Dream Global REIT
TSX : DRG.UN

Dream Global REIT

February 18, 2015 18:37 ET

Dream Global REIT Reports Strong 2014 Year End Results and Closes Millerntorplatz Acquisition in Hamburg for $136 Million

TORONTO, ONTARIO--(Marketwired - Feb. 18, 2015) -

Editors Note: There is a photo associated with this press release.

DREAM GLOBAL REIT (TSX:DRG.UN) today reported its quarterly and annual financial results for the year ended December 31, 2014. Dream Global REIT's management team will be holding a conference call tomorrow, February 19, 2015 at 2:00 p.m. (ET).

HIGHLIGHTS

  • Improving cash flow from operations and continuing transformation
    • Basic Adjusted Funds from Operations ("AFFO") per unit increased by approximately 5% to 83 cents in 2014 from 79 cents in 2013, largely as a result of accretive acquisitions and strong leasing performance.
    • Over $400 million of office properties acquired in Germany's largest office markets in 2014 at a weighted average capitalization rate of 6.0%, an average borrowing rate of 1.92% and an average term to maturity of 8.4 years.
    • Refinanced four mortgages totalling $174 million during the fourth quarter, translating into average cash interest savings of 44 basis points with a reduction in debt service of approximately $1 million per annum and an extension of the average term to maturity by three years.
    • Continued strong leasing performance in 2014 with the completion of over 1 million square feet of new leases and renewals, achieving an average retention ratio of 69%.
    • Closed Millerntorplatz 1 in Hamburg on February 6, 2015 for $136.1 million. The Trust has now fully deployed the proceeds from the sale of a 50% interest in seven properties to Public Officials Benefit Association ("POBA").
    • Accelerated dispositions program of Initial Properties with the sale of 14 properties from the Trust's Initial Portfolio during Q4 for gross proceeds of $69.4 million. In 2014, a total of 35 properties were sold for $130.7 million, which represents 101% of book value.
  • Added momentum in joint venture activities
    • Joint venture with POBA closed and further expanded with the Trust closing the sale of a 50% interest in seven assets to POBA during Q4. Subsequent to year-end, the Trust expanded its partnership with POBA through the sale of a 50% interest in Officium in Stuttgart, increasing POBA's overall ownership interest to 577,000 square feet in eight of the Trust's properties.
  • Strong market fundamentals continue to drive Germany's economy
    • Record-low vacancy in the seven largest office markets in Germany, reaching its lowest level since 2002, a year-over-year decline from 8.3%(1) at the end of 2013 to 7.6%(1) at the end of 2014.
    • Low unemployment as Germany's registered unemployment rate remained near a 25-year low at 4.5%(2) at the end of 2014.
(1) Jones Lang LaSalle Office Market Overview Q4 2014
(2) ILO labour market statistics overview, Destatis - Germany's Federal Statistical Office

