2018 Annual Report
American Way
Orlando, Florida
Dream Industrial REIT owns
and operates a portfolio of 223
geographically diversified light
industrial properties, comprising
approximately 20 million square
feet of gross leasable area in
key markets across Canada and
the United States. Its objective
is to build upon and grow its
portfolio and to provide stable and
sustainable cash distributions to its
unitholders.
Letter to Unitholders
2018 has been a transitional year for Dream Industrial
REIT. We have made significant progress on the execution
of our strategic initiatives, including adding scale in our
target markets, improving our overall portfolio quality
and increasing our balance sheet strength.
The Canadian industrial market continues to strengthen,
fundamentals support continued
and underlying
momentum for the foreseeable future. The Canadian
national industrial availability rate tightened further in
2018 to a new record low of 3.2%, with 10 consecutive
quarters of declining availability. Our U.S. portfolio is
100% occupied and demand for industrial real estate
continues to drive asset values and occupancy rates.
Since December 2017, we have closed on over $264
million of acquisitions in Canada and the U.S. Our
portfolio currently comprises over 20 million square feet
with approximately 11% of NOI from the U.S. At the end of
January 2019, we waived all conditions on a 3.5 million
square feet, 21-property portfolio in five cities across
the Midwestern U.S. This acquisition provides access to
functional industrial assets that caters to a wider range
of users in attractive markets and further solidifies our
U.S. platform.
In conjunction with the growth in our portfolio, we have
strengthened our balance sheet and increased our
financial flexibility. Our leverage has declined 440 basis
points year-over-year to 43.5% and we repaid $111
million of convertible debentures earlier in 2018. At year-
end, the Trust had $2.1 billion in assets, with $103 million
of liquidity, and $195 million of unencumbered assets.
Our NAV per Unit has increased by 12.7%, compared to
prior year, to $10.54 per unit, largely reflecting strong
demand for industrial product in Ontario and Quebec.
Looking forward, we will continue to pursue attractive
investment opportunities primarily in Canada, that
deliver above average cash flows and net asset value
growth over time.
We are focused on driving occupancy and rental rates,
advancing our core leasing operations and we have laid
the foundation to drive strong internal growth in 2019.
Occupancy in Western Canada has increased 230
basis points since mid-2018 and now stands at 95.2%.
We are optimistic that the West will return to comparative
property NOI growth in 2019. Our Ontario and Quebec
portfolio are essentially fully occupied and are well-
positioned for rental rate growth as leases roll over in
2019 and beyond. For our 2019 renewals contracted
to date, we have achieved rental spreads of 11% and
9% in Ontario and Quebec, respectively. Comparative
properties NOI growth in the East was 11% in 2018 and
we expect stable income from this region in 2019.
Since December 2017, and
including the recently
announced Midwest U.S. portfolio, we have grown our
asset base through $500 million of acquisitions and
achieved our initial target of 20% of highly functional
industrial assets in the U.S. We have accomplished this
while reducing leverage by 440 basis points. Looking
forward, we plan to accelerate capital recycling in
2019 and are well-positioned with sufficient liquidity to
acquire and develop best in class industrial assets that
have strong income growth potential.
The Dream Industrial REIT team has had a very productive
year and an exciting start to 2019. On behalf of our
management team and our Board of Trustees, I would like
to thank you for your interest and support in our business.
Sincerely,
Brian Pauls
Chief Executive Officer
February 19, 2019
“In 2018, we executed on strategic
initiatives to strengthen our balance
sheet, continue expansion in our target
markets and further diversify and en-
hance our tenant base. Looking forward,
we expect to accelerate our capital
recycling program and will continue
to capitalize on unique and attractive
investment opportunities in our target
markets in Canada and the U.S.”
Brian Pauls
Chief Executive Officer
3030 Sunridge Way Northeast
Calgary, AB
Dream Industrial REIT
At-a-Glance
20 Million
GROSS LEASABLE AREA
(SQUARE FEET)
97%
COMMITTED OCCUPANCY
$2.1 Billion
GROSS ASSET VALUE
1,339
TENANTS
Shelby V
Memphis, TN
Geographic Diversification by Gross Asset Value
Geographic
Diversification
Dream Industrial REIT owns
and operates 20 million
square feet of well-located,
geographically diversified
light industrial properties
across Canada and the
United States, supported
by a platform with a
proven track record of
long-term value creation.
Gross Leasable Area Breakdown
Diversified Building Types by Gross Leasable Area
37%
SINGLE-TENANT
+63+
63%
MULTI-TENANT
52%
WAREHOUSE &
DISTRIBUTION
16+
16%
LIGHT
MANUFACTURING
32%
FLEX INDUSTRIAL
*All metrics are as at December 31, 2018
25%ALBERTA4%SASKATCHEWAN14%UNITED STATES28%ONTARIO17%QUÉBEC12%NEW BRUNSWICK/ NOVA SCOTIA32
+
52
0
37
Our Values
Integrity
Teamwork
Dealing with stakeholders
Social responsibility
Opportunities
Fun
These values provide the foundation
for our corporate culture – acting as
a strong platform on which to build
sustainability into Dream’s DNA.
Building Better
Communities
Our ambition is to integrate
sustainability objectives throughout
our business. We set quantitative and
qualitative targets to help focus on
reaching our goals.
Our aim is to directly tie
sustainability to our corporate
values, our culture and the way in
which we conduct our business.
Sustainability
Focus on sustainability
At Dream Industrial REIT we recognize
the value of sustainability. It not only
benefits the environment, but also tenants,
stakeholders and the communities in
which we live and work. Our sustainability
strategy guides us in how we run our
business and how we manage our
environmental and social obligations,
including managing our brand, business
risks and operations. We strive to integrate
sustainability at both the corporate and
property levels, focusing on internal
and external initiatives to benefit all
stakeholders. We believe that a long-term
sustainable approach is imperative to
create value.
As property owners and managers, we
engage in an ongoing dialogue with our
tenants and stakeholders and are well
positioned to implement key changes
that promote sustainability. We recognize
that tenants are becoming more curious
about the energy performance, carbon
footprint, and associated energy costs of
the property they’re leasing.
Building and maintaining high-quality,
resilient buildings allows us to protect our
asset value and sustain high occupancy
rates; an environmentally sound building
is a desirable building. These are just
a few examples of how business and
sustainability go hand in hand.
One of the key initiatives we have focused
on is optimizing our buildings by improving
energy efficiency throughout our portfolio.
This has been achieved through initiatives
such as lighting retrofit projects and utiliz-
ing renewable power to offset our grid
consumption.
These efforts lower costs in addition to
reducing our contribution to carbon
emissions and climate change. Improving
energy efficiency provides us with a com-
petitive advantage in the industrial leasing
marketplace.
We also support the communities in which
we live and work through our charitable
partnerships and commitments. In 2018,
the Dream entities donated close to
$1 million to charities. In addition,
Dream employees prepared and donated
over 1,800 shoeboxes to The Shoebox
Project for Women’s Shelters and over 400
gifts to seniors through our Tree of Dreams.
We continue to implement strategies to
improve sustainability best practices
throughout our organization and portfolio
and have highlighted a couple of examples
over the next few pages.
Increasing energy efficiency
in our buildings
An example of our operational strategy at work is the
lighting retrofits we initiated in several of our properties.
Throughout Dream Industrial REIT’s portfolio, we are
replacing old, inefficient fluorescent lights with either
more efficient “T5” lighting or LED lights, enhancing
spaces and enabling our tenants to benefit from lower
operating costs. In our Ontario portfolio, we have
upgraded exterior lighting to T5 for approximately
80% of our multi-tenant buildings. In addition, we
have also addressed the interior lighting upgrades for
approximately 50% of the buildings in Ontario. In Quebec
and the East, we have upgraded lighting to T5 for 75%
and 65% of the multi-tenant properties, respectively.
In the West, lighting in approximately 30% of our
buildings has been upgraded to T5. A key aspect of the
upgrading process is to balance our lease roll with our
upgrade plans as typically the lighting is upgraded when
the space is vacant.
As a leading Canadian publicly listed REIT, we feel that
Dream Industrial REIT has a responsibility to manage and
mitigate our overall impact on the environment and we will
continue to tie sustainability into the ways we manage
our business.
Sustainability Highlights
Environmental
—
7 of Dream Industrial REIT’s buildings
utilize solar panels covering 817,216
square feet. This is equivalent to 19 acres,
or 14 football fields of solar panels
—
239 MW of renewable capacity has
been installed by Dream Industrial REIT’s
asset manager, Dream Unlimited and its
joint venture partners
—
Energy efficiency - we have been
implementing lighting retrofits throughout
Dream Industrial REIT’s portfolio
Governance
—
25% of Dream Industrial REIT Board members
are women
—
75% of Dream Industrial REIT Board
members are independent
—
Embedded elements of
sustainability in Board mandates
Social*
—
~1,800+ shoeboxes were donated to
The Shoebox Project for Women’s Shelters
by Dream
—
Close to $1 million was donated to
charities and communities
—
~$325,000 in tuition and professional
development fees was reimbursed to employees
—
420 gifts were donated through the
Tree of Dreams
—
National sponsor of The Shoebox Project
for Women’s Shelters and partner with Women’s
College Hospital
Highlights are as at December 31, 2018
* Social highlights are based on all Dream entities combined
Since Dream became the National Sponsor
for the Shoebox Project for Women in 2014,
Dream and our employees have donated
over 5,000 shoeboxes to women in shelters.
The Shoebox Project for Women, supported by Dream,
collects and distributes gift-filled shoeboxes for women
impacted by homelessness in communities across Canada
and the U.S. Each thoughtfully created and decorated
shoebox is filled with items that can enhance self-esteem
and reduce feelings of isolation for women in need.
860 Marine Drive
South Carolina
Table of Contents
Management’s discussion
and analysis
Management’s responsibility
for consolidated financial
statements
Independent auditor’s report
Consolidated financial
statements
Notes to the consolidated
financial statements
Trustees
Corporate information
1
48
49
53
57
IBC
IBC
Management’s discussion and analysis
(All dollar amounts in our tables are presented in thousands of Canadian dollars, except for per square foot amounts, per Unit amounts, or unless otherwise
stated.)
SECTION I – FINANCIAL HIGHLIGHTS
KEY PERFORMANCE INDICATORS
Performance is measured by these and other key indicators:
Total portfolio(1)
Number of properties
Gross leasable area (“GLA”) (in millions of sq. ft.)
Occupancy rate – in-place and committed
Occupancy rate – in-place
Average occupancy for the year
Average in-place and committed base rent per sq. ft. – Canada
Average in-place and committed base rent per sq. ft. – U.S. (US$)
Weighted average remaining lease term (years)
Estimated market rent in excess of in-place and committed base rent – Canada(2)
Estimated market rent in excess of in-place and committed base rent – U.S.(2)
December 31,
2018
As at
December 31,
2017
223
20.2
97.1%
95.7%
95.5%
7.26
3.93
4.1
4.4%
1.3%
$
$
215
17.2
96.6%
95.7%
95.8%
7.17
4.08
4.0
3.1%
0.7%
$
$
Operating results
Net rental income
Comparative properties net operating income (“NOI”)(3)
Net income
Funds from operations (“FFO”)(3)
Distributions
Total distributions(3)
Per Unit amounts
Distribution rate
FFO (diluted)(3)(4)
FFO payout ratio (diluted)(3)(4)(5)
Three months ended December 31,
2018
2017
Year ended December 31,
2017
2018
$
$
35,006
29,782
66,455
24,060
30,404
29,554
19,466
19,655
$
19,537
$
15,767
$
$
$
$
0.17
0.22
80.6%
0.17
0.23
77.8%
$
$
$
$
$
133,744
118,263
157,528
88,166
116,778
116,563
34,659
74,623
73,227
$
57,818
$
$
0.70
0.86
81.7%
0.70
0.91
77.3%
Dream Industrial REIT 2018 Annual Report | 1
Financing
Weighted average effective interest rate(6)
Weighted average face interest rate(6)
Weighted average remaining term to maturity (years)
Interest coverage ratio (times)(3) – year-to-date
Level of debt (net debt-to-assets ratio)(3)(7)
Net debt-to-adjusted EBITDAFV (years)(3)(7)
Unencumbered assets(8)
Capital
Total number of REIT Units and LP B Units (in thousands)(9)
Net asset value (“NAV”) per Unit(3)
Liquidity(3)
Cash and cash equivalents
Undrawn revolving credit facility
December 31,
2018
As at
December 31,
2017
3.74%
3.65%
4.4
3.5
43.5%
7.2
$
194,594 $
3.88%
3.75%
3.8
3.3
47.9%
7.3
113,191
$
$
110,615
10.54 $
93,657
9.35
4,968 $
98,194
54,651
123,000
(1) Excludes property or properties held for sale at the end of each period.
(2) Estimated market rents are management’s estimates and are based on current period leasing fundamentals. The current estimated market rents are at a
point in time and are subject to change based on future market conditions.
(3) Comparative properties NOI, FFO, total distributions, diluted FFO per Unit, FFO payout ratio, interest coverage ratio, level of debt (net debt-to-assets ratio),
net debt-to-adjusted EBITDAFV, NAV per Unit and liquidity are non-GAAP measures. See “Non-GAAP measures and other disclosures” for a description of
these non-GAAP measures.
(4) A description of diluted amounts per Unit can be found under the heading “Non-GAAP measures and other disclosures”.
(5) FFO payout ratio (non-GAAP measure) is calculated as the ratio of the distributions rate per Unit to diluted FFO per Unit.
(6) A description of weighted average effective interest rate and weighted average face interest rate can be found under the heading “Our financing”.
(7) Level of debt (net debt-to-assets ratio) and net debt-to-adjusted EBITDAFV have been restated in the comparative periods to conform to current period
presentation. For further details, please refer to “Non-GAAP measures and other disclosures” under the headings “Level of debt (net debt-to-assets ratio)”
and “Net debt-to-adjusted EBITDAFV”.
(8) Unencumbered assets includes property or properties held for sale at the end of each period.
(9) Total number of REIT Units and LP B Units includes 18.6 million LP B Units which are classified as a liability under IFRS.
Dream Industrial REIT 2018 Annual Report | 2
BASIS OF PRESENTATION
Our discussion and analysis of the financial position and results of operations of Dream Industrial Real Estate Investment Trust
(“Dream Industrial REIT” or “Dream Industrial” or “the Trust”) should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 2018.
This MD&A is dated as at February 19, 2019.
For simplicity, throughout this discussion, we may make reference to the following:
• “REIT Units”, meaning units of the Trust, excluding Special Trust Units
• “LP B Units” and “subsidiary redeemable units”, meaning the Class B limited partnership units of Dream Industrial LP
• “Units”, meaning REIT Units and LP B Units
When we use terms such as “we”, “us” and “our”, we are referring to Dream Industrial REIT and its subsidiaries.
Estimated market rents disclosed throughout the MD&A are management’s estimates and are based on current period leasing
fundamentals. The current estimated market rents are at a point in time and are subject to change based on future market
conditions.
Certain information herein contains or incorporates comments that constitute forward-looking information within the
meaning of applicable securities legislation, including but not limited to statements relating to the Trust’s objectives, strategies
to achieve those objectives, the Trust’s beliefs, plans, estimates, projections and intentions, and similar statements concerning
anticipated future events, future growth, results of operations, performance, business prospects and opportunities,
acquisitions or divestitures, tenant base, future maintenance and development plans and costs, capital investments, financing,
the availability of financing sources, income taxes, vacancy and leasing assumptions, litigation and the real estate industry in
general – in each case they are not historical facts. Forward-looking statements generally can be identified by words such as
“outlook”, “objective”, “strategy”, “may”, “will”, “would”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”,
“could”, “likely”, “plan”, “project”, “budget” or “continue”, or similar expressions suggesting future outcomes or events.
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 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; the financial condition of tenants; our ability to refinance maturing debt; leasing risks, including
those associated with the ability to lease vacant space; our ability to source and complete accretive acquisitions; and interest
rates.
Although the forward-looking statements contained in this MD&A are based on what we believe are reasonable assumptions,
there can be no assurance that actual results will be consistent with these forward-looking statements. Factors that could
cause actual results to differ materially from those set forth in the forward-looking statements and information include, but
are not limited to, general economic conditions; local real estate conditions, including the development of properties in close
proximity to the Trust’s properties; timely leasing of vacant space and re-leasing of occupied space upon expiration;
dependence on tenants’ financial condition; the uncertainties of acquisition activity; the ability to effectively integrate
acquisitions; interest rates; availability of equity and debt financing; our continued compliance with the real estate investment
trust (“REIT”) exemption under the specified investment flow-through trust (“SIFT”) legislation; and other risks and factors
described from time to time in the documents filed by the Trust with securities regulators.
All forward-looking information is as of February 19, 2019. Dream Industrial 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 applicable law.
Additional information about these assumptions, risks and uncertainties is contained in our filings with securities regulators.
Certain filings are also available on our website at www.dreamindustrialreit.ca.
BACKGROUND
Dream Industrial REIT is an unincorporated, open-ended real estate investment trust which provides investors with the
opportunity to invest in a pure-play industrial REIT with a portfolio based in Canada and the U.S. Our REIT Units are listed on
the Toronto Stock Exchange under the trading symbol DIR.UN.
As of the date of this MD&A, excluding the asset held for sale, we own and operate 223 primarily light industrial income-
producing properties totalling 20.2 million square feet of GLA. Our properties are located in key industrial markets across
Canada and the U.S.
Dream Industrial REIT 2018 Annual Report | 3
OUR OBJECTIVES
We are committed to:
• Managing our business to provide growing cash flow and stable and sustainable returns, through adapting our strategy
and tactics to changes in the real estate industry and the economy;
• Building and maintaining a diversified, growth-oriented portfolio of industrial distribution and warehousing properties in
major markets, based on an established platform;
• Providing predictable and sustainable cash distributions to unitholders while prudently managing our capital structure
over time; and
• Maintaining a REIT that satisfies the REIT exception under the SIFT legislation in order to provide certainty to unitholders
with respect to taxation of distributions.
OUR STRATEGY
Dream Industrial REIT is a growth-oriented owner of income-producing industrial properties across key markets in Canada and
the U.S., providing stable and predictable distributions to unitholders on a tax-efficient basis. Our strategy is to grow our
portfolio by investing in key markets to generate stable cash flows for our unitholders. We will continue to review and modify
our strategy to meet the ever changing real estate and economic conditions. Our strategy includes:
Optimizing the performance, value and cash flow of our portfolio
We actively manage our assets to optimize performance, maintain value, retain and attract tenants and maximize cash flows
to our unitholders. Dream Industrial REIT employs experienced staff in all markets where we are active. We strive to ensure
that our assets are the most attractive and cost-effective premises for our tenants.
Maintaining and strengthening our conservative financial profile
We operate our business in a disciplined manner with a strong focus on maintaining a conservative financial structure. We
actively manage our mortgage maturity profile, maintain a conservative debt ratio and generate cash flows sufficient to fund
our distributions.
Growing and diversifying our portfolio to reduce risk
We seek to grow and diversify our portfolio to increase value on a per Unit basis, further improve the sustainability of our
distributions, strengthen our tenant profile and mitigate risk. We anticipate that growing our portfolio will also reduce our cost
of capital, allowing us to both refinance existing mortgages at competitive rates and increase our ability to competitively bid
on acquisition opportunities. We have experience in each of Canada’s key real estate markets, which we believe will provide us
with the flexibility to pursue acquisitions in whichever Canadian markets offer compelling investment opportunities. Through
an affiliate of PAULS Corp, LLC (“PAULS Corp”) and the Trust’s asset manager, Dream Asset Management Corporation, the Trust
has access to the U.S. market and PAULS Corp’s operational platform in the U.S.
Seeking accretive growth opportunities
Dream Industrial REIT seeks to invest in desirable, highly functional properties located in major industrial centres that are well
leased on a long-term basis to quality tenants. When evaluating acquisitions we consider a variety of criteria, including per
Unit accretion; replacement cost of the asset, its functionality and appeal to future tenants; and how the asset complements
our existing portfolio.
FINANCIAL OVERVIEW
2018 was an eventful year for the Trust. We acquired 2.9 million square feet of high-quality industrial properties in Ontario,
Québec and the U.S., issued $144 million in equity, redeemed our 5.25% convertible debentures due 2019 prior to maturity,
and strengthened the balance sheet by lowering leverage. We announced our strategy to expand into the U.S. in the middle of
2017, and now have 3.5 million square feet of high-quality industrial properties in the Midwest and Southeastern U.S. with
another 3.5 million square feet in the Midwest expected to close in the first quarter of 2019.
While growing the Trust and strengthening the balance sheet, we have made good progress on advancing our core leasing
operations and have laid the foundation to drive stronger internal growth. In-place and committed occupancy remains strong
at 97.1%, up 30 basis points (“bps”) from the previous quarter. Renewal spreads for the year were led by Ontario and Québec
at 3.6% and 5.5%, respectively. Occupancy has increased by 230 bps in Western Canada since the second quarter of 2018,
which, along with higher rental rates in Ontario and Québec, should result in stronger internal growth going forward.
Dream Industrial REIT 2018 Annual Report | 4
Our NAV per Unit(1) continued to grow, increasing by $1.19, or 12.7%, as at December 31, 2018 compared to December 31,
2017, reflecting higher investment property values mainly in Ontario and Québec. As at December 31, 2018, we have a sound
capital structure with a net debt-to-assets ratio(1) of 43.5%, net debt-to-adjusted EBITDAFV(1) of 7.2 years and interest coverage
ratio(1) of 3.5 times. Furthermore, we have ample liquidity and financial flexibility with our undrawn revolving credit facility
totalling $98.2 million and $5.0 million of cash and cash equivalents on hand.
Net income for the quarter and year – For the quarter ended December 31, 2018, net income was $66.5 million, consisting of
net rental income of $35.0 million, fair value adjustments to investment properties of $38.8 million and fair value adjustments
to financial instruments of $8.9 million, partially offset by interest expense on debt and subsidiary redeemable units of $12.1
million, general and administrative expenses of $2.6 million and cumulative other items of $1.5 million.
For the year ended December 31, 2018, net income was $157.5 million, consisting of net rental income of $133.7 million and
fair value adjustments to investment properties of $107.9 million, partially offset by interest expense on debt and subsidiary
redeemable units of $50.4 million, fair value adjustments to financial instruments of $17.1 million, general and administrative
expenses of $10.8 million, net losses on transactions and other activities of $5.1 million and cumulative other items of
$0.7 million.
Diluted FFO per Unit(1) for the quarter and year – Diluted FFO per Unit for the quarter ended December 31, 2018 was $0.22
compared to $0.23 for the quarter ended December 31, 2017. The decline on a per Unit basis was mainly attributable to lower
leverage throughout 2018 which was partially offset by higher net rental income from our comparative and acquired
properties.
Diluted FFO per Unit for the year ended December 31, 2018 was $0.86 compared to $0.91 for the year ended December 31,
2017. The decline on a per Unit basis was mainly attributable to the same reasons noted above and the timing difference
between the equity raise in June 2018 and subsequent capital deployment.
Net rental income for the quarter and year – Net rental income for the quarter ended December 31, 2018 was
$35.0 million or $4.6 million higher compared to the quarter ended December 31, 2017. Net rental income was $133.7 million
or $17.0 million higher compared to the prior year ended December 31, 2017. The increase was mainly due to higher net
rental income from comparative and acquired properties completed in 2018 and in the fourth quarter of 2017.
Comparative properties NOI(1) for the quarter and year – Comparative properties NOI for the quarter ended December 31,
2018 was $29.8 million, or $0.2 million higher compared to the quarter ended December 31, 2017. The increase was primarily
due to higher average occupancy and higher rental rates in Québec, and higher capital recoveries in Eastern Canada, partially
offset by lower average occupancy in Western Canada.
Comparative properties NOI for the year ended December 31, 2018 was $118.3 million, or $1.7 million higher compared to the
prior year ended December 31, 2017. The increase is due to higher average occupancy in Eastern Canada, and higher average
occupancy and rental rates in Ontario, partially offset by lower average occupancy and rental rates in Western Canada.
Occupancy has increased by 230 basis points in Western Canada since the second quarter of 2018, which, along with higher
rental rates in Ontario and Québec, should result in stronger internal growth going forward.
In-place and committed occupancy (year-end) – Total in-place and committed occupancy at December 31, 2018 remained
high at 97.1%, an increase of 0.3% and 0.5%, respectively, compared to September 30, 2018 and December 31, 2017. The
increase in in-place and committed occupancy was mainly driven by multi-tenants in Western Canada, Québec and Eastern
Canada, offset by a decrease in Ontario. As at December 31, 2018, the Trust secured future lease commitments of
approximately 279,000 square feet which will take occupancy during the first half of 2019.
Leasing activity during the quarter and year – Strong leasing momentum has continued for a ninth consecutive quarter with
occupancy over 95%. For the quarter ended December 31, 2018, approximately 836,000 square feet of leases commenced, of
which 568,000 square feet were renewals and relocations. The overall retention ratio for the quarter was 74.7%.
For the year ended December 31, 2018, approximately 3,461,000 square feet of
2,583,000 square feet were renewals and relocations. The overall retention ratio for the year was 78.3%.
leases commenced, of which
Average in-place and committed base rents (year-end) – The average in-place and committed base rent for our Canadian
portfolio increased to $7.26 per square foot at December 31, 2018, compared to $7.17 per square foot at December 31, 2017,
driven by rent steps and new leases that commenced during the year. Average in-place and committed base rent has increased
across our Canadian portfolio with the exception of Eastern Canada, where rates remained stable.
Dream Industrial REIT 2018 Annual Report | 5
The average in-place and committed base rent for our U.S. portfolio was US$3.93 per square foot at December 31, 2018,
compared to US$4.08 per square foot at December 31, 2017, which reflects the in-place rent for all our U.S. properties,
including properties acquired in 2018.
Renewal spreads for the quarter and year – Strong renewal spreads in Ontario. In Ontario, the average renewal spread on
occupied space in the quarter was 9.3%. Subsequent to December 31, 2018, the Trust signed over 200,000 square feet of
leases taking occupancy in 2019 at an average spread of approximately 16% above expiring or prior in-place rates, along with
3.1% annual rent increases over the term of the leases. Notably, the Trust signed a 101,000 square foot lease deal in the
Greater Toronto Area at a 14.6% spread to the expiring rate, along with 3.2% annual contractual rent increases built into the
lease.
During the year, renewal and relocation spreads on occupied space in Ontario, Québec, Eastern Canada and Western Canada
were 3.6%, 5.5%, -2.0% and -4.6%, respectively.
Estimated market rents (year-end) – As at December 31, 2018, estimated market rents for the Canadian portfolio were
$7.58 per square foot while estimated market rents for the U.S. portfolio were US$3.98 per square foot compared to
$7.39 per square foot and US$4.11 per square foot, respectively, in 2017. In our Canadian portfolio, market rents were 4.4%
above our in-place and committed rents, representing an opportunity for us to surface additional value as leases roll over.
Investment properties – As at December 31, 2018, the Trust’s investment property portfolio, excluding a property held for sale
consisted of 223 properties, valued at $2.1 billion, compared to $1.7 billion at December 31, 2017. Acquisitions totalling
$248.2 million were completed in 2018. The fair value of the Trust’s Ontario and Québec properties increased by
$141.3 million compared to December 31, 2017, reflecting higher underlying cash flows and market rents and lower
capitalization and discount rates. The fair values in Western Canada and Eastern Canada remained relatively stable. For our
U.S. portfolio, the U.S. dollar strengthened against the Canadian dollar, which resulted in an unrealized foreign exchange gain
of $20.6 million for the year ended December 31, 2018.
During the quarter, the Trust acquired a 121,000 square foot Class A distribution facility located in the Greater Montreal Area
for a purchase price of $13.6 million, excluding transaction costs.
Continued U.S. expansion – On February 4, 2019, the Trust announced the waiver of all conditions on the acquisition of a
U.S. logistics portfolio in the Midwest U.S., totalling approximately 3.5 million square feet of GLA for a purchase price of
US$179.1 million, excluding transaction costs. The portfolio comprises 21 buildings located in five cities (Chicago, Cincinnati,
Columbus, Indianapolis and Louisville) and, subject to customary closing conditions, is scheduled to close in the first quarter of
2019.
Acquisition funding – To partially fund the U.S. logistics portfolio acquisition, the Trust completed a public offering on
February 13, 2019 of 13.8 million REIT Units at a price of $10.45 per unit for gross proceeds of $144.2 million, including
1.8 million REIT Units issued pursuant to the exercise of the over-allotment option granted to the underwriters.
Enhanced liquidity – On January 23, 2019, the Trust received lender approval to amend its existing revolving credit facility,
increasing its borrowing capacity from $125.0 million to $150.0 million and increasing the number of properties secured under
the facility from 30 to 33 properties. The amendment is subject to customary closing conditions.
(1) NAV per Unit, net debt-to-assets, interest coverage ratio, net debt-to-adjusted EBITDAFV, diluted FFO per Unit and comparative properties NOI are non-
GAAP measures. See “Non-GAAP measures and other disclosures” for a description of these non-GAAP measures.
Dream Industrial REIT 2018 Annual Report | 6
OUR PROPERTIES
Dream Industrial REIT owns and operates a diversified portfolio of industrial distribution and warehousing properties located
in key markets across Canada and in the U.S.
As at December 31, 2018, our portfolio consists of 223 properties comprising 20.2 million square feet of GLA. Our properties
are located in desirable business parks, situated close to highways and generally considered functional and well suited for their
respective markets. The occupancy rate across our portfolio is 97.1%. Our occupancy rate includes lease commitments
totalling approximately 279,000 square feet for space that is currently being readied for occupancy but for which rental
revenue is not yet being recognized.
Our properties are geographically diversified as follows:
Western Canada
Ontario
Québec
Eastern Canada
U.S.
Total
Number of
properties
83
59
37
37
7
223
Owned GLA
(thousands of sq. ft.)
5,058
5,099
3,888
2,661
3,488
20,194
December 31, 2018(1)
% of owned
GLA
25.0
25.3
19.3
13.2
17.2
100.0
(1) Excludes property or properties held for sale.
Number of
Owned GLA
properties (thousands of sq. ft.)
5,058
4,795
3,765
2,660
910
17,188
83
57
36
37
2
215
December 31, 2017(1)
% of owned
GLA
29.4
27.9
21.9
15.5
5.3
100.0
Our portfolio, totalling 20.2 million square feet, consists of 12.7 million square feet, or 63% of total GLA, of multi-tenant
buildings, and 7.5 million square feet, or 37% of total GLA, of single-tenant buildings. Of the 7.5 million square feet of single-
tenant space, 2.7 million square feet is located in Ontario, 2.2 million square feet is located in Québec and 1.8 million square
feet is located in the U.S. Multi-tenant space is distributed more evenly throughout the portfolio, with a relatively higher
concentration of 4.3 million square feet in Alberta and Saskatchewan. The differences between single- and multi-tenant
buildings can be seen in the following operating metrics:
• Average tenant size – single tenants typically occupy significantly more space on an individual basis than those tenants in
multi-tenant buildings;
• Average lease term – single tenants typically have lease terms that are significantly longer than those for multi-tenant
buildings, which tends to offset the concentration risk of having a large single tenant in a building; and
• Average in-place rents per square foot – they are typically moderately higher in multi-tenant buildings.
Multi-tenant buildings with shorter lease terms allow a landlord to bring rents to market rates on a more frequent basis,
thereby taking advantage of supply-constrained market conditions. Small-bay multi-tenant buildings tend to have higher
construction costs and tend to be located in denser urban markets, which increases the barriers to competition from new
supply. Selective ownership of single-tenant buildings provides a source of stable cash flow with relatively less management
effort required. In addition to the geographic distribution, maintaining a balance of the two building types in the portfolio is
part of our diversification strategy.
Dream Industrial REIT 2018 Annual Report | 7
SECTION II – EXECUTING THE STRATEGY
OUR OPERATIONS
The following key performance indicators related to our operations influence the cash generated from operating activities:
Total and comparative portfolio occupancy
The following table details our total and comparative portfolio in-place and committed occupancy by region.
Our in-place and committed occupancy includes lease commitments for space that is being prepared for occupancy but for
which rent is not yet being recognized.
(percentage)
Western Canada
Ontario
Québec
Eastern Canada
Total Canada
U.S.
Total
Total portfolio(1)
December 31, September 30, December 31,
2017
95.1
99.7
96.3
93.3
96.4
100.0
96.6
2018
94.2
98.7
97.3
93.1
96.1
100.0
96.8
2018
95.2
98.0
98.1
93.7
96.5
100.0
97.1
Comparative portfolio(2)
December 31, September 30, December 31,
2017
95.2
97.7
96.3
93.3
95.9
—
95.9
2018
94.3
98.7
97.3
93.1
96.1
—
96.1
2018
95.0
97.9
98.0
93.7
96.4
—
96.4
(1) Excludes property or properties held for sale at the end of each period.
(2) Excludes properties acquired after October 1, 2017 and excludes a property held for sale at December 31, 2018.
Total portfolio in-place and committed occupancy at December 31, 2018 remained high at 97.1%, an increase of 0.3% and
0.5%, respectively, compared to September 30, 2018 and December 31, 2017.
The increase in overall in-place and committed occupancy was mainly driven by multi-tenants within Western Canada, Québec
and Eastern Canada, with approximately 238,000 square feet of vacant space committed for future occupancy. The increase in
overall occupancy was offset by negative absorption in Ontario. Despite the negative absorption, we are seeing strong leasing
activity in this region, enabling us to bring rental rates to market. At December 31, 2018, we have approximately 41,000
square feet of vacant space committed for future occupancy in Ontario. Included within our total portfolio are the properties
acquired in 2018 and 2017. In-place and committed occupancy for the newly acquired properties was at 100.0% at
December 31, 2018, compared to 99.6% at September 30, 2018 and 98.8% at December 31, 2017.
On a comparative portfolio basis, in-place and committed occupancy at December 31, 2018 remained high at 96.4%, with an
increase of 0.3% and 0.5%, respectively, compared to September 30, 2018 and December 31, 2017. The increase in overall
occupancy was mainly driven by the same reasons as previously mentioned.
Dream Industrial REIT 2018 Annual Report | 8
Occupancy continuity
The following table details the change in occupancy (including committed) for the three months and year ended December 31,
2018:
Occupancy (including committed) at beginning of period
Vacancy committed for future occupancy
Occupancy in-place at beginning of period
Acquired occupancy
Reclassification from assets held for sale
Occupancy in-place after the above adjustments
Expiries (all leases)
Early terminations and bankruptcies
New leases
Renewals and relocations
Occupancy in-place – December 31, 2018
Vacancy committed for future occupancy
Occupancy (including committed) – December 31, 2018
$
$
$
$
7.61
8.09
7.27
7.60
For the three
months ended
December 31,
2018
Weighted
average
rate
per sq. ft.
Weighted
average
rate
per sq. ft.
(thousands As a % of
total GLA
96.8%
(1.3% )
95.5%
—%
—
95.5%
(3.8% ) $
(0.1% ) $
1.3% $
2.8% $
95.7%
1.4%
97.1%
of sq. ft.)
