DREAM GLOBAL ANNOUNCES SECOND QUARTER RESULTS, STRONG VALUATION GAINS, SOLID OPERATING PERFORMANCE AND VALUE-ADD ACQUISITIONS
DREAM GLOBAL ANNOUNCES SECOND QUARTER RESULTS, STRONG VALUATION GAINS, SOLID OPERATING PERFORMANCE AND VALUE-ADD ACQUISITIONS
TORONTO, August 8, 2019 DREAM GLOBAL REIT (TSX:DRG.UN, FRA:DRG) (or "Dream Global", the "Trust" or "we") today reported its financial results for the second quarter of 2019. Dream Global REIT's Management team will be holding a conference call Friday, August 9, 2019 at 8:00am (ET).
- EUR164.2 million of fair value gains and 8.0% growth in EPRA NAV per unit over Q1 2019
- Fair value of the portfolio increased by EUR164.2 million (4.4%) over the previous quarter and EUR287.1 million (7.9%) since December 31, 2018 based on external appraisals as of June 30, 2019. The fair value gains in the quarter are primarily attributable to yield compression and market rent growth in the Big 7 markets in Germany and the G5 markets in the Netherlands;
- EPRA NAV per unit was EUR11.78 ($17.53) as at June 30, 2019 compared to EUR10.28 ($16.05) at December 31, 2018 and EUR10.91 ($16.36) at March 31, 2019, an increase of 14.6% and 8.0%, respectively. Including the impact of deferred income taxes and derivative financial instruments, NAV per unit was EUR10.92 ($16.26) as at June 30, 2019 compared to EUR9.59 ($14.97) at December 31, 2018 and EUR10.21 ($15.31) at March 31, 2019, an increase of 13.9% and 7.0%, respectively.
- Continued strong operating performance with 3.4% Comparative Properties NOI growth in the quarter
- Comparative Properties net operating income ("CPNOI") increased by 3.4% year-over-year from Q2 2018. For the six months ended June 30, 2019, CPNOI increased by $3.4 million, or 4.2%, from the comparative period in 2018. CPNOI growth was largely driven by increases to in-place rents in the Core/Core+ assets, occupancy gains in the Value-add and Core/Core+ assets, as well as indexation and rent steps on existing leases;
- Comparative in-place occupancy reached 91.2%, an increase of 150 basis points from Q2 2018 due to positive leasing absorption primarily attributable to completion of value-add projects;
- Leasing spread between in-place and market rents increased to 9.0% in Q2 2019, an increase of 400 basis points compared to Q2 2018 and 100 basis points compared to the previous quarter largely as a result of continued rental growth in the Trust's key markets.
- Active capital recycling to enhance the quality of the portfolio
- EUR87.8 million of acquisitions in the quarter comprised of one German light industrial property and two Dutch office properties that closed during the quarter, and a German office property that is currently under contract for EUR16.6 million;
- EUR97.2 million of dispositions comprised of EUR49.2 million of Non-core dispositions closed or signed year-to-date and EUR48.0 million of opportunistic sales signed year-to-date.
- Issuance of seven-year EUR300 million Senior Notes
- On June 28, 2019, the REIT completed an issuance of EUR300 million of senior unsecured notes for seven years at a coupon of 1.75% and a yield to maturity of 1.89% per annum;
- Moody's upgraded the Trust's credit rating to Baa2 from Baa3, concurrent with the offering.