KEY PERFORMANCE INDICATORS

December 31 September 30 December 31
2014 2014 2013
Portfolio
Number of properties 266 279 296
Gross leasable area ("GLA") (1) 14,839,661 15,839,035 15,705,425
Occupancy rate - including committed (period-end) (1) 85.3 % 87.1 % 86.4 %
Occupancy rate - in place (period-end) (1) 84.7 % 85.9 % 85.9 %
Average in-place net rent per square foot (period-end) (1) EUR 8.86 EUR 8.90 EUR 8.46
Market rent above in-place net rent (%)(1) 2.9 % 2.0 % 2.2 %
Three months ended
December 31
Year ended
December 31
2014 2013 2014 2013
Operating results (2)
Investment properties revenue (3) $ 61,690 $ 62,528 $ 257,725 $ 220,220
Net rental income (3) 43,069 41,872 179,464 144,853
Net rental income - Initial Properties 16,537 20,033 76,202 79,126
Net rental income - Acquisition Properties 26,532 21,839 103,262 65,727
FFO (3) 23,428 24,235 97,496 84,422
AFFO (3) 22,401 22,259 91,370 78,007
Distributions
Declared distributions $ 22,263 $ 21,910 $ 88,547 $ 79,784
DRIP participation ratio (for the period) 16 % 17 % 16 % 13 %
Per unit amounts (4)
Distribution $ 0.20 $ 0.20 $ 0.80 $ 0.80
Basic:
FFO 0.21 0.22 0.88 0.85
AFFO 0.20 0.20 0.83 0.79
Diluted:
FFO 0.21 0.22 0.87 0.84
AFFO 0.20 0.20 0.82 0.79
Payout ratio (%):
AFFO (basic) 100 % 100 % 96 % 101 %
December 31, September 30, December 31,
2014 2014 2013
Financing
Weighted average effective interest rate on debt (period-end) 3.54 % 3.63 % 3.72 %
Weighted average face rate of interest on debt (period-end) 3.23 % 3.28 % 3.37 %
Interest coverage ratio (3) 3.26 times 3.30 times 3.40 times
Debt-to-adjusted EBITDFV (years) (3) 9.18 9.56 8.80
Level of debt (net debt-to-gross book value, net of cash) (3) 51 % 56 % 54 %
Debt - average term to maturity (years) (3)(5) 4.3 4.1 4.6
Unsecured convertible debentures 152,365 151,841 150,326
(1) Reflects owned share of joint venture properties starting in Q4 2014. Number of properties includes the joint venture properties.
(2) Operating results for the three month and twelve month periods ended December 31, 2014 were converted at $1.419:EUR1 and $1.467:EUR1, respectively; for the three month and twelve month periods ended December 31, 2013, operating results were converted at $1.430:EUR1 and $1.369:EUR1, respectively.
(3) Investment properties revenue, net rental income, FFO, AFFO, interest coverage ratio, debt-to-adjusted EBITDFV, level of debt (net debt-to-gross book value, net of cash) and debt - average term to maturity 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) A description of the determination of basic and diluted amounts per unit can be found in section "Non-GAAP measure and other disclosures" under the heading "Weighted average number of Units" of the MD&A.
(5) This metric excludes amounts outstanding under the revolving credit facility.

GROWTH INITIATIVES

Acquisition during Q4 2014 - on November 14, 2014, the Trust completed the acquisition of "Cologne Tower" in Cologne, Germany. The acquisition of this EUR113.6 million ($160.3 million) property had a cap rate of 5.4% and added approximately 297,000 square feet of high quality office to the Trust's portfolio. The Trust secured a 10-year mortgage for this property at a loan-to-value of approximately 61% and an interest rate of 1.77%.

Acquisition subsequent to year-end - on February 6, 2015, the Trust completed the acquisition of Millerntorplatz 1, a EUR95.9 million ($136.1 million) office property in Hamburg, Germany. This multi-tenant property, built in 1997, is the Trust's largest asset in Hamburg and is leased to a variety of tenants including Deutsche Rentenversicherung, Germany's largest state pension fund, and the City of Hamburg. The asset comprises approximately 375,000 square feet of gross leasable area and has a weighted average remaining lease term of 5.3 years and a current occupancy of 89%. The Trust acquired the property at a going-in cap rate of 6.1% and has financed it with a 10-year mortgage at an interest rate of 1.71%.

"We are very pleased to have acquired such prominent assets in two of Germany's most sought-after markets. With our most recent acquisition of Millerntorplatz 1, we have added an asset which not only complements our existing portfolio in Hamburg, but offers additional revenue potential through the lease‐up of vacancy, retail intensification as well as repositioning," said Jane Gavan, Chief Executive Officer of Dream Global REIT.