19,426
(263 )
19,163
121
—
19,284
(760 )
(30 )
268
568
19,330
279
19,609
7.18
7.28
7.39
7.01
For the
year ended
December 31,
2018
(thousands As a % of
total GLA
96.6 %
(0.9 %)
95.7 %
0.6 %
—
96.3 %
(16.3 %)
(1.4 %)
4.3 %
12.8 %
95.7 %
1.4 %
97.1 %
of sq. ft.)
16,609
(154 )
16,455
2,904
98
19,457
(3,298 )
(290 )
878
2,583
19,330
279
19,609
Vacancy committed for future occupancy is approximately 279,000 square feet, all of which will be occupied in the next two
quarters.
Tenant retention ratio
The following table details the tenant retention ratio, along with corresponding renewal and relocation rates and expiring
rates on retained tenants space, that commenced for the three months and year ended December 31, 2018.
As a result of when leases are executed, the renewal rates shown below reflect committed deals signed in prior periods. These
rates may not be reflective of the renewal rates on leases executed during the current period.
For the year ended
December 31, 2018
Tenant retention ratio(1)
78.3%
Renewal and relocation rate (per sq. ft.)
7.01
Expiring rate on retained tenants space (per sq. ft.)
6.97
Renewal to expiring rate spread (per sq. ft.)(2)
0.04
Renewal to expiring rate spread (%)(3)
0.6%
(1) Tenant retention ratio is calculated as the ratio of total square feet of renewals and relocated space over expiries (excluding early terminations and
74.7%
7.60
7.56
0.04
0.5%
For the three months ended
December 31, 2018
$
$
$
$
$
$
bankruptcies).
(2) Renewal to expiring rate spread (per sq. ft.) is calculated as the difference between the renewal and expiring rates upon commencement of the renewed
or relocated space.
(3) Renewal to expiring rate spread (%) is calculated as the ratio of renewal to expiring rate spread (per sq. ft.) on the renewed or relocated space.
For the three months ended December 31, 2018, renewal spreads were 0.5% higher than the expiring rates, led by an average
renewal spread of 9.3% in Ontario and 3.9% in Québec. Average renewal spreads in Eastern Canada declined by 6.7% due to
one 20,000 square foot tenant coming off a ten-year lease with induced and above-market rents. Renewal spreads were flat in
Western Canada, where we continue to be focused on occupancy, including built-in growth on lease deals through contractual
rent bumps, and controlling leasing costs.
Dream Industrial REIT 2018 Annual Report | 9
For the year ended December 31, 2018, renewal spreads were 0.6% higher than the expiring rates. Renewal spreads across our
Canadian portfolio increased by 3.6% in Ontario and 5.5% in Québec, and decreased by 4.6% in Western Canada and 2.0% in
Eastern Canada. The renewal spreads in Ontario and Québec reflect deals which were signed last year, when our focus was on
retention and occupancy. Renewal spreads in Western Canada and Eastern Canada decreased for similar reasons as discussed
above.
Rental rates
The following table details the average in-place and committed base rent, estimated market rent and average remaining lease
term for our total portfolio as at December 31, 2018 and December 31, 2017.
December 31, 2018(1)
Total portfolio
Western Canada
Ontario
Québec
Eastern Canada
Total Canada
U.S. (US$)
Total
Average
in-place and
committed
base rent
$
$
8.93 $
6.39
6.28
7.26
7.26
3.93
— $
Estimated
market
rent(2)
9.06
7.03
6.42
7.61
7.58
3.98
—
Average
remaining
lease term
(years)
Average
in-place and
committed
base rent
8.87
6.18
6.16
7.26
7.17
4.08
—
3.5 $
4.0
4.0
3.2
3.7
5.7
4.1 $
$
December 31, 2017(1)
Average
remaining
lease term
(years)
3.7
3.6
4.4
3.4
3.8
7.6
4.0
Estimated
market
rent(2)
9.11
6.48
6.23
7.49
7.39
4.11
—
$
(1) Excludes property or properties held for sale at the end of each period.
(2) Estimate only; based on current market rents with no allowance for increases in future years. Subject to changes in market conditions in each market.
The average in-place and committed base rent for our Canadian portfolio increased to $7.26 per square foot at December 31,
2018, compared to $7.17 per square foot at December 31, 2017, mainly driven by rent steps and new leases that commenced
during the year. Average in-place and committed base rent has increased across our Canadian portfolio with the exception of
Eastern Canada, where rates remained stable.
The average in-place and committed base rent for our U.S. portfolio was US$3.93 per square foot at December 31, 2018,
compared to US$4.08 per square foot at December 31, 2017, which reflects the in-place rent for all our U.S. properties,
including the properties acquired in 2018.
Estimated market rent represents management’s best estimate of the base rent that would be achieved in a new arm’s length
lease in the event that a unit becomes vacant after a reasonable marketing period with an inducement and lease term
appropriate for the particular space. Market rent by property is reviewed regularly by our leasing and portfolio management
teams. Market rents may differ by property or by unit and depend upon a number of factors. Some of the factors considered
include the condition of the space, the location within the building, the amount of office build-out for the units, lease term
and a normal level of tenant inducements. Market rental rates are also compared against the external appraisal information
that is gathered on a quarterly basis as well as other external market data sources.
As a result of when leases are executed, there is typically a lag between estimated market rents and average in-place and
committed base rent.
As at December 31, 2018, our Canadian portfolio’s estimated market rents were $0.32 per square foot, or 4.4% higher than
average in-place and committed base rents, presenting an opportunity for us to surface additional value as leases roll over. For
our U.S. portfolio, estimated market rents were US$0.05, or 1.3% higher than average in-place and committed base rents.
Lease maturity profile, net of lease commitments
Overall, the average remaining lease term in our portfolio is 4.1 years and our average tenant size is 14,600 square feet. Our
single-tenant buildings have an average remaining lease term of 4.9 years and our multi-tenant buildings have an average
remaining lease term of 3.6 years.
Dream Industrial REIT 2018 Annual Report | 10
The following table details our lease maturity profile by region, net of renewals and new leases completed, and excluding
properties held for sale at December 31, 2018:
(in thousands of sq. ft., except %)
Western Canada
Ontario
Québec
Eastern Canada
U.S.
Total portfolio
Total GLA
Percentage of total GLA (%)
Vacancy, net of
commitments
243
101
74
167
—
2019
428
681
246
413
—
2020
889
865
369
341
—
2021
719
638
604
506
—
585
2.9
1,768
8.8
2,464
12.2
2,467
12.2
2022
1,007
742
797
498
450
3,494
17.3
2023
915
571
584
289
1,137
3,496
17.3
2024+
857
1,501
1,214
447
1,901
5,920
29.3
Total
5,058
5,099
3,888
2,661
3,488
20,194
100.0
Our lease maturity profile, net of renewals and new leases completed, remains staggered. Lease expiries, net of committed
occupancy as a percentage of total GLA between 2019 and 2023, range from 8.8% to 17.3%.
2019 lease expiry profile
The following table details our 2019 lease maturity profile by region, net of renewals and new leases completed on vacant
space, and excludes properties held for sale at December 31, 2018:
(in thousands of sq. ft., except %)
2019 expiries (as at December 31, 2018)(1)
Expiries committed for renewals
Expiries, net of renewals (as at December 31, 2018)
2019 vacancy (as at December 31, 2018)
Vacancy committed for future occupancy
2019 vacancy, net of commitments for occupancy
(as at December 31, 2018)
Total commitments as a % of expiries (as at December 31, 2018)
(1) There are no 2019 expiries for the U.S. portfolio.
Western
Canada
(689 )
261
(428 )
(373 )
130
(243 )
56.7%
Ontario
(1,131 )
450
(681 )
(142 )
41
Québec
(663 )
417
(246 )
(123 )
49
Eastern
Canada
(691 )
278
(413 )
(226 )
59
(101 )
43.4%
(74 )
70.3%
(167 )
48.8%
Total
portfolio
(3,174 )
1,406
(1,768 )
(864 )
279
(585 )
53.1%
Lease incentives and initial direct leasing costs
Lease incentives include costs incurred to make leasehold improvements to tenant spaces, landlord works and cash
allowances. Initial direct leasing costs include leasing fees and related costs and broker commissions incurred in negotiating
and arranging tenant leases. Lease incentives and initial direct leasing costs are dependent upon asset type, lease terminations
and expiries, the mix of new leasing activity compared to renewals, portfolio growth and general market conditions. Short-
term leases generally have lower costs than long-term leases.
For the three months ended December 31, 2018, leasing costs for space leased and occupied during the year was $3.48 per
square foot (December 31, 2017 – $1.83 per square foot). Leasing costs increased primarily in Western Canada, where we are
focused on building occupancy.
For the year ended December 31, 2018, leasing costs for space leased and occupied during the year were $2.98 per square
foot (December 31, 2017 – $2.32 per square foot). Excluded from these costs are fully recoverable leasing costs, in addition to
our contractual base rent, which comprise of $3.0 million for an early renewal in Ontario on a single-tenant building, $0.7
million for a ten-year renewal in Ontario on a single-tenant building, and $0.4 million on a single-tenant building in Eastern
Canada. A significant portion of the leasing costs increase is due to a 210,000 square foot tenant that we early renewed for a
lease term of 15 years with a 13% rent increase starting in 2019.
Performance indicators for leases that commenced during the year
Square footage leased and occupied (in thousands of sq. ft.)
Average lease term (years)
Lease incentives and initial direct leasing costs
Per square foot
$
$
For the three months ended
December 31,
2018
836
3.7
2,906 $
3.48 $
2017
666
4.2
1,220 $
1.83 $
For the year ended
December 31,
2017
3,088
4.0
7,154
2.32
2018
3,461
4.7
10,304 $
2.98 $
Dream Industrial REIT 2018 Annual Report | 11
Tenant base profile
Our tenant base consists of a diverse range of high-quality businesses and, with 1,339 tenants, we believe our exposure to any
single large lease or tenant is low. The average size of our tenants is 14,600 square feet, averaging 104,800 square feet across
our single-tenant buildings and 9,600 square feet across our multi-tenant buildings.
The following table outlines the contributions of our top ten tenants to our annualized gross rental revenue as of
December 31, 2018:
Rank Tenant
1. Nissan North America Inc.
2. Spectra Premium Industries Inc.
3. TC Transcontinental
4. Gienow Windows & Doors Inc.
5. Accel Inc.
6. United Agri Products Canada Inc.
7. Molson Breweries Properties
8. West Marine Products, Inc.
9. Coca-Cola Refreshments USA
10. Solae LLC
Total
Annualized
gross rental
revenue
(%)
3.6
2.3
2.1
2.0
1.4
1.4
1.3
1.1
0.9
0.9
17.0
Owned area
(sq. ft.)
1,189
656
523
371
417
275
225
472
267
413
4,808
Weighted average
remaining
lease term
(years)
6.0
6.4
3.2
3.8
7.5
4.8
4.0
4.0
6.5
7.3
5.5
Owned area
(%)
5.9
3.3
2.6
1.8
2.1
1.4
1.1
2.3
1.3
2.0
23.8
No single tenant represents more than 5% of the annualized gross rental revenue of the overall portfolio. The weighted
average remaining lease term for the top ten tenants is 5.5 years, which provides stability and predictability of income.
OUR RESOURCES AND FINANCIAL CONDITION
Investment properties
The following table summarizes our investment property values by region as at December 31, 2018 and December 31, 2017:
Western Canada
Ontario
Québec
Eastern Canada
U.S.
Total
$
December 31,
2018
627,354 $
610,470
353,351
253,687
293,549
Total portfolio(1)
December 31,
2017
638,535
465,585
294,110
250,030
74,728
1,722,988
$ 2,138,411 $
(1) Excludes property or properties held for sale at the end of each period.
Significant assumptions used in the valuation of investment properties
The Trust values its investment properties using both the capitalization rate method and the discounted cash flow method.
The results of both methods are evaluated by considering the range of values calculated under both methods on a property-
by-property basis.
Dream Industrial REIT 2018 Annual Report | 12
The significant valuation metrics used in the capitalization rate method are capitalization rates and stabilized net operating
income.
The following table summarizes capitalization rates (“cap rates”) by region as at December 31, 2018 and December 31, 2017.
Western Canada
Ontario
Québec
Eastern Canada
U.S.
Total
December 31, 2018
Range (%)
6.00–8.00
5.00–7.50
6.00–7.00
6.50–9.25
6.00–6.60
5.00–9.25
Weighted
average (%)(2)
6.62
5.58
6.25
7.22
6.33
6.29
Total portfolio(1)
December 31, 2017
Weighted
average (%)(2)
6.64
6.02
6.95
7.18
6.30
6.59
Range (%)
6.00–8.00
4.00–7.75
6.25–7.50
6.50–9.25
6.30
4.00–9.25
(1) Excludes property or properties held for sale at the end of each period.
(2) Weighted average based on investment property fair value.
In addition to the cap rates noted above, the weighted average stabilized net operating income used in the capitalization rate
method as at December 31, 2018 and December 31, 2017 was $138.4 million and $117.6 million, respectively.
The significant valuation metrics used in the discounted cash flow method as at December 31, 2018 and December 31, 2017
are set out in the table below:
Discount rate
Terminal rate
(1) Excludes property or properties held for sale at the end of each period.
(2) Weighted average based on investment property fair value.
December 31, 2018
Weighted
Range (%) average (%)(2)
7.16
6.00–9.00
6.55
5.50–8.00
Total portfolio(1)
December 31, 2017
Weighted
average (%)(2)
7.47
6.73
Range (%)
5.00–9.00
4.50–8.00
In addition to the assumptions noted above, the weighted average market rent per square foot was $7.38 (December 31, 2017
– $7.19). The average leasing cost per square foot was $4.17 (December 31, 2017 – $3.52). The weighted average vacancy rate
assumption was 3.11% (December 31, 2017 – 3.62%).
Valuations of externally appraised properties
For the year ended December 31, 2018, there were 47 investment properties valued by qualified external valuation
professionals with a fair value of $655.6 million, representing 30.7% of the total investment property values, excluding
properties classified as assets held for sale (for the year ended December 31, 2017 – 82 investment properties with an
aggregate fair value of $605.9 million, representing 35.2% of the total investment property values, excluding properties
classified as assets held for sale).
Fair value adjustments to investment properties
For the three months ended December 31, 2018, the Trust recorded a fair value gain of $38.8 million, mainly driven by fair
value gains of $21.6 million and $15.5 million, respectively, in the Ontario and Québec regions, reflecting higher market rent
assumptions along with lower capitalization rates on select properties in the Québec region. The fair values in the Western
Canada, Eastern Canada and U.S. regions remained relatively stable.
For the year ended December 31, 2018, the Trust recorded a fair value gain of $107.9 million, primarily due to the same
reasons noted above, as well as fair value losses of $19.9 million in Western Canada, reflecting slower leasing activity.
Building improvements and leasing costs
Building improvements represent investments made to our investment properties to ensure optimal building performance, to
improve the experience of our tenants, as well as to reduce operating costs. In order to retain desirable rentable space and to
generate adequate revenue over the long term, we must maintain or, in some cases, improve each property’s condition to
meet market demand.
Dream Industrial REIT 2018 Annual Report | 13
Recoverable capital expenditures are recovered from tenants in accordance with their leases over the useful life of the
building improvements plus an imputed interest charge and management fee. Approximately 90% of eligible capital
expenditure recoveries are collected annually.
Non-recoverable capital expenditures are not recovered from tenants and are costs incurred to repair or maintain the
property’s structural condition.
Other capital expenditures include upgrades completed on certain properties that are expected to increase the Trust’s ability
to attract tenants and obtain higher rental rates.
Leasing costs include landlord’s work, broker commissions and tenant improvements. For tenancies commenced during the
year ended December 31, 2018, leasing costs include accrued committed costs over the full lease term.
The following table summarizes building improvements and leasing costs incurred for the three months and years ended
December 31, 2018 and December 31, 2017:
Building improvements
Recoverable capital expenditures
Non-recoverable capital expenditures
Other capital expenditures
Total building improvements
Lease incentives and initial direct leasing costs
Total building improvements and lease incentives
and initial direct leasing costs
$
Three months ended December 31,
2018
1,475 $
176
1,481
3,132
2,396
$
2017
1,205
893
1,197
3,295
2,101
Year ended December 31,
2017
2018
10,012 $
799
3,013
13,824
14,061
8,982
1,793
4,255
15,030
9,390
$
5,528 $
5,396
$
27,885 $
24,420
Included in leasing costs for the year ended December 31, 2018 are fully recoverable leasing costs of $4.1 million
(December 31, 2017 – $1.0 million).
Foreign currency translation
For the three months and year ended December 31, 2018, the foreign currency translation impact on our U.S. portfolio was a
gain of $14.9 million and $20.6 million, respectively, due to the strengthening of the U.S. dollar against the Canadian dollar.
Acquisitions
The following acquisitions were completed during the year ended December 31, 2018:
860 Marine Drive, Charlotte, North Carolina
4770 Southpoint Drive, Memphis, Tennessee
5605 Holmescrest Lane, Memphis, Tennessee
161 The West Mall, Etobicoke, Ontario
8860 Smith’s Mill Road, Columbus, Ohio
9000 Smith’s Mill Road, Columbus, Ohio
10555 Henri-Bourassa Boulevard West,
Saint-Laurent, Québec
Total
Acquired
GLA
(sq. ft.)
471,744
500,000
885,000
205,000
304,318
417,049
Occupancy
on acquisition
(%)
100.0
100.0
100.0
100.0
100.0
100.0
Weighted average
remaining
lease term
at acquisition
Purchase price
allocated to
investment
properties(1)
Date acquired
35,766
January 16, 2018
32,343
January 16, 2018
47,349
January 16, 2018
37,382
August 2, 2018
35,949 September 6, 2018
45,246 September 6, 2018
5.0 $
6.1
6.5
7.5
4.4
7.9
120,817
2,903,928
100.0
2.3
$
14,150
248,185
October 24, 2018
(1) Includes transaction costs and assumed capital expenditures obligations.
During the year ended December 31, 2017, the Trust acquired one property in Western Canada for a purchase price of
$17.3 million including transaction costs and two properties in the U.S. for a purchase price of $78.0 million including
transaction costs and an assumed mortgage of $29.7 million.
Subsequent events
On February 4, 2019, the Trust announced the waiver of all conditions on the acquisition of a U.S. logistics portfolio in the
Midwest U.S., totalling approximately 3.5 million square feet of gross leasable area, for a purchase price of US$179.1 million,
excluding transaction costs. The portfolio comprises 21 buildings located in five cities (Chicago, Cincinnati, Columbus,
Indianapolis and Louisville) and, subject to customary closing conditions, is scheduled to close in the first quarter of 2019.
Dream Industrial REIT 2018 Annual Report | 14
OUR FINANCING
Our debt strategy includes managing our maturity schedule to help mitigate interest rate risk and limit exposure in any given
year, as well as fixing the rates and extending loan terms as long as possible when interest rates are favourable.
Summary of debt
The key performance indicators in the management of our debt are as follows:
Financing metrics
Total debt
Weighted average effective interest rate(1)
Weighted average face interest rate(1)
Interest coverage ratio (times)(2) – year-to-date
Net debt-to-adjusted EBITDAFV (years)(2)(3)
Level of debt (net debt-to-assets ratio)(2)(3)
Liquidity metrics
Maximum proportion of debt maturities and principal repayments due in any one year
Weighted average remaining term to maturity (years)
Unencumbered assets(3)
Cash and cash equivalents
Undrawn revolving credit facility
December 31, 2018
As at
December 31, 2017
$
937,730 $
3.74%
3.65%
3.5
7.2
43.5%
889,796
3.88%
3.75%
3.3
7.3
47.9%
$
17.8% (2021)
4.4
194,594 $
4,968
98,194
20.5% (2019)
3.8
113,191
54,651
123,000
(1) Weighted average effective interest rate is calculated as the weighted average face rate of interest net of amortization of fair value adjustments and
financing costs of all interest bearing debt. Weighted average face interest rate is calculated as the weighted average face interest rate of all interest
bearing debt.
(2) Interest coverage ratio, net debt-to-adjusted EBITDAFV and level of debt (net debt-to-assets ratio) are non-GAAP measures. The calculation of these
measures is included under the heading “Non-GAAP measures and other disclosures”.
(3) Level of debt (net debt-to-assets ratio) and net debt-to-adjusted EBITDAFV, have been restated in the comparative periods to conform to current period
presentation. For further details, please refer to “Non-GAAP Measures and Other Disclosures” under the headings “Level of debt (net debt-to-assets ratio)”
and “Net debt-to-adjusted EBITDAFV”.
(4) Unencumbered assets includes property or properties held for sale at the end of each period.
We currently use cash flow performance and debt level indicators to assess our ability to meet our financing obligations. Our
current interest coverage ratio is 3.5 times, demonstrating our ability to more than adequately cover interest expense
requirements. At December 31, 2018, our weighted average face rate of interest is 3.65% and, after accounting for market
adjustments and financing costs, the weighted average effective interest rate for our outstanding debt is 3.74%.
Liquidity and capital resources
Dream Industrial REIT’s primary sources of capital are cash generated from (utilized in) operating activities, credit facilities,
mortgage financing and refinancing, and equity and debt issues. Our primary uses of capital include the payment of
distributions, costs of attracting and retaining tenants, recurring property maintenance, major property improvements, debt
principal repayments, interest payments and property acquisitions. We expect to meet all of our ongoing obligations with
current cash and cash equivalents, cash generated from operations, draws on the revolving credit facility, conventional
mortgage refinancings and, as growth requires and when appropriate, new equity or debt issues.
In our consolidated financial statements, our current liabilities exceed our current assets by $93.3 million. Typically, real estate
entities seek to address liquidity needs by having a balanced debt maturity schedule, undrawn credit facilities and a pool of
unencumbered assets. We are able to use our revolving credit facility on short notice, which eliminates the need to hold a
significant amount of cash and cash equivalents on hand. Working capital balances fluctuate significantly from period-to-
period depending on the timing of receipts and payments. Scheduled principal repayments that are due within one year
amount to $25.8 million, and debt maturities that are due within one year amount to $52.0 million. The debt maturities are
typically refinanced with mortgages of terms between five and ten years. Amounts payable outstanding at the end of any
reporting period depend primarily on the timing of leasing costs and capital expenditures incurred, as well as the impact of
transaction costs incurred on any acquisitions or dispositions completed during the reporting period. Our unencumbered
assets pool as at December 31, 2018 is $194.6 million. With our balanced debt maturity schedule, undrawn revolving credit
facility of $98.2 million, cash and cash equivalents of $5.0 million and unencumbered assets pool, we have sufficient liquidity
and capital resources as at December 31, 2018.
Dream Industrial REIT 2018 Annual Report | 15
Financing activities
The following table highlights new mortgage financing activities in 2018:
Date of financing
January 12, 2018
January 17, 2018
April 20, 2018
May 22, 2018
November 7, 2018
December 13, 2018
Total
Location of secured properties
Western Canada
Western Canada, Eastern Canada
Western Canada, Ontario
U.S.
Ontario
Ontario
(1) Excludes financing costs.
(2) Term to maturity from date of initial financing.
Term to
maturity
(years)(2)
Year ended December 31, 2018
Weighted
Weighted
average effective
average face
interest rate
interest rate
3.83 %
3.58 %
3.94 %
3.73 %
4.18 %
3.96 %
4.24 %
3.96 %
4.27 %
4.15 %
4.16 %
4.03 %
4.09 %
3.86 %
5.0
5.2
5.7
9.0
10.1
11.1
7.5
$
Amount(1)
48,000
47,000
18,363
85,666
21,000
21,000
$ 241,029
During the year ended December 31, 2017, new mortgage financing totalled $111.9 million with an average term to maturity
of 6.2 years, weighted average face interest rate of 3.72% and weighted average effective interest rate of 3.83%. New
mortgage financing includes an assumed mortgage on an acquired property of $29.7 million and a loan extension of
$3.3 million.
Revolving credit facility
The following table summarizes certain details of the Trust’s revolving credit facility as at December 31, 2018:
Maturity date
Borrowing
capacity
Letter of credit
and forward
agreement amount
Principal
outstanding
Other
adjustments
June 30, 2020 $ 125,000 $
Revolving credit facility(1)(2)(3)
(1) Bankers’ acceptance (“BA”) rate plus 1.70% or Canadian prime rate plus 0.70% or U.S. LIBOR rate plus 1.70% or U.S. base rate plus 0.70%.
(2) Thirty properties are secured as first-ranking on the revolving credit facility.
(3) The revolving credit facility has the ability to be drawn in Canadian and U.S. dollars. At December 31, 2018, principal outstanding amounts include US$16.0
million which has been converted in accordance with the Trust’s accounting policies. Other adjustments represent foreign exchange differences between
the lender and the Trust. The lender uses an internal foreign exchange rate to determine the amounts available to be drawn.
(27,375 ) $
569 $
– $
December 31, 2018
Amounts
available
to be drawn
98,194
As at December 31, 2017, no amounts were borrowed against the revolving credit facility and the total amount available to be
drawn was $123.0 million.
Convertible debentures
On August 2, 2018, the Trust early redeemed all of its outstanding 5.25% Convertible Debentures at par. The Trust paid $111.8
million in aggregate, representing $111.3 million in principal outstanding on the redemption date and $0.5 million in accrued
interest.
Dream Industrial REIT 2018 Annual Report | 16
Composition and continuity of total debt
The composition of total debt as at December 31, 2018 and the continuity of total debt for the three months and year ended
December 31, 2018 are as follows:
Total debt as at September 30, 2018
New debt placed
Scheduled repayments
Lump sum repayments
Other adjustments(3)
Total debt as at December 31, 2018
Weighted
average face
interest rate
3.62 %
3.65 %
Three months ended December 31, 2018
Mortgages
$ 882,242 $
42,000
(6,622 )
(12,517 )
5,867
$ 910,970 $
Revolving
Convertible
credit facility(1) debentures(2)
43,966 $
26,459
—
(45,005 )
1,340
26,760 $
— $
—
—
—
—
— $
Total
926,208
68,459
(6,622 )
(57,522 )
7,207
937,730
(1) Amounts drawn against the revolving credit facility during the year are denominated in both Canadian and U.S. dollars. U.S. dollar amounts have
been converted at foreign exchange rates in accordance with the Trust’s accounting policies as disclosed in the December 31, 2018 consolidated
financial statements.
(2) Convertible debentures were redeemed in the third quarter of 2018.
(3) Other adjustments include financing cost additions, amortization of financing costs, amortization of fair value adjustments on assumed debt and foreign
exchange adjustments.
Weighted
average face
interest rate
3.75 %
Year ended December 31, 2018
Revolving
Convertible
credit facility(1) debentures(2)
Total debt as at January 1, 2018
New debt placed
Scheduled repayments
Lump sum repayments
Other adjustments(3)
Total debt as at December 31, 2018
Total
(1,025 ) $ 108,567 $ 889,796
374,429
(25,400 )
(311,906 )
10,811
— $ 937,730
(1) Amounts drawn against the revolving credit facility during the year are denominated in both Canadian and U.S. dollars. U.S. dollar amounts have
been converted at foreign exchange rates in accordance with the Trust’s accounting policies as disclosed in the December 31, 2018 consolidated
financial statements.
Mortgages
$ 782,254 $
241,029
(25,400 )
(92,490 )
5,577
133,400
—
(108,166 )
2,551
26,760 $
—
—
(111,250 )
2,683
$ 910,970 $
3.65 %
(2) Convertible debentures were redeemed in the third quarter of 2018.
(3) Other adjustments include financing cost additions, amortization of finance costs, amortization of fair value adjustments on assumed debt and foreign
exchange adjustments. Other adjustments also include a $1.9 million write-off of finance costs and fair value adjustments due to early redemption of
convertible debentures.
Our current total debt profile is balanced with maturities well-distributed over the next 11 years. The following is our total
debt maturity profile as at December 31, 2018:
Scheduled
principal
repayments on
non-maturing debt
Debt
maturities
$
2019
2020
2021
2022
2023
2024 and thereafter
$
Total
Unamortized financing costs
Unamortized fair value adjustments
Total
51,975 $
118,923
145,331
103,160
138,704
258,019
816,112 $
25,786 $
24,525
21,956
16,535
10,337
26,642
125,781 $
$
Weighted
average effective
interest rate on
balance due
at maturity (%)
3.56
3.74
3.73
3.31
3.82
3.91
3.74
%
8.3
15.2
17.8
12.7
15.8
30.2
100.0
Weighted
average
face rate on
balance due
at maturity (%)
3.40
3.43
4.10
3.20
3.63
3.73
3.65
Amount
77,761
143,448
167,287
119,695
149,041
284,661
941,893
(5,804 )
1,641
937,730
Dream Industrial REIT 2018 Annual Report | 17
Subsequent events
On January 11, 2019, the Trust closed on a US$36.6 million mortgage secured by a portfolio of two U.S. properties in
Columbus, Ohio. The mortgage has a term of ten years at a fixed face interest rate of 4.57% per annum.
On January 23, 2019, the Trust received lender approval to amend its existing revolving credit facility, increasing the borrowing
capacity from $125.0 million to $150.0 million and increasing the number of properties secured under the facility from 30 to
33 properties.
Commitments and contingencies
We are contingently liable with respect to guarantees that are issued in the normal course of business and with respect to
litigation and claims that may arise from time to time. In the opinion of management, any liability that may arise from such
contingencies would not have a material adverse effect on our consolidated financial statements.
OUR EQUITY
Total equity
Our discussion of equity includes LP B Units, which are economically equivalent to REIT Units. However, pursuant to IFRS, the
LP B Units are classified as a liability in our consolidated financial statements.
REIT Units
Retained earnings (deficit)
Accumulated other comprehensive income (loss)
Equity per consolidated financial statements
Add: LP B Units
Total equity (including LP B Units)(1)
NAV per Unit(1)
December 31, 2018
Number of Units
92,062,659 $
—
—
92,062,659
18,551,855
110,614,514 $
$
Amount Number of Units
75,104,843 $
887,757
—
90,621
—
10,947
75,104,843
989,325
18,551,855
176,613
93,656,698 $
1,165,938
$
10.54
Unitholders’ equity
December 31, 2017
Amount
720,437
(7,056 )
(1,135 )
712,246
163,256
875,502
9.35
(1) Total equity (including LP B Units) and NAV per Unit are non-GAAP measures defined in the section “Non-GAAP measures and other disclosures”.
Our Declaration of Trust authorizes the issuance of an unlimited number of two classes of units: REIT Units and Special Trust
Units.
The Special Trust Units may only be issued to holders of LP B Units, are not transferable separately from these Units and are
used to provide voting rights with respect to Dream Industrial REIT to persons holding LP B Units. The LP B Units are held by
wholly owned subsidiaries of Dream Office REIT. Both the REIT Units and the Special Trust Units entitle the holder to one vote
for each Unit at all meetings of the unitholders. The LP B Units are exchangeable on a one-for-one basis for REIT Units at the
option of the holder. The LP B Units and corresponding Special Trust Units together have economic and voting rights
equivalent in all material respects to REIT Units. The REIT Units have economic and voting rights equivalent in all material
respects to each other.
During the three months ended December 31, 2018, under the Distribution Reinvestment and Unit Purchase Plan (“DRIP”) and
the distribution reinvestment provisions of the amended and restated limited partnership agreement governing Dream
Industrial LP, for LP B Units and REIT Units, the Trust issued 468,373 REIT Units (1,769,595 REIT Units for the year ended
December 31, 2018) to the subsidiaries of Dream Office REIT for a total cost of $4.6 million ($17.5 million for the year ended
December 31, 2018). As at December 31, 2018, Dream Office REIT, directly and indirectly through its wholly owned
subsidiaries, held 7,200,736 REIT Units and 18,551,855 LP B Units, representing approximately 23.3% ownership in the Trust
(25.6% at December 31, 2017).
Dream Industrial REIT 2018 Annual Report | 18
Continuity of equity
The following table summarizes the changes in our outstanding equity:
Total Units outstanding on January 1, 2018
Units issued pursuant to public offering on June 29, 2018
Units issued pursuant to DRIP
Units issued pursuant to Unit Purchase Plan
Units issued pursuant to Deferred Unit Incentive Plan (“DUIP”)
Total Units outstanding on December 31, 2018
Percentage of all Units
Units issued pursuant to DRIP on January 15, 2019
Units issued pursuant to DUIP on January 25, 2019
Units issued pursuant to DUIP on February 6, 2019
Units issued to public offering on February 13, 2019
Units issued pursuant to DRIP on February 15, 2019
Total Units outstanding on February 19, 2019(1)
Percentage of all Units
(1) The date of this report.
REIT Units
75,104,843
13,915,000
2,863,035
1,017
178,764
92,062,659
83.2%
276,032
152
10,725
13,800,000
258,424
106,407,992
85.2%
LP B Units
18,551,855
—
—
—
—
18,551,855
16.8%
—
—
—
—
—
18,551,855
14.8%
Total Units
93,656,698
13,915,000
2,863,035
1,017
178,764
110,614,514
100.0%
276,032
152
10,725
13,800,000
258,424
124,959,847
100.0%
On June 29, 2018, the Trust completed a public offering of 13,915,000 REIT Units, at a price of $10.35 per unit for gross
proceeds of $144.0 million including 1,815,000 REIT Units issued pursuant to the exercise of the over-allotment option granted
to the underwriters.
On February 13, 2019, the Trust completed a public offering of 13,800,000 REIT Units at a price of $10.45 per unit for gross
proceeds of $144.2 million, including 1,800,000 REIT Units issued pursuant to the exercise of the over-allotment option
granted to the underwriters.
Short form base shelf prospectus
On September 15, 2017, the Trust filed and obtained receipts for a final short form base shelf prospectus which is valid for a
25-month period, during which time the Trust may, from time to time, offer and issue REIT Units, subscription receipts, and
debt securities convertible into or exchangeable for REIT Units of the Trust, or any combination thereof, having an aggregate
offering price of up to $1 billion. As at December 31, 2018, $230.6 million (December 31, 2017 – $86.5 million) of REIT Units
have been issued under the short form base shelf prospectus.
Distribution policy
Dream Industrial REIT’s Declaration of Trust provides the Board of Trustees with the discretion to determine the percentage
payout of income that would be in the best interest of the Trust.
We currently pay monthly distributions of $0.05833 per unit, or $0.70 per unit on an annual basis. Similar to other non-GAAP
measures such as total equity (including LP B Units), our discussion of distributions includes LP B Units, which are economically
equivalent to REIT Units. However, pursuant to IFRS, the LP B Units are classified as a liability in our consolidated financial
statements.
The following table summarizes the total distributions and DRIP participation rate for the three months and year ended
December 31, 2018 and December 31, 2017:
Three months ended December 31, 2018
Amount
% of total
Three months ended December 31, 2017
Amount
% of total
Distributions reinvested less 3% bonus distribution
(DRIP Participation Rate)(1)
Distributions paid in cash
Total distributions excluding 3% bonus distribution
3% bonus distribution
Total distributions(1)
$
$
7,939
11,369
19,308
229
19,537
41.1 % $
58.9 %
100.0 %
$
5,845
9,753
15,598
169
15,767
37.5 %
62.5 %
100.0 %
(1) Total distributions and DRIP participation rate are non-GAAP measures. See “Non-GAAP measures and other disclosures” for a description of these
non-GAAP measures.