KEY PERFORMANCE INDICATORS
Three months ended June 30, 2019 March 31, 2019 June 30, 2018 Portfolio (1) Number of properties 215 216 243 Gross leasable area (in sq. m) 1,828,470 1,789,598 1,790,126 Occupancy rate - including committed (2) 91.8% 91.7% 89.9% Average in-place net rent per sq. m./month (2) EUR 10.41 EUR 10.38 EUR 10.07 Market rents above in-place net rents (2) 9.0% 8.0% 5.0% Operating results - in EUR Net operating income (1)(3) EUR 47,237 EUR 47,638 EUR 45,413 Operating results - in $ Net operating income (1)(3) $ 71,006 $ 71,909 $ 69,866 Net rental income 64,908 65,727 63,095 Funds from operations ("FFO") (3) 50,801 51,295 48,042 Cash generated from operating activities 38,974 33,070 36,656 Average exchange rate (Canadian dollars to one euro) 1.503 1.509 1.539 Distributions Declared distributions $ 38,750 $ 38,614 $ 36,432 DRIP participation ratio (4) 22% 20% 19% Per unit amounts (5)- in $ EPRA Net asset value (3) $ 17.53 $ 16.36 $ 14.24 Net asset value (3) $ 16.26 $ 15.31 $ 13.45 Distribution 0.20 0.20 0.20 Basic FFO 0.26 0.27 0.27 Diluted FFO 0.26 0.26 0.27 Per unit amounts (5)- in EUR EPRA Net asset value (3) EUR 11.78 EUR 10.91 EUR 9.27 Net asset value (3) EUR 10.92 EUR 10.21 EUR 8.76 Financing (excluding Trust's proportionate share of properties held through joint ventures and associates) Weighted average effective interest rate (6) 1.92% 1.91% 1.97% Interest coverage ratio (3) 5.0 times 5.1 times 4.9 times Debt-to-gross book value, net of cash (3) 38.5% 39.1% 40.1% Debt - average term to maturity (years) (3) 4.7 4.3 4.8 Financing (including Trust's proportionate share of properties held through joint ventures and associates) Unencumbered assets, percentage of total assets (7) 27.9% 23.0% 25.3% Debt-to-gross book value, net of cash (3) 40.7% 41.5% 43.2%
(1) Includes Trust's proportionate share of properties held through joint ventures, but excludes properties classified as assets held for sale.
(2) Excludes Redevelopment assets. The prior period presentation of certain portfolio metrics has been adjusted to exclude Redevelopment assets.
(3) Net operating income, FFO, interest coverage ratio, debt?to?gross book value, net of cash, net asset value and EPRA net asset value, are non?GAAP measures used by management in evaluating operating performance. Please refer to the cautionary statements under the heading "Non?GAAP Measures" in this press release.
(4) Distribution Reinvestment and Unit Purchase Plan
(5) A description of the determination of basic and diluted amounts per unit can be found in section "Non-GAAP measures and other disclosures" under the heading "Weighted average number of Units" of the latest Management's Discussion and Analysis of the Trust.
(6) Weighted average effective interest rate is calculated as the weighted average face rate of interest, net of amortization of fair value adjustments, discounts and financing costs
(7) The presentation of unencumbered assets has been revised to reflect the methodology provided by Moody's Corporation, which defines unencumbered assets as: unencumbered investment properties plus unencumbered assets held for sale, cash, prepaid expenses, notes receivable and accounts receivable.
GROWTH INITIATIVES - ACQUISITIONS
Transformatorweg 38-72 - On May 31, 2019, the Trust completed the acquisition of Transformatorweg 38-72 ("TW38"), a 10,800 square meter five-storey office building built in 2005 and located in the strong Amsterdam submarket of Sloterdijk. Sloterdijk has seen a rapid reduction of vacancy with positive net absorption and office conversions resulting in a 25% increase in rental rates over the past two years.
TW38 is currently 73% occupied largely by anchor tenant, Dell, with a WALT of 3.4 years and with in-place rents below market. The property is classified as a Value-add asset as the Trust intends to pursue a 'manage-to-core' strategy. By refurbishing the common areas and unoccupied floors with its successful Boutique and Smart office concepts, the Trust intends to increase occupancy, NOI and the value of the property. The purchase price of EUR30.5 million represents a going-in cap rate of 4.8%, with an expected stabilized cap rate of 7.3% at 100% occupancy.
Shortly after closing, the Trust signed a lease for approximately 50% of the vacant space with a high-growth technology company at rental rates in line with the underwriting. The lease will commence in stages in 2019 and 2020.
