; and (3) relatively concentrated lease maturities with a weighted-average lease term to maturity of 4.3 years, combined with elevated counterparty risk relative to Morningstar DBRS' real estate coverage universe with a broad range of smaller nonrated tenants, notwithstanding the potential upside for lease renewals and new leases to be rolled up to market rents which are significantly higher in certain markets relative to in-place rents.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Dream Industrial Real Estate Investment Trust, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Dream Industrial Real Estate Investment Trust, the FRA factors were considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Dream Industrial Real Estate Investment Trust, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Entities in the Real Estate Industry (April 15, 2024), https://dbrs.morningstar.com/research/431170

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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