Dream Industrial REIT 2018 Annual Report | 19
Distributions reinvested less 3% bonus distribution
(DRIP Participation Rate)(1)
Distributions paid in cash
Total distributions excluding 3% bonus distribution
3% bonus distribution
Total distributions(1)
$
$
Year ended December 31, 2018
Amount
% of total
Year ended December 31, 2017
% of total
Amount
28,207
44,196
72,403
824
73,227
39.0 % $
61.0 %
100.0 %
$
36.3 %
63.7 %
100.0 %
20,791
36,412
57,203
615
57,818
(1) Total distributions and DRIP participation rate are non-GAAP measures. See “Non-GAAP measures and other disclosures” for a description of these
non-GAAP measures.
Cash flows from operating activities and total distributions (a non-GAAP measure)
The Trust anticipates that future cash flows generated from (utilized in) operating activities may be less than total distributions
(a non-GAAP measure). With a conservative balance sheet, significant liquidity and a plan to improve and grow our portfolio,
the Trust does not anticipate suspending the cash distributions in the foreseeable future.
To the extent that cash generated from (utilized in) operating activities may be less than the total distributions (a non-GAAP
measure), the Trust will fund the shortfalls with cash and cash equivalents on hand and with the amounts available on the
revolving credit facility. The use of the revolving credit facility may involve risks compared with using cash and cash equivalents
on hand as a source of funding, such as the risk that interest rates may rise in the future which may make it more expensive
for the Trust to borrow under the revolving credit facility, and the risk associated with increasing the overall indebtedness of
the Trust. In the event that shortfalls exist, the Trust does not anticipate cash distributions will be suspended in the
foreseeable future but does expect that there could be timing differences between the execution of our acquisition strategy
and asset recycling opportunities and the redeployment of capital raised from equity offerings. Accordingly, to the extent
there are shortfalls, distributions may be considered an economic return of capital. The Trust determines the distribution rate
by, among other considerations, its assessment of cash flows generated from (utilized in) operating activities. Dream Industrial
REIT’s Declaration of Trust provides the Board of Trustees with the discretion to determine the percentage payout of income
that would be in the best interest of the Trust.
In any given period, the Trust anticipates that net income will continue to vary from total distributions (a non-GAAP measure)
as net income includes non-cash items such as fair value adjustments to investment properties and financial instruments.
Accordingly, the Trust does not use net income as a proxy for determining distributions.
In any given period, actual cash flows generated from (utilized in) operating activities may differ from total distributions (a
non-GAAP measure), primarily due to fluctuations in non-cash working capital and the impact of leasing costs, which fluctuate
with lease maturities, renewal terms, the type of asset being leased, and when tenants fulfill the terms of their respective
lease agreements. These seasonal fluctuations or the unpredictability of when leasing costs are incurred are funded with our
cash and cash equivalents on hand and, if necessary, with our existing revolving credit facility.
The following table summarizes net income, cash flows generated from (utilized in) operating activities (per consolidated
financial statements) and total distributions (a non-GAAP measure) for the three months and years ended December 31, 2018
and December 31, 2017:
Net income
Cash generated from (utilized in) operating activities
Total distributions(1)
$
Three months ended December 31,
2017
19,466 $
15,385
15,767
2018
66,455 $
23,673
19,537
Year ended December 31,
2018
2017
34,659
157,528 $
67,121
77,854
57,818
73,227
(1) Total distributions is a non-GAAP measure. See “Non-GAAP measures and other disclosures” under the heading “Total distributions”.
Dream Industrial REIT 2018 Annual Report | 20
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the
differences between cash generated from (utilized in) operating activities and total distributions (a non-GAAP measure), as
well as the differences between net income and total distributions (a non-GAAP measure), in accordance with the guidelines.
Excess (shortfall) of net income over total distributions(1)
Excess (shortfall) of cash generated from (utilized in) operating
activities over total distributions(1)
Three months ended December 31,
2017
3,699 $
2018
46,918 $
$
Year ended December 31,
2018
2017
84,301 $
(23,159 )
4,136
(382 )
4,627
9,303
(1) Total distributions is a non-GAAP measure. See “Non-GAAP measures and other disclosures” under the heading “Total distributions”.
For the three months and year ended December 31, 2018, net income exceeded total distributions (a non-GAAP measure) by
$46.9 million and $84.3 million, respectively, primarily as a result of non-cash items such as fair value adjustments to
investment properties and financial instruments, partially offset by interest expense on subsidiary redeemable units which is
included in net income. For the three months and year ended December 31, 2017, net income exceeded total distributions (a
non-GAAP measure) by $3.7 million and total distributions (a non-GAAP measure) exceeded net income by $23.2 million,
respectively, primarily as a result of the same reasons noted above. Since the shortfall in 2017 was primarily driven by non-
cash items which do not affect cash generated from operating activities, the Trust does not believe that the distributions for
the affected period represent a return of capital.
For the three months ended December 31, 2018 and for the years ended December 31, 2018 and December 31, 2017, cash
generated from (utilized in) operating activities exceeded total distributions (a non-GAAP measure) by $4.1 million,
$4.6 million and $9.3 million, respectively. For the three months ended December 31, 2017, cash generated from (utilized in)
operating activities was less than total distributions (a non-GAAP measure) by $0.4 million, mainly due to timing differences
between the realization of working capital, investment in lease incentives and initial direct leasing costs, and the declaration of
distributions, and thus, did not constitute an economic return of capital.
Of the total distributions (a non-GAAP measure) declared for the three months and year ended December 31, 2018,
$8.2 million and $29.0 million, respectively, were reinvested into the DRIP. Over time, reinvestments pursuant to the DRIP will
increase the number of units outstanding, which may result in upward pressure on the total amount of cash distributions. Our
Declaration of Trust provides our Board of Trustees with the discretion to determine the percentage payout of income that
would be in the best interest of the Trust, which allows for any unforeseen expenditures and the variability in cash
distributions as a result of additional units issued pursuant to the Trust’s DRIP.
Dream Industrial REIT 2018 Annual Report | 21
$
OUR RESULTS OF OPERATIONS
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and fee income
Other expenses
General and administrative
Interest:
Interest expense on debt(1)
Subsidiary redeemable units
Depreciation and amortization
Fair value adjustments and other items
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Net losses on transactions and other activities
Income before income taxes
Current and deferred income taxes recovery (expense), net
Net income
$
Three months ended December 31,
2017
44,728
(14,324 )
30,404
2018
50,090
(15,084 )
35,006
$
$
Year ended December 31,
2018
2017
193,548
172,350
(59,804 )
(55,572 )
133,744
116,778
$
50
50
390
390
657
657
995
995
(2,586 )
(2,483 )
(10,807 )
(9,052 )
(8,769 )
(3,344 )
(9 )
(14,708 )
38,794
8,876
(820 )
46,850
67,198
(743 )
66,455
$
(8,996 )
(3,344 )
(12 )
(14,835 )
(1,476 )
5,499
(822 )
3,201
19,160
306
19,466
$
(37,070 )
(13,376 )
(59 )
(61,312 )
107,875
(17,120 )
(5,080 )
85,675
158,764
(1,236 )
157,528
$
(34,871 )
(13,376 )
(52 )
(57,351 )
(17,491 )
(4,869 )
(3,275 )
(25,635 )
34,787
(128 )
34,659
(1) Mark-to-market amortization included in interest expense is a $0.2 million gain for the three months ended December 31, 2018 ($0.1 million gain for the
three months ended December 31, 2017). Mark-to-market amortization included in interest expense is a $0.3 million gain for the year ended
December 31, 2018 ($0.4 million gain for the year ended December 31, 2017).
Investment properties revenue
Investment properties revenue includes base rent from investment properties, recovery of operating costs, property taxes and
capital expenditures from tenants, the impact of straight-line rent adjustments, lease termination fees and other adjustments
as well as fees earned from property management.
Investment properties revenue increased by $5.4 million, or 12.0%, compared to the prior year comparative quarter and
increased by $21.2 million, or 12.3%, compared to the prior year. The increase is mainly due to the impact of acquired
properties in 2018 and in the fourth quarter of 2017, rental rate growth, higher average occupancy across our comparative
portfolio and higher recovery of operating expenses.
Investment properties operating expenses
Investment properties operating expenses comprise operating costs and property taxes as well as certain expenses that are
not recoverable from tenants. Operating expenses fluctuate with changes in occupancy levels, expenses that are seasonal in
nature, and the level of repairs and maintenance incurred during the period.
Investment properties operating expenses increased by $0.8 million, or 5.3%, compared to the prior year comparative quarter
and increased $4.2 million, or 7.6%, compared to the prior year. The increase is primarily due to the impact of acquired
properties in 2018 and in the fourth quarter of 2017 and an increase in operating costs and realty taxes.
Dream Industrial REIT 2018 Annual Report | 22
General and administrative expenses
The following table summarizes our general and administrative (“G&A”) expenses for the three months and years ended
December 31, 2018 and December 31, 2017:
Asset management fee
Deferred compensation expenses
Professional fees
General corporate expenses(1)
Total
$
$
$
Three months ended December 31,
2017
(1,039 )
(577 )
(265 )
(602 )
(2,483 )
2018
(1,210 )
(426 )
(252 )
(698 )
(2,586 )
$
2018
Year ended December 31,
2017
(4,047 )
(1,785 )
(1,176 )
(2,044 )
(9,052 )
(4,621 ) $
(2,181 )
(1,067 )
(2,938 )
(10,807 ) $
$
$
(1) Includes corporate management and overhead related costs, public reporting, and Board of Trustees’ fees and expenses.
G&A expenses for the three months and year ended December 31, 2018 increased by $0.1 million, or 4.1%, compared to the
prior year comparative quarter and increased $1.8 million, or 19.4%, compared to the prior year.
The increase in G&A expenses for the three months ended December 31, 2018 was mainly attributable to higher asset
management fees due to the acquisitions completed in 2018 and in the fourth quarter of 2017, higher general corporate
expenses driven by higher overhead costs and business taxes applicable to the newly acquired properties in the U.S., partially
offset by deferred compensation expenses related to the acceleration of the DUIP vesting terms for one executive in the
prior year.
The increase in G&A expenses for the year ended December 31, 2018 was mainly attributable to the same reasons noted
above along with higher deferred compensation expenses due to a change in the vesting terms of the Board of Trustees’ DUIP
Units from a five-year vesting term to immediate vesting.
Interest expense on debt
Interest expense on debt decreased by $0.2 million, or 2.5%, for the three months ended December 31, 2018 compared to the
prior year comparative quarter, and increased $2.2 million, or 6.3%, for the year ended December 31, 2018 compared to the
prior year.
The decrease in interest expense on debt for the three months ended December 31, 2018 was primarily due to repayment of
the 6.75% convertible debentures in the fourth quarter of 2017 and the redemption of the 5.25% convertible debentures in
the third quarter of 2018, partially offset by new mortgages placed on acquired properties.
The increase in interest expense on debt for the year ended December 31, 2018 was primarily due to the same reasons noted
above along with drawings on the revolving credit facility to fund acquired properties and new mortgages placed on existing
properties.
Fair value adjustments to investment properties
Refer to the section “Investment Properties” under the heading “Fair value adjustments to investment properties” for a
discussion of fair value changes to investment properties for the three months and year ended December 31, 2018.
Fair value adjustments to financial instruments
The following table summarizes our fair value adjustments to financial instruments for the three months and years ended
December 31, 2018 and December 31, 2017:
Fair value adjustment on conversion feature of convertible debentures(1)
Remeasurement of carrying value of subsidiary redeemable units
Remeasurement of carrying value of DUIP
Fair value adjustment on interest rate swaps
Total
$
$
2018
— $
Three months ended December 31,
2017
(489 ) $
5,566
18
404
5,499 $
10,946
237
(2,307 )
8,876 $
(1) On August 2, 2018, the conversion feature was derecognized as the Trust redeemed all outstanding convertible debentures.
Dream Industrial REIT 2018 Annual Report | 23
$
Year ended December 31,
2017
(1,024 )
(5,009 )
(648 )
1,812
(4,869 )
2018
(2,305 )
(13,357 )
(829 )
(629 )
(17,120 )
$
Net losses on transactions and other activities
Net losses on transactions and other activities mainly comprise of internal leasing costs and activities that are non-recurring in
nature.
Net losses on transactions and other activities remained stable at $0.8 million compared to the prior year comparative quarter
and increased $1.8 million compared to the prior year, primarily driven by the write-off of unamortized financing costs and
mark-to-market adjustments associated with the early repayment of the 5.25% convertible debentures.
Current and deferred income taxes recovery (expense), net
Current and deferred income taxes expense, net for the three months ended December 31, 2018 was $0.7 million (for the year
ended December 31, 2018 – $1.2 million). The current quarter and year-to-date movements were driven by additional
deferred tax expense attributed to the increase in investment property fair values.
Related party transactions
From time to time, Dream Industrial REIT and its subsidiaries enter into transactions with related parties that are generally
conducted on a cost-recovery basis or under normal commercial terms.
Agreements with Dream Asset Management Corporation (“DAM”)
Effective October 4, 2012, Dream Industrial REIT has an asset management agreement (the “Asset Management Agreement”)
with DAM, a subsidiary of Dream Unlimited Corp., pursuant to which DAM provides certain asset management services to
Dream Industrial REIT and its subsidiaries. The agreement is in effect until October 4, 2022. The Asset Management
Agreement provides the Trust and DAM the opportunity to agree on additional services to be provided to the Trust for which
DAM is to be reimbursed for its costs.
The Trust and DAM are party to an amended Shared Services and Cost Sharing Agreement as of January 1, 2016. According to
the terms of the amended arrangement, DAM will continue to provide administrative and support services on an as-needed
basis and will be reimbursed on a cost recovery basis for any expenses incurred. The Trust will continue to reimburse DAM for
any shared costs allocated in each calendar year. This amended agreement provides for the automatic reappointment of DAM
for additional one-year terms commencing on January 1 unless and until terminated in accordance with its terms or by mutual
agreement of the parties.
Effective November 30, 2016, Dream Industrial Management LP (“DIMLP”), a wholly owned subsidiary of the Trust, entered
into a Property Management Agreement with a subsidiary of DAM for DIMLP to manage one property on behalf of DAM.
The following table summarizes our fees paid to or received from DAM for the three months and years ended December 31,
2018 and December 31, 2017:
Three months ended December 31,
2017
2018
Year ended December 31,
2017
2018
$
1,210
$
1,039 $
4,621 $
4,047
Incurred under the Asset Management Agreement:
Asset management fee (included in general and
administrative expenses)
Acquisition fee (included in acquisition related
costs/investment properties)(1)
136
75
1,421 $
934
117
2,090 $
1,556
369
6,546 $
$
Expense reimbursements related to financing arrangements
Total costs incurred under the Asset Management Agreement
Incurred under the Shared Services and Cost Sharing Agreement:
Strategic services and other services
Total costs incurred under the Shared Services and Cost
Sharing Agreement
Received under the Property Management Agreement:
Property management fee
Total revenue under the Property Management
Agreement
$
(1) A portion of this fee is paid by DAM to an affiliate of PAULS Corp for any U.S. acquisitions it is involved in. PAULS Corp is another related party of the Trust.
161 $
174 $
657 $
22 $
22 $
87 $
161
174
657
22
$
22
87
87
87
681
681
934
391
5,372
Dream Industrial REIT 2018 Annual Report | 24
Agreements with Dream Hard Assets Alternatives Trust (“DHAAT”)
Effective May 21, 2015, Dream Industrial LP (“DILP”) entered into a co-ownership agreement to jointly own six properties at
50% ownership interest with Dream Alternatives Master LP, a subsidiary of DHAAT. On the same day, DIMLP entered into a
Property Management Agreement to manage the co-owned properties.
Effective July 7, 2015 and September 5, 2015, DIMLP entered into lease agreements with a subsidiary of DHAAT to lease roof-
top space.
Received under lease agreements
Received under the Property Management Agreement
Total revenue under lease agreements and the Property
Management Agreement
Three months ended December 31,
2017
2018
$
27 $
10
27 $
10
Year ended December 31,
2017
109
44
2018
109 $
42
$
37 $
37 $
151 $
153
Agreements with Dream Office REIT
Effective October 4, 2012, Dream Industrial REIT, DILP, DIMLP, Dream Industrial Management Corp. and Dream Office
Management Corp. (“DOMC”), a subsidiary of Dream Office REIT, are parties to an administrative services agreement
(the “Services Agreement”) where DOMC provides certain services to Dream Industrial REIT on a cost recovery basis. The
Services Agreement is automatically renewed on October 4 of every year for additional one-year terms unless terminated by
any party.
The following table summarizes the costs reimbursed to Dream Office REIT for the three months and years ended
December 31, 2018 and December 31, 2017:
Incurred under the Services Agreement
Total costs incurred under the Services Agreement
Three months ended December 31,
2017
728 $
728 $
2018
919 $
919 $
$
$
Year ended December 31,
2017
2,726
2,726
2018
3,304 $
3,304 $
As discussed in “Our Equity”, subsidiaries of Dream Office REIT are the holders of 100% of the outstanding LP B Units.
Generally, each subsidiary redeemable unit entitles the holder to a distribution equal to distributions declared on our REIT
Units. In our consolidated financial statements, distributions are included as interest expense.
The following table summarizes our distributions paid and payable to subsidiaries of Dream Office REIT on its subsidiary
redeemable units for the three months and years ended December 31, 2018 and December 31, 2017:
Distributions paid and payable to Dream Office REIT on
subsidiary redeemable units
Distributions paid and payable to Dream Office REIT
Three months ended December 31,
2017
2018
Year ended December 31,
2017
2018
$
$
3,344 $
3,344 $
3,344 $
3,344 $
13,376 $
13,376 $
13,376
13,376
Agreements with PAULS Corp, LLC (“PAULS Corp”)
Effective December 28, 2017, Dream Industrial US Holdings Inc., a wholly owned subsidiary of DILP, entered into a Property
Management Agreement with an affiliate of PAULS Corp to manage several of the Trust’s U.S. properties and to provide
portfolio management services.
Effective December 27, 2018, the Property Management Agreement was assigned to Pauls Realty Services, LLC (“PRS”), an
affiliate of PAULS Corp.
The following table summarizes our fees and cost reimbursements paid to PRS for the three months and years ended
December 31, 2018 and December 31, 2017:
Incurred under the Property Management Agreement
Total costs incurred under the Property Management Agreement
$
$
Three months ended December 31,
2017
2018
155 $
155 $
— $
— $
Year ended December 31,
2018
507 $
507 $
2017
—
—
Dream Industrial REIT 2018 Annual Report | 25
Net rental income
Net rental income is defined by the Trust as the total investment property revenue less investment property operating
expenses.
For a detailed discussion about investment properties revenue and operating expenses for the three months and years ended
December 31, 2018 and December 31, 2017, refer to the “Our Results of Operations” section.
Western Canada
Ontario
Québec
Eastern Canada
U.S.
Net rental income
$
$
2018
%
Three months ended December 31,
2017
%
Amount
37 %
30 % $ 11,252
27 %
25 %
8,130
18 %
17 %
5,518
16 %
14 %
4,755
749
2 %
14 %
100 % $ 30,404 100 %
Amount
10,622
8,706
5,925
4,863
4,890
35,006
2018
%
Amount
32 % $
44,580
25 %
31,301
17 %
22,402
15 %
17,746
749
11 %
$ 133,744 100 % $ 116,778
Year ended December 31,
2017
%
38 %
27 %
19 %
15 %
1 %
100 %
Amount
$ 43,348
33,349
22,476
19,509
15,062
For the three months and year ended December 31, 2018, net rental income increased by $4.6 million, or 15.1%, compared to
the prior year comparative quarter and increased by $17.0 million, or 14.5%, over the prior year. The increase in the respective
periods was due to higher comparative properties NOI and the impact of acquired properties in 2018 and in the fourth quarter
of 2017.
Comparative properties NOI
Comparative properties NOI is a non-GAAP measure. See “Non-GAAP measures and other disclosures” section of the MD&A.
Comparative properties NOI excludes properties acquired after January 1, 2017 and excludes the property classified as held for
sale as at December 31, 2018. Comparative properties NOI excludes lease termination fees, other rental income, net rental
income from acquired properties, straight-line rent, bad debt expenses and amortization of lease incentives.
Comparative properties NOI is an important measure used by management in evaluating the performance of properties fully
owned by the Trust in the current and comparative periods presented; however, it is not defined by IFRS, does not have a
standard meaning and may not be comparable with similar measures presented by other income trusts.
The table below details comparative and other items to assist in understanding the impact each component has on net rental
income.
Western Canada
Ontario
Québec
Eastern Canada
Comparative properties NOI
Lease termination fees
Other rental income
Net rental income from acquired properties
Straight-line rent
Bad debt expenses
Amortization of lease incentives
Net rental income before property held for sale
Net rental income from property held for sale
Net rental income
Average occupancy (comparative properties)
In-place rental rates (per sq. ft.) at period-end
$ 10,682 $ 11,097 $
2018
2017
Three months ended December 31,
Change
$ %
(415 ) (4 ) $
1
112
6
315
5
216
228 1
(30 )
(235 )
4,611
70
(10 )
(40 )
8,115
5,550
4,792
29,554
30
273
983
112
(164 )
(334 )
8,227
5,865
5,008
29,782
—
38
5,594
182
(174 )
(374 )
2017
Year ended December 31,
Change
$ %
44,581 $ (1,754 ) (4 )
1,258 4
31,402
216 1
22,528
1,980 11
18,052
1,700 1
116,563
90
(84 )
379
(198 )
15,474
983
478
490
(132 )
(346 )
(271 )
(1,155 )
2018
42,827 $
32,660
22,744
20,032
118,263
6
181
16,457
968
(478 )
(1,426 )
$ 35,048 $ 30,454 $ 4,594 15 $ 133,971 $ 117,004 $ 16,967 15
(42 )
(50 )
8
(227 )
(226 )
(1 )
$ 35,006 $ 30,404 $ 4,602 15 $ 133,744 $ 116,778 $ 16,966 15
94.5%
95.2%
94.9%
94.4%
(comparative properties)
$
7.25 $
7.18
$
7.25 $
7.18
Dream Industrial REIT 2018 Annual Report | 26
For the three months ended December 31, 2018, comparative properties NOI increased by $0.2 million, or 0.8%, compared to
the prior year comparative quarter. The increase is due to higher average occupancy and higher rental rates in Québec and
higher capital recoveries in Eastern Canada, partially offset by lower average occupancy in Western Canada.
For the year ended December 31, 2018, comparative properties NOI increased by $1.7 million, or 1.5%, compared to the prior
year due to higher average occupancy and higher rental rates in Ontario and higher average occupancy in Eastern Canada,
partially offset by lower average occupancy and lower rental rates in Western Canada.
Comparative properties NOI prior quarter comparison
The comparative properties discussed in the following table excludes properties owned by the Trust after July 1, 2018 and
excludes the property classified as held for sale at December 31, 2018.
For the three months ended December 31, 2018, comparative properties NOI increased by $0.3 million, or 0.9%, compared to
the prior quarter due to higher average occupancy and higher rental rates in Western Canada, higher average occupancy in
Québec and lower average occupancy in Eastern Canada.
Western Canada
Ontario
Québec
Eastern Canada
U.S.
Comparative properties NOI
Lease termination fees
Other rental income
Net rental income from acquired properties
Straight-line rent
Bad debt expenses
Amortization of lease incentives
Net rental income before property held for sale
Net rental income from property held for sale
Net rental income
Average occupancy (comparative properties)
In-place rental rates (per sq. ft.) at period-end (comparative properties) – Canada
In-place rental rates (per sq. ft.) at period-end (comparative properties) – U.S. (US$)
December 31, September 30,
2018
2018
$ 10,969 $ 10,806 $
8,227
5,865
5,008
3,354
33,423
—
38
1,953
182
(174 )
(374 )
8,233
5,683
5,079
3,327
33,128
3
50
681
192
15
(364 )
$
163
Three months ended
Change
%
2
(6 ) —
3
(1 )
1
1
182
(71 )
27
295
(3 )
(12 )
1,272
(10 )
(189 )
(10 )
$ 35,048 $ 33,705 $
1,343
(42 )
(40 )
(2 )
$ 35,006 $ 33,665 $
1,341
4
4
$
95.3%
7.23 $
3.52
95.3%
7.20
3.52
Dream Industrial REIT 2018 Annual Report | 27
Funds from operations (“FFO”)
FFO is a non-GAAP measure. See “Non-GAAP measures and other disclosures” section of the MD&A. FFO is an important
measure used by management in evaluating operating performance; however, it is not defined by IFRS, does not have a
standard meaning and may not be comparable with similar measures presented by other income trusts.
The following table presents a reconciliation of net income to FFO:
Three months ended December 31,
2017
$
19,466 $
Year ended December 31,
2017
2018
34,659
157,528
$
Net income
Add (deduct):
Amortization of lease incentives
Interest expense on subsidiary redeemable units
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Fair value adjustments of DUIP included in general and
administrative expenses
5.25% Convertible Debentures redemption write-off
Internal leasing costs
Transaction cost recovery
Deferred income taxes (recovery)
FFO
Funds from operations
$
$
2018
66,455
374
3,344
(38,794 )
(8,876 )
26
—
820
—
711
24,060
$
334
3,344
1,476
(5,499 )
19
—
822
—
(307 )
19,655 $
1,426
13,376
(107,875 )
17,120
155
1,932
3,299
(151 )
1,356
88,166
$
1,155
13,376
17,491
4,869
46
—
3,125
—
(98 )
74,623
FFO
FFO per Unit – diluted(1)
$
$
(1) The LP B Units are included in the calculation of diluted FFO per Unit.
Three months ended December 31,
2017
19,655
0.23
2018
24,060
0.22
$
$
Year ended December 31,
2018
2017
88,166
74,623
0.86
0.91
$
$
$
$
Diluted FFO per Unit for the three months and year ended December 31, 2018 decreased as overall net rental income growth
was offset by lower leverage during the year, the timing of the equity raise in June 2018 and the subsequent capital
deployment.
SELECTED ANNUAL INFORMATION
The following table provides selected financial information for the past three years:
Investment properties revenue
Income (loss) before income taxes
Net income (loss)
Total assets
Non-current financial liabilities
Distributions per Unit
Distributions declared(1)
Units outstanding
REIT Units
LP B Units
(1) Includes distributions on LP B Units.
2018
193,548 $
158,764
157,528
2,160,575
1,059,289
0.70 $
73,227 $
2017
172,350 $
34,787
34,659
1,807,751
957,650
0.70 $
57,818 $
$
$
$
2016
174,689
(3,239 )
(2,690 )
1,658,076
956,389
0.70
54,617
92,062,659
18,551,855
75,104,843
18,551,855
59,633,238
18,551,855
Dream Industrial REIT 2018 Annual Report | 28
2017
Q1
213
16.2
QUARTERLY INFORMATION
The following tables show quarterly information since January 1, 2017:
Key portfolio, leasing, financing and capital information
Q4
Q3
Q2
2018
Q1
Q4
Q3
Q2
Portfolio
Number of properties(1)
GLA (in millions of sq. ft.)
Leasing
Occupancy rate – in-place and committed (period-end)
Occupancy rate – in-place (period-end)
Tenant retention ratio
Average in-place and committed base rent per sq. ft.
(period-end) – Canada
Average in-place and committed base rent per sq. ft.
(period-end) – U.S. (US$)
Estimated market rent in excess of in-place and
committed base rent (%) – Canada
Estimated market rent in excess of in-place and
committed base rent (%) – U.S.
Financing
Weighted average face interest rate(2)
Interest coverage ratio (times)(3) – quarter-to-date
Net debt-to-adjusted EBITDAFV (years)(3)(4)
Level of debt (net debt-to-assets ratio)(3)(4)
Capital
Total number of REIT Units and LP B Units (in millions)(5)
Net asset value (“NAV”) per Unit(3)
223
20.2
97.1 %
95.7 %
74.7 %
222
20.1
96.8 %
95.5 %
78.2 %
219
19.1
219
19.1
215
17.2
212
16.1
212
16.1
96.6 %
95.2 %
75.4 %
97.1 % 96.6 % 96.7 %
96.0 % 95.7 % 95.6 %
82.7 % 77.6 % 81.8 %
96.8 %
94.9 %
76.1 %
96.0 %
93.9 %
85.7 %
$
$
7.26 $
7.22 $
7.16 $
7.16 $
7.17 $
7.19 $
7.19 $
7.19
3.93 $
3.93 $
3.55 $
3.55 $
4.08 $
— $
— $
—
4.4 %
3.7 %
3.8 %
4.1 %
3.1 %
1.0 %
1.0 %
1.4 %
1.3 %
0.8 %
—
—
0.7 %
—
—
—
3.65 %
3.8
7.2
43.5 %
3.62 %
3.6
7.0
44.3 %
3.80 %
3.3
6.8
41.4 %
3.77 % 3.75 % 3.81 %
3.3
8.0
47.9 % 52.5 %
3.4
7.8
49.4 %
3.3
7.3
3.81 %
3.3
8.0
52.2 %
3.81 %
3.2
8.2
52.1 %
110.6
10.54 $
$
109.8
10.12 $
109.1
10.05 $
94.6
9.85 $
93.7
80.1
9.35 $ 9.49 $
79.5
9.42 $
78.9
9.54
(1) Excludes property or properties held for sale at the end of each period.
(2) Weighted average face interest rate is calculated as the weighted average face interest rate of all interest bearing debt.
(3) Interest coverage ratio, net debt-to-adjusted EBITDAFV, level of debt (net debt-to-assets ratio) and NAV per Unit are non-GAAP measures. See “Non-GAAP
measures and other disclosures” for a description of these non-GAAP measures.
(4) Level of debt (net debt-to-assets ratio) and net debt-to-adjusted EBITDAFV have been restated in the comparative periods to conform to current period
presentation. For further details, please refer to “Non-GAAP measures and other disclosures” under the headings “Level of debt (net debt-to-assets ratio)”
and “Net debt-to-adjusted EBITDAFV”.
(5) Total number of REIT Units and LP B Units includes 18.6 million LP B Units which are classified as a liability under IFRS.
Dream Industrial REIT 2018 Annual Report | 29
Results of operations
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Other expenses
Fair value adjustments and other items
Income (loss) before income taxes
Current and deferred income taxes recovery
(expense), net
Net income (loss)
Other comprehensive income (loss)
Unrealized gain (loss) on foreign currency
translation, net of taxes
Unrealized gain on effective interest rate hedge,
net of taxes
Comprehensive income (loss)
Calculation of funds from operations
Net income (loss) for the period
Add (deduct):
Amortization of lease incentives
Interest expense on subsidiary redeemable
units
Fair value adjustments to investment
properties
Fair value adjustments to financial instruments
Fair value adjustments of DUIP included in
general and administrative expenses
5.25% Convertible Debentures redemption
write-off
2018
Q1
Q3
Q2
Q3
Q4
Q4
Q2
$ 50,090 $ 47,597 $ 47,534 $ 48,327 $ 44,728 $ 42,091 $ 42,664 $
(13,728 )
(15,824 )
28,936
32,503
94
32
(14,094 )
(15,173 )
27,766
(22,627 )
(7,753 )
45,190
(15,084 )
35,006
50
(14,708 )
46,850
67,198
(13,932 )
33,665
343
(15,039 )
10,213
29,182
(14,324 )
30,404
390
(14,835 )
3,201
19,160
(14,964 )
32,570
170
(16,392 )
846
17,194
(13,054 )
29,037
548
(14,331 )
(5,214 )
10,040
2017
Q1
42,867
(14,466 )
28,401
25
(14,091 )
(995 )
13,340
(743 )
778
(952 )
(319 )
306
$ 66,455 $ 29,960 $ 16,242 $ 44,871 $ 19,466 $
(949 )
9,091 $
645
(7,108 ) $
(130 )
13,210
7,703
(2,375 )
3,631
3,031
(1,079 )
—
—
—
6
7,709
70
(1,009 )
$ 74,164 $ 27,624 $ 19,879 $ 47,943 $ 18,457 $
39
(2,336 )
41
3,072
6
3,637
358
358
9,449 $
310
310
(6,798 ) $
75
75
13,285
Q4
Q3
$ 66,455 $ 29,960 $
2018
Q1
16,242 $ 44,871 $
Q2
Q4
19,466 $
Q3
9,091 $
Q2
(7,108 ) $
2017
Q1
13,210
374
364
374
314
334
300
278
243
3,344
3,344
3,344
3,344
3,344
3,344
3,344
3,344
(38,794 )
(8,876 )
(8,337 )
(4,462 )
(17,346 )
15,615
(43,398 )
14,843
1,476
(5,499 )
(3,651 )
8,145
13,606
8,219
6,060
(5,996 )
26
49
49
31
19
34
6
(13 )
Internal leasing costs
Transaction cost recovery
Deferred income taxes (recovery)
FFO(3)
FFO per Unit – diluted(1)(2)
0.22 $
80.6%
FFO payout ratio(3)
(1) The LP B Units are included in the calculation of diluted FFO per Unit.
(2) Diluted FFO per Unit excludes $0.6 million interest on convertible debentures for the third quarter of 2018, $1.8 million for each preceding quarter in
—
—
802
720
—
—
(645 )
725
19,655 $ 18,708 $ 18,502 $
0.23 $
0.23 $
76.1%
76.1%
1,932
805
(151 )
(755 )
$ 24,060 $ 22,749 $
0.21 $
$
85.0%
—
789
—
438
20,125 $ 21,232 $
0.22 $
78.1%
—
781
—
130
17,759
0.22
78.8%
—
822
—
(307 )
—
885
—
962
—
820
—
711
0.21 $
82.9%
0.23 $
77.8%
2018, $1.9 million for the fourth quarter of 2017 and $2.0 million for each preceding quarter.
(3) FFO and FFO payout ratio are non-GAAP measures. See the “Non-GAAP measures and other disclosures” for a description of these non-GAAP measures.
Dream Industrial REIT 2018 Annual Report | 30
NON-GAAP MEASURES AND OTHER DISCLOSURES
The following non-GAAP measures are important measures used by management in evaluating the Trust’s underlying
operating performance and debt management. These non-GAAP measures are not defined by IFRS, do not have a standard
meaning and may not be comparable with similar measures presented by other income trusts.
Funds from operations (“FFO”)
Management believes FFO (including diluted FFO per Unit) is an important measure of our operating performance. This non-
GAAP measurement is a commonly used measure of performance of real estate operations; however, it does not represent net
income nor cash flows generated from (utilized in) operating activities, as defined by IFRS, and is not necessarily indicative of
cash available to fund the Trust’s needs. FFO is not defined by IFRS, does not have a standard meaning and may not be
comparable with similar measures presented by other income trusts.
The Trust’s reported FFO is consistent with the REALPAC definition of FFO, except for the add-back of certain non-cash costs
associated with the convertible debenture redemption in the third quarter of 2018. These non-cash costs represent the
accelerated write-off of unamortized financing costs and mark-to-market adjustments due to the early redemption of the
convertible debentures. The Trust is of the view that this non-cash item, which is non-recurring in nature, has no impact on
the Trust’s ongoing operations and therefore should not be included in the Trust’s reported FFO.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, FFO has
been reconciled to net income under the heading “Funds from operations”.