Spicalaan 1 - On June 7, 2019, the Trust completed the acquisition of Spicalaan 1, a 11,200 square meter office building in Hoofddorp. Situated in close proximity to Amsterdam, Hoofddorp has been positively impacted by its strong occupier market performance. The property is directly adjacent to Polaris, and in close proximity to Aquarius, the Trust's two other assets in the node. The acquisition is in line with the Trust's strategy of clustering properties to achieve operational and leasing synergies.
Spicalaan 1 is multi-tenanted and 59% occupied with a WALT of 3.4 years, providing for opportunities to increase NOI and value. Similar to TW38, the property is classified as a Value-add asset as the Trust intends to reposition Spicalaan 1 by refurbishing the property with its Boutique and Smart office concepts. The purchase price of EUR22.4 million represents a going-in cap rate of 4.6%, with an expected stabilized cap rate of 7.7% at 95% occupancy.
Ludwigshafen - The Trust is under contract to acquire an office property in Ludwigshafen, one of the three core cities (along with Mannheim and Heidelberg) in the Rhine-Neckar metropolitan area, a top German secondary market. The property is centrally located, adjacent to the inner-city train station and public transportation hub, in a market where the office vacancy is less than 1%. The property is also located in close proximity to the Trust's property Burohaus Galilei in Mannheim, providing for operational synergies. The Trust expects to close the transaction in the fourth quarter of 2019.
The 10,600 square meter character office property, formerly a mill and overlooking the Rhine river, is multi-tenanted and has a committed occupancy of 92%. The WALT of the property is 4.7 years with rents that are approximately 20% below market and the Trust intends to refurbish the common areas to capture rental upside as leases roll over. The purchase price of EUR16.6 million represents a going-in cap rate of 5.4%.
The Trust completed the acquisition of OH5, a 25,400 square meter, multi-tenant light industrial property located in Kassel, Germany on April 30, 2019. The purchase price for OH5 was EUR18.3 million representing a going-in cap rate of 7.0%.
The Trust did not place mortgage financing on these acquisitions, in line with its strategy to increase its pool of unencumbered assets.
Comparative Properties NOI ? For the three months ended June 30, 2019, CPNOI increased by EUR1.4 million, or 3.4%, compared to Q2 2018. The Germany, Austria and Belgium portfolio posted 1.6% CPNOI growth, while the Dutch portfolio recorded 8.1% CPNOI growth.
The CPNOI growth in the Germany, Austria and Belgium portfolio was driven by increases in rents in the Core/Core+ assets, occupancy gains in the Value-add and Core/Core+ assets, and indexation on existing leases. The growth rate in Germany reflects some downtime following the expiry of BNP Paribas at Caecilium, Cologne, that has now been leased to KPMG at higher than expiring rents commencing in Q3 2019 as well as one-time non-recoverable costs. Excluding these one-time effects, the CPNOI growth in Germany compared to Q2 2018 would have been over 3%.
In the Netherlands, gains in occupancy were the primary driver of CPNOI growth.
Comparative Properties Occupancy ? In-place occupancy for Comparative Properties increased to 91.2% at the end of Q2 2019 from 89.7% at the end of Q2 2018. The increase of 150 bps year-over-year was largely driven by a 260 basis points increase in the Dutch portfolio and 80 basis points increase in the Germany, Austria, and Belgium portfolio. Committed occupancy for the total portfolio (excluding Redevelopment assets) was 91.8% as at June 30, 2019.
Major Lease at Atoomweg 100, Utrecht - During Q2 2018, the Trust acquired Atoomweg 100 for EUR10.0 million, a 12,100 square meter office property located in one of Western Europe's fastest-growing markets, for redevelopment purposes. The Trust intended to pursue one of two parallel redevelopment approaches for this asset: i) light refurbishment and implementation of its Boutique Office concept, or ii) larger refurbishment and intensification. During marketing of the redevelopment project for pre-leasing, the Trust identified an opportunity to lease the entire property to a strong covenant tenant, Rabobank. Rabobank has agreed to lease the property at highly attractive rents and with minimal leasing costs for a term of three years (plus a one-year tenant renewal option) commencing on October 1, 2019.