Joint venture with POBA closed - as previously announced, Dream Global REIT closed the sale of a 50% interest in seven properties to POBA for gross proceeds of approximately $315 million (EUR221 million) at a cap rate of 5.3%. With the acquisition of Millerntorplatz 1, the net proceeds from the POBA sale have been fully invested. Subsequent to year-end, the REIT further expanded its relationship with POBA and sold a 50% interest in Officium in Stuttgart for net proceeds of $16.5 million (EUR11.5 million) to POBA at a cap rate of 6.4%. The Trust acquired Officium on July 31, 2014 at a going-in cap rate of 6.6%.

Dispositions - 14 properties were disposed of during Q4 as part of the Trust's continuing capital recycling program for an aggregate sales price of $69.4 million. This brings the number of dispositions in 2014 to 35 properties for total sales proceeds of $130.7 million, representing 101% of book value.

FINANCIAL HIGHLIGHTS

Funds from operations - FFO for the twelve month period ended December 31, 2014 was $97.5 million compared to $84.4 million during the same period in 2013. On a per unit basis, basic FFO for twelve months ended December 31, 2014 was $0.88/unit, compared to $0.85/unit for the same period in 2013. Increased contributions from acquisitions and leasing were partially offset by Deutsche Post lease terminations, as well as the impact of the Trust no longer receiving head lease payments for space terminated by Deutsche Post in 2012, both effective as at July 1, 2014.

Adjusted funds from operations - AFFO increased to $91.4 million for the twelve months ended December 31, 2014, from $78.0 million during the same period in 2013. On a per unit basis, basic AFFO for the twelve months ended December 31, 2014 was $0.83/unit, compared to $0.79/unit for the same period in 2013.

CAPITAL INITIATIVES

Financing - On November 14, 2014, the Trust completed a mortgage with a principal balance of $97.5 million at a fixed rate of 1.77%, maturing on November 14, 2024 in connection with the acquisition of Cologne Tower in Cologne. Subsequent to year end, on February 6, 2015, the Trust completed a mortgage in connection with the acquisition of Millerntorplatz 1 in Hamburg with a principal balance of $84.3 million at a fixed rate of 1.71% per annum for a term of 10 years.

During the fourth quarter of 2014, the Trust entered into an agreement to refinance a $23.2 million mortgage on Grammophon Business Park in Hannover for a term of eight years at all-in interest rate of 1.75%. The drawdown of this new mortgage is scheduled for February 27, 2015 and is expected to result in net proceeds of $2.8 million to the Trust.

In addition, during Q4, the Trust entered into agreements to extend the term to maturity on three mortgages totaling $150.5 million by two years and reduce the all-in interest rate by 14 basis points to 2.03%.

The Trust expects to achieve interest expense savings of $0.4 million as a result of these four transactions.

CONFERENCE CALL DETAILS

Dream Global REIT's management team will be holding a conference call tomorrow, Thursday, February 19, 2015 at 2:00 p.m. (ET). To access the conference call, please dial 1-866-229-4144 in Canada and the United States or 416-216-4169 elsewhere and use passcode 8694 191#. 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 unincorporated, open-ended real estate investment trust that provides investors with the opportunity to invest in commercial real estate exclusively outside of Canada. Dream Global REIT's portfolio currently consists of approximately 14.9 million square feet of gross leasable area of office, industrial and mixed use properties across Germany. For more information, please visit www.dreamglobalreit.ca.

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 investment properties revenue, funds from operations ("FFO"), adjusted funds from operations ("AFFO"), interest coverage ratio, debt-to-EBITDFV and level of debt (net debt-to-gross book value, net of cash), debt - average term to maturity 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 should not be considered as alternatives to net 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 twelve months ended December 31, 2014.

Forward-looking information

This press release may contain forward-looking information within the meaning of applicable securities legislation. 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 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 functions. Our objectives and forward-looking statements are based on certain assumptions, including that the Canadian and German 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. 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 MD&A. These filings are also available at Dream Global REIT's website at www.dreamglobalreit.ca.

To view the photo associated with this press release, please visit the following link: www.marketwire.com/library/20150218-millerntorplatz800.jpg.

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