FFO payout ratio (diluted)
The FFO payout ratio is calculated as the ratio of the distribution rate to diluted FFO per Unit. Management believes it is an
important measure of the Trust’s ability to pay distributions with its funds from operations. However, FFO payout ratio is not
defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other
income trusts.
Weighted average number of Units
The diluted weighted average number of Units outstanding used in the FFO per Unit calculation includes the weighted average
of all REIT Units, LP B Units, deferred trust units and income deferred trust units, and assumes the conversion of the
convertible debentures. As at December 31, 2018, there were 827,815 vested and unvested deferred trust units and income
deferred trust units outstanding (December 31, 2017 – 761,924).
Weighted average Units outstanding for diluted per Unit amounts (in thousands)
Three months ended
December 31,
2017
96,025
2018
111,033
Year ended
December 31,
2017
91,196
2018
107,788
Adjusted funds from operations
The Trust had previously included AFFO, a non-GAAP measure, for the periods up to December 31, 2017 as an important
measure of our economic performance. However, management reconsidered factors such as: the Trust’s expansion of its
operations into the U.S.; comparability of performance against both Canadian and U.S. industrial peers; the Trust’s method of
determining AFFO; the key drivers of value for the Trust; and the ability to increase the return to our unitholders. After taking
these factors into account, effective January 1, 2018, the Trust decided not to use AFFO as one of its performance measures as
it focuses on FFO and net asset value.
We will continue to disclose the relevant information for unitholders who wish to make their own estimates of AFFO.
Information on the capital expenditure costs is included in the MD&A section “Our resources and financial condition” under
the heading “Building improvements and leasing costs”.
Dream Industrial REIT 2018 Annual Report | 31
Comparative properties net operating income (“NOI”)
Comparative properties NOI includes the net rental income of the same properties owned by the Trust in (i) the current and
prior year comparative periods and (ii) the current and prior quarter, and excludes lease termination fees, other rental income,
net income of acquired properties and properties held for sale, straight-line rent, bad debt expenses, and amortization of lease
incentives. Comparative properties NOI is an important non-GAAP measure used by management to evaluate the performance
of the same properties owned by the Trust in the current period, comparative periods and prior quarter as presented. This
non-GAAP measure is not defined by IFRS, does not have a standard meaning and may not be comparable with similar
measures presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”,
comparative properties NOI has been reconciled to net rental income under the headings “Comparative properties NOI” and
“NOI prior quarter comparison”.
Net asset value (“NAV”) per Unit
NAV per Unit is calculated as the total equity (including LP B Units) divided by the total number of REIT Units and LP B Units.
This non-GAAP measure is an important measure reflecting management’s view of the intrinsic value of the Trust. However,
NAV per Unit is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures
presented by other income trusts. The calculation of NAV per Unit is included under the heading “Our equity”.
Total equity (including LP B Units or subsidiary redeemable units)
One of the components used to determine the Trust’s NAV per Unit is total equity (including LP B Units). Total equity (including
LP B Units) is calculated as the sum of equity per consolidated financial statements and the subsidiary redeemable units.
Management believes it is important to include the subsidiary redeemable units for the purpose of determining the Trust’s
capital management. Management does not consider the subsidiary redeemable units to be debt or borrowings of the Trust,
but rather a component of the Trust’s equity. However, total equity (including LP B Units) is not defined by IFRS, does not have
a standard meaning and may not be comparable with similar measures presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
table within the section “Our equity” under the heading “Total equity” reconciles total equity (including LP B Units) to equity
(as per consolidated financial statements).
Total distributions
Total distributions is calculated as the sum of the distributions on REIT Units and interest on subsidiary redeemable units.
Management believes it is important to include interest on subsidiary redeemable units for the purpose of determining the
Trust’s total distributions to all of its unitholders. Management does not consider the interest on subsidiary redeemable units
to be an interest expense of the Trust, but rather a component of the Trust’s total distributions. However, total distributions is
not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other
income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”,
the table below reconciles total distributions to amounts as included in the consolidated financial statements for the
three months and years ended December 31, 2018 and December 31, 2017.
Amounts included in consolidated financial statements
Distributions on REIT Units
Interest on subsidiary redeemable units
Total distributions
Three months ended December 31,
2018
2017
Year ended December 31,
2017
$ 16,193 $ 12,423 $ 59,851 $ 44,442
13,376
$ 19,537 $ 15,767 $ 73,227 $ 57,818
3,344
13,376
2018
3,344
Distribution Reinvestment and Unit Purchase Plan (“DRIP”) participation rate
The DRIP allows holders of REIT Units or subsidiary redeemable units, other than unitholders who are resident of or present in
the U.S., to elect to have all cash distributions from the Trust reinvested in additional units. Unitholders under the DRIP are
eligible to receive a bonus distribution of Units equal to 3% of the cash distribution reinvested.
Dream Industrial REIT 2018 Annual Report | 32
The DRIP participation rate is the ratio of total distributions reinvested less bonus distribution over total distributions.
Management believes it is an important measure in evaluating the impact the distribution reinvestment plan will have on the
Trust’s ability to sustain current distribution levels during the current and future periods. Over time, reinvestments pursuant to
the DRIP will increase the number of units outstanding, which may result in upward pressure on the total amount of cash
distributions.
The calculation of the DRIP participation rate has been included under the heading “Distribution Policy”. DRIP participation
rate is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by
other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, total
distributions reinvested and total distributions paid in cash have been reconciled to amounts as included in the consolidated
financial statements for the three months and years ended December 31, 2018 and December 31, 2017.
Distributions reinvested as included in consolidated financial statements
Less: distributions reinvested pertaining to prior period
Add: distributions reinvested on January 15
Less: 3% bonus distribution
Distributions reinvested less 3% bonus distribution
Distributions paid in cash as included in consolidated financial statements
Less: distributions paid in cash pertaining to prior period
Add: distributions paid in cash on January 15
Distributions paid in cash
$
Three months ended December 31,
Year ended December 31,
2018
2017
2017
5,815 $ 28,292 $ 21,110
7,874 $
(1,997 )
(1,798 )
(2,442 )
(1,701 )
1,997
2,736
2,736
1,997
(169 )
(229 )
(824 )
(615 )
5,845 $ 28,207 $ 20,791
7,939 $
2018
$
Three months ended December 31,
Year ended December 31,
2018
2017
2017
9,160 $ 43,946 $ 35,804
(3,498 )
(2,905 )
(2,890 )
3,498
3,748
3,498
9,753 $ 44,196 $ 36,412
$ 11,615 $
(3,994 )
3,748
$ 11,369 $
2018
Liquidity
Liquidity is defined as the sum of cash and cash equivalents and undrawn revolving credit facilities at period-end.
Management believes that liquidity, a non-GAAP measurement, is an important measure in determining our resources
available to meet all of our ongoing obligations. This non-GAAP measure does not have a standard meaning and may not be
comparable with similar measures presented by other income trusts.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
table below reconciles liquidity to cash and cash equivalents included in the consolidated financial statements as at
December 31, 2018 and December 31, 2017:
Amounts per consolidated financial statements
Cash and cash equivalents
Undrawn revolving credit facility
Liquidity
December 31,
2018
4,968 $
98,194
103,162 $
December 31,
2017
54,651
123,000
177,651
$
$
Level of debt (net debt-to-assets ratio)
Management believes that level of debt (net debt-to-assets ratio) is an important non-GAAP measure in the management of
our debt levels. This non-GAAP measure does not have a standard meaning and may not be comparable with similar measures
presented by other income trusts. Net debt-to-assets ratio as shown below is determined as total debt at principal amount
outstanding (total debt plus unamortized financing costs, less unamortized fair value adjustments), less cash and cash
equivalents, all divided by total assets (net of cash and cash equivalents).
At December 31, 2017, level of debt was calculated as total debt divided by total assets. Effective June 30, 2018, the Trust has
chosen to revise its calculation for the level of debt to be calculated as net debt divided by total assets net of cash and cash
equivalents. Management is of the view that this is a commonly used measure across the industry and this method of
presentation is more representative of the Trust’s current debt levels. Accordingly, level of debt (net debt-to-assets ratio) for
the comparative periods has been restated to conform to the current period presentation.
Dream Industrial REIT 2018 Annual Report | 33
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following table calculates the level of debt (net debt-to-assets ratio) as at December 31, 2018 and December 31, 2017:
$
Amounts per consolidated financial statements
Non-current debt
Current debt
Total debt
Add (deduct):
Unamortized financing costs
Unamortized fair value adjustments
Total debt at principal amount outstanding
Less: Cash and cash equivalents
Net debt
Total assets
Less: Cash and cash equivalents
Total assets (net of cash and cash equivalents)
Net debt-to-assets ratio
(1) Net debt-to-assets ratio has been restated in the comparative period to conform to current period presentation.
$
$
December 31,
2018
860,789
76,941
937,730
$
December 31,
2017(1)
776,459
113,337
889,796
5,804
(1,641 )
941,893
(4,968 )
936,925
2,160,575
$
(4,968 )
2,155,607 $
43.5%
5,552
(912 )
894,436
(54,651 )
839,785
1,807,751
(54,651 )
1,753,100
47.9%
Net debt-to-adjusted EBITDAFV
Management believes that net debt-to-adjusted EBITDAFV, a non-GAAP measurement, is an important measure in
determining the time it takes the Trust, on a go-forward basis, based on its normalized operating performance, to repay our
debt. This non-GAAP measurement does not have a standard meaning and may not be comparable with similar measures
presented by other income trusts.
Net debt-to-adjusted EBITDAFV as shown below is calculated as total debt at principal amount outstanding (total debt plus
unamortized financing costs, less unamortized fair value adjustments), less cash and cash equivalents, all divided by adjusted
EBITDAFV – annualized. Adjusted EBITDAFV – annualized is calculated as the quarterly EBITDAFV plus normalized net rental
income of properties acquired in the quarter. Quarterly EBITDAFV is defined by the Trust as income before income taxes for
the period adjusted for: fair value adjustments to investment properties and financial instruments, net losses on transactions
and other activities, interest expense on debt and subsidiary redeemable units, depreciation and amortization and other items
included in investment properties revenue such as lease termination fees, other items that are non-recurring in nature,
straight-line rent and amortization of lease incentives.
For the three months ended December 31, 2017, net debt-to-adjusted EBITDAFV was calculated as total debt at principal
amount outstanding divided by adjusted EBITDAFV – annualized. Effective June 30, 2018, the Trust has chosen to revise its
calculation for net debt-to-adjusted EBITDAFV to be calculated as total debt at principal amount outstanding, less cash and
cash equivalents divided by adjusted EBITDAFV – annualized. Management is of the view that this is a commonly used
measure across the industry and this method of presentation is more representative of the Trust’s current debt levels.
Accordingly, net debt-to-adjusted EBITDAFV for the comparative periods has been restated to conform to the current period
presentation.
Dream Industrial REIT 2018 Annual Report | 34
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following table calculates the annualized net debt-to-adjusted EBITDAFV for the three months ended December 31, 2018 and
December 31, 2017:
Amounts included in consolidated financial statements
Non-current debt
Current debt
Total debt
Add (deduct):
Unamortized financing costs
Unamortized fair value adjustments
Total debt at principal amount outstanding
Less: Cash and cash equivalents
Net debt
Income before income taxes
Add (deduct):
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Net losses on transactions and other activities
Interest – debt
Interest – subsidiary redeemable units
$
Three months ended Three months ended
December 31, 2018 December 31, 2017(1)
776,459
113,337
889,796
860,789 $
76,941
937,730
5,804
(1,641 )
941,893
(4,968 )
936,925 $
67,198
5,552
(912 )
894,436
(54,651 )
839,785
19,160
$
(38,794 )
(8,876 )
820
8,769
3,344
9
154
32,624
49
32,673
130,692 $
7.2
1,476
(5,499 )
822
8,996
3,344
12
(81 )
28,230
618
28,848
115,392
7.3
Depreciation and amortization
Other items included in investment properties revenues
EBITDAFV – quarterly
Add: Normalized net rental income of properties acquired in the quarter(2)
Adjusted EBITDAFV – quarterly
Adjusted EBITDAFV – annualized
Net debt-to-adjusted EBITDAFV (years)
(1) Net debt-to-adjusted EBITDAFV has been restated in the comparative period to conform to current period presentation.
(2) Represents the incremental net rental income had the acquisitions in the respective periods occurred for the full quarter, determined using the average
$
daily net rental income times the number of days the Trust did not own the properties.
Dream Industrial REIT 2018 Annual Report | 35
Interest coverage ratio
Management believes that interest coverage ratio, a non-GAAP measurement, is an important measure in determining our
ability to cover interest expense based on our operating performance. This non-GAAP measurement does not have a standard
meaning and may not be comparable with similar measures presented by other income trusts. Interest coverage ratio as
shown below is calculated as net rental income plus interest and fee income, less general and administrative expenses, plus
deferred unit compensation expense, all divided by interest expense on total debt at the contractual rate (excluding
amortization of financing costs and fair value adjustments). Interest expense on subsidiary redeemable units is excluded
from this ratio as it represents distributions on units; however, pursuant to IFRS, the distributions are presented as
interest expense.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures”, the
following table calculates the interest coverage ratio for the three months and years ended December 31, 2018 and
December 31, 2017:
Amounts included in consolidated financial statements
Net rental income
Add (deduct):
Interest and fee income
General and administrative expenses
Deferred unit compensation expense
Total
Interest expense
Add (deduct):
Amortization of financing costs
Amortization of fair value adjustments
Interest expense incurred, at contractual rate
Interest coverage ratio (times)
$
$
$
Three months ended December 31,
2017
30,404
35,006 $
2018
50
(2,586 )
426
32,896 $
8,769
(383 )
176
8,562 $
3.8
390
(2,483 )
577
28,888
8,996
(429 )
69
8,636
3.3
Year ended December 31,
2017
116,778
2018
133,744 $
657
(10,807 )
2,181
125,775 $
37,070
(1,821 )
307
35,556 $
3.5
995
(9,052 )
1,785
110,506
34,871
(1,655 )
434
33,650
3.3
$
$
$
SECTION III – DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL
OVER FINANCIAL REPORTING
For the financial year ended December 31, 2018, the Chief Executive Officer and the Chief Financial Officer (the “Certifying
Officers”), together with other members of management, have evaluated the design and operational effectiveness of Dream
Industrial REIT’s disclosure controls and procedures, as defined in National Instrument 52-109 – Certification of Disclosure in
Issuers’ Annual and Interim Filings (“NI 52-109”). The Certifying Officers have concluded that the disclosure controls and
procedures are adequate and effective in order to provide reasonable assurance that material information has been
accumulated and communicated to management to allow timely decisions of required disclosures by Dream Industrial and its
consolidated subsidiary entities within the required time periods.
Dream Industrial REIT’s internal control over financial reporting (as defined in NI 52-109) is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for
external purposes in accordance with IFRS. Using the framework established in “2013 Committee of Sponsoring Organizations
(COSO) Internal Control Framework”, published by the Committee of Sponsoring Organizations of the Treadway Commission,
the Certifying Officers, together with other members of management, have evaluated the design and operation of Dream
Industrial REIT’s internal control over financial reporting. Based on that evaluation, the Certifying Officers have concluded that
Dream Industrial REIT’s internal control over financial reporting was effective as at December 31, 2018.
There were no changes in Dream Industrial REIT’s internal control over financial reporting during the financial year ended
December 31, 2018 that have materially affected, or are reasonably likely to materially affect, Dream Industrial REIT’s internal
control over financial reporting.
Dream Industrial REIT 2018 Annual Report | 36
SECTION IV – RISKS AND OUR STRATEGY TO MANAGE
In addition to the specific risks discussed in this MD&A, we are exposed to various risks and uncertainties, many of which are
beyond our control and could have an impact on our business, financial condition, operating results and prospects.
Unitholders should consider these risks and uncertainties when assessing our outlook in terms of investment potential. For a
further discussion of the risks and uncertainties identified by Dream Industrial REIT, please refer to our latest Annual Report
and Annual Information Form filed on SEDAR at www.sedar.com.
REAL ESTATE OWNERSHIP
Real estate ownership is generally subject to numerous factors and risks, including changes in general economic conditions
(such as the availability, terms and cost of mortgage financings and other types of credit), local economic conditions (such as
an oversupply of industrial properties or a reduction in demand for real estate in the area), the attractiveness of properties to
potential tenants or purchasers, competition with other landlords with similar available space, and the ability of the owner to
provide adequate maintenance at competitive costs.
An investment in real estate is relatively illiquid. Such illiquidity will tend to limit our ability to vary our portfolio promptly in
response to changing economic or investment conditions. In recessionary times, it may be difficult to dispose of certain types
of real estate. The costs of holding real estate are considerable, and during an economic recession we may be faced with
ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary for us to
dispose of properties at lower prices in order to generate sufficient cash from operations and to make distributions and
interest payments.
Certain significant expenditures (e.g., property taxes, maintenance costs, mortgage payments, insurance costs and related
charges) must be made throughout the period of ownership of real property, regardless of whether the property is producing
sufficient income to pay such expenses. In order to retain desirable rentable space and to generate adequate revenue over the
long term, we must maintain or, in some cases, improve each property’s condition to meet market demand. Maintaining a
rental property in accordance with market standards can entail significant costs, which we may not be able to pass on to our
tenants. Numerous factors, including the age of the relevant building structure, the material and substances used at the time
of construction, or currently unknown building code violations, could result in substantial unbudgeted costs for refurbishment
or modernization. In the course of acquiring a property, undisclosed defects in design or construction or other risks might not
have been recognized or correctly evaluated during the pre-acquisition due diligence process. These circumstances could lead
to additional costs and could have an adverse effect on our proceeds from sales and rental income of the relevant properties.
ROLLOVER OF LEASES
Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. Furthermore,
the terms of any subsequent lease may be less favourable than those of the existing lease. Our cash flows and financial
position would be adversely affected if our tenants were to become unable to meet their obligations under their leases or if a
significant amount of available space in our properties could not be leased on economically favourable lease terms. In the
event of default by a tenant, we may experience delays or limitations in enforcing our rights as lessor and incur substantial
costs in protecting our investment. Furthermore, at any time, a tenant may seek the protection of bankruptcy, insolvency or
similar laws, which could result in the rejection and termination of the lease of the tenant and, thereby, cause a reduction in
the cash flows available to us.
CONCENTRATION OF PROPERTIES AND TENANTS
Currently, our properties are located in Canada and the U.S., and, as a result, are impacted by economic and other factors
specifically affecting the real estate markets in Canada and the U.S. These factors may differ from those affecting the real
estate markets in other regions. Due to the concentrated nature of our properties, a number of our properties could
experience any of the same conditions at the same time. If real estate conditions in Canada or the U.S. decline relative to real
estate conditions in other regions, our cash flows and financial condition may be more adversely affected than those of
companies that have more geographically diversified portfolios of properties.
Dream Industrial REIT 2018 Annual Report | 37
FINANCING
We require access to capital to maintain our properties as well as to fund our growth strategy and significant capital
expenditures. There is no assurance that capital will be available when needed or on favourable terms. Our access to third-
party financing will be subject to a number of factors, including general market conditions; the market’s perception of our
growth potential; our current and expected future earnings; our cash flow and cash distributions and cash interest payments;
and the market price of our REIT Units.
A significant portion of our financing is debt. Accordingly, we are subject to the risks associated with debt financing, including
the risk that our cash flows will be insufficient to meet required payments of principal and interest, and that, on maturities of
such debt, we may not be able to refinance the outstanding principal under such debt or that the terms of such refinancing
will be more onerous than those of the existing debt. If we are unable to refinance debt at maturity on terms acceptable to us
or at all, we may be forced to dispose of one or more of our properties on disadvantageous terms, which may result in losses
and could alter our debt-to-equity ratio or be dilutive to unitholders. Such losses could have a material adverse effect on our
financial position or cash flows.
The degree to which we are leveraged could have important consequences to our operations. A high level of debt will: reduce
the amount of funds available for the payment of distributions to unitholders and interest payments on our debentures; limit
our flexibility in planning for and reacting to changes in the economy and in the industry, and increase our vulnerability to
general adverse economic and industry conditions; limit our ability to borrow additional funds, dispose of assets, encumber
our assets and make potential investments; place us at a competitive disadvantage compared to other owners of similar real
estate assets that are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness
would prevent us from pursuing; make it more likely that a reduction in our borrowing base following a periodic valuation (or
redetermination) could require us to repay a portion of then outstanding borrowings; and impair our ability to obtain
additional financing in the future for working capital, capital expenditures, acquisitions, general trust or other purposes.
INTEREST RATES
When entering into financing agreements or extending such agreements, we depend on our ability to agree on terms for
interest payments that will not impair our desired profit, and on amortization schedules that do not restrict our ability to pay
distributions on our REIT Units and interest payments on our debentures. In addition to existing variable rate portions of our
financing agreements, we may enter into future financing agreements with variable interest rates. An increase in interest rates
could result in a significant increase in the amount we pay to service debt, which could limit our ability to pay distributions to
unitholders and could impact the market price of the REIT Units. Increases in interest rates generally cause a decrease in
demand for properties. Higher interest rates and more stringent borrowing requirements, whether mandated by law or
required by banks, could have a significant negative effect on our ability to sell any of our properties.
CURRENCY RISK
Some of our investments and operations are conducted in U.S. dollars; however, we pay distributions to unitholders in
Canadian dollars. As a result, fluctuations in the U.S. dollar against the Canadian dollar could have a material adverse effect on
our financial results, which are denominated and reported in Canadian dollars, and on our ability to pay cash distributions to
unitholders. The Trust’s exposure to currency exchange risk could increase if the proportion of income from properties located
in the U.S. increases as a result of future property acquisitions.
JOINT ARRANGEMENTS
We are a participant in jointly controlled entities and co-ownerships, combined (“joint arrangements”) with third parties. A
joint arrangement involves certain additional risks, including:
(i)
the possibility that such third parties may at any time have economic or business interests or goals that will be
inconsistent with ours, or take actions contrary to our instructions or requests or to our policies or objectives with respect
to our real estate investments;
(ii) the risk that such third parties could experience financial difficulties or seek the protection of bankruptcy, insolvency or
other laws, which could result in additional financial demands on us to maintain and operate such properties or repay the
third parties’ share of property debt guaranteed by us or for which we will be liable, and/or result in our suffering or
incurring delays, expenses and other problems associated with obtaining court approval of the joint arrangement;
(iii) the risk that such third parties may, through their activities on behalf of or in the name of the joint arrangements, expose
or subject us to liability; and
Dream Industrial REIT 2018 Annual Report | 38
(iv) the need to obtain third parties’ consents with respect to certain major decisions, including the decision to distribute cash
generated from such properties or to refinance or sell a property. In addition, the sale or transfer of interests in certain of
the joint arrangements may be subject to rights of first refusal or first offer, and certain of the joint venture and
partnership agreements may provide for buy-sell or similar arrangements. Such rights may be triggered at a time when we
may not desire to sell but may be forced to do so because we do not have the cash to purchase the other party’s interests.
Such rights may also inhibit our ability to sell an interest in a property or a joint arrangement within the time frame or
otherwise on the basis we desire.
Our investment in properties through joint arrangements is subject to the investment guidelines set out in our Declaration
of Trust.
CHANGES IN LAW
We are subject to applicable federal, provincial or state, municipal, local and common laws and regulations governing the
ownership and leasing of real property, employment standards, environmental matters, taxes and other matters. It is possible
that future changes in such laws or regulations, or changes in their application, enforcement or regulatory interpretation,
could result in changes in the legal requirements affecting us (including with retroactive effect). In addition, the political
conditions in the jurisdictions in which we operate are also subject to change. Any changes in investment policies or shifts in
political attitudes may adversely affect our investments. Any changes in the laws to which we are subject in the jurisdictions in
which we operate could materially affect our rights and title in and to the properties and the revenues we are able to generate
from our investments.
TAX CONSIDERATIONS
We intend to continue to qualify as a “unit trust” and a “mutual fund trust” for purposes of the Income Tax Act (Canada).
There can be no assurance that Canadian federal income tax laws and the administrative policies and assessing practices of the
Canada Revenue Agency respecting the treatment of mutual fund trusts will not be changed in a manner that adversely affects
the unitholders. If we cease to qualify as a “mutual fund trust” under the Income Tax Act (Canada), the income tax
considerations applicable to us would be materially and adversely different in certain respects, including that the REIT Units
may cease to be qualified investments for registered plans under the Income Tax Act (Canada).
Although we have been structured with the objective of maximizing after-tax distributions, tax charges and withholding taxes
in various jurisdictions in which we invest will affect the level of distributions made to us by our subsidiaries. No assurance can
be given as to the level of taxation suffered by us or our subsidiaries. Currently, our revenues are derived from our investments
located in Canada and the U.S., which will subject us to legal and political risks specific to those countries, any of which could
adversely impact our investments, cash flows, operating results or financial condition, our ability to make distributions on the
REIT Units and our ability to implement our growth strategy. The taxable income portion of our distributions is affected by a
variety of factors, including the amount of foreign accrual property income that we recognize annually, gains and losses, if any,
from the disposition of properties and the results of our operations. These components will change each year and therefore,
the taxable income allocated to our unitholders each year will also change accordingly.
ENVIRONMENTAL RISK
As an owner of real property, we are subject to various federal, provincial or state, and municipal laws relating to
environmental matters. Such laws provide a range of potential liability, including potentially significant penalties, and potential
liability for the costs of removal or remediation of certain hazardous substances. The presence of such substances, if any, could
adversely affect our ability to sell or redevelop such real estate or to borrow using such real estate as collateral and,
potentially, could also result in civil claims against us. In order to obtain financing for the purchase of a new property through
traditional channels, we may be requested to arrange for an environmental audit to be conducted. Although such an audit
provides us and our lenders with some assurance, we may become subject to liability for undetected pollution or other
environmental hazards on our properties against which we cannot insure, or against which we may elect not to insure where
premium costs are disproportionate to our perception of relative risk.
We have formal policies and procedures to review and monitor environmental exposure. These policies include the
requirement to obtain a Phase I Environmental Site Assessment, conducted by an independent and qualified environmental
consultant, before acquiring any real property or any interest therein.
Dream Industrial REIT 2018 Annual Report | 39
COMPETITION
The real estate markets in Canada and the U.S. are highly competitive and fragmented, and we compete for real property
acquisitions with individuals, corporations, institutions and other entities that may seek real property investments similar to
those we desire. An increase in the availability of investment funds or an increase in interest in real property investments may
increase competition for real property investments, thereby increasing purchase prices and reducing the yield on them. If
competing properties of a similar type are built in the area where one of our properties is located or if similar properties
located in the vicinity of one of our properties are substantially refurbished, the net operating income derived from and the
value of such property could be reduced.
Numerous other developers, managers and owners of properties will compete with us in seeking tenants. To the extent that
our competitors own properties that are in better locations, of better quality or less leveraged than the properties owned by
us, they may be in a better position to attract tenants who might otherwise lease space in our properties. To the extent that
our competitors are better capitalized or financially stronger, they would be in a better position to withstand an economic
downturn. The existence of competition for tenants could have an adverse effect on our ability to lease space in our properties
and on the rents charged or concessions granted, and could materially and adversely affect our cash flows, operating results
and financial condition.
INSURANCE
We carry general liability, umbrella liability and excess liability insurance with limits that are typically obtained for similar real
estate portfolios in Canada and the U.S. and otherwise acceptable to our trustees. For the property risks, we carry “All Risks”
property insurance including, but not limited to, flood, earthquake and loss of rental income insurance (with at least a
24-month indemnity period). We also carry boiler and machinery insurance covering all boilers, pressure vessels, HVAC
systems and equipment breakdown. However, certain types of risks (generally of a catastrophic nature such as from war or
nuclear accident) are uninsurable under any insurance policy. Furthermore, there are other risks that are not economically
viable to insure at this time. We partially self-insure against terrorism risk for our entire portfolio. We have insurance for
earthquake risks, subject to certain policy limits, deductibles and self-insurance arrangements. Should an uninsured or
underinsured loss occur, we could lose our investment in, and anticipated profits and cash flows from, one or more of our
properties, but we would continue to be obligated to repay any recourse mortgage indebtedness on such properties. We do
not carry title insurance on all of our properties. If a loss occurs resulting from a title defect with respect to a property where
there is no title insurance or the loss is in excess of insured limits, we could lose all or part of our investment in, and
anticipated profits and cash flows from, such property.
CYBER SECURITY RISKS
As we continue to increase our dependence on information technologies to conduct our operations, the risks associated with
cyber security also increase. We rely on management information systems and computer control systems. Business
disruptions, utility outages and information technology system and network disruptions due to cyber-attacks could seriously
harm our operations and materially adversely affect our operating results. Cyber security risks include attacks on information
technology and infrastructure by hackers, damage or loss of information due to viruses, the unintended disclosure of
confidential information, the misuse or loss of control over computer control systems, and breaches due to employee error.
Our exposure to cyber security risks includes exposure through third parties on whose systems we place significant reliance for
the conduct of our business. We have implemented security procedures and measures in order to protect our systems and
information from being vulnerable to cyber-attacks. However, we may not have the resources or technical sophistication to
anticipate, prevent, or recover from rapidly evolving types of cyber-attacks. Compromises to our information and control
systems could have severe financial and other business implications.
SECTION V – CRITICAL ACCOUNTING POLICIES
CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES
Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions
that affect the amounts reported. Management bases its judgments and estimates on historical experience and other factors it
believes to be reasonable under the circumstances, but which are inherently uncertain and unpredictable, the result of which
forms the basis of the carrying amounts of assets and liabilities. However, uncertainty about these assumptions and estimates
could result in outcomes that could require a material adjustment in the future to the carrying amount of the asset or liability
affected.
Dream Industrial REIT 2018 Annual Report | 40
Critical accounting judgments
The following are the critical judgments used in applying the Trust’s accounting policies that have the most significant effect on
the amounts in the consolidated financial statements:
Investment properties
Critical judgments are made with respect to the fair values of investment properties. The fair values of investment properties
are reviewed regularly by management with reference to independent property valuations and market conditions existing at
the reporting date, using generally accepted market practices. The independent valuators are experienced, nationally
recognized and qualified in the professional valuation of industrial buildings in their respective geographic areas. Judgment is
also applied in determining the extent and frequency of independent appraisals. At each annual reporting period, a select
number of properties, determined on a rotational basis, will be valued by qualified external valuation professionals. For
properties not subject to independent appraisals, internal appraisals are prepared by management during each reporting
period.
The Trust makes judgments with respect to whether lease incentives provided in connection with a lease enhance the value of
the leased space, which determines whether or not such amounts are treated as tenant improvements and added to
investment properties. Lease incentives, such as cash, rent-free periods and lessee- or lessor-owned improvements, may be
provided to lessees to enter into an operating lease. Lease incentives that do not provide benefits beyond the initial lease term
are included in the carrying amount of investment properties and are amortized as a reduction of rental revenue on a straight-
line basis over the term of the lease.
Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment
property.
Business combinations
Accounting for business combinations under IFRS 3, “Business Combinations” (“IFRS 3”), only applies if it is considered that a
business has been acquired. Under IFRS 3, a business is defined as an integrated set of activities and assets conducted and
managed for the purpose of providing a return to investors or lower costs or other economic benefits directly and
proportionately to the Trust. A business generally consists of inputs, processes applied to those inputs, and resulting outputs
that are, or will be, used to generate revenues. In the absence of such criteria, a group of assets is deemed to have been
acquired. If goodwill is present in a transferred set of activities and assets, the transferred set is presumed to be a business.
Judgment is used by management in determining whether the acquisition of an individual property qualifies as a business
combination in accordance with IFRS 3 or as an asset acquisition.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a business
combination or an asset acquisition, the Trust applies judgment when considering the following:
• Whether the investment property or properties are capable of producing outputs;
• Whether the market participant could produce outputs if missing elements exist.
In particular, the Trust considers the following:
• Whether employees were assumed in the acquisition;
• Whether an operating platform has been acquired.
Currently, the Trust classifies an acquisition as an asset acquisition when it acquires properties or a portfolio of properties, and
does not assume employees or does not acquire an operating platform.
Estimates and assumptions
The Trust makes estimates and assumptions that affect carrying amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amount of earnings for the period. Actual results could differ from those estimates. The
estimates and assumptions that are critical in determining the amounts reported in the consolidated financial statements
relate to the following:
Valuation of investment properties
Critical assumptions relating to the valuation of investment properties at fair value include the receipt of contractual rents,
expected future market rents, renewal rates, capital expenditures, discount rates that reflect current market uncertainties,
capitalization rates and recent investment property transactions. If there is any change in these assumptions or regional,
national or international economic conditions, the fair value of investment properties may change materially.
Dream Industrial REIT 2018 Annual Report | 41
Valuation of financial instruments
The Trust makes estimates and assumptions relating to the fair value measurement of the subsidiary redeemable units, the
DUIP, the conversion feature of the convertible debenture and the fair value disclosure of the mortgages, revolving credit
facility and convertible debentures. The critical assumptions underlying the fair value measurements and disclosures include
the market price of REIT Units and market interest rates.
For certain financial instruments, including cash and cash equivalents, amounts receivable, amounts payable and accrued
liabilities, deposits, distributions payable and the revolving credit facility, the carrying amounts approximate fair values due to
their immediate or short-term maturity. The fair values of mortgages are determined based on discounted cash flows using
discount rates that reflect current market conditions for instruments with similar terms and risks. The fair value of convertible
debentures uses quoted market prices from an active market.
CHANGES IN ACCOUNTING ESTIMATES AND CHANGES IN ACCOUNTING POLICIES
The following are the accounting policy changes to be implemented by the Trust in future years:
Leases
IFRS 16, “Leases” (“IFRS 16”), sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16
provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16
introduces a single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities
for leases with terms of more than 12 months, unless the underlying asset is of low value. IFRS 16 is effective for annual
periods beginning on or after January 1, 2019, with earlier application permitted for entities that apply IFRS 15. The Trust will
adopt the new standard on the required effective date using the modified retrospective method.
Under IFRS 16, lessor accounting for operating and finance leases will remain substantially unchanged and will therefore not
be impacted by the adoption. As part of the transition to IFRS 16, the Trust focused on identifying and reviewing contracts in
which the Trust is a lessee. Management has determined that this standard has no material impact on the consolidated
financial statements.
Uncertainty over income tax treatments
The IASB issued IFRIC Interpretation 23, “Uncertainty over Income Tax Treatments” (“IFRIC 23”), in June 2017. IFRIC 23 clarifies
application of recognition and measurement requirements in IAS 12, “Income Taxes” (“IAS 12”), when there is uncertainty over
income tax treatments, including whether an entity considers uncertain tax treatments separately; the assumptions an entity
makes about the examination of tax treatments by taxation authorities; how an entity determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits and tax rates; and how an entity considers changes in facts and circumstances.
The interpretation is applicable for financial years commencing on or after January 1, 2019. Management has determined that
this standard has no material impact on the consolidated financial statements.
Business combinations
The IASB issued narrow-scope amendments to IFRS 3, “Business Combinations”, to improve the definitions of a business. The
amendments are to be applied to transactions for which the acquisition date is on or after January 1, 2020. The Trust will
consider the narrow-scope amendment for future acquisitions.
Additional information
Additional information relating to Dream Industrial REIT, including the latest Annual Information Form of Dream Industrial
REIT, is available on SEDAR at www.sedar.com.