The property is expected to generate EUR2.2 million in net rent per annum. Including the rent paid by the previous tenant, the combined cash flow from the property by the end of the Rabobank lease will amount to approximately EUR9 million, or almost the entire purchase price for the asset, significantly increasing the REIT's returns relative to the initial acquisition underwriting. This lease allows the REIT to generate strong cash flow from this asset while continuing to pursue its long-term redevelopment strategy for the property.
Strong operating environment ? Office vacancy rates in Germany's Big 7 markets declined to 3.3% at the end of Q2 2019, a decline of 20 bps from Q1 2019. Over the last 12 months, prime rents increased in all Big 7 markets in Germany. The biggest increases were registered in Cologne (+14%), Berlin (+13%) and Hamburg (+9%), three markets that collectively represent 27% of the Trust's portfolio by value.
Fundamentals in the Dutch office market remain robust. Average vacancy rate in the G5 markets was 7.0% at the end of Q2 2019, down 80 bps from Q2 2018. Prime rents in Amsterdam increased by 9.8% compared to Q2 2018.
Fair Market Value - as at June 30, 2019 the fair market value of the portfolio was EUR4.0 billion ($5.9 billion) representing an implied portfolio cap rate of 4.8%, based on current period annualized net operating income, representing a decline of 30 bps compared to December 31, 2018. A majority of the valuation increase can be attributed to yield compression and market rent growth in the Big 7 markets in Germany and the G5 markets in the Netherlands. The property valuations were conducted by independent 3rd party appraisers as at June 30, 2019 and excluded AHFS, Non-core and the German Redevelopment portfolio (2% of the total portfolio by value). Commissioning appraisals semi-annually is consistent with the practices of the Trust's European peers.
EPRA NAV per unit ? as at June 30, 2019 EPRA NAV per unit was EUR11.78 ($17.53) compared to EUR10.28 ($16.05) at December 31, 2018, and EUR10.91 ($16.36) at March 31, 2019 an increase of 14.6% and 8.0%, respectively. This increase primarily resulted from the fair value gains, with the Canadian dollar EPRA NAV/unit negatively impacted by unfavourable foreign exchange.
NAV per unit ? at June 30, 2019 NAV per unit was EUR10.92 ($16.26) compared to EUR9.59 ($14.97) at December 31, 2018, and EUR10.21 ($15.31) at March 31, 2019, an increase of 13.9% and 7.0%, respectively.
Funds from operations ? FFO per unit, fully diluted for the three- and six-month periods ended June 30, 2019 was $0.26 and $0.52, a decrease compared to $0.27 and $0.53 per unit in the prior year comparative periods. Comparative Properties NOI growth was offset by a weakening of the euro relative to the Canadian dollar and a reduction in leverage of 250 basis points compared to June 30, 2018.
Dispositions ? EUR97.2 million ($144.8 million) of dispositions comprised of:
- Non-core assets totaling EUR49.2 million including EUR20.3 million ($30.6 million) closed year-to-date, and an additional EUR28.9 million ($43.1 million) under contract and expected to close in the second half of 2019.
- Opportunistic sales totalling EUR48.0 million ($71.5 million) including EUR35.5 million ($52.9 million) from the sale of Offenbach, which closed after the quarter on July 31, 2019. The remaining proceeds are from dispositions currently under contract and expected to close in the second half of 2019.
The Trust intends to reinvest the proceeds from the dispositions into high quality assets in the Trust's target markets.
Reduced leverage - The Trust's level of debt was 38.5% at the end of Q2 2019, declining from 39.1% at the end of Q1 2019. Including the Trust's share of debt from investment in joint ventures and associates, its level of debt was 40.7% at the end of Q2 2019 compared to 41.5% at the end of Q1 2019 in line with the Trust's target leverage ratio.