Dream Industrial REIT 2018 Annual Report | 42
SECTION VI – SUPPLEMENTARY INFORMATION
The tables in this section include supplementary information on our portfolio as at December 31, 2018.
PROPERTY LIST AND SELECTED DATA
Property
Ownership
7140 40th Street SE, Calgary
1919 84th Avenue (Park 19), Edmonton
2721 Hopewell Place NE, Calgary
204 26229 Township Road 531A (Parkland County),
Edmonton
6908 6th Street SE (Glenmore Business Park), Calgary
3917 81st Avenue, Edmonton
2876 Sunridge Way NE (Sunridge Business Park),
Calgary
3250 Sunridge Way NE (Sunridge Business Park),
Calgary
9601 156th Avenue, Grand Prairie
2240 Premier Way (GE Turbine), Edmonton
1802 Stock Road, Regina
7121 6th Street SE (Glenmore Business Park), Calgary
120 Pond Street East, Brooks
363 and 345 Maxwell Crescent, Regina
1105 Pettigrew Avenue, Regina
2190 Industrial Drive, Regina
1640 Broder Street, Regina
Western Canada Single-tenant
310 Henderson Drive, Regina
7803 35th Street SE, Calgary
15303 128th Avenue, Edmonton
611-615 71st Avenue SE & 7515 6th Street SE
(Glenmore Business Park), Calgary
628 668 Henderson Drive (Chestermere), Regina
7504 30th Street SE, Calgary
11445 163rd Street (Alberta Park), Edmonton
9603-9699 45th Avenue NW, Edmonton
603 Park Street, Regina
3916 61st Avenue, Calgary
7004-7042 30th Street SE, Calgary
651 Henderson Drive (Henderson Business Centre),
Regina
26229 Township Road 531, Parkland County
7008 5th Street SE (Glenmore Business Park),
Calgary
11404 Winterburn Rd NW, Edmonton
7004 5th Street SE (Glenmore Business Park), Calgary
9451 45th Avenue (Southwood Centre), Edmonton
4710-4760 14th Street NE (McCall Industrial Park),
Calgary
2777 23rd Avenue NE (Sunridge Business Park), Calgary
3510 29th Street NE (ACC Centre), Calgary
7111 6th Street SE (Glenmore Business Park), Calgary
3401 19th Street, Calgary
2150 29th Street NE (Sunridge Business Park), Calgary
7710 5th Street SE (Glenmore Business Park), Calgary
550 71st Avenue SE (Glenmore Business Park), Calgary
2175 29th Street NE (Sunridge Business Park), Calgary
2256 29th Street NE (Sunridge Business Park), Calgary
4403-4435 97th Street NW, Edmonton
1139-1165 40th Avenue NE, Calgary
2151 32nd Street NE (Sunridge Business Park), Calgary
Total
GLA in
square feet
Owned
share of
total GLA in
square feet
Year built/
renovated
351,306
351,306
1978/2007
48,365
37,690
34,904
31,467
30,353
30,000
48,365
1975/1987
37,690
34,904
31,467
30,353
30,000
2006
2005
1978
2006
2000
Clear ceiling
height
(warehouse
component)
in feet
30.0
21.0
22.0
24.0
18.0
28.0
16.0
Total
site area in
acres
Owned
share of
site area
in acres
13.8
13.8
3.7
1.9
9.0
3.2
5.5
2.3
3.7
1.9
9.0
3.2
5.5
2.3
100%
100%
100%
100%
100%
100%
100%
100%
27,180
27,180
2000
24.0
2.1
2.1
100%
100%
50%
100%
100%
50%
50%
50%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
27,058
26,381
46,157
19,274
14,305
23,415
12,150
11,677
11,169
27,058
26,381
23,079
19,274
14,305
2005
2003
2012
1984
2006
11,708
1984/1997
6,075
1980/2012
5,839
2006
5,585
1989/1997
782,851
730,569
373,284
373,284
189,064
189,064
1976
1977
177,058
177,058
1977/2004
167,779
167,779
1979
164,178
164,178
138,729
138,729
131,227
131,227
110,360
110,360
109,704
109,704
99,978
94,435
90,265
88,886
86,023
80,815
79,414
75,172
73,032
67,379
65,022
64,939
63,950
59,751
58,696
58,290
58,184
57,898
57,813
57,479
57,225
99,978
94,435
90,265
88,886
86,023
80,815
79,414
75,172
73,032
67,379
65,022
64,939
63,950
59,751
58,696
58,290
58,184
57,898
57,813
57,479
57,225
1975
1976
1981
1975
1978
1976
1976
1982
1968
1975
2004
1975
1998
1976
2001
1998
1985
1976
1999
1980
1982
2000
1998
1975
1974
1999
24.0
30.0
28.0
20.0
24.0
24.0
18.0
18.0
16.0
26.1
24.0
20.0
25.0
20.0
19.0
22.0
22.0
22.0
19.0
26.0
18.0
19.0
24.7
17.0
23.8
20.0
28.0
18.0
24.0
24.0
20.0
22.0
24.0
20.0
12.0
24.0
24.0
24.0
20.0
24.0
27.3
27.3
1.5
3.6
0.9
5.2
3.4
2.1
2.7
1.1
89.3
24.0
10.2
12.4
6.5
9.1
6.0
5.2
6.0
6.8
5.1
5.3
5.0
6.5
3.7
6.3
3.4
4.5
4.0
3.8
3.0
2.9
4.1
3.3
2.3
2.6
3.5
3.5
3.2
2.9
3.4
1.5
1.8
0.9
5.2
1.7
1.1
1.4
0.5
82.9
24.0
10.2
12.4
6.5
9.1
6.0
5.2
6.0
6.8
5.1
5.3
5.0
6.5
3.7
6.3
3.4
4.5
4.0
3.8
3.0
2.9
4.1
3.3
2.3
2.6
3.5
3.5
3.2
2.9
3.4
Dream Industrial REIT 2018 Annual Report | 43
Weighted
average
remaining
lease
term in
years
In-place and
committed
occupancy
No. of
tenants
1
0
1
1
1
1
1
1
1
1
1
1
1
1
1
0
1
15
2
6
3
13
20
2
8
21
18
2
9
16
11
7
12
10
2
22
2
7
4
6
7
23
8
3
4
5
6
6
3.8
100.0%
-
0.0%
3.8
1.2
5.8
2.3
1.9
100.0%
100.0%
100.0%
100.0%
100.0%
1.6
100.0%
1.2
3.6
4.4
2.9
2.8
2.2
4.3
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
-
0.0%
5.1
100.0%
3.4
92.6%
4.8
3.5
5.1
4.0
2.0
3.7
3.1
1.9
4.3
2.8
5.8
2.9
2.8
1.9
2.4
3.0
2.0
2.9
6.3
1.6
3.4
3.3
3.5
3.3
3.3
3.4
4.7
3.4
5.5
3.1
100.0%
100.0%
100.0%
83.3%
93.2%
100.0%
88.1%
94.4%
79.8%
100.0%
100.0%
89.3%
93.6%
100.0%
77.8%
94.6%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
71.3%
97.4%
100.0%
100.0%
100.0%
100.0%
100.0%
Property
501-529 36th Avenue SE, Calgary
2928 Sunridge Way NE (Sunridge Business Park), Calgary
4504-4576 14th Street NE, Calgary
6812 6th Street SE (Glenmore Business Park), Calgary
2121 29th Street NE (Sunridge Business Park), Calgary
402 McDonald Street (Imperial Business Centre),
Regina
2985 23rd Avenue NE (Sunridge Business Park), Calgary
4402-4434 10th Street NE, Calgary
7003 5th Street SE (Glenmore Business Park), Calgary
16134 114th Avenue NW, Edmonton
2886 Sunridge Way NE (Sunridge Business Park), Calgary
610 70th Avenue SE (Glenmore Business Park), Calgary
1512-1514 8th Street, Edmonton
535-561 36th Avenue SE, Calgary
5824 Burbank Road SE, Calgary
310 Hoffer Drive (McDonald Business Centre), Regina
4001 19th Street, Calgary
6810 6th Street SE (Glenmore Business Park), Calgary
6804-6818 30th Street SE, Calgary
7131 6th Street SE (Glenmore Business Park), Calgary
6023-6039 Centre Street South, Calgary
4502-4516 10th Street NE, Calgary
16104 114th Avenue NW, Edmonton
3030 Sunridge Way NE (Sunridge Business Park), Calgary
6043-6055 Centre Street South, Calgary
530-544 38A Avenue SE, Calgary
7007 5th Street SE (Glenmore Business Park), Calgary
616 71st Avenue SE (Glenmore Business Park), Calgary
1135-1149 45th Avenue NE, Calgary
6910 6th Street SE (Glenmore Business Park), Calgary
4620-4640 11th Street NE, Calgary
102-114 61st Avenue SW, Calgary
4001-4019 23rd Street NE, Calgary
2915-2925 58th Avenue SE, Calgary
3503-3521 62nd Avenue SE, Calgary
125 McDonald Street, Regina
Western Canada Multi-tenant
Western Canada
275 Wellington Street East, Aurora
45 Progress Avenue, Toronto
3230 Mainway Drive, Burlington
290 Humberline Drive, Etobicoke
750 Creditstone Road, Vaughan
121 Pippin Road, Vaughan
580 Industrial Road, London
441 Chrislea Road, Vaughan
2130 South Service Road West, Oakville
970 Fraser Drive, Burlington
3 & 5 Blair Drive, Brampton
274 Humberline Drive, Etobicoke
2226 South Service Road West, Oakville
439 Sovereign, London
9305 Twin Oaks Drive, Windsor
2 Lone Oak Court, Toronto
6885-6895 Menway Court, Mississauga
896 Meyerside Drive, Mississauga
880 Rangeview Road, Mississauga
135 Pinebush Road, Cambridge
5905 Kennedy Road, Mississauga
Total
GLA in
square feet
Owned
share of
total GLA in
square feet
Year built/
renovated
Ownership
Clear ceiling
height
(warehouse
component)
in feet
Total
site area in
acres
Owned
share of
site area
in acres
No. of
tenants
Weighted
average
remaining
lease
term in
years
In-place and
committed
occupancy
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
57,219
57,223
57,128
57,089
56,889
56,116
53,998
54,004
52,825
47,925
44,460
44,246
42,670
41,440
39,845
38,050
37,014
31,726
29,986
29,002
28,795
28,648
29,224
27,010
25,234
24,005
23,265
21,957
21,589
21,268
21,164
18,890
15,764
15,610
13,420
14,084
57,219
57,223
57,128
57,089
56,889
56,116
53,998
54,004
52,825
47,925
44,460
44,246
42,670
41,440
39,845
38,050
37,014
31,726
29,986
29,002
28,795
28,648
29,224
27,010
25,234
24,005
23,265
21,957
21,589
21,268
21,164
18,890
15,764
15,610
13,420
7,042
1974
2003
1976
1978
2000
1984
2000
1974
1975
2006
2001
1985
1980
1974
1972
1985
1978
1978
1976
1982
1973
1974
1972
2000
1973
1974
1974
1985
1974
1978
1971
1973
1976
1976
1975
1975
4,334,811
4,327,769
5,117,662
5,058,338
317,000
317,000
1986
209,754
209,754
1965/2000
207,703
207,703
1965
180,329
180,329
1981/2010
176,535
176,535
169,500
169,500
1999
1999
113,595
113,595
1972/2002
100,626
100,626
1998
98,175
95,444
82,232
80,540
79,174
77,877
74,239
72,197
66,383
46,774
45,600
44,470
38,158
98,175
1986/2005
95,444
82,232
80,540
79,174
77,877
74,239
72,197
66,383
46,774
1999
2001
1981
1980
1988
1996
2001
1988
1986
45,600
1977/2005
44,470
38,158
2001
1988
18.0
24.0
16.0
20.0
24.0
18.0
24.0
16.0
20.0
26.8
24.0
20.0
20.0
16.0
20.0
18.0
22.0
19.0
16.0
20.0
15.0
16.0
20.0
24.0
15.0
16.0
19.0
21.0
16.0
16.0
16.0
14.0
16.0
16.0
13.0
13.0
21.1
21.9
27.0
24.0
21.0
20.0
24.0
24.0
24.0
22.0
24.0
28.0
28.0
20.0
22.0
22.0
28.0
24.0
20.0
20.0
24.0
60.0
22.0
2.9
4.1
4.1
5.7
3.8
2.8
3.0
3.1
2.7
4.4
3.5
3.5
2.9
4.1
4.1
5.7
3.8
2.8
3.0
3.1
2.7
4.4
3.5
3.5
10.2
10.2
1.9
2.4
2.8
2.5
3.2
1.2
1.3
1.5
1.4
4.4
2.1
1.3
1.2
1.2
1.0
1.3
2.1
1.4
1.1
1.1
1.0
1.2
1.2
1.9
2.4
2.8
2.5
3.2
1.2
1.3
1.5
1.4
4.4
2.1
1.3
1.2
1.2
1.0
1.3
2.1
1.4
1.1
1.1
1.0
1.2
0.6
262.1
261.5
351.4
344.4
16.3
10.3
9.9
6.9
9.0
8.6
16.3
10.3
9.9
6.9
9.0
8.6
12.7
12.7
4.1
4.4
6.9
6.4
3.9
3.5
5.6
5.2
4.4
3.4
2.4
3.2
5.6
2.1
4.1
4.4
6.9
6.4
3.9
3.5
5.6
5.2
4.4
3.4
2.4
3.2
5.6
2.1
7
3
30
6
3
15
3
6
14
9
5
11
1
2
6
5
7
3
4
2
6
7
7
6
5
7
3
3
6
4
10
3
5
5
9
2
495
510
1
1
1
1
1
1
1
1
1
1
1
1
1
0
1
1
1
1
1
1
1
4.0
3.3
2.1
2.3
2.8
1.7
6.0
3.3
3.8
1.8
8.0
2.4
1.3
7.2
4.7
1.3
3.1
2.2
2.5
2.6
3.8
2.0
3.0
2.4
3.0
3.0
1.0
4.4
3.1
0.6
2.1
4.5
5.4
2.0
2.7
3.7
3.5
3.5
3.2
15.5
6.8
4.1
6.0
1.0
9.1
0.8
4.2
9.0
0.5
1.3
2.0
100.0%
100.0%
97.5%
100.0%
100.0%
90.4%
79.6%
86.7%
100.0%
100.0%
100.0%
92.5%
83.5%
100.0%
100.0%
100.0%
88.3%
100.0%
100.0%
100.0%
100.0%
100.0%
97.9%
100.0%
100.0%
87.5%
100.0%
100.0%
100.0%
100.0%
90.8%
85.8%
100.0%
100.0%
100.0%
71.9%
95.6%
95.2%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
-
0.0%
1.6
3.5
1.2
7.4
3.8
1.5
2.1
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Dream Industrial REIT 2018 Annual Report | 44
Property
Ownership
Total
GLA in
square feet
Owned
share of
total GLA in
square feet
Year built/
renovated
Clear ceiling
height
(warehouse
component)
in feet
Total
site area in
acres
Owned
share of
site area
in acres
No. of
tenants
Weighted
average
remaining
lease
term in
years
In-place and
committed
occupancy
6045 Kestrel Road, Mississauga
2946 Walker Road, Windsor
781 Westgate Road, Oakville
6520 Gottardo Court, Mississauga
750 Barmac Drive, Toronto
7420 Pacific Circle, Mississauga
1300 Fewster Road, Mississauga
5805 Kennedy Road, Mississauga
5380 Timberlea Boulevard, Mississauga
5462 Timberlea Boulevard, Mississauga
5370 Timberlea Boulevard, Mississauga
5750 Coopers Avenue, Mississauga
5444 Timberlea Boulevard, Mississauga
Ontario Single-tenant
6581-6601 Kitimat Road, Mississauga
161 West Mall, Toronto
2360 Cornwall Road, Oakville
45 A & B West Wilmot Street, Richmond Hill
255 Wicksteed Avenue, Toronto
2140-2150 Winston Park Drive, Mississauga
90 Nolan Court, Markham
55 Horner Avenue, Etobicoke
4515/4525 Rhodes Drive, Windsor
1111 Tristar Drive, Mississauga
903-951 Matheson Boulevard, Mississauga
1100 Courtney Park Drive, Mississauga
100 Lingard Road, Cambridge
5825-5895 Kennedy Road, Mississauga
6400 Shawson Drive, Mississauga
5554 Tomken Road, Mississauga
6300 Viscount Road, Mississauga
845 Harrington Court, Burlington
5716-5730 Coopers Avenue, Mississauga
855 Matheson Boulevard, Mississauga
5448 Timberlea Boulevard, Mississauga
5430 Timberlea Boulevard, Mississauga
5466 Timberlea Boulevard, Mississauga
135 East Beaver Creek, Richmond Hill
5420 Timberlea Boulevard, Mississauga
Ontario Multi-tenant
Ontario
1411, 1421 and 1451 Rue Ampère, Boucherville
1900 Dickson Street (Molson Distribution Centre),
Montreal
2350 de la Province, Longueuil
1125 50th Avenue, Montréal
8000 Avenue Blaise-Pascal, Montréal
1313 Autoroute Chomedey, Laval
650 Rue Bergeron, Drummondville
10555 Boulevard Henri-Bourassa Ouest, St-Laurent
2340 St. Laurent Blvd., Ottawa
101 Autoroute 440, Laval
1805 50e Avenue, Lachine
1421 Rue Nobel, Sainte-Julie
3700-3720 AutoRoute des Laurentides, Laval
1870 Boulevard Saint-Régis, Dollard-des-Ormeaux
29 Rue de Varennes, Gatineau
361 Boulevard Montpellier, St. Laurent
Québec Single-tenant
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
34,879
32,264
29,850
25,932
23,959
23,777
23,500
21,780
19,988
17,708
16,693
16,366
15,316
34,879
32,264
29,850
25,932
23,959
23,777
23,500
21,780
19,988
17,708
16,693
16,366
15,316
2,678,317
2,678,317
318,363
318,363
205,000
205,000
199,736
199,736
189,128
189,128
177,562
177,562
172,490
172,490
124,897
124,897
95,519
92,089
77,726
77,420
72,393
70,154
67,846
61,715
61,245
59,982
56,496
53,695
46,652
32,025
31,448
28,657
28,506
19,816
95,519
92,089
77,726
77,420
72,393
70,154
67,846
61,715
61,245
59,982
56,496
53,695
46,652
32,025
31,448
28,657
28,506
19,816
1986
1960
1985
1987
1979
1987
1969
1986
1986
1977
1986
1987
1977
1986
1965
2004
1986
1955
1987
1982
1988
1999
1986
1977
1981
2003
1988
1981
1979
1966
1982
1987
1986
1977
1977
1977
1986
1977
2,420,560
2,420,560
5,098,877
5,098,877
457,875
457,875
1998/2002
225,000
225,000
2003
222,464
222,464
210,710
210,710
206,345
206,345
184,493
184,493
181,000
181,000
1967
2000
1993
1999
2007
120,817
120,817
1972/2007
114,724
114,724
68,444
60,750
50,878
49,500
40,231
23,959
19,220
68,444
60,750
50,878
49,500
40,231
23,959
19,220
1989
1977
1986
1998
2002
1984
2006
1987
1
1
1
1
1
1
1
1
1
1
1
1
1
33
15
2
3
39
3
43
30
3
7
2
8
4
1
8
3
10
4
10
23
12
2
2
2
5
2
20.0
22.0
22.0
18.0
18.0
18.0
14.0
18.0
18.0
18.0
18.0
18.0
18.0
1.8
4.0
4.2
1.2
1.5
1.2
1.2
1.0
1.0
1.0
0.8
0.9
0.9
1.8
4.0
4.2
1.2
1.5
1.2
1.2
1.0
1.0
1.0
0.8
0.9
0.9
23.7
155.5
155.5
16.9
10.5
10.3
16.9
10.5
10.3
8.0
8.0
7.5
7.0
6.2
9.0
3.7
3.8
3.4
5.4
3.4
2.9
3.2
4.3
4.0
3.4
2.0
1.8
1.8
1.6
1.8
1.1
8.0
8.0
7.5
7.0
6.2
9.0
3.7
3.8
3.4
5.4
3.4
2.9
3.2
4.3
4.0
3.4
2.0
1.8
1.8
1.6
1.8
1.1
25.0
50.0
28.0
19.0
24.0
19.0
18.0
22.0
22.0
22.0
18.0
22.0
46.0
15.0
22.0
18.0
16.0
15.0
14.0
18.0
16.0
17.0
18.0
17.0
18.0
24.2
23.9
27.0
26.0
20.0
26.0
23.0
26.0
28.0
22.0
24.0
22.0
19.0
22.0
24.0
22.0
20.0
18.0
131.0
131.0
286.5
286.5
243
276
21.6
17.1
11.5
13.3
13.8
8.1
10.5
10.5
6.2
4.6
2.3
4.3
3.6
1.8
3.4
1.2
21.6
17.1
11.5
13.3
13.8
8.1
10.5
10.5
6.2
4.6
2.3
4.3
3.6
1.8
3.4
1.2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2,236,410
2,236,410
24.5
133.8
133.8
16
Dream Industrial REIT 2018 Annual Report | 45
5.3
1.0
1.7
3.0
0.2
0.5
2.5
4.8
1.1
1.4
1.2
2.2
1.6
4.7
2.3
7.1
2.9
3.2
4.7
2.5
2.9
3.5
1.3
2.2
3.2
2.5
4.1
4.0
5.0
3.9
2.2
4.6
2.0
1.8
0.8
3.5
4.8
0.8
2.3
3.3
4.0
6.4
4.0
3.1
5.8
3.2
6.4
4.0
2.1
6.3
4.4
2.4
2.8
3.6
2.4
2.1
7.8
4.6
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
97.1%
100.0%
100.0%
100.0%
100.0%
100.0%
96.7%
100.0%
82.7%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
99.3%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
99.1%
98.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Property
Ownership
Clear ceiling
height
(warehouse
component)
in feet
Total
site area in
acres
Owned
share of
site area
in acres
No. of
tenants
Year built/
renovated
Weighted
average
remaining
lease
term in
years
In-place and
committed
occupancy
2995 Boulevard le Corbusier, Laval
5000 Rue Fairway & 1645 50e Avenue, Lachine
1700-1764 50e Avenue, Lachine
1100-1154 Rue Berlier, Laval
9090-9100 Boulevard Cavendish, St-Laurent
333 Chemin du Tremblay, Boucherville
1876-1936 32e Avenue, Lachine
1500 Rue Nobel, Boucherville
2000 32e Avenue, Lachine
1624-1692 50e Avenue, Lachine
1151-1179 Autoroute 440, Laval
10001-10091 Renaude-Lapointe, Montréal
2101 Rue Nobel, Sainte-Julie
1950 32e Avenue, Montréal
1825-1865 32e Avenue, Montréal
4300-4400 Boulevard Bois-Franc, St Laurent
4605-4645 Rue Fairway & 1405-1465 46e Avenue,
Lachine
1010 Rue Berlier & 2854-2870 Boulevard
Industriel, Laval
1025-1087 Autoroute 440, Laval
585-625 Avenue Meloche, Dorval
135 Chemin du Tremblay, Boucherville
Québec Multi-tenant
Québec
58 Wright Avenue (Burnside Business Park), Dartmouth
50 Garland Avenue (Burnside Business Park), Dartmouth
80 Thornhill Drive (Burnside Business Park), Dartmouth
Eastern Canada Single-tenant
202 Brownlow Avenue (Burnside Business Park),
Dartmouth
320-340 Wright Avenue (Burnside Business Park),
Dartmouth
201 Brownlow Avenue (Burnside Business Park),
Dartmouth
7 Mellor Avenue, Dartmouth
10 Morris Drive (Burnside Business Park), Dartmouth
71 Thornhill Drive, Dartmouth
131-135 Ilsley Avenue (Burnside Business Park),
Dartmouth
121 Ilsley Avenue, Dartmouth
75 Akerley Boulevard, Dartmouth
222 Edinburgh Drive, Moncton
11 Morris Drive (Burnside Business Park), Dartmouth
120 Troop Avenue (Burnside Business Park), Dartmouth
100 Ilsley Avenue (Burnside Business Park), Dartmouth
100 Wright Avenue (Burnside Business Park), Dartmouth
55 Akerley Boulevard, Dartmouth
51 Raddall Avenue (Burnside Business Park), Dartmouth
170 Joseph Zatzman Drive (Burnside Business Park),
Dartmouth
50 Akerley Boulevard (Burnside Business Park),
Dartmouth
10 Vidito Drive, Dartmouth
101 Thornhill Drive (Burnside Business Park), Dartmouth
105 Akerly Boulevard (Burnside Business Park),
Dartmouth
30-58 Mosher Drive (Burnside Business Park), Dartmouth
29-59 Mosher Drive (Burnside Business Park), Dartmouth
50 Troop Avenue (Burnside Business Park), Dartmouth
32 Troop Avenue (Burnside Business Park), Dartmouth
Total
GLA in
square feet
Owned
share of
total GLA in
square feet
130,824
130,824
108,292
108,292
94,569
91,843
89,322
86,842
84,659
82,081
81,288
79,094
78,938
77,846
73,411
71,923
71,616
68,575
60,728
94,569
91,843
89,322
86,842
84,659
82,081
81,288
79,094
78,938
77,846
73,411
71,923
71,616
68,575
60,728
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1975
1978
1989
1975
1987
1987
1987
1989
1985
1975
1975
1987
1992
1988
1986
1987
1974
24.0
18.0
24.0
18.0
18.0
18.0
18.0
18.0
18.0
19.0
19.0
18.0
20.0
18.0
18.0
18.0
19.0
4.7
5.5
4.2
4.5
7.5
3.8
4.7
4.1
4.8
4.3
3.9
3.7
4.8
4.5
4.9
3.9
4.0
4.7
5.5
4.2
4.5
7.5
3.8
4.7
4.1
4.8
4.3
3.9
3.7
4.8
4.5
4.9
3.9
4.0
100%
58,622
58,622
1975
19.0
3.1
3.1
100%
100%
100%
100%
100%
100%
56,622
54,667
49,808
56,622
54,667
49,808
1,651,570
1,651,570
3,887,980
3,887,980
43,000
35,574
10,090
88,664
43,000
35,574
10,090
88,664
1979
1981
1989
1972
2006
1984
100%
212,841
212,841
1986
18.0
18.0
16.0
19.0
22.2
24.0
10.0
20.0
17.9
18.0
2.8
2.7
2.4
2.8
2.7
2.4
88.8
88.8
222.6
222.6
2.4
2.5
1.1
6.0
2.4
2.5
1.1
6.0
13.8
13.8
100%
170,329
170,329
2007
24.0
10.6
10.6
100%
159,813
159,813
1988
16.0
10.7
10.7
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2007
1979
1980
1984
1983
1982
122,490
122,490
118,741
118,741
100,322
100,322
98,461
98,461
96,982
96,300
94,411
89,918
87,214
76,178
76,141
75,398
70,204
67,177
96,982
96,300
94,411
1977/1999
89,918
87,214
76,178
76,141
75,398
70,204
67,177
1977
2004
1984
1979
1975
1986
1981
24.0
18.0
28.0
18.0
19.0
19.0
22.0
18.0
24.0
14.0
18.0
19.0
18.0
16.0
7.2
7.5
5.2
6.6
8.0
7.8
7.7
5.0
5.7
6.1
4.4
5.8
4.7
4.0
7.2
7.5
5.2
6.6
8.0
7.8
7.7
5.0
5.7
6.1
4.4
5.8
4.7
4.0
100%
62,892
62,892
1983
18.0
1.6
1.6
100%
100%
100%
100%
100%
100%
100%
61,988
61,551
57,949
56,937
54,739
53,911
47,790
61,988
61,551
57,949
56,937
54,739
53,911
47,790
1980
1982
1983
1972
1974
2001
2000
22.0
18.0
18.0
18.0
18.0
24.0
24.0
2.7
3.8
3.3
2.6
3.6
3.6
3.3
2.7
3.8
3.3
2.6
3.6
3.6
3.3
Dream Industrial REIT 2018 Annual Report | 46
6
4
1
9
3
4
3
7
4
5
14
3
5
7
9
4
5
7
10
2
9
121
137
1
1
1
3
55
12
33
12
22
2
17
19
18
5
19
6
15
11
8
10
14
11
2
8
7
3
4
3
4
3.7
4.3
2.8
2.1
3.0
3.8
5.1
1.4
1.7
2.0
2.8
4.0
1.7
2.6
3.6
3.1
4.1
99.6%
95.1%
96.8%
100.0%
71.2%
100.0%
100.0%
100.0%
89.4%
81.6%
100.0%
96.5%
88.1%
100.0%
100.0%
100.0%
100.0%
2.3
100.0%
2.0
4.5
2.2
3.1
4.0
2.5
8.3
0.8
4.5
3.2
100.0%
100.0%
90.4%
95.5%
98.1%
100.0%
90.1%
100.0%
96.0%
87.2%
2.7
100.0%
3.3
100.0%
4.3
2.2
2.1
3.9
4.2
4.2
2.7
2.9
4.4
2.3
2.4
5.3
3.1
3.1
100.0%
89.3%
100.0%
100.0%
92.1%
100.0%
51.6%
93.1%
100.0%
97.2%
85.1%
100.0%
93.1%
76.8%
2.7
93.4%
4.2
4.4
2.5
2.6
2.4
2.4
2.2
100.0%
100.0%
100.0%
80.1%
79.5%
100.0%
100.0%
Property
Ownership
Total
GLA in
square feet
Owned
share of
total GLA in
square feet
Year built/
renovated
Clear ceiling
height
(warehouse
component)
in feet
Total
site area in
acres
Owned
share of
site area
in acres
No. of
tenants
Weighted
average
remaining
lease
term in
years
In-place and
committed
occupancy
109 Ilsley Avenue (Burnside Business Park), Dartmouth
81 Wright Avenue (Burnside Business Park), Dartmouth
95 Akerley Boulevard, Dartmouth
30 Simmonds Drive (Burnside Business Park), Dartmouth
40 Thornhill Drive (Burnside Business Park), Dartmouth
50 Thornhill Drive (Burnside Business Park), Dartmouth
60 Thornhill Drive (Burnside Business Park), Dartmouth
10 Thornhill Drive, Dartmouth
16 Garland Avenue (Burnside Business Park), Dartmouth
Eastern Canada Multi-tenant
Eastern Canada
Total Canadian Portfolio
445 Couchville Industrial Blvd, Nashville, TN
860 Marine Drive, Charlotte, NC
9000 Smith’s Mill Road, Columbus, OH
7730 American Way, Orlando, FL
U.S. Single-tenant
5605 Holmescrest Lane, Memphis, TN
4470 Southpoint Drive, Memphis, TN
8860 Smith’s Mill Road, Columbus, OH
U.S. Multi-tenant
U.S.
Total Portfolio Single-tenant buildings
Total Portfolio Multi-tenant buildings
Total Portfolio(1)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
45,081
44,366
38,106
37,877
32,139
32,063
31,929
28,640
10,888
45,081
44,366
38,106
37,877
32,139
32,063
31,929
28,640
10,888
2,571,766
2,571,766
2,660,430
2,660,430
16,764,949 16,705,625
717,160
717,160
471,744
471,744
417,049
417,049
193,133
193,133
1,799,086
1,799,086
885,000
885,000
500,000
500,000
304,318
304,318
1,689,318
1,689,318
3,488,404
3,488,404
7,585,328
7,533,046
12,668,025
12,660,983
20,253,353
20,194,029
(1) Excludes the property held for sale at December 31, 2018.
1987
1986
1980
1982
1982
1983
1986
1983
2008
2010
1994
2011
1997
2006
1997
2011
16.0
20.0
14.0
16.0
16.0
16.0
16.0
15.0
14.0
19.4
19.3
3.1
3.6
2.1
2.8
3.8
3.8
2.0
3.4
1.5
3.1
3.6
2.1
2.8
3.8
3.8
2.0
3.4
1.5
15
4
14
7
10
11
6
10
4
171.4
171.4
177.4
177.4
401
404
22.2
1,037.9
1,031
1,327
32.0
30.0
32.0
25.0
30.7
32.0
32.0
32.0
32.0
31.3
25.8
22.5
58.6
26.0
21.9
20.6
58.6
26.0
21.9
20.6
127.1
127.1
47.3
23.3
17.0
87.6
47.3
23.3
17.0
87.6
214.7
214.7
511.7
505.3
740.9
740.3
23.8
1,252.6 1,245.6
1
1
1
1
4
2
2
4
8
12
71
1,268
1,339
2.4
1.7
1.8
2.1
1.8
2.4
4.7
2.5
2.6
3.1
3.2
3.7
7.3
4.0
7.5
4.2
6.1
5.6
5.1
4.1
5.2
5.7
4.9
3.6
4.1
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
89.9%
100.0%
100.0%
93.7%
93.7%
96.5%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
98.2%
96.5%
97.1%
Dream Industrial REIT 2018 Annual Report | 47
Management’s responsibility for the consolidated financial statements
The accompanying consolidated financial statements, the notes thereto and other financial information contained in this
Annual Report have been prepared by, and are the responsibility of, the management of Dream Industrial Real Estate
Investment Trust. These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards, using management’s best estimates and judgments as appropriate.
The Board of Trustees is responsible for ensuring that management fulfills its responsibility for financial reporting and internal
controls. The Audit Committee, which comprises trustees, meets with management as well as the external auditor to satisfy
itself that management is properly discharging its financial responsibilities and to review its consolidated financial statements
and the report of the auditor. The Audit Committee reports its findings to the Board of Trustees, which approves the
consolidated financial statements.
PricewaterhouseCoopers LLP, the independent auditor, has audited the consolidated financial statements in accordance with
Canadian generally accepted auditing standards. The auditor had full and unrestricted access to the Audit Committee, with or
without management present.
“Brian Pauls”
Brian Pauls
Chief Executive Officer
Toronto, Ontario, February 19, 2019
“Lenis Quan”
Lenis Quan
Chief Financial Officer
Dream Industrial REIT 2018 Annual Report | 48
Independent auditor’s report
To the Unitholders of Dream Industrial Real Estate Investment Trust
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Dream Industrial Real Estate Investment Trust and its subsidiaries, (together, the
Trust) as at December 31, 2018 and 2017, and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS).
What we have audited
The Trust’s consolidated financial statements comprise:
the consolidated balance sheets as at December 31, 2018 and 2017;
the consolidated statements of net income and comprehensive income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit
of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in
accordance with these requirements.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
49
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis and the information, other than the consolidated financial statements and our
auditor’s report thereon, included in the annual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless management either intends to liquidate the Trust or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
50
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Trust’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Trust to cease
to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Trust to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
5(cid:20)
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Frank Magliocco.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 19, 2019
52
Consolidated balance sheets
(in thousands of Canadian dollars)
Assets
NON-CURRENT ASSETS
Investment properties
Other non-current assets
CURRENT ASSETS
Amounts receivable
Prepaid expenses and other assets
Cash and cash equivalents
Assets held for sale
Total assets
Liabilities
NON-CURRENT LIABILITIES
Debt
Subsidiary redeemable units
Deferred Unit Incentive Plan (“DUIP”)
Other non-current liabilities
CURRENT LIABILITIES
Debt
Amounts payable and accrued liabilities
Total liabilities
Equity
Unitholders’ equity
Retained earnings (deficit)
Accumulated other comprehensive income (loss)
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
Note
December 31,
2018
December 31,
2017
6
8
9
10
11
12
13
14
11
15
16
16
16, 18
$
$
$
$
2,138,411 $
3,496
2,141,907
1,722,988
6,634
1,729,622
4,310
5,490
4,968
14,768
3,900
2,160,575 $
3,143
5,135
54,651
62,929
15,200
1,807,751
860,789 $
176,613
6,608
15,279
1,059,289
76,941
35,020
111,961
1,171,250
887,757
90,621
10,947
989,325
2,160,575 $
776,459
163,256
5,278
12,657
957,650
113,337
24,518
137,855
1,095,505
720,437
(7,056 )
(1,135 )
712,246
1,807,751
On behalf of the Board of Trustees of Dream Industrial Real Estate Investment Trust:
“Vincenza Sera”
Vincenza Sera
Trustee
“Sheldon Wiseman”
Sheldon Wiseman
Trustee
Dream Industrial REIT 2018 Annual Report | 53
Consolidated statements of net income and comprehensive income
(in thousands of Canadian dollars)
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and fee income
Other expenses
General and administrative
Interest:
Debt
Subsidiary redeemable units
Depreciation and amortization
Fair value adjustments and other items
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Net losses on transactions and other activities
Income before income taxes
Deferred and current income taxes, net
Net income
Other comprehensive income (loss)
Items that will be reclassified subsequently to net income:
Unrealized gain (loss) on foreign currency translation, net of taxes
Unrealized gain on effective interest rate hedge, net of taxes
Comprehensive income
See accompanying notes to the consolidated financial statements.
Note
19
$
20
21
21
6, 10
22
23
24
18
18
$
$
$
Year ended December 31,
2018
2017
193,548
172,350
(59,804 )
(55,572 )
133,744
116,778
$
657
657
995
995
(10,807 )
(9,052 )
(37,070 )
(13,376 )
(59 )
(61,312 )
107,875
(17,120 )
(5,080 )
85,675
158,764
(1,236 )
157,528
11,990
92
12,082
169,610
$
$
$
(34,871 )
(13,376 )
(52 )
(57,351 )
(17,491 )
(4,869 )
(3,275 )
(25,635 )
34,787
(128 )
34,659
(1,079 )
813
(266 )
34,393
Dream Industrial REIT 2018 Annual Report | 54
Consolidated statements of changes in equity
Unitholders’
(in thousands of Canadian dollars,
except number of units)
Balance at January 1, 2018
Net income
Distributions paid and payable
Public offering of REIT Units
Distribution Reinvestment Plan(1)
REIT Units issued for vested deferred trust units
Unit Purchase Plan
Issue costs and other
Other comprehensive income
Balance at December 31, 2018
Note
Number of
REIT Units
75,104,843 $
—
—
17
16 13,915,000
2,863,035
16
178,764
13
1,017
16
—
—
18
92,062,659 $
equity
720,437 $
—
—
144,020
28,292
1,680
10
(6,682 )
—
887,757 $
Attributable to unitholders of the Trust
Accumulated
other
Retained
earnings
(deficit)
(7,056 ) $
157,528
(59,851 )
—
—
—
—
—
—
90,621 $
comprehensive
income (loss)
(1,135 ) $
—
—
—
—
—
—
—
12,082
10,947 $
Total
equity
712,246
157,528
(59,851 )
144,020
28,292
1,680
10
(6,682 )
12,082
989,325
(1) Includes REIT Units issued under the Distribution Reinvestment Plan for LP B Units.
(in thousands of Canadian dollars,
except number of units)
Balance at January 1, 2017
Net income
Distributions paid and payable
Public offering of REIT Units
REIT Units issued from private placements
Distribution Reinvestment Plan(1)
REIT Units issued for vested deferred trust units
Unit Purchase Plan
Issue costs and other
Other comprehensive loss
Balance at December 31, 2017
Note
17
16
16, 27
16
13
16
18
Number of
REIT Units
59,633,237 $
Unitholders’
equity
589,252 $
—
—
9,890,000
2,973,000
2,428,965
178,250
1,391
—
—
—
—
86,538
26,014
21,110
1,557
12
(4,046 )
—
75,104,843 $
720,437 $
(1) Includes REIT Units issued under the Distribution Reinvestment Plan for LP B Units.
See accompanying notes to the consolidated financial statements.
Attributable to unitholders of the Trust
Retained
earnings
(deficit)
2,727 $
34,659
(44,442 )
—
—
—
—
—
—
—
(7,056 ) $
Accumulated
other
comprehensive
loss
(869 ) $
—
—
—
—
—
—
—
—
(266 )
(1,135 ) $
Total
equity
591,110
34,659
(44,442 )
86,538
26,014
21,110
1,557
12
(4,046 )
(266 )
712,246
Dream Industrial REIT 2018 Annual Report | 55
Consolidated statements of cash flows
(in thousands of Canadian dollars)
Generated from (utilized in) operating activities
Net income for the year
Non-cash items:
Depreciation and amortization
Other adjustments
Investment in lease incentives and initial direct leasing costs
Change in non-cash working capital
Generated from (utilized in) investing activities
Additions to property and equipment
Investment in building improvements
Acquisitions of investment properties
Deposit on acquisition of investment properties
Transaction costs paid
Generated from (utilized in) financing activities
Borrowings
Financing costs additions
Principal repayments
Lump sum repayments
Distributions paid on REIT Units
Cash proceeds on issuance of REIT Units
Issue costs paid on REIT Units
Increase (decrease) in cash and cash equivalents
Foreign exchange gain (loss) on cash held in foreign currency
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
Note
Year ended December 31,
2017
2018
$
157,528 $
34,659
25
25
25
5
11
11
11
11
17
16
2,999
(73,029 )
(9,482 )
(162 )
77,854
(274 )
(13,744 )
(236,259 )
(1,322 )
(5,345 )
(256,944 )
374,429
(2,878 )
(25,400 )
(311,906 )
(43,946 )
144,030
(6,852 )
127,477
(51,613 )
1,930
54,651
4,968 $
2,428
36,933
(9,390 )
2,491
67,121
(38 )
(15,030 )
(63,819 )
(2,208 )
(2,216 )
(83,311 )
119,400
(1,275 )
(24,019 )
(102,752 )
(35,804 )
112,564
(3,706 )
64,408
48,218
(162 )
6,595
54,651
$
Dream Industrial REIT 2018 Annual Report | 56
Notes to the consolidated financial statements
(All dollar amounts in thousands of Canadian dollars, except as otherwise noted)
Note 1
ORGANIZATION
Dream Industrial Real Estate Investment Trust (“Dream Industrial REIT”, “Dream Industrial” or “the Trust”) is an open-ended
investment trust created pursuant to a Declaration of Trust, as amended and restated, under the laws of the Province of
Ontario. The consolidated financial statements of Dream Industrial REIT include the accounts of Dream Industrial REIT and its
subsidiaries. Dream Industrial REIT’s portfolio comprises industrial properties located in key markets across Canada and the
U.S. A subsidiary of Dream Industrial performs the property management function in Canada.
The Trust’s registered office is 30 Adelaide Street East, Suite 301, Toronto, Ontario, Canada M5C 3H1. The Trust is listed on the
Toronto Stock Exchange under the symbol “DIR.UN”. Dream Industrial REIT’s consolidated financial statements for the year
ended December 31, 2018 were authorized for issuance by the Board of Trustees on February 19, 2019, after which they may
only be amended with the Board of Trustees’ approval.
For simplicity, throughout the Notes, reference is made to the units of the Trust as follows:
• “REIT Units”, meaning units of the Trust, excluding Special Trust Units;
• “Special Trust Units”, meaning units issued in connection with subsidiary redeemable units;
• “LP B Units” or “subsidiary redeemable units”, meaning the Class B limited partnership units of Dream Industrial LP
(“DILP”), a subsidiary of the Trust; and
• “Units”, meaning REIT Units and LP B Units.
Note 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in the preparation of these consolidated financial statements are described below:
Basis of presentation and statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board (“IFRS”).
Basis of consolidation
The consolidated financial statements comprise the financial statements of Dream Industrial REIT and its subsidiaries.
Subsidiaries are fully consolidated from the date of acquisition, which is the date on which the Trust obtains control, and
continue to be consolidated until the date such control ceases. Control exists when the Trust is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. All intercompany balances, income and expenses, and unrealized gains and losses resulting from intercompany
transactions are eliminated in full.
Joint arrangements
The Trust enters into joint arrangements via joint operations and joint ventures. A joint arrangement is a contractual
arrangement pursuant to which the Trust and other parties undertake an economic activity that is subject to joint control,
whereby the strategic financial and operating policy decisions relating to the activities of the joint arrangement require the
unanimous consent of the parties sharing control, and that is referred to as joint operations. Joint arrangements that involve
the establishment of a separate entity or partnership in which each party to the venture has rights to the net assets of the
arrangements are referred to as joint ventures. In a co-ownership arrangement, the Trust owns jointly one or more investment
properties with another party, and has direct rights to the investment property and obligations for the liabilities relating to the
co-ownership.
Business combinations
The purchase method of accounting is used for acquisitions meeting the definition of a business. The consideration transferred
in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the
assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree, and the equity
interests issued by the acquirer.
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Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at
their acquisition date fair values irrespective of the extent of any minority interest. The excess of the cost of acquisition over
the fair value of the Trust’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less
than the fair value of the Trust’s share of the net assets acquired, the difference is recognized directly in the profit or loss for
the period as an acquisition gain. Any transaction costs incurred with respect to the business combination are expensed in the
period incurred.
Investment properties
Investment properties are initially recorded at cost, including related transaction costs in connection with asset acquisitions,
and include industrial properties held to earn rental income and/or for capital appreciation. Subsequent to initial recognition,
investment properties are accounted for at fair value. At the end of each reporting period, the Trust determines the fair value
of investment properties by:
1) considering current contracted sales prices for properties that are available for sale;
2) obtaining appraisals from qualified external professionals applying the income approach on a rotational basis for select
properties; and
3) using internally prepared valuations applying the income approach.
The income approach is derived from two methods: capitalization rate (“cap rate”) method and discounted cash flow method.
In applying the cap rate method, the stabilized net operating income (“stabilized NOI”) of each property is divided by an
appropriate cap rate with adjustments for items such as average lease up costs, long-term vacancy rates, non-recoverable
capital expenditures, management fees, straight-line rents and other non-recurring items. In applying the discounted cash flow
method, the cash flows of each property are projected over an anticipated term, a terminal value is applied, and the cash flows
are discounted using an appropriate discount rate. On a quarterly basis, the Trust uses both the cap rate method and
discounted cash flow method to evaluate the fair value of its investment properties.
Building improvements are added to the carrying amount of investment properties only when it is probable that future
economic benefits associated with the expenditure will flow to the Trust and the cost of the item can be measured reliably.
Repairs and maintenance costs are recorded in investment properties operating expenses when incurred.
Initial direct leasing costs incurred in negotiating and arranging tenant leases are added to the carrying amount of investment
properties. Lease incentives, which include costs incurred to make leasehold improvements to tenants’ space and cash
allowances provided to tenants, are added to the carrying amount of investment properties and are amortized on a straight-
line basis over the term of the lease as a reduction to investment properties revenue. Internal leasing costs are expensed in the
period that they are incurred.
Investment properties and investment properties held for sale are derecognized on disposal or when no future economic
benefits are expected from their use or disposal. Any transaction costs arising on derecognition of an investment property are
included in the consolidated statements of comprehensive income during the reporting period the asset is derecognized.
Straight-line rent receivables are added to the carrying amount of investment properties.
Assets held for sale
Assets and liabilities (or disposal groups) are classified as held for sale when their carrying amount is to be recovered
principally through a sale transaction and a sale is considered highly probable. Investment properties continue to be measured
at fair value and the remainder of the disposal group is stated at the lower of the carrying amount and fair value less costs to
sell.
Other non-current assets
Other non-current assets include primarily financial assets, deposits on acquisitions of investment properties, and property
and equipment. Property and equipment are stated at cost less accumulated depreciation and accumulated impairment
losses. Depreciation of property and equipment is calculated using the straight-line method to allocate their cost, net of their
residual values, over their expected useful lives of four to ten years. The residual values and useful lives of all property and
equipment are reviewed and adjusted, if appropriate, at least once a year. Cost includes expenditures that are directly
attributable to the purchase and expenditures for replacing part of the property and equipment when that cost is incurred, if
the recognition criteria are met. Subsequent costs are included in the asset’s carrying amount or recognized as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Trust
and the cost of the item can be measured reliably. All other repairs and maintenance are charged to consolidated statements
of comprehensive income during the reporting period in which they are incurred.
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Other non-current assets are derecognized on disposal or when no future economic benefits are expected from their use or
disposal. Any gain or loss arising on derecognition of an asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in the consolidated statements of comprehensive income during the
reporting period the asset is derecognized.
Financial instruments
Effective January 1, 2018, the Trust has adopted IFRS 9, “Financial Instruments” (“IFRS 9”), prospectively (see Note 3). The
comparative period is reported under IAS 39, “Financial Instruments” (“IAS 39”). The adoption has no impact on the carrying
amount of the Trust’s financial instruments. Primary changes as a result of the adoption include: new classification categories
for financial assets and liabilities and the implementation of a forward-looking “expected loss” impairment model.
Classification and measurement of financial instruments
The following summarizes the Trust’s classification and measurement of financial assets and financial liabilities:
Financial assets
Amounts receivable
Cash and cash equivalents
Financial liabilities
Mortgages(1)
Revolving credit facility(1)
Convertible debentures – host instrument(1)
Subsidiary redeemable units
DUIP
Tenant security deposits(2)
Amounts payable and accrued liabilities
Financial assets/financial liabilities
Interest rate swaps – designated as hedges(3)
Interest rate swaps – not designated as hedges(4)
Convertible debentures – conversion feature(4)
IFRS 9 – Classification and measurement
IAS 39 – Classification and measurement
Financial asset at amortized cost
Financial asset at amortized cost
Loans and receivables at amortized cost
Loans and receivables at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Financial liability at amortized cost
Other liabilities at amortized cost
Other liabilities at amortized cost
Other liabilities at amortized cost
Other liabilities at amortized cost
Other liabilities at amortized cost
Other liabilities at amortized cost
Other liabilities at amortized cost
Hedge through other
comprehensive income
Financial asset at fair value
through profit and loss
Financial asset at fair value
through profit and loss
Cash flow hedge at fair value
Fair value through profit and loss
Fair value through profit and loss
(1) Included in “Debt” in the consolidated balance sheets.
(2) Included in “Other non-current liabilities” in the consolidated balance sheets.
(3) Included in “Prepaid expenses and other assets” in the consolidated balance sheet (2018); included in “Other non-current liabilities” in the consolidated
balance sheet (2017).
(4) Included in “Other non-current assets” in the consolidated balance sheets.
Financial assets
Classification (IFRS 9)
The Trust classifies its financial assets in the following measurement categories:
•
those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss);
and
•
those to be measured at amortized cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the
cash flows.
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Measurement (IFRS 9)
At initial recognition, the Trust initially measures a financial asset at its fair value, less any related transaction costs.
Subsequent measurement depends on the entity’s business model for managing the financial assets and the contractual terms
of the cash flows. There are three measurement categories in which the Trust classifies its financial assets:
• Amortized cost: Assets that are held for the collection of contractual cash flows and those cash flows represent solely
payments of principal and interest;
• Fair value through other comprehensive income: Assets that are held for the collection of contractual cash flows and for
selling the financial assets, and those cash flows represent solely payments of principal and interest; and
• Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or fair value through other
comprehensive income.
Impairment
IFRS 9: The Trust recognizes an allowance for expected credit losses for all financial assets not held at fair value through profit
or loss. For amounts receivable, the Trust applies the simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognized upon initial recognition of the receivables. To measure the expected credit losses, the Trust has
established a provision matrix that is based on its historical credit loss experience based on days past due, adjusted for
forward-looking factors specific to the tenant and the economic environment. The Trust considers a financial asset in default
when contractual payment is over 90 days past due. However, in certain cases, the Trust may also consider a financial asset to
be in default when internal or external information indicates that it is unlikely to receive the outstanding contractual amounts
in full.
IAS 39: A provision for impairment is established when there is objective evidence that collection will not be possible under
the original terms of the contract. Indicators of impairment include delinquency of payment and significant financial difficulty
of the tenant. Trade receivables that are less than three months past due are not considered impaired unless there is evidence
that collection is not possible.
A provision for impairment is recorded through an allowance account, and the amount of the loss is recognized in
comprehensive income within investment properties operating expenses. Bad debt write-offs occur when the Trust
determines collection is not possible. Any subsequent recoveries of amounts previously written off are credited against
investment properties operating expenses in comprehensive income.
Derecognition
Financial assets are derecognized only when the contractual rights to the cash flows from the financial asset expire or the Trust
transfers substantially all risks and rewards of ownership.
Financial liabilities
Classification (IFRS 9)
The Trust classifies its financial liabilities in the following measurement categories:
•
those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss);
and
•
those to be measured at amortized cost.
Measurement (IFRS 9)
At initial measurement, financial liabilities are recognized at fair value, less any related transaction costs.
For financial liabilities measured subsequently at fair value, the liability is remeasured at fair value each reporting period, with
changes in fair value recognized in comprehensive income.
For financial liabilities measured subsequently at amortized cost, the liability is amortized using the effective interest rate
method. Under the effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the
financial liabilities are recognized in comprehensive income over the expected life of the obligation.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired.
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Cash and cash equivalents
Cash and cash equivalents include all short-term investments with an original maturity of three months or less and exclude
cash subject to restrictions that prevent its use for current purposes. Deposits on acquisitions of investment properties are
included in other non-current assets.
Amounts receivable
Amounts receivable are initially measured at fair value and are subsequently measured at amortized cost less provision for
impairment. The Trust holds the amounts receivable with the objective to collect the contractual cash flows.
Debt
Mortgages are initially recognized at fair value less any related transaction costs, or at fair value when assumed in a business or
asset acquisition. Subsequent to initial recognition, mortgages are recognized at amortized cost.
Convertible debentures are separated into two financial liability components: the host instrument and the conversion feature.
This presentation is required because the conversion feature permits the holder to convert the debenture into REIT Units,
which, except for the available exemption under International Accounting Standard 32, “Financial Instruments: Presentation”
(“IAS 32”), would normally be presented as a financial liability because of the redemption feature attached to the REIT Units.
Both components are measured based on their respective estimated fair values at the date of issuance. The fair value of the
host instrument is net of any related transaction costs. The fair value of the host instrument is estimated based on the present
value of future interest and principal payments due under the terms of the debenture using a discount rate for similar debt
instruments without a conversion feature. Subsequent to initial recognition, the host instrument is accounted for at amortized
cost. The conversion feature is accounted for at fair value with changes in fair value recognized in comprehensive income each
period. When the holder of a convertible debenture converts its interest into REIT Units, the host instrument and conversion
feature are reclassified to unitholders’ equity in proportion to the units converted over the total equivalent units outstanding.
Subsidiary redeemable units
Subsidiary redeemable units are settled in REIT Units, which, in accordance with IAS 32, are considered financial liabilities (see
above debt discussion). They are measured at amortized cost.
To give effect to measuring these units at amortized cost, IFRS 9 requires that the subsidiary redeemable units are remeasured
each period based on the fair value of REIT Units, with changes in the liabilities recorded in comprehensive income.
Distributions paid on subsidiary redeemable units are recorded as interest expense in comprehensive income and as a
financing activity in the consolidated statements of cash flows.
Deferred Unit Incentive Plan (“DUIP”)
As described in Note 13, the Trust has a Deferred Unit Incentive Plan (“DUIP”) that provides for the grant of deferred
trust units and income deferred trust units to trustees, employees and affiliates and their service providers (including the asset
manager).
Deferred units are settled in REIT Units, which, in accordance with IAS 32, are considered financial liabilities (see above debt
discussion). They are measured at amortized cost.
To give effect to measuring these units at amortized cost, over the vesting period, compensation expense is recognized based
on the fair value of the REIT Units. Once vested, the financial liability is remeasured each period based on the fair value of the
REIT Units, with changes in fair value being recognized in comprehensive income as a fair value adjustment to financial
instruments. Deferred trust units and income deferred units are only settled in REIT Units.
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Equity
The Trust presents REIT Units as equity, notwithstanding the fact that the Trust’s REIT Units meet the definition of a financial
liability. Under IAS 32, the REIT Units are considered a puttable financial instrument because of the holder’s option to redeem
REIT Units, generally at any time, subject to certain restrictions, at a redemption price per unit equal to the lesser of 90% of a
20-day weighted average closing price prior to the redemption date and 100% of the closing market price on the redemption
date. The total amount payable by Dream Industrial in any calendar month will not exceed $50 unless waived by Dream
Industrial’s Board of Trustees at their sole discretion. The Trust has determined that the REIT Units can be presented as equity
and not financial liabilities because the REIT Units have all of the following features, as defined in IAS 32 (hereinafter referred
to as the “puttable exemption”):
• REIT Units entitle the holder to a pro rata share of the Trust’s net assets in the event of its liquidation. Net assets are those
assets that remain after deducting all other claims on the assets;
• REIT Units are the class of instruments that are subordinate to all other classes of instruments because they have no
priority over other claims to the assets of the Trust on liquidation, and do not need to be converted into another
instrument before they are in the class of instruments that is subordinate to all other classes of instruments;
• All instruments in the class of instruments that is subordinate to all other classes of instruments have identical features;
• Apart from the contractual obligation for the Trust to redeem the REIT Units for cash or another financial asset, the REIT
Units do not include any contractual obligation to deliver cash or another financial asset to another entity, or to exchange
financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Trust,
and it is not a contract that will or may be settled in the Trust’s own instruments;
• The total expected cash flows attributable to the REIT Units over their lives are based substantially on the profit or loss,
and the change in the recognized net assets and unrecognized net assets of the Trust over the life of the REIT Units.
• REIT Units are initially recognized at the fair value of the consideration received by the Trust. Any transaction costs arising
on the issue of REIT Units are recognized directly in unitholders’ equity as a reduction of the proceeds received.
Distributions
Distributions to unitholders are recognized as a liability in the period in which the distributions are declared and are recorded
as a reduction to retained earnings.
Revenue recognition
Effective January 1, 2018, the Trust has adopted IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), on a modified
retrospective basis with no restatement of comparatives (see Note 3). Base rental income and property tax recoveries earned
from leases (“rental income”) is outside the scope of IFRS 15 and is therefore not impacted by the new standard. The prior
comparative period was reported under IAS 18, “Revenue” (“IAS 18”). The adoption has no impact on the timing and amount
of revenue recognized.
Rental income
The Trust accounts for tenant leases as operating leases, given that it has retained substantially all of the risks and benefits of
ownership of its investment properties. Rental income includes base rents, property tax recoveries, lease termination fees, and
other rental revenue including recoveries for landlord work and tenant improvement allowances. Revenue recognition under a
lease commences when the tenant has a right to use the leased asset. The total amount of contractual rent to be received
from operating leases is recognized on a straight-line basis over the term of the lease; a straight-line rent receivable, which is
included in investment properties, is recorded for the difference between the rental revenue recognized and the contractual
amount received. Property tax recoveries are recognized as revenues in the period in which the corresponding obligation
arises and collectability is reasonably assured. Other revenues are recorded as earned.
IAS 18: The above discussion also applies to recoveries of operating expenses in the 2017 period.
Revenue from contracts with customers (IFRS 15)
Revenue from contracts with customers primarily includes recoveries of operating expenses and recoveries of capital
expenditures from tenants in accordance with their leases (“recoveries revenue”).
Consideration received from tenants under lease agreements is allocated between rental income and recoveries revenue
based on relative stand-alone selling prices. For recoveries revenue, our performance obligations are satisfied over time as
tenants occupy the premises. Recoveries revenue is billed monthly to tenants based on budgeted estimates.
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The Trust recognizes recoveries revenue for operating expenses based on actual costs incurred in accordance with the terms of
the related leases. Actual costs reflect the services provided. The Trust recognizes recoveries revenue for capital expenditures
over the asset’s expected useful life in accordance with the terms of the related leases. The amount of recoveries revenue is
determined by the actual costs incurred and any restrictions in lease agreements. If the services rendered exceed the monthly
charges billed, a receivable is recognized; if the monthly charges billed exceed the service rendered, a payable is recognized.
Interest on debt
Interest on debt includes coupon interest, amortization of ancillary costs incurred in connection with the arrangement of
borrowings and amortization of fair value adjustments on assumed debt. Financing costs are amortized to interest expense.
Income taxes
Dream Industrial REIT is taxed as a mutual fund trust for Canadian income tax purposes. The Trust expects to distribute all of
its taxable income to its unitholders, which enables it to deduct such distributions for income tax purposes. As the income tax
obligations relating to the distributions are those of the individual unitholder, no provision for income taxes is required on such
amounts. The Trust expects to continue to distribute its taxable income and to qualify as a real estate investment trust (“REIT”)
for the foreseeable future.
For all U.S. subsidiaries and one Canadian subsidiary, income taxes are accounted for using the asset and liability method.
Under this method, deferred income taxes are recognized for the expected future tax consequences of temporary differences
between the carrying value of balance sheet items and their corresponding tax values. Deferred income taxes are computed
using substantively enacted income tax rates or laws for the years in which the temporary differences are expected to reverse
or settle.
Foreign currencies
The consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Trust and the
presentation currency for the consolidated financial statements.
Assets and liabilities related to properties held in a foreign entity with a functional currency other than the Canadian dollar are
translated at the exchange rates at the consolidated balance sheet dates. Revenue and expenses are translated at the average
exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates
at the dates of the transactions are used. The resulting foreign currency translation adjustments are recognized in other
comprehensive income.
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the
transactions. Foreign currency denominated monetary assets are translated using the exchange rates at the consolidated
balance sheet dates. Gains and losses on translation of monetary items are recognized in comprehensive income as other
income, except for those intercompany loans to a foreign operation for which settlement is neither planned nor likely to occur
in the foreseeable future.
Provisions
Provisions for legal claims are recognized when the Trust has a present legal or constructive obligation as a result of past
events, it is probable an outflow of resources will be required to settle the obligation and the amount has been reliably
estimated. Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to
any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a rate
that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognized as interest expense.
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Segment reporting
A reportable operating segment is a distinguishable component of the Trust that is engaged either in providing related
products or services (business segment) or in providing products or services within a particular economic environment
(geographic segment), which is subject to risks and rewards that are different from those of other reportable segments. The
Trust’s primary format for segment reporting is based on geographic segments. Operating segments are reported in a manner
consistent with the internal reporting provided to the chief operating decision-maker, determined to be the Chief Executive
Officer (“CEO”) of the Trust. The operating segments derive their revenue primarily from rental income from lessees. All of the
Trust’s business activities and operating segments are reported within the geographic segments.
Critical accounting judgments
Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions that
affect the amounts reported. Management bases its judgments, estimates and assumptions on historical experience and other
factors it believes to be reasonable under the circumstances, but which are inherently uncertain and unpredictable, the result
of which forms the basis of the carrying amounts of assets and liabilities. However, uncertainty about these judgments,
estimates and assumptions could result in outcomes that could require a material adjustment in the future to the carrying
amount of the asset or liability affected.
Following are the critical judgments used in applying the Trust’s accounting policies that have the most significant effect on the
amounts in the consolidated financial statements:
Investment properties
Critical judgments are made in respect of the fair values of investment properties. The fair values of these investments are
reviewed at least quarterly by management with reference to independent property appraisals and market conditions existing
at the reporting date, using generally accepted market practices. The independent appraisers are experienced, nationally
recognized and qualified in the professional valuation of industrial buildings in their respective geographic areas. Judgment is
also applied in determining the extent and frequency of obtaining independent appraisals. At each reporting period, a select
number of properties, determined on a rotational basis, are valued by independent appraisers. For properties not subject to
independent appraisals, valuations are prepared internally during each reporting period.
Critical assumptions used in estimating the fair values of investment properties include cap rates, discount rates that reflect
current market uncertainties, terminal cap rates and market rents. Other key assumptions relating to the estimates of fair
values of investment properties include components of stabilized NOI, leasing costs and vacancy rates. The Trust examines the
critical and key assumptions at the end of each reporting period and updates these assumptions based on recent leasing
activity and external market data available at that time. If there is any change in these assumptions or regional, national or
international economic conditions, the fair value of investment properties may change materially.
The Trust makes judgments with respect to whether lease incentives provided in connection with a lease enhance the value of
the leased space, which determines whether or not such amounts are treated as tenant improvements and added to
investment properties. Lease incentives, such as cash, rent-free periods and lessee- or lessor-owned improvements, may be
provided to lessees to enter into an operating lease. Lease incentives that do not provide benefits beyond the initial lease term
are included in the carrying amount of investment properties and are amortized as a reduction of rental revenue on a straight-
line basis over the term of the lease.
Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment
property.
Business combinations
Accounting for business combinations under IFRS 3, “Business Combinations” (“IFRS 3”), only applies if it is considered that a
business has been acquired. Under IFRS 3, a business is defined as an integrated set of activities and assets conducted and
managed for the purpose of providing a return to investors or lower costs or other economic benefits directly and
proportionately to the Trust. A business generally consists of inputs, processes applied to those inputs, and resulting outputs
that are, or will be, used to generate revenues. In the absence of such criteria, a group of assets is deemed to have been
acquired. If goodwill is present in a transferred set of activities and assets, the transferred set is presumed to be a business.
Judgment is used by management in determining whether the acquisition of an investment property or a portfolio of
investment properties qualifies as a business combination in accordance with IFRS 3 or as an asset acquisition.
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When determining whether the acquisition of an investment property or a portfolio of investment properties is a business
combination or an asset acquisition, the Trust applies judgment when considering the following:
• Whether the investment property or properties are capable of producing outputs;
• Whether the market participant could produce outputs if missing elements exist.
In particular, the Trust considers the following:
• Whether employees were assumed in the acquisition;
• Whether an operating platform has been acquired.
The Trust classifies an acquisition as an asset acquisition when it acquires a property or a portfolio of properties, and does not
assume employees or does not acquire an operating platform.
Estimates and assumptions
The Trust makes estimates and assumptions that affect carrying amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amount of earnings for the period. Actual results could differ from those estimates. The
estimates and assumptions that are critical in determining the amounts reported in the consolidated financial statements
relate to the following:
Valuation of investment properties
Critical assumptions relating to the valuation of investment properties at fair value include the receipt of contractual rents,
expected future market rents, renewal rates, capital expenditures, discount rates that reflect current market uncertainties,
capitalization rates and recent investment property transactions. If there is any change in these assumptions or changes in
regional, national or international economic conditions, the fair value of investment properties may change materially.
Valuation of financial instruments
The Trust makes estimates and assumptions relating to the fair value measurement of the subsidiary redeemable units, the
DUIP, the conversion feature of the convertible debenture, the interest rate swaps and the fair value disclosure of the
mortgages, revolving credit facility and convertible debentures. The critical assumptions underlying the fair value
measurements and disclosures include the market price of REIT Units and market interest rates.
For certain financial instruments, including cash and cash equivalents, amounts receivable, and amounts payable and accrued
liabilities, the carrying amounts approximate fair values due to their immediate or short-term maturity. The fair values
of mortgages are determined based on discounted cash flows using discount rates that reflect current market conditions
for instruments with similar terms and risks. The fair value of convertible debentures uses quoted market prices from an active
market.
Note 3
CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Trust has adopted the following new and revised standards, along with any consequential amendments, effective
January 1, 2018. These changes were made in accordance with the applicable transitional provisions.
Revenue recognition — revenue from contracts with customers
Effective January 1, 2018, the Trust has applied IFRS 15. IFRS 15 provides a comprehensive five-step revenue recognition model
for all contracts with customers. The IFRS 15 revenue recognition model requires management to exercise judgment and make
estimates that affect revenue recognition.
The Trust has adopted IFRS 15 on a modified retrospective basis. In applying IFRS 15, the Trust used the practical expedient in
the standard that permits contracts which were completed prior to the transition date to not be assessed.
As a result of adopting IFRS 15, there were no adjustments to the consolidated balance sheets as at January 1, 2018. The
accounting policies applied under the new standard are disclosed in Note 2.
The new standard has no impact on the timing and amount of revenue recognized. Additional disclosures have been included
in Note 19 to the consolidated financial statements. Revenue under the financial statement caption “Investment properties
revenue” in the consolidated statements of net income (loss) and comprehensive income (loss) is now split out as “Revenue
from contracts with customers” and “Rental income”.
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Financial instruments
Effective January 1, 2018, the Trust has applied IFRS 9. IFRS 9 introduces a model for classification and measurement, a single,
forward-looking “expected loss” impairment model and a substantially reformed approach to hedge accounting.
The Trust has applied IFRS 9 prospectively. The accounting policies applied under the new standard are disclosed in Note 2.
The new standard has no impact on the measurement of financial assets and financial liabilities. The implementation of a
forward-looking “expected loss” impairment model has no impact on the carrying value of the Trust’s amounts receivable and
cash and cash equivalents.
Note 4
FUTURE ACCOUNTING POLICY CHANGES
The following are the accounting policy changes to be implemented by the Trust in future years:
Leases
IFRS 16, “Leases” (“IFRS 16”), sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16
provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16
introduces a single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities
for leases with terms of more than 12 months, unless the underlying asset is of low value. IFRS 16 is effective for annual
periods beginning on or after January 1, 2019, with earlier application permitted for entities that apply IFRS 15. The Trust will
adopt the new standard on the required effective date using the modified retrospective method.
Under IFRS 16, lessor accounting for operating and finance leases will remain substantially unchanged and will therefore not
be impacted by the adoption. As part of the transition to IFRS 16, the Trust focused on identifying and reviewing contracts in
which the Trust is a lessee. Management has determined that this standard has no material impact on the consolidated
financial statements.
Uncertainty over income tax treatments
The IASB issued IFRIC Interpretation 23, “Uncertainty over Income Tax Treatments” (“IFRIC 23”), in June 2017. IFRIC 23 clarifies
application of recognition and measurement requirements in IAS 12, “Income Taxes” (“IAS 12”), when there is uncertainty over
income tax treatments, including whether an entity considers uncertain tax treatments separately; the assumptions an entity
makes about the examination of tax treatments by taxation authorities; how an entity determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits and tax rates; and how an entity considers changes in facts and circumstances. The
interpretation is applicable for financial years commencing on or after January 1, 2019. Management has determined that this
standard has no material impact on the consolidated financial statements.
Business combinations
The IASB issued narrow-scope amendments to IFRS 3, “Business Combinations”, to improve the definitions of a business. The
amendments are to be applied to transactions for which the acquisition date is on or after January 1, 2020, with earlier
application permitted. The Trust will consider the narrow-scope amendment for future acquisitions.
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Note 5
INVESTMENT PROPERTY ACQUISITIONS
Detailed below are the investment property acquisitions completed for the years ended December 31, 2018 and December 31,
2017:
Year ended December 31, 2018
860 Marine Drive, Charlotte, North Carolina
4770 Southpoint Drive, Memphis, Tennessee
5605 Holmescrest Lane, Memphis, Tennessee
161 The West Mall, Etobicoke, Ontario
8860 Smith’s Mill Road, Columbus, Ohio
9000 Smith’s Mill Road, Columbus, Ohio
10555 Henri-Bourassa Boulevard West, Saint-Laurent, Québec
Total
(1) Includes transaction costs and assumed capital expenditure obligations.