Equity - On June 30, 2019, the Trust had 193,963,272 units outstanding, at the August 7, 2019 closing price of $14.21 per unit, the Trust's market capitalization is $2.8 billion.
CONFERENCE CALL DETAILS
Dream Global REIT's Management team will be holding a conference call Friday, August 9, 2019 at 8:00 a.m. (ET). To access the conference call, please dial +1-888-465-5079 in Canada and the US, +49 (0) 69 222 215 20 in Germany, +44 (0) 203 147 4824 in the U.K. or +1-416-216-4169 elsewhere and use passcode 7728 789#. A taped replay of the call will be available for ninety days. For access details, please go to Dream Global REIT's website at www.dreamglobalreit.ca and click on the News & Events link, then click on Calendar of Events.
Information appearing in this news release is a select summary of results. The financial statements and Management's Discussion and Analysis for the Trust are available at www.dreamglobalreit.ca and on SEDAR at www.sedar.com.
Dream Global REIT is an owner and operator of a diversified high-quality portfolio of office and industrial properties located in key markets in Western Europe with a focus on Germany and the Netherlands. The Trust's in-house platform comprises over 140 local leasing, property management, asset management and development professionals operating out of 13 offices in Europe and North America. For more information, please visit www.dreamglobalreit.ca.
For further information, please contact:
P. Jane Gavan Rajeev Viswanathan Alexander Sannikov President and Chief Executive Officer Chief Financial Officer Chief Operating Officer (416) 365-6572 (416) 365-8959 (416) 365-4106 firstname.lastname@example.org email@example.com firstname.lastname@example.org
Non-GAAP Measures The Trust's condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-GAAP financial measures, including net operating income, Comparative Properties NOI, FFO, interest coverage ratio, and debt-to-gross book value, net of cash as well as other measures discussed elsewhere in this release. These non-GAAP measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. The Trust has presented such non-GAAP measures as Management believes they are relevant measures of the Trust's underlying operating performance and debt management. Non-GAAP measures including NOI, FFO, interest coverage ratio, debt-to-gross book value, net of cash, should not be considered as alternatives to net income, net rental income, cash generated from (utilized in) operating activities or comparable metrics determined in accordance with IFRS as indicators of the Trust's performance, liquidity, cash flow, and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the "Non-GAAP Measures and Other Disclosures" in Dream Global REIT's Management's discussion and analysis for the three and six months ended June 30, 2019.Forward-looking information This press release may contain forward-looking information within the meaning of applicable securities legislation, including statements regarding the expected NOI performance, internal rate of returns, future cap rates of new acquisitions and intensification projects, the timing of closing of acquisitions, timing of leases, timing of dispositions, and development plans for the assets. Forward looking information is based on several assumptions and is subject to several risks and uncertainties, many of which are beyond Dream Global REIT's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, global 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; and interest and currency rate fluctuations. Our objectives and forward-looking statements are based on certain assumptions, including that the Canadian and European economies remain stable, interest rates remain stable, conditions within the real estate market remain consistent, competition for acquisitions remains consistent with the current climate and that the capital markets continue to provide ready access to equity and/or debt. All forward-looking information in this press release speaks as of the date of this press release. Dream Global REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise except as required by law. Additional information about these assumptions and risks and uncertainties is contained in Dream Global REIT's filings with securities regulators, including its latest Annual Information Form and Management's discussion and analysis. These filings are also available at Dream Global REIT's website at www.dreamglobalreit.ca.
08.08.2019 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.The issuer is solely responsible for the content of this announcement.The DGAP Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Archive at www.dgap.deLanguage: English Company: Dream Global Real Estate Investment Trust 30 Adelaide Street East M5C 3HI Toronto
Canada Phone: 416-365-3535 Fax: 416-365-6565 E-mail: email@example.com Internet: www.dreamglobalreit.ca ISIN: CA26154A1066 WKN: A1131Y Listed: Regulated Market in Frankfurt; Regulated Unofficial Market in Berlin, Munich, Stuttgart, Tradegate Exchange; Toronto EQS News ID: 854783 End of News DGAP News Service