Year ended December 31, 2017
7803 35th Street SE, Calgary, Alberta
445 Couchville Industrial Boulevard, Nashville, Tennessee(2)
7730 American Way, Orlando, Florida
Total
Purchase price
allocated to
investment
properties(1)
Date acquired
35,766
January 16, 2018
32,343
January 16, 2018
47,349
January 16, 2018
37,382
August 2, 2018
35,949 September 6, 2018
45,246 September 6, 2018
14,150 October 24, 2018
248,185
$
$
Purchase price
allocated to
investment
properties(1)
Date acquired
October 5, 2017
17,288
October 31, 2017
62,184
15,846 December 28, 2017
95,318
$
$
(1) Includes transaction costs.
(2) On October 31, 2017, the Trust completed the purchase of a single-tenant distribution centre from Dream Office REIT (see Note 27).
The consideration for the acquired properties and assumed net assets includes:
Cash paid(1)
Transaction costs
Assumed capital expenditure obligations
Assumed mortgages at fair value
Assumed non-cash working capital
Total consideration for investment properties
December 31,
2018
238,444 $
5,093
2,804
—
1,844
248,185 $
December 31,
2017
63,819
1,894
—
29,676
(71 )
95,318
$
$
(1) As at December 31, 2018, cash paid included acquisition deposits paid in the prior year totalling $2,185 (December 31, 2017 – $nil) that was released to
the seller on closing.
Dream Industrial REIT 2018 Annual Report | 67
Note 6
INVESTMENT PROPERTIES
Balance at beginning of year
Additions:
Investment property acquisitions
Building improvements
Lease incentives and initial direct leasing costs
Total additions to investment properties
Investment property classified to assets held for sale
Investment property reclassified from assets held for sale
Investment properties reclassified from (classified to) assets held for sale
Gains (losses) included in net income:
Fair value adjustments to investment properties(1)
Change in straight-line rent
Amortization of lease incentives
Total gains (losses) included in net income
Gains (losses) included in other comprehensive income:
Foreign currency translation gains (losses)
Total gains (losses) included in other comprehensive income
Balance at end of year
Year ended
Note December 31, 2018
1,722,988
$
Year ended
December 31, 2017
1,634,315
$
5
10
10
248,185
13,824
14,061
276,070
—
11,300
11,300
107,875
968
(1,426 )
107,417
95,318
15,030
9,390
119,738
(8,700 )
—
(8,700 )
(19,991 )
490
(1,155 )
(20,656 )
20,636
20,636
2,138,411
$
(1,709 )
(1,709 )
1,722,988
$
(1) Fair value adjustments to investment properties represent unrealized gains (losses). In 2017, fair value adjustments to investment properties as presented
in the consolidated statements of net income and comprehensive income includes fair value gains on assets held for sale of $2,500 (see Note 10).
As at December 31, 2018, investment properties with a fair value of $1,739,543 (December 31, 2017 – $1,436,582) are
pledged as first-ranking and/or second-ranking collateral for mortgages. As at December 31, 2018, investment properties with
a fair value of $208,174 (December 31, 2017 – $188,415) are pledged as collateral for the revolving credit facility.
Note 7
JOINT ARRANGEMENTS
Co-owned investment properties
The Trust’s interests in co-owned investment properties are accounted for based on the Trust’s share of interest in the assets,
liabilities, revenues and expenses of the investment properties. The co-owned investment properties are with a related party
of the Trust (see Note 27).
Below are the co-owned investment properties for the years ended December 31, 2018 and December 31, 2017:
Property
1802 Stock Road, Regina, Saskatchewan
1105 Pettigrew Avenue, Regina, Saskatchewan
363 and 345 Maxwell Crescent, Regina, Saskatchewan
1640 Broder Street, Regina, Saskatchewan
2190 Industrial Drive, Regina, Saskatchewan
125 McDonald Street, Regina, Saskatchewan
December 31,
2018
50
50
50
50
50
50
Ownership interest (%)
December 31,
2017
50
50
50
50
50
50
Dream Industrial REIT 2018 Annual Report | 68
The following amounts represent the ownership interest in the assets, liabilities, revenues and expenses of the co-owned
properties in which the Trust participates.
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
$
$
December 31, December 31,
2017
9,085
566
9,651
5,581
732
6,313
3,338
2018
8,020
506
8,526
5,345
503
5,848
2,678
$
$
Net rental income
Other revenue and expenses, fair value adjustments and net losses on transactions and other activities
Share of net income (loss) from investments in co-owned properties
$
$
Year ended December 31,
2018
2017
727
672
(1,288 )
(467 )
260
(616 )
$
$
Note 8
OTHER NON-CURRENT ASSETS
Conversion feature on the convertible debentures(1)
Fair value of interest rate swaps
Deposits on acquisitions of investment properties
Deferred income tax assets, net
Property and equipment and other
Total
Note
30
24
December 31,
2018
—
1,507
1,364
—
625
3,496
$
$
December 31,
2017
2,305
1,675
2,208
122
324
6,634
$
$
(1) On August 2, 2018, the conversion feature was derecognized as the Trust redeemed all outstanding convertible debentures.
Note 9
AMOUNTS RECEIVABLE
Trade receivables
Less: Provision for impairment of trade receivables
Trade receivables, net
Other amounts receivable
Amounts receivable
December 31,
2018
1,540 $
(578 )
962
3,348
4,310 $
December 31,
2017
2,011
(911 )
1,100
2,043
3,143
$
$
The movement in the provision for impairment of trade receivables for the years ended December 31, 2018 and December 31,
2017 is as follows:
As at beginning of year
Provision for impairment of trade receivables
Receivables written off during the year as uncollectible
As at end of year
Year ended December 31,
2018
2017
911 $
830
478
346
(811 )
(265 )
578 $
911
$
$
The carrying value of amounts receivable approximates fair value due to their current nature. Information on credit risk
exposures is disclosed in Note 31.
Dream Industrial REIT 2018 Annual Report | 69
The Trust leases industrial properties to tenants under operating leases. Minimum rental commitments, including joint
operations, on non-cancellable tenant operating leases over their remaining terms are as follows:
2019
2020 to 2023
2024 to 2034
Total
December 31, 2018
$
131,935
335,633
90,354
557,922
$
Note 10
ASSETS HELD FOR SALE
As at December 31, 2018 and December 31, 2017, the Trust classified certain properties as assets held for sale. As at
December 31, 2018 and December 31, 2017, management had committed to a plan to sell the underlying properties and the
sales were considered to be highly probable.
Investment properties
Assets held for sale
December 31,
2018
3,900 $
3,900 $
December 31,
2017
15,200
15,200
$
$
The following table summarizes the movements in investment properties classified as assets held for sale during the years
ended December 31, 2018 and December 31, 2017:
Balance at beginning of year
Add/(deduct):
Investment property classified as held for sale
Asset held for sale reclassified to investment properties
Fair value adjustments to investment properties
Balance at end of year
Note
6
6
Year ended
Year ended
December 31, 2018 December 31, 2017
4,000
15,200 $
$
—
(11,300 )
—
3,900 $
8,700
—
2,500
15,200
$
In 2018, one of the properties that was previously classified as held for sale was reclassified to investment properties due to a
change in the purchaser’s intention to lease the space instead of purchase the property.
Note 11
DEBT
Mortgages(1)
Revolving credit facility(1)(2)
Convertible debentures
Total debt
Less: Current portion
Non-current debt
December 31,
2018
910,970
26,760
—
937,730
(76,941 )
860,789
$
$
December 31,
2017
782,254
(1,025 )
108,567
889,796
(113,337 )
776,459
$
$
(1) Secured by charges on specific investment properties (see Note 6).
(2) No amounts were drawn on the revolving credit facility as at December 31, 2017; the balance consists of unamortized financing costs.
Dream Industrial REIT 2018 Annual Report | 70
Continuity of total debt
The following tables provide a continuity of total debt for the years ended December 31, 2018 and December 31, 2017:
Mortgages
782,254 $
$
Revolving
credit facility(1)
Convertible
debentures
Total
(1,025 ) $ 108,567 $ 889,796
December 31, 2018
241,029
(2,878 )
(25,400 )
(92,490 )
133,400
—
—
(108,166 )
—
—
—
(111,250 )
374,429
(2,878 )
(25,400 )
(311,906 )
Total debt as at January 1, 2018
Cash items:
Borrowings
Financing costs additions
Principal repayments
Lump sum repayments
Non-cash items:
Foreign exchange adjustments
Other adjustments(2)
Total debt as at December 31, 2018
10,243
3,446
— $ 937,730
(1) Amounts drawn against the revolving credit facility during the year are denominated in both Canadian and U.S. dollars. U.S. dollar amounts have been
2,141
410
26,760 $
8,102
353
910,970 $
—
2,683
$
converted at foreign exchange rates in accordance with the Trust’s accounting policies.
(2) Other adjustments include amortization of finance costs of $1,821, amortization of fair value adjustments on assumed debt of ($307) and write-off of
finance costs and fair value adjustments of $1,932 due to early redemption of the convertible debentures.
December 31, 2017
Total debt as at January 1, 2017
Cash items:
Borrowings
Financing costs additions
Principal repayments
Lump sum repayments
Non-cash items:
Borrowings assumed on investment property
Foreign exchange adjustments
Other adjustments(1)
Total debt as at December 31, 2017
Mortgages
$ 741,890 $
Revolving
credit facility
Convertible
debentures
Total
(625) $ 127,082 $ 868,347
79,000
(625 )
(24,019 )
(42,932 )
40,400
(650 )
—
(40,400 )
—
—
—
(19,420 )
119,400
(1,275 )
(24,019 )
(102,752 )
29,676
(802 )
66
$ 782,254 $
—
—
250
29,676
(802 )
1,221
(1,025 ) $ 108,567 $ 889,796
—
—
905
(1) Other adjustments include amortization of finance costs of $1,655 and amortization of fair value adjustments on assumed debt of ($434).
Revolving credit facility
The amounts available and drawn under the revolving credit facility as at December 31, 2018 and December 31, 2017 are as
follows:
Maturity date
Borrowing
Letter of credit
and forward
capacity agreement amount
Principal
outstanding
Other
adjustments
Revolving credit facility(1)(2)(3) June 30, 2020 $ 125,000 $
(1) Bankers’ acceptance (“BA”) rate plus 1.70% or Canadian prime rate plus 0.70% or U.S. LIBOR rate plus 1.70% or U.S. base rate plus 0.70%.
(2) Thirty properties are secured as first-ranking on the revolving credit facility.
(3) The revolving credit facility has the ability to be drawn in Canadian and U.S. dollars. At December 31, 2018, principal outstanding amounts include
US$16,000 which has been converted in accordance with the Trust’s accounting policies. Other adjustments represent foreign exchange differences
between the lender and the Trust. The lender uses an internal foreign exchange rate to determine the amounts available to be drawn.
(27,375 ) $
569 $
— $
December 31, 2018
Amounts
available
to be drawn
98,194
Dream Industrial REIT 2018 Annual Report | 71
On December 15, 2017, the Trust amended its revolving credit facility to increase the borrowing capacity from $100,000 to
$125,000, add the ability to draw in U.S. dollars, increase the number of properties secured under the facility from 25 to 30,
and extend the maturity date to June 30, 2020.
The following table summarizes certain details of the Trust’s revolving credit facility as at December 31, 2017:
Maturity date
Borrowing
capacity
Letter of credit
and forward
agreement amount
Principal amount
outstanding and
other adjustments
Revolving credit facility(1)(2)
June 30, 2020 $ 125,000 $
(2,000 ) $
— $
(1) BA rate plus 1.70% or Canadian prime rate plus 0.70% or U.S. LIBOR rate plus 1.70% or U.S. base rate plus 0.70%.
(2) Thirty properties are secured as first-ranking on the revolving credit facility.
Amount
available
123,000
December 31, 2017
Convertible debentures
The 5.25% Convertible Debentures were convertible at any time by the holder into 72.4638 REIT Units per one thousand
dollars of face value, representing a conversion price of $13.80 per unit. After December 31, 2017, the 5.25% Convertible
Debentures were redeemable by the Trust at a price equal to the principal amount plus accrued and unpaid interest with no
constraints on the traded price of the units. Interest on the 5.25% Convertible Debentures is payable at a rate of 5.25% semi-
annually on June 30 and December 31.
On August 2, 2018, the Trust early redeemed all of its outstanding 5.25% Convertible Debentures at par. The Trust paid
$111,762 in aggregate, representing $111,250 in principal outstanding on the redemption date and $512 in accrued interest.
As a result of the early redemption, the Trust wrote off $1,932 of unamortized financing costs and mark-to-market adjustments
(see Note 23).
On November 30, 2017, the Trust repaid the 6.75% Debentures with an aggregate principal amount of $19,420.
Debt weighted average effective interest rates and maturities
As at December 31, 2018, the weighted average effective interest rate on total debt was 3.74% (December 31, 2017 – 3.88%).
The effective interest rate includes the impact of fair value adjustments on assumed debt and financing costs.
As at December 31, 2018, the Trust had fixed rate mortgages and a variable rate revolving credit facility. As at December 31,
2017, there were no variable rate debts outstanding.
The scheduled principal repayments and debt maturities are as follows:
2019
2020
2021
2022
2023
2024 and thereafter
Unamortized financing costs
Unamortized fair value adjustments
Total
Total
77,761
143,448
167,287
119,695
149,041
284,661
941,893
(5,804 )
1,641
937,730
Revolving
credit facility
Mortgages
$
77,761 $
116,073
167,287
119,695
149,041
284,661
914,518
(5,189 )
1,641
910,970 $
—
27,375
—
—
—
—
27,375
(615 )
—
26,760
$
$
$
Dream Industrial REIT 2018 Annual Report | 72
Note 12
SUBSIDIARY REDEEMABLE UNITS
DILP, a subsidiary of Dream Industrial REIT, is authorized to issue an unlimited number of LP B Units. The subsidiary
redeemable units, together with the accompanying Special Trust Units, have economic and voting rights equivalent in all
material respects to the REIT Units. Generally, each subsidiary redeemable unit entitles the holder to a distribution equal to
distributions declared on REIT Units. Subsidiary redeemable units may be surrendered or indirectly exchanged for REIT Units
on a one-for-one basis at the option of the holder, generally at any time, subject to certain restrictions.
The Trust has the following subsidiary redeemable units outstanding:
Balance at beginning of year
Remeasurement of carrying value
Balance at end of year
Year ended December 31, 2018
Year ended December 31, 2017
Note
22
Number of units issued
and outstanding
18,551,855 $
—
18,551,855 $
Amount
163,256
13,357
176,613
Number of units issued
and outstanding
18,551,855 $
—
18,551,855 $
Amount
158,247
5,009
163,256
For the years ended December 31, 2018 and December 31, 2017, the Trust recorded $13,376 in distributions on the subsidiary
redeemable units, which are included as interest expense in the consolidated statements of net income and comprehensive
income (see Note 21). For the years ended December 31, 2018 and December 31, 2017, all subsidiary redeemable units that
are held by the wholly owned subsidiaries of Dream Office REIT were enrolled in the DRIP.
Holders of the LP Class A Units are entitled to vote at meetings of the limited partners of DILP, and each unit entitles the holder
to a distribution equal to distributions on the subsidiary redeemable units. All issued and outstanding LP Class A Units owned
directly by Dream Industrial have been eliminated in the consolidated balance sheets.
Special Trust Units are issued in connection with subsidiary redeemable units. The Special Trust Units are not transferable
separately from the subsidiary redeemable units to which they relate and will be automatically redeemed for a nominal
amount and cancelled on surrender or exchange of such subsidiary redeemable units. Each Special Trust Unit entitles the
holder to the number of votes at any meeting of unitholders that is equal to the number of REIT Units that may be obtained on
the surrender or exchange of the subsidiary redeemable units to which they relate. As at December 31, 2018 and
December 31, 2017, 18,551,855 Special Trust Units were issued and outstanding.
Note 13
DEFERRED UNIT INCENTIVE PLAN
The DUIP provides for the grant of deferred trust units to trustees, officers and employees as well as affiliates and their service
providers, including the asset manager. Deferred trust units are granted at the discretion of the trustees and earn income
deferred trust units based on the payment of distributions.
Once issued, the deferred trust units have the following vesting terms: Deferred trust units granted to trustees in 2018 vest
immediately upon issuance. Prior to 2018, deferred trust units granted to trustees vest evenly over a five-year period with one-
fifth of the deferred trust units vesting each year on the anniversary date of the grant. Deferred trust units granted to officers
vest evenly over a five-year period with one-fifth of the deferred trust units vesting each year on the anniversary date of the
grant. Deferred trust units granted to employees vest evenly over a three-year period with one-third of the deferred trust units
vesting each year on the anniversary date of the grant.
Subject to an election option available for certain participants to defer receipt of REIT Units, such REIT Units will be issued
immediately on vesting. As at December 31, 2018, up to a maximum of 2,400,000 (December 31, 2017 – 1,500,000) deferred
trust units were issuable under the DUIP.
Dream Industrial REIT 2018 Annual Report | 73
The movement in DUIP balance was as follows:
Balance at beginning of year
Compensation expense
REIT Units issued for vested deferred trust units(1)
Remeasurement of carrying value
Balance at end of year
Note
20
22
December 31,
2018
5,278 $
2,181
(1,680 )
829
6,608 $
December 31,
2017
4,350
1,785
(1,505 )
648
5,278
$
$
(1) For the year ended December 31, 2017, $52 of REIT Units issued for vested deferred trust units was excluded from this amount as the obligation to issue
these units was recorded in 2016 as part of the cost reduction program.
A continuity of the DUIP units outstanding is as follows:
Outstanding and payable at beginning of year
Granted(1)
REIT Units issued
Cancelled upon termination
Fractional units paid in cash
Outstanding and payable at end of year
December 31,
2018
761,924
245,254
(178,764 )
(557 )
(42 )
827,815
December 31,
2017
718,046
229,813
(178,250 )
(7,622 )
(63 )
761,924
(1) Includes 54,913 of income deferred trust units granted during the year (December 31, 2017 – 62,231 income deferred trust units).
(2) Includes 378,668 of vested but not issued deferred trust units as at December 31, 2018 (December 31, 2017 – 283,996).
For the year ended December 31, 2018, 190,341 deferred trust units were granted to trustees, officers and employees with the
grant price ranging from $9.12 to $10.75 per unit. Of the units granted, 153,792 deferred trust units relate to trustees and
officers.
For the year ended December 31, 2017, 167,582 deferred trust units were granted to trustees, officers and employees with the
grant price ranging from $8.22 to $9.15 per unit. Of the units granted, 114,532 deferred trust units relate to trustees and
officers.
Note 14
OTHER NON-CURRENT LIABILITIES
Tenant security deposits
Deferred income tax liabilities, net
Fair value of interest rate swaps
Total
Note 15
AMOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables and accrued liabilities
Accrued interest
Rent received in advance
Distributions payable
Total
Note
24
30
Note
17
$
$
$
$
December 31,
2018
13,552 $
1,266
461
15,279 $
December 31,
2017
12,601
—
56
12,657
December 31,
2018
21,171 $
3,746
4,733
5,370
35,020 $
December 31,
2017
13,661
3,404
3,072
4,381
24,518
Dream Industrial REIT 2018 Annual Report | 74
Note 16
EQUITY
December 31, 2018
Unitholders’ equity
Retained earnings (deficit)
Accumulated other comprehensive income (loss)
Total equity
Note
Number of REIT Units
92,062,659 $
18
—
—
92,062,659 $
75,104,843 $
Amount Number of REIT Units
887,757
90,621
10,947
989,325
—
—
75,104,843 $
December 31, 2017
Amount
720,437
(7,056 )
(1,135 )
712,246
Dream Industrial REIT Units
Dream Industrial REIT is authorized to issue an unlimited number of REIT Units and an unlimited number of Special Trust Units.
The Special Trust Units may be issued only to holders of subsidiary redeemable units.
REIT Units represent an undivided beneficial interest in Dream Industrial REIT and in distributions made by Dream Industrial
REIT. No REIT Unit has preference or priority over any other. Each REIT Unit entitles the holder to one vote at all meetings of
unitholders.
Public offering and private placements of REIT Units
June 29, 2018 public offering
On June 29, 2018, the Trust completed a public offering of 13,915,000 REIT Units at a price of $10.35 per unit for gross
proceeds of $144,020, including 1,815,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to
the underwriters.
Total costs related to the offering totalled $6,388 and were charged directly to unitholders’ equity.
November 21, 2017 public offering and private placement
On November 21, 2017, the Trust completed a public offering of 9,890,000 REIT Units, at a price of $8.75 per unit for gross
proceeds of $86,538, including 1,290,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to
the underwriters.
On November 21, 2017, the Trust completed a private placement of 2,858,000 REIT Units to Dream Office LP, a subsidiary of
Dream Office REIT, at a price of $8.75 per unit for gross proceeds of $25,008. On the same day, the Trust completed a private
placement of 115,000 REIT Units to an affiliate of PAULS Corp, LLC (“PAULS Corp”), at a price of $8.75 per unit for gross
proceeds of $1,006.
Total costs related to the offering and private placements totalled $4,024 and were charged directly to unitholders’ equity.
Distribution Reinvestment Plan and Unit Purchase Plan
The Distribution Reinvestment Plan (“DRIP”) allows holders of REIT Units or subsidiary redeemable units, other than
unitholders who are resident of or present in the U.S., to elect to have all cash distributions from Dream Industrial REIT
reinvested in additional units. Unitholders who participate in the DRIP receive an additional distribution of units equal to 3.0%
of each cash distribution that is reinvested. The price per unit is calculated by reference to a five-day weighted average closing
price of the REIT Units on the Toronto Stock Exchange preceding the relevant distribution date, which typically is on or about
the 15th day of the month following the declaration.
For the year ended December 31, 2018, 2,863,035 (December 31, 2017 – 2,428,965) REIT Units were issued under the DRIP
and $28,292 (December 31, 2017 – $21,110) was recorded as distributions in the consolidated statements of changes in
equity. Subsequent to the year-end and prior to when the consolidated financial statements were authorized for issuance, we
issued 534,456 REIT Units under the DRIP. This includes DRIP on REIT Units and DRIP on subsidiary redeemable units.
The Unit Purchase Plan feature of the DRIP facilitates the purchase of additional REIT Units by existing unitholders.
Participation in the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional
REIT Units that may be acquired. The price per unit is calculated in the same manner as the DRIP. No commissions, service
charges or brokerage fees are payable by participants in connection with either the reinvestment or purchase features of the
DRIP. For the year ended December 31, 2018, 1,017 (December 31, 2017 – 1,391) REIT Units were issued under the Unit
Purchase Plan for proceeds of $10 (December 31, 2017 – $12).
Dream Industrial REIT 2018 Annual Report | 75
Short form base shelf prospectus
On September 15, 2017, the Trust filed and obtained receipts for a final short form base shelf prospectus which is valid for a
25-month period, during which time the Trust may, from time to time, offer and issue REIT Units, subscription receipts, and
debt securities convertible into or exchangeable for REIT Units of the Trust, or any combination thereof, having an aggregate
offering price of up to $1 billion. As at December 31, 2018, $230,558 of REIT Units (December 31, 2017 – $86,538 of REIT
Units) have been issued under the short form base shelf prospectus.
Note 17
DISTRIBUTIONS
Dream Industrial REIT’s Declaration of Trust provides the Board of Trustees with the discretion to determine the percentage
payout of income that would be in the best interest of the Trust. Monthly distribution payments to unitholders are payable on
or about the 15th day of the following month.
The Trust declared distributions of $0.70 in each of the years ended December 31, 2018 and December 31, 2017.
The following table summarizes distributions paid and payable for the years ended December 31, 2018 and December 31,
2017:
Paid in cash
Paid by way of reinvestment in REIT Units(1)
Less: Payable at December 31, 2017 (December 31, 2016 in the 2017 comparative period)
Plus: Payable at December 31, 2018 (December 31, 2017 in the 2017 comparative period)
Total distributions paid and payable
(1) Includes REIT Units issued under the DRIP for LP B Units.
2018
43,946 $
14,916
(4,381 )
5,370
59,851 $
$
$
2017
35,804
7,735
(3,478 )
4,381
44,442
On December 19, 2018, the Trust announced a cash distribution of $0.05833 per REIT Unit for the month of December 2018.
The December 2018 distribution was paid on January 15, 2019 to unitholders on record as at December 31, 2018. For the REIT
Units, distributions of $3,748 were issued in cash and $1,622 of distributions were reinvested in additional REIT Units
(165,567 units including 3% bonus distribution on units reinvested pursuant to the DRIP).
On January 21, 2019, the Trust announced a cash distribution of $0.05833 per REIT Unit for the month of January 2019. The
January 2019 distribution was paid on February 15, 2019 to unitholders on record as at January 31, 2019. For the REIT Units,
distributions of $3,796 were issued in cash and $1,590 of distributions were reinvested in additional REIT Units (153,768 units
including 3% bonus distribution on units reinvested pursuant to the DRIP).
On February 19, 2019, the Trust announced a cash distribution of $0.05833 per REIT A Unit for the month of February 2019.
The February 2019 distribution will be payable on March 15, 2019 to unitholders on record at February 28, 2019.
Note 18
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on foreign currency
translation, net of taxes
Unrealized gain on effective interest rate hedge,
net of taxes
Accumulated other comprehensive income (loss) $
$
Opening Net change
balance
during the
January 1
2018
Closing
balance
year December 31
Year ended December 31,
2017
Closing
balance
December 31
Opening Net change
during the
balance
year
January 1
(1,079 ) $
11,990 $
10,911 $
— $
(1,079 ) $
(1,079 )
(56 )
(1,135 ) $
92
12,082 $
36
10,947 $
(869 )
(869 ) $
813
(266 ) $
(56 )
(1,135 )
Dream Industrial REIT 2018 Annual Report | 76
Note 19
INVESTMENT PROPERTIES REVENUE
Rental income
Recoveries revenue
Total
Note 20
GENERAL AND ADMINISTRATIVE EXPENSES
Asset management fee
Deferred compensation expenses
Professional fees
General corporate expenses(1)
General and administrative expenses
Year ended December 31,
2018
2017
139,894
157,926 $
32,456
35,622
172,350
193,548 $
$
$
Note
27 $
$
Year ended December 31,
2017
4,047
1,785
1,176
2,044
9,052
2018
4,621 $
2,181
1,067
2,938
10,807 $
(1) Includes corporate management and overhead related costs, public reporting, and Board of Trustees’ fees and expenses.
Note 21
INTEREST
Interest on debt
Interest on debt incurred and recorded in the consolidated statements of net income and comprehensive income is recorded
as follows:
Interest expense incurred, at contractual rate
Amortization of financing costs
Amortization of fair value adjustments
Interest expense on debt
Add/(deduct):
Amortization of financing costs
Amortization of fair value adjustments
Change in accrued interest
Cash interest paid on debt
Year ended December 31,
2018
2017
33,650
35,556 $
1,655
1,821
(307 )
(434 )
34,871
37,070
(1,821 )
307
(342 )
35,214 $
(1,655 )
434
73
33,723
$
$
Certain debt assumed in connection with acquisitions have been adjusted to fair value using the estimated market interest rate
at the time of the acquisition (“fair value adjustment”). This fair value adjustment is amortized to interest expense over the
expected remaining term of the debt using the effective interest rate method. Non-cash adjustments to interest expense are
recorded as part of depreciation and amortization under operating activities in the consolidated statements of cash flows.
Interest on subsidiary redeemable units
Interest payments incurred and recorded in the consolidated statements of net income and comprehensive income consisting
of distributions to holders of subsidiary redeemable units are recorded as follows:
Paid in cash
Paid by way of reinvestment in REIT Units
Less: Interest payable at December 31, 2017 (December 31, 2016 in comparative period)
Plus: Interest payable at December 31, 2018 (December 31, 2017 in comparative period)
Interest on subsidiary redeemable units
$
Year ended December 31,
2018
2017
—
—
13,376
13,376
(1,114 )
(1,114 )
1,114
1,114
13,376
13,376 $
$
$
Dream Industrial REIT 2018 Annual Report | 77
The interest payable at December 31, 2018 was paid on January 15, 2019 through the issuance of 110,465 REIT Units. On
February 15, 2019, the January 2019 distribution was paid through the issuance of 104,656 REIT Units.
Note 22
FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS
Fair value adjustment on conversion feature of convertible debentures
Remeasurement of carrying value of subsidiary redeemable units
Remeasurement of carrying value of DUIP
Fair value adjustment on interest rate swaps
Total
Note 23
NET LOSSES ON TRANSACTIONS AND OTHER ACTIVITIES
Internal leasing costs
5.25% Convertible Debentures redemption write-off(1)
Cost reduction program charge
Transaction cost recovery
Total
$
$
$
$
$
Year ended December 31,
2018
2017
1,024
2,305
5,009
13,357
648
829
629
(1,812 )
4,869
17,120
$
Year ended December 31,
2018
2017
3,125
3,299 $
1,932
—
150
—
—
(151 )
3,275
5,080 $
(1) On August 2, 2018, the Trust recorded a $1,932 write-off of unamortized financing costs and mark-to-market adjustments associated with the early
repayment of the 5.25% Convertible Debentures.
Note 24
INCOME TAXES
DIR Industrial Properties Inc., one of the Trust’s Canadian subsidiaries, is subject to corporate income taxes in Canada. Dream
Industrial US Holdings Inc., a wholly owned U.S. subsidiary, is subject to corporate income taxes in the U.S.
The following table reconciles the expected income taxes based upon the 2018 and 2017 statutory rates and the income tax
expense recognized during the years ended December 31, 2018 and December 31, 2017:
Income before income taxes
Income not subject to taxation
Income (loss) in subsidiary corporations
Tax calculated at the Canadian statutory tax rate of 30.0% (2017 – 30.0%) and
U.S. statutory rate of 24.8% (2017 – 39.2%)
Increase (decrease) resulting from:
Non-deductible expenses
Non-taxable portion of capital gains
Adjustment in expected future tax rates
Other items
Deferred and current income taxes, net(1)
Year ended December 31,
2018
2017
34,787
158,764 $
(151,172 )
(34,946 )
7,592
(159 )
2,065
(119 )
144
(722 )
11
(262 )
1,236 $
—
—
158
89
128
$
$
(1) At December 31, 2018, current income taxes recovery was $120 (December 31, 2017 – current income taxes expense was $226).
Dream Industrial REIT 2018 Annual Report | 78
Deferred income tax assets (liabilities) consisted of the following:
Deferred tax liability related to difference in tax and book basis of investment properties
Deferred tax asset related to tax loss carry-forwards
Deferred tax asset related to difference in tax and book basis of financial instruments
Deferred tax asset related to difference in tax and book basis of deferred financing costs
Total deferred income tax assets (liabilities), net
Note 25
SUPPLEMENTARY CASH FLOW INFORMATION
The components of depreciation and amortization under operating activities include:
December 31,
2018
(4,139 )
2,831
42
—
(1,266 )
$
$
December 31,
2017
(2,368 )
2,432
54
4
122
$
$
$
Year ended December 31,
2018
2017
1,426
1,155
1,821
1,655
59
52
(307 )
(434 )
2,428
2,999
$
$
Year ended December 31,
2018
2017
(968 )
(490 )
17,491
(107,875 )
2,181
1,785
13,376
13,376
4,869
17,120
—
(151 )
1,932
—
1,356
(98 )
36,933
(73,029 )
$
$
Year ended December 31,
2018
2017
941
(1,087 )
225
(272 )
84
(84 )
868
502
373
779
2,491
(162 )
$
Amortization of lease incentives
Amortization of financing costs
Depreciation of property and equipment
Amortization of fair value adjustments on assumed debt
Total depreciation and amortization
The components of other adjustments under operating activities include:
Change in straight-line rent
Fair value adjustments to investment properties
Deferred unit compensation expense
Non-cash interest on subsidiary redeemable units
Fair value adjustments to financial instruments
Transaction cost recovery
5.25% Convertible Debentures redemption write-off
Deferred income taxes expense (recovery)
Total other adjustments
Note
6
21
21
Note
6
6, 10
20
21
22
23
23
24
The components of the changes in non-cash working capital under operating activities include:
Decrease (increase) in amounts receivable
Decrease (increase) in prepaid expenses and other assets
Decrease (increase) in other non-current assets
Increase in amounts payable and accrued liabilities
Increase in tenant security deposits
Change in non-cash working capital
$
$
$
$
$
$
Dream Industrial REIT 2018 Annual Report | 79
Note 26
SEGMENTED INFORMATION
For the years ended December 31, 2018 and December 31, 2017, the Trust’s reportable operating segments of its investment
properties and results of operations were segmented into geographic components, namely Western Canada, Ontario, Québec,
Eastern Canada, and the U.S.
The Trust did not allocate interest expense to its segments since financing is viewed as a corporate function. The decision as to
where to incur debt is largely based on minimizing the cost of debt and is not specifically related to the segments. Similarly,
other income, other expenses, fair value adjustments to financial instruments, net losses on transactions and other activities
(excluding internal leasing costs), and income taxes were not allocated to the segments.
Year ended December 31, 2018
Operations
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Other expenses
Fair value adjustments on investment
properties and financial instruments
Net losses on transactions and other
activities
Income (loss) before income taxes
Deferred and current income taxes, net
Net income (loss)
Western
Canada
Ontario Québec
Eastern
Canada
Segment
total
U.S.
Other(1)
Total
$ 65,102 $ 46,965 $ 30,599 $
(8,123 )
22,476
—
—
(21,754 )
43,348
—
—
(13,616 )
33,349
—
—
33,105 $ 17,777 $ 193,548 $
(59,804 )
(2,715 )
(13,596 )
133,744
15,062
19,509
—
—
—
—
—
—
— $ 193,548
—
(59,804 )
—
133,744
657
657
(61,312 )
(61,312 )
(19,918 )
85,837 41,879
(433 )
510
107,875
(17,120 )
90,755
(692 )
(1,401 )
(519 )
22,029 118,494 63,836
—
(1,781 )
(5,080 )
(79,556 ) 158,764
(1,236 )
(1,236 )
$ 22,029 $ 118,494 $ 63,836 $ 18,389 $ 15,572 $ 238,320 $ (80,792 ) $ 157,528
(3,299 )
15,572 238,320
—
(687 )
18,389
—
—
—
—
—
(1) Includes other income, other expenses, fair value adjustments to financial instruments, net losses on transactions and other activities (excluding internal
leasing costs), and income taxes, which are not allocated to the segments.
Year ended December 31, 2017
Operations
$
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Other expenses
Fair value adjustments on investment
Western
Canada
Ontario
Québec
Eastern
Canada
Segment
total
U.S.
Other(1)
Total
65,310 $ 44,815 $ 30,007 $
(7,605 )
(13,514 )
(20,730 )
22,402
31,301
44,580
—
—
—
—
—
—
31,387 $
(13,641 )
17,746
—
—
831 $ 172,350 $
(82 )
(55,572 )
749 116,778
731
731
—
—
— $ 172,350
—
(55,572 )
—
116,778
995
264
(57,351 )
(57,351 )
properties and financial instruments
(22,529 )
28,572
(6,117 )
(15,793 )
(1,624 )
(17,491 )
(4,869 )
(22,360 )
Net losses on transactions and other
activities
Income (loss) before income taxes
Deferred and current income taxes, net
Net income (loss)
(1,196 )
20,855
—
(515 )
15,770
—
$ 20,855 $ 59,094 $ 15,770 $
(779 )
59,094
—
(635 )
1,318
—
1,318 $
—
(144 )
—
(150 )
(3,125 )
(62,106 )
96,893
—
(128 )
(144 ) $ 96,893 $ (62,234 ) $
(3,275 )
34,787
(128 )
34,659
(1) Includes other income, other expenses, fair value adjustments to financial instruments, net losses on transactions and other activities (excluding internal
leasing costs), and income taxes, which are not allocated to the segments.
Dream Industrial REIT 2018 Annual Report | 80
Investment properties
Year ended December 31, 2018
Investment properties
Total capital expenditures and leasing costs(1)
Western
Canada
Québec
$ 627,354 $ 610,470 $ 353,351
3,601
Ontario
10,514
8,996
Eastern
Canada
Total
$ 253,687 $ 293,549 $ 2,138,411
27,885
4,426
348
U.S.
(1) Includes building improvements and lease incentives and initial direct leasing costs.
Year ended December 31, 2017
Investment properties
Total capital expenditures and leasing costs(1)
Western
Canada
Ontario
Québec
Eastern
Canada
$ 638,535 $ 465,585 $ 294,110 $ 250,030 $
7,059
6,176
4,243
6,942
U.S.
74,728 $
—
Total
1,722,988
24,420
(1) Includes building improvements and lease incentives and initial direct leasing costs.
Note 27
RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
From time to time, Dream Industrial REIT and its subsidiaries enter into transactions with related parties that are generally
conducted on a cost-recovery basis or under normal commercial terms.
Dream Asset Management Corporation (“DAM”)
Effective October 4, 2012, Dream Industrial REIT has an asset management agreement (the “Asset Management Agreement”)
with DAM, a subsidiary of Dream Unlimited Corp., pursuant to which DAM provides certain asset management services to
Dream Industrial REIT and its subsidiaries. The agreement is in effect until October 4, 2022. The Asset Management Agreement
provides the Trust and DAM the opportunity to agree on additional services to be provided to the Trust for which DAM is to be
reimbursed on a cost recovery basis.
The Asset Management Agreement provides for a range of asset management services for the following fees:
• Base annual management fee calculated and payable on a monthly basis, equal to 0.25% of the gross asset value of
properties;
•
Incentive fee equal to 15% of Dream Industrial REIT’s adjusted funds from operations per unit in excess of $0.80 per unit,
increasing annually by 50% of the increase in the consumer price index;
• Capital expenditures fee equal to 5% of all hard construction costs incurred on each capital project with costs in excess of
$1.0 million, excluding work done on behalf of tenants or any maintenance capital expenditures;
• Acquisition fee equal to: (a) 1.0% of the purchase price of a property on the first $100,000 of properties acquired in each
fiscal year; (b) 0.75% of the purchase price of a property on the next $100,000 of properties acquired in each fiscal year;
and (c) 0.50% of the purchase price of a property in excess of $200,000 of properties acquired in each fiscal year; and
• Financing fee equal to the actual expenses incurred by DAM in supplying services relating to financing transactions.
The Trust and DAM are party to an amended Shared Services and Cost Sharing Agreement as of January 1, 2016. According to
the terms of the amended arrangement, DAM will continue to provide administrative and support services on an as-needed
basis and will be reimbursed on a cost recovery basis for any expenses incurred. The Trust will continue to reimburse DAM for
any shared costs allocated in each calendar year. This amended agreement provides for the automatic reappointment of DAM
for additional one-year terms commencing on January 1 unless and until terminated in accordance with its terms or by mutual
agreement of the parties.
Effective November 30, 2016, Dream Industrial Management LP (“DIMLP”), a wholly owned subsidiary of DILP, entered into a
Property Management Agreement with a subsidiary of DAM for DIMLP to manage one property on behalf of DAM.
Dream Hard Asset Alternatives Trust (“DHAAT”)
Effective May 21, 2015, DILP entered into a co-ownership agreement to jointly own six properties at 50% ownership interest
with Dream Alternatives Master LP, a subsidiary of DHAAT. On the same day, DIMLP entered into a Property Management
Agreement to manage the co-owned properties.
Effective July 7, 2015 and September 5, 2015, DIMLP entered into lease agreements with a subsidiary of DHAAT to lease roof-
top space.
Dream Industrial REIT 2018 Annual Report | 81
Dream Office REIT
Effective October 4, 2012, Dream Industrial REIT, DILP, DIMLP, Dream Industrial Management Corp. and Dream Office
Management Corp. (“DOMC”), a subsidiary of Dream Office REIT, are parties to an administrative services agreement (the
“Services Agreement”) where DOMC provides certain services to Dream Industrial REIT on a cost recovery basis. The Services
Agreement is automatically renewed on October 4 of every year for additional one-year terms unless terminated by any party.
As at December 31, 2018, Dream Office REIT, directly and indirectly through its wholly owned subsidiaries, held 7,200,736 REIT
Units (December 31, 2017 – 5,431,141) and 18,551,855 LP B Units (December 31, 2017 – 18,551,855), representing
approximately 23.3% ownership in the Trust (December 31, 2017 – 25.6%).
As described in Note 5, on October 31, 2017, the Trust completed the purchase of a single-tenant distribution centre from
Dream Office REIT. On August 1, 2017, in relation to the purchase, the Trust made an interest bearing refundable deposit of
$30,150, which was applied to closing proceeds. During the year ended December 31, 2017, $731 of interest income was
included in interest and fee income related to this deposit.
As described in Note 16, on November 21, 2017, the Trust completed a private placement of 2,858,000 REIT Units to Dream
Office LP, a subsidiary of Dream Office REIT. The REIT Units issued were enrolled in the DRIP.
PAULS Corp, LLC (“PAULS Corp”)
Effective January 1, 2018, Brian Pauls was appointed as the Trust’s Chief Executive Officer. Mr. Pauls is also a senior member of
the management team at PAULS Corp, a Denver-based real estate firm.
DAM, our asset manager, has engaged an affiliate of PAULS Corp to assist the Trust in sourcing and completing acquisitions in
the U.S. DAM pays a portion of the acquisition fee it receives from the Trust for each successful acquisition. Through its
relationships in the U.S., PAULS Corp assisted the Trust with its U.S. acquisitions described in Note 5.
As described in Note 16, on November 21, 2017, the Trust completed a private placement of 115,000 REIT Units to an affiliate
of PAULS Corp. As at December 31, 2018, an affiliate of PAULS Corp held 115,000 REIT Units.
Effective December 28, 2017, Dream Industrial US Holdings Inc. entered into a Property Management Agreement with an
affiliate of PAULS Corp to manage several of the Trust’s U.S. properties and to provide portfolio management services.
Effective December 27, 2018, the agreement between DAM and the PAULS Corp affiliate, the Property Management
Agreement, and the 115,000 REIT Units held by an affiliate of PAULS Corp were assigned to Pauls Realty Services, LLC (“PRS”),
an affiliate of PAULS Corp.
Dream Industrial REIT 2018 Annual Report | 82
Related party transactions
Fees and cost reimbursements with related parties were as follows:
Incurred under the Asset Management Agreement:
Asset management fee (included in general and administrative expenses)
Acquisition fee (included in acquisition related costs/investment properties)(1)
Expense reimbursements related to financing arrangements
Total costs incurred under the Asset Management Agreement to DAM
Incurred under the Shared Services and Cost Sharing Agreement:
Strategic services and other services
Total costs incurred under the Shared Services and Cost Sharing Agreement to DAM
Received under the Property Management Agreement:
Property management fee
Total revenue under the Property Management Agreement with DAM
Received under lease agreements and Property Management Agreement:
Lease agreements revenue
Property management fee
Total revenue under lease agreements and Property Management Agreement with DHAAT
Incurred under the Services Agreement:
Costs reimbursed under the Services Agreement
Distributions paid and payable:
Distributions paid and payable to Dream Office REIT on subsidiary redeemable units
Distributions paid and payable to Dream Office REIT on REIT Units
Total cost reimbursements under the Services Agreement with Dream Office REIT and
distributions paid and payable to Dream Office REIT
Incurred under the Property Management Agreement:
Property management fee, portfolio management services and expense reimbursements
Total costs incurred under the Property Management Agreement with PRS
(1) A portion of this fee is paid by DAM to an affiliate of PAULS Corp for any U.S. acquisitions it is involved in.
Year ended December 31,
2017
2018
$
$
$
$
$
4,621
1,556
369
6,546
657
657
87
87
109
42
151
3,304
13,376
4,538
4,047
934
391
5,372
681
681
87
87
109
44
153
2,726
13,376
1,585
21,218
$
17,687
507
507
$
—
—
$
$
$
$
$
$
$
The following table summarizes the outstanding payables to and receivables from related parties as at:
Amounts payable and accrued liabilities to DAM for:
Asset Management Agreement
Shared Services and Cost Sharing Agreement
Total payable to DAM
Amounts payable and accrued liabilities to Dream Office REIT for:
Services Agreement
Distributions on subsidiary redeemable units
Distributions on REIT Units
Total payable to Dream Office REIT
Amounts receivable from Dream Office REIT for:
Funds Dream Office REIT received on behalf of Dream Industrial REIT
Total receivable from Dream Office REIT
Amounts payable and accrued liabilities to PRS for:
Property Management Agreement
Expense reimbursements related to property acquisitions
Total payable to PRS
December 31,
2018
December 31,
2017
$
$
$
$
$
(479 )
(127 )
(606 )
$
$
(387 )
(1,114 )
(421 )
(1,922 )
855
855
(54 )
—
(54 )
$
$
$
(631 )
(151 )
(782 )
(302 )
(1,114 )
(317 )
(1,733 )
299
299
—
(30 )
(30 )
Dream Industrial REIT 2018 Annual Report | 83
Compensation of key management personnel including trustees is as follows:
Unit-based awards granted during the year(1)
Trustees’ fees paid in cash
Total
Year ended December 31,
2018
2017
1,486 $
992
96
162
1,582 $
1,154
$
$
(1) Deferred trust units granted to trustees in 2018 vest immediately upon issuance. Prior to 2018, deferred trust units granted to trustees vest over a five-year
period with one-fifth of the deferred trust units vesting each year. Deferred trust units granted to officers continue to vest over a five-year period with one-
fifth of the deferred trust units vesting each year. Upon vesting, certain trustees and officers may elect to defer issuance of REIT Units. Amounts are
determined based on the grant date fair value of deferred trust units multiplied by the number of deferred trust units granted in the period.
Note 28
COMMITMENTS AND CONTINGENCIES
Dream Industrial REIT and its operating subsidiaries are contingently liable under guarantees that are issued in the normal
course of business and with respect to litigation and claims that may arise from time to time. In the opinion of management,
any liability that may arise from such contingencies would not have a material adverse effect on our consolidated financial
statements.
Note 29
CAPITAL MANAGEMENT
The primary objectives of the Trust’s capital management are to ensure its operations are adequately funded in a cost-efficient
manner and to remain compliant with its banking covenants.
The Trust’s capital consists of debt, including mortgages, revolving credit facility, convertible debentures, subsidiary
redeemable units and unitholders’ equity. The Trust’s objectives in managing capital are to ensure adequate operating funds
are available to maintain consistent and sustainable unitholder distributions, to fund leasing costs and capital expenditure
requirements, and to provide for resources needed to acquire new properties.
Various debt, equity and earnings distribution ratios are used to ensure capital adequacy and monitor capital requirements.
The primary ratios used for assessing capital management are the interest coverage and debt-to-total assets ratios. Other
significant indicators include weighted average interest rate, average term to maturity of debt and variable rate debt as a
portion of total debt. These indicators assist the Trust in assessing whether the debt level maintained is sufficient to provide
adequate cash flows for unitholder distributions and capital expenditures and for evaluating the need to raise funds for further
expansion. Various mortgages have debt covenant requirements that are monitored by the Trust to ensure there are no
defaults. These covenants include loan-to-value ratios, cash flow coverage ratios, interest coverage ratios and debt service
coverage ratios. These covenants are measured at the subsidiary limited partnership level, and all have been complied with
except for a $7,090 mortgage related to a property in Edmonton, where the debt service coverage ratio was not met as at
December 31, 2018. On February 12, 2019, the lender issued a forbearance letter for the covenant breach and confirmed that
the mortgage is in good standing.
During the year, there were no events of default on any of the Trust’s obligations under its revolving credit facility or mortgage
loans.
The Trust’s equity consists of REIT Units, in which the carrying value is impacted by earnings and unitholder distributions. The
Trust endeavours to make annual distributions of $0.70 per unit. Amounts retained in excess of the distributions are used to
fund leasing costs, capital expenditures and working capital requirements. Management monitors distributions to ensure
adequate resources are available by comparing total distributions (including distributions on subsidiary redeemable units), a
non-IFRS measure to cash generated from (utilized in) operating activities.
The Trust monitors capital primarily using net debt-to-assets and net debt-to-adjusted EBITDAFV ratios, which are non-IFRS
measures.
Dream Industrial REIT 2018 Annual Report | 84
Note 30
OTHER FINANCIAL INSTRUMENTS
Interest rate swaps
The Trust has entered into floating for fixed interest rate swaps agreements to manage interest rate risk. For any interest rate
swaps for which the Trust does not apply hedge accounting, the change in fair value of the swap contracts is recognized in net
income. For interest rate swaps where hedge accounting is applied, the fair value for the effective portion of the hedge is
recorded in other comprehensive income from the date of hedge designation.
The Trust has applied hedge accounting on one interest rate swap arrangement. The effectiveness of the hedging relationship
is reviewed on a quarterly basis. The Trust has assessed that there is no ineffectiveness in the cash flow hedge of its interest
rate exposure. The associated unrealized gains or losses that are recognized in accumulated other comprehensive loss will be
reclassified in the same period during which the interest payments on the hedged item affect net income.
The following table summarizes the details of the interest rate swaps that are outstanding at December 31, 2018 and
December 31, 2017:
Transaction date
February 24, 2014
Mortgage principal
amount (notional)
$
45,173
Fixed
interest rate
3.31 %
Maturity date
March 1, 2019
August 26, 2015
August 30, 2017
January 17, 2018
45,200
2.93 % September 1, 2022
43,553
3.44 %
August 30, 2024
46,036
3.73 %
April 3, 2023
Transaction date
February 24, 2014
Mortgage principal
amount (notional)
47,413
$
Fixed
interest rate
3.31 %
Maturity date
March 1, 2019
August 26, 2015
August 30, 2017
46,640
2.93 % September 1, 2022
44,715
3.44 %
August 30, 2024
Year ended December 31, 2018
Financial instrument
measurement
Hedge through other $
Fair value
36
comprehensive income
Fair value through
profit or loss
Fair value through
profit or loss
Fair value through
profit or loss
1,111
396
(461 )
Year ended December 31, 2017
Financial instrument
measurement
Cash flow hedge $
at fair value
Fair value through
profit or loss
Fair value through
profit or loss
Fair value
(56 )
1,331
344
Note 31
FINANCIAL INSTRUMENTS – RISK MANAGEMENT
IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), places emphasis on disclosures about the nature and extent of risks
arising from financial instruments and how the Trust manages those risks, including market, credit and liquidity risks.
Market risk
Market risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk consists of interest rate risk, currency risk and other market price risk. The Trust has exposure to interest
rate risk primarily as a result of its fixed rate debt due to the expected requirement to refinance such debts in the year of
maturity. To a lesser extent, the Trust is exposed to variable rate debt on its drawings on the revolving credit facility. The Trust
is exposed to the variability in market interest rates and credit spreads on maturing debt to be renewed and the variability of
interest rates on its variable rate debt. Variable rate debt at December 31, 2018 was 2.9% of the Trust’s total debt. The Trust
had no variable rate debt as at December 31, 2017. In order to manage exposure to interest rate risk, the Trust endeavours to
maintain an appropriate mix of fixed and variable rate debt, manage maturities of fixed rate debt and match the nature of the
debt with the cash flow characteristics of the underlying asset.
The following interest rate sensitivity table outlines the potential impact of a 1% change in the interest rate on variable rate
financial assets and fixed rate debt due to mature in 2019. A 1% change is considered a reasonable level of fluctuation.
Dream Industrial REIT 2018 Annual Report | 85
Carrying amount
Income
-1%
Equity
Interest rate risk
+1%
Equity
Income
Financial assets
Cash and cash equivalents(1)
Financial liabilities
Fixed rate debt due to mature in 2019(2)
and variable rate debt
$
$
4,968 $
(50 ) $
(50 ) $
50 $
50
79,350
$
794
$
794
$
(794 ) $
(794 )
(1) Cash and cash equivalents are short-term investments with an original maturity of three months or less, and exclude cash subject to restrictions that
s prime rate less 1.85% to 2.00%. Cash and cash
prevent the Trust
s use for current purposes. These balances generally receive interest income at the bank
equivalents as at December 31, 2018 are short term in nature and may not be representative of the balance during the year.
(2) Excludes scheduled principal repayments on non-maturing debt.
ʼ
ʼ
The Trust is exposed to foreign exchange risk as it relates to its U.S. investments due to fluctuations in the exchange rate
between the Canadian and U.S. dollars. Changes in the exchange rate may result in a reduction in other comprehensive
income. For the year ended December 31, 2018, a $0.05 change in the value of the U.S. dollar relative to the Canadian dollar
would result in a $5,502 change to comprehensive income. The Trust’s objective in managing foreign exchange risk is to
mitigate the exposure from fluctuations in the exchange rate by maintaining U.S.-denominated debt against its U.S. assets.
Credit risk
Credit risk arises from the possibility that tenants in investment properties may not fulfill their lease or contractual obligations.
The Trust mitigates its credit risk by attracting tenants of sound financial standing and by diversifying its mix of tenants. It also
monitors tenant payment patterns and discusses potential tenant issues with property managers on a regular basis.
IFRS 9 (2018 fiscal year): The maximum exposure to credit risk is the carrying value of the trade receivables disclosed in
Note 9. An impairment analysis is performed at each balance sheet date using a provision matrix to measure expected credit
losses, adjusted for forward-looking factors specific to the tenant and the economic environment. The provision is reduced for
tenant security deposits held as collateral.
IAS 39 (2017 fiscal year): As at December 31, 2017, $212 of the trade receivables were past due but not considered impaired,
as the Trust has ongoing relationships with these tenants and the aging of these trade receivables is not indicative of expected
default.
Cash and cash equivalents, deposits and restricted cash carry minimal credit risk as all funds are maintained with highly
reputable financial institutions.
Liquidity risk
Liquidity risk is the risk the Trust will encounter difficulty in meeting obligations associated with the maturity of financial
obligations. As at December 31, 2018, current liabilities exceeded current assets by $93,293 (December 31, 2017 – current
liabilities exceeded current assets by $59,726). The Trust’s main sources of liquidity are its cash and cash equivalents on hand,
revolving credit facility and unencumbered assets. The Trust is able to use its revolving credit facility on short notice which
eliminates the need to hold a significant amount of cash and cash equivalents on hand. Working capital balances fluctuate
significantly from period to period depending on the timing of receipts and payments. The Trust manages maturities of the
fixed rate debts, and monitors the repayment dates to ensure sufficient capital will be available to cover obligations. Scheduled
principal repayments that are due within one year amount to $25,786 (December 31, 2017 – $22,519) and debt maturities
that are due within one year amount to $51,975 (December 31, 2017 – $92,607). The debt maturities are typically refinanced
with mortgages of terms between five and ten years. The Trust’s unencumbered assets pool as at December 31, 2018 is
$194,594 (December 31, 2017 – $113,191). The Trust’s undrawn credit facility as at December 31, 2018 is $98,194
(December 31, 2017 – $123,000).
Dream Industrial REIT 2018 Annual Report | 86
Note 32
FAIR VALUE MEASUREMENTS
Quoted prices in active markets represent a Level 1 valuation. When quoted prices are not available, the Trust maximizes the
use of observable inputs. When all significant inputs are observable, either directly or indirectly, the valuation is classified as
Level 2. Valuations that require the significant use of unobservable inputs are considered Level 3. The Trust’s policy is to
recognize transfers into and transfers out of fair value hierarchy levels as at the date of the event or change in circumstances
that caused the transfer. There were no transfers in or out of Level 3 fair value measurements during the year.
All gains and losses recorded in fair value adjustments to financial instruments (Note 22) are changes in unrealized gains and
losses relating to the items on the consolidated balance sheets.
The following tables summarize fair value measurements recognized in the consolidated balance sheets by class of asset or
liability and categorized by level according to the significance of the inputs used in making the measurements.
Recurring fair value measurements
Non-financial assets
Investment properties
Financial assets
Fair value of interest rate swaps
Financial liabilities
Fair value of interest rate swaps
Recurring fair value measurements
Non-financial assets
Investment properties
Financial assets
Conversion feature on convertible debentures
Fair value of interest rate swaps
Financial liabilities
Fair value of interest rate swaps
Carrying value as at
Note December 31, 2018
Level 1
Fair value as at December 31, 2018
Level 3
Level 2
6 $
2,138,411
$
— $
— $
2,138,411
30
30
1,543
461
—
—
1,543
461
—
—
Carrying value as at
December 31, 2017
Note
Level 1
Fair value as at December 31, 2017
Level 3
Level 2
6
$
1,722,988
$
— $
— $
1,722,988
8
30
30
2,305
1,675
56
—
—
—
—
1,675
56
2,305
—
—
Financial instruments carried at amortized cost where carrying value does not approximate fair value are noted below:
Financial instruments at amortized cost
Mortgages
Revolving credit facility
Financial instruments at amortized cost(1)
Mortgages
Convertible debentures
Carrying value as at
Note December 31, 2018
Level 1
Fair value as at December 31, 2018
Level 3
Level 2
$
11
11
910,970
26,760
Carrying value as at
Note December 31, 2017
$
11
11
782,254
108,567
$
$
— $
—
— $
27,375
909,903
—
Level 1
Fair value as at December 31, 2017
Level 3
Level 2
— $
—
— $
—
780,631
114,668
(1) As at December 31, 2017, there were no borrowings against the revolving credit facility.
Amounts receivable, cash and cash equivalents, tenant security deposits, amounts payable and accrued liabilities are carried at
amortized cost, which approximates fair value due to their short-term nature. Subsidiary redeemable units and DUIP are
carried at amortized cost, which approximates fair value as they are readily redeemable financial instruments.
Dream Industrial REIT 2018 Annual Report | 87
Investment properties
Fair value for investment properties is calculated using the capitalization rate and discounted cash flow methods, which result
in these measurements being classified as Level 3 in the fair value hierarchy.
In applying the capitalization rate method, the stabilized NOI of each property is divided by an appropriate capitalization rate
(“cap rate”).
In applying the discounted cash flow method, the cash flows of a specific property are projected assuming a ten-year holding
period. The estimated sale value at the end of the holding period is then calculated by dividing the projected net rental income
for year 11 by a terminal rate. These projected cash flows are then added together and discounted at a discount rate reflecting
the risks of the property being valued.
The results of both methods are evaluated by considering the range of values calculated under both methods on a property-
by-property basis. Investment properties are valued on a highest-and-best-use basis.
The critical and key assumptions in the valuation of investment properties are as follows:
Capitalization rate method
• Cap rate – based on actual location, size and quality of the investment property and taking into account any available
market data at the valuation date; and
• Stabilized NOI – revenues less property operating expenses adjusted for items such as average lease up costs, long-term
vacancy rates, non-recoverable capital expenditures, management fees, straight-line rents and other non-recurring items.
Discounted cash flow method
• Discount and terminal rates – reflecting current market assessments of the return expectations;
• Market rents – reflecting management’s best estimates with reference to recent leasing activity and external market data;
• Leasing costs – reflecting recent leasing activity and external market data; and
• Vacancy rates – reflecting recent leasing activity and external market data.
Valuation process
Management is responsible for determining the fair value measurements included in the consolidated financial statements.
The Trust includes a valuation team that prepares a valuation of each investment property every quarter.
On a quarterly basis, the Trust engages independent professionally qualified valuers who hold a recognized relevant
professional qualification and have recent experience in the locations and categories of the investment properties to complete
valuations of several properties. Each property is valued by an independent valuer on a rotational basis. Judgment is also
applied in determining the extent and frequency of independent appraisals. For properties subject to an independent
valuation report, the valuation team verifies all major inputs to the valuation and reviews the results with the independent
valuers.
The valuation team directly reports the results to the Chief Financial Officer (“CFO”) and Chief Executive Officer (“CEO”) for
approval. Discussion of valuation processes, key inputs, results and reasons for the fair value movements are held between the
CFO, the CEO and the valuation team at least once every quarter, in line with the Trust’s quarterly reporting.
Investment properties with an aggregate fair value of $655,620 for the year ended December 31, 2018 (for the year ended
December 31, 2017 – $605,950) were valued by qualified external valuation professionals.
The significant and unobservable Level 3 valuation metrics used in the capitalization rate method as at December 31, 2018 and
December 31, 2017 are set out in the table below:
Cap rate(2)
(1) Weighted average based on investment property fair value.
(2) Excludes assets held for sale at the end of each year.
December 31, 2018
Weighted
average(1)
6.29 %
Range (%)
5.00–9.25
December 31, 2017
Weighted
average(1)
6.59 %
Range (%)
4.00–9.25
In addition to the cap rates noted above, the stabilized NOI used in the capitalization rate method as at December 31, 2018
and December 31, 2017 was $138,382 and $117,598, respectively.
Dream Industrial REIT 2018 Annual Report | 88
Generally, an increase in stabilized NOI will result in an increase to the fair value of an investment property. An increase in the
cap rate will result in a decrease to the fair value of an investment property. The cap rate magnifies the effect of a change in
stabilized NOI, with a lower cap rate resulting in a greater impact to the fair value of an investment property than a higher cap
rate.
If the cap rate were to increase by 25 basis points (“bps”), the value of investment properties would decrease by $24,076
(December 31, 2017 – $60,881). If the cap rate were to decrease by 25 bps, the value of investment properties would increase
by $150,809 (December 31, 2017 – $65,510).
The significant and unobservable Level 3 valuation metrics used in the discounted cash flow method as at December 31, 2018
and December 31, 2017 are set out in the table below:
Discount rate(2)
Terminal rate(2)
(1) Weighted average based on investment property fair value.
(2) Excludes assets held for sale at the end of each year.
December 31, 2018
Weighted
average(1)
7.16 %
6.55 %
Range (%)
6.00–9.00
5.50–8.00
December 31, 2017
Weighted
average(1)
7.47 %
6.73 %
Range (%)
5.00–9.00
4.50–8.00
In addition to the assumptions noted above, the weighted average market rent per square foot was $7.38 (December 31,
2017 – $7.19). The average leasing cost per square foot was $4.17 (December 31, 2017 – $3.52). The weighted average
vacancy rate assumption was 3.11% (December 31, 2017 – 3.62%).
Generally, an increase in market rents and a decrease in leasing costs and vacancy rates will result in an increase to the fair
value of an investment property. An increase in the discount rate will result in a decrease to the fair value of an investment
property. An increase in the terminal rate will result in a decrease to the fair value of an investment property. The terminal rate
magnifies the effect of a change in market rents, leasing costs, vacancy rates and discount rates, with a lower terminal rate
resulting in a greater impact to the fair value of an investment property.
The following sensitivity table outlines the potential impact on the value of investment properties, excluding assets held for
sale, assuming a change in the weighted average discount rates and terminal cap rates by a respective 25 bps as at
December 31, 2018:
Increase (decrease) in value
Impact to change in
weighted average discount rates
-25 bps
27,368
+25 bps
(26,889 ) $
Impact to change in
weighted average terminal cap rates
-25 bps
52,503
+25 bps
(48,642 ) $
$
$
Mortgages
The fair value of the mortgage payable as at December 31, 2018 has been calculated by discounting the expected cash flows of
each debt using a weighted average discount rate of 3.81% (December 31, 2017 – 3.59%). The discount rates are determined
using the Government of Canada benchmark bond yield for instruments of similar maturity adjusted for the Trust’s specific
credit risk. In determining the adjustment for credit risk, the Trust considers market conditions, the fair value of the investment
properties that the mortgages are secured by and other indicators of the Trust’s creditworthiness.
Revolving credit facility
The fair value of the revolving credit facility as at December 31, 2018 and December 31, 2017 generally approximates fair value
due to their short-term nature and variable rates.
Interest rate swaps
The fair value measurement of the interest rate swaps was valued by qualified independent valuation professionals based on
the present value of the estimated future cash flows determined using observable yield curves.
Dream Industrial REIT 2018 Annual Report | 89
Convertible debentures
The convertible debentures have two components of value – a conventional bond and a call on the equity of the Trust through
conversion. The conversion feature is an embedded derivative and has been separated from the host contract and classified as
a financial asset through profit and loss.
The fair value of the conversion feature on the convertible debentures was determined using critical inputs, some of which are
not directly observable based on market data. The critical inputs are the unit price and the units’ distribution yield, the
underlying unit volatility, the risk-free rate and the assumed credit spread.
A qualified independent valuation professional calculates the fair value measurement for the financial asset classified as
Level 3. The valuation processes and results are determined and reviewed by senior management.
The significant inputs used in the fair value measurement of the conversion feature as at December 31, 2018 and
December 31, 2017 are the following:
• Volatility: historical volatility as at December 31, 2018 and December 31, 2017 was derived from the historical prices of
the Trust with maturity equal to the term to maturity of the convertible debentures.
• Credit spread: the credit spread of the convertible debentures was imputed from the traded price of the convertible
debentures as at December 31, 2018 and December 31, 2017.
5.25% Convertible Debentures(1)
Credit spread
— %
December 31, 2018
Volatility
— %
Credit spread
1.622 %
December 31, 2017
Volatility
15.840 %
(1) On August 2, 2018, the conversion feature was derecognized as the Trust redeemed all outstanding convertible debentures.
A higher volatility will increase the value of the conversion option. A lower credit spread will decrease the value of the
conversion option.
The following table shows the changes in fair value of the conversion option from a 5% increase or decrease in volatility and a
100 bps increase or decrease in credit spread, all other inputs being constant.
Increase (decrease) in fair value as at December 31, 2018
Increase (decrease) in fair value as at December 31, 2017
$
$
+5%
Impact of change to volatility
-5%
—
—
— $
2 $
+100 bps
Impact of change to credit spread
-100 bps
—
(1,615 )
— $
1,562 $
$
$
Note 33
SUBSEQUENT EVENTS
On January 11, 2019, the Trust closed on a US$36,600 mortgage secured by a portfolio of two U.S. properties in Columbus,
Ohio. The mortgage has a term of ten years at a fixed face interest rate of 4.57% per annum.
On January 23, 2019, the Trust received lender approval to amend its existing revolving credit facility, increasing the borrowing
capacity from $125,000 to $150,000 and increasing the number of properties secured under the facility from 30 to 33
properties. The amendment is subject to customary closing conditions.
On February 4, 2019, the Trust announced the waiver of all conditions on the acquisition of a U.S. logistics portfolio in the
Midwest U.S., totalling approximately 3.5 million square feet of gross leasable area, for a purchase price of US$179,100,
excluding transaction costs. The portfolio comprises 21 buildings located in five cities (Chicago, Cincinnati, Columbus,
Indianapolis and Louisville) and, subject to customary closing conditions, is scheduled to close in the first quarter of 2019.
On February 13, 2019, the Trust completed a public offering of 13,800,000 REIT Units at a price of $10.45 per unit for gross
proceeds of $144,210, including 1,800,000 REIT Units issued pursuant to the exercise of the over-allotment option granted to
the underwriters.
Dream Industrial REIT 2018 Annual Report | 90
Trustees
Michael J. Cooper2
Toronto, Ontario
President & Chief Responsible Officer
Dream Unlimited Corp.
Leerom SegalInd.
Toronto, Ontario
President & Chief Executive Officer
Klick Health
Management Team
Brian Pauls
Chief Executive Officer
Lenis Quan
Chief Financial Officer
J. Michael KnowltonInd.,1,3
Vancouver, British Columbia
Corporate Director
Ben MulroneyInd.,3
Toronto, Ontario
Television Anchor & Producer
Brian Pauls2
Denver, Colorado
Chief Executive Officer
Dream Industrial REIT
Vicky SchiffInd.,1,3
Los Angeles, California
Co-Founder
Mosaic Real Estate Investors
Vincenza SeraInd.,2,4
Toronto, Ontario
Corporate Director
Sheldon WisemanInd.,1
Toronto, Ontario
Chief Executive Officer
Gistex Inc.
Legend:
Ind. Independent
1. Member of the Audit Committee
2. Member of the Executive Committee
3. Member of the Governance,
Compensation and
Environmental Committee
4. Chair of the Board of Trustees
Corporate Information
HEAD OFFICE
AUDITORS
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600
Toronto, Ontario M5J 0B2
CORPORATE COUNSEL
Osler, Hoskin & Harcourt LLP
Box 50, 1 First Canadian Place, Suite 6200
Toronto, Ontario M5X 1B8
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Listing Symbol: DIR.UN
For more information, please visit
dreamindustrialreit.ca
Dream Industrial
Real Estate Investment Trust
State Street Financial Centre
30 Adelaide Street East, Suite 301
Toronto, Ontario M5C 3H1
Phone: (416) 365-3535
Fax: (416) 365-6565
INVESTOR RELATIONS
Phone: (416) 365-3535
Toll free: 1 877 365-3535
Email: industrialinfo@dream.ca
Website: www.dreamindustrialreit.ca
TRANSFER AGENT
(for change of address, registration or
other unitholder enquiries)
Computershare Trust
Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Phone: (514) 982-7555 or
1 800 564-6253
Fax: (416) 263-9394 or
1 888 453-0330
Website: www.computershare.com
Email: service@computershare.com
DISTRIBUTION REINVESTMENT AND
UNIT PURCHASE PLAN
The purpose of our Distribution Reinvestment
and Unit Purchase Plan (“DRIP”) is to provide
unitholders with a convenient way of investing
in additional units without incurring transaction
costs such as commissions, service charges or
brokerage fees. By participating in the Plan,
you may invest in additional units in two ways:
Distribution reinvestment: Unitholders will have
cash distributions from Dream Industrial REIT
reinvested in additional units as and when cash
distributions are made. If you register in the
DRIP you will also receive a “bonus” distribution
of units equal to 3% of the amount of your cash
distribution reinvested pursuant to the Plan.
In other words, for every $1.00 of cash
distributions reinvested by you under the Plan,
$1.03 worth of units will be purchased.
Cash purchase: Unitholders may invest in
additional units by making cash purchases.
To enrol, contact:
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Attention: Dividend Reinvestment Services
or call their Customer Contact Centre at
1 800 564-6253 (toll free) or (514) 982-7555.
Corporate Office
State Street Financial Centre
30 Adelaide Street East, Suite 301
Toronto, Ontario M5C 3H1
Phone: 416.365.3535
Fax: 416.365.6565
Website: www.dreamindustrialreit.ca
Email: industrialinfo@dream.ca