Dundee International REIT
TSX : DI.UN

Dundee International REIT

May 07, 2014 15:36 ET

Dundee International REIT Reports Strong Leasing in Q1 2014 and Name Change to Dream Global REIT

This news release contains forward looking information that is based upon assumptions and is subject to risks and uncertainties as indicated in the cautionary note contained within this press release.

TORONTO, ONTARIO--(Marketwired - May 7, 2014) -

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

DUNDEE INTERNATIONAL REIT (TSX:DI.UN) today reported its financial results for the quarter ended March 31, 2014. Dundee International REIT's management team will discuss the Trust's business at its annual meeting, being held today at 4:00 p.m. (ET) at the St. Andrew's Club and Conference Centre in Toronto. Dundee International REIT's management team will also be holding a conference call tomorrow, May 8, 2014 at 9:00 a.m. (ET) to discuss the results.

HIGHLIGHTS

Q1 2014 was the most active leasing quarter in the Trust's history with 103,800 square feet of net absorption for the quarter. The Trust also continued its growth in top office markets in Germany, acquiring two office buildings in Munich and Hamburg for an aggregate purchase price of $114.3 million (EUR75.3 million), at an average cap rate of 6.3% and an average borrowing rate of 2.3%.

  • Increase in Trust's occupancy rate to 87.7% at the end of Q1 2014 from 86.4% at the end of 2013 and 84.7% at the end of Q1 2013, largely due to positive absorption;

  • Further diversification of tenant profile as the REIT's largest tenant Deutsche Post contributed 35% to the overall gross rental income ("GRI") at the end of Q1 2014, down from 37% at the end of Q4 2013 and 43% at the end of Q1 2013;

  • Most active quarter of leasing in Trust's history with 188,400 square feet of new leasing and 52,600 square feet of renewals, resulting in positive absorption of approximately 103,800 square feet;

  • Negotiated the extension of 13 previously terminated leases with Deutsche Post, comprising approximately 681,000 square feet of space, for an average period of six months, and entered into a new three-year lease with Deutsche Post on previously terminated space for approximately 29,000 square feet;

  • Completed $69.0 million (EUR45.5 million) of mortgage financings to fund acquisitions at an average face rate of 2.3% and an average term to maturity of 6.6 years;

  • Sold five properties as part of the Trust's capital recycling program for an aggregate sales price of $19.3 million (EUR12.8 million) at 120% of the assets' book value.

As previously announced in the Trust's annual report, starting today, Dundee International REIT's name will be Dream Global REIT. Along with the name change, the ticker symbols will be changing to DRG.UN for the REIT units and to DRG.DB for the convertible debentures on May 12, 2014.

OPERATING AND FINANCIAL HIGHLIGHTS

For the three months ended March 31, 2014 December 31, 2013 March 31, 2013
Asset base and equity ($ '000)
Investment properties 2,590,753 2,390,244 1,873,702
Total book equity 1,075,187 1,034,005 792,932
Operations
Occupancy rate (period-end) 87.7%(1 ) 86.4 % 84.7 %
In-place rent per square foot EUR8.72 EUR8.46 EUR7.87
Operating results ($ '000) (2)
Investment properties revenue $ 67,133 $ 62,528 $ 46,364
Net rental income 45,800 41,872 27,311
Net rental income - Initial Properties 21,627 20,033 19,656
Net rental income - Acquisition Properties 24,173 21,839 7,655
Funds from operations ("FFO") (3) 24,756 24,235 15,793
Adjusted funds from operations ("AFFO")(4) 23,084 22,259 14,770
Distributions
Declared distributions 22,113 22,005 16,049
Distributions paid and payable in cash 18,076 18,249 14,435
Financing
Weighted average interest rate (period-end) 3.35 % 3.37 % 3.39 %
Interest coverage ratio 3.41 times 3.41 times 3.45 times
Per unit amounts
Basic:
FFO(3) $ 0.23 $ 0.22 $ 0.20
AFFO(4) 0.21 0.20 0.19
Distribution rate 0.20 0.20 0.20
Basic (excluding impact of undeployed cash)
FFO(3) $ 0.24 $ 0.24 $ 0.24
AFFO(4) 0.23 0.22 $ 0.23
Weighted average number of units outstanding 109,987,243 109,482,435 79,267,113
(1) Occupancy in Q1 2014 includes space covered by a headlease that was previously classified as vacant space. This change in presentation results in a 0.5% increase in occupancy in Q1 2014. The prior period occupancy rates have not been restated.
(2) Operating results were converted into Canadian dollars from euros using the following average exchange rates: the three-month ended March 31, 2014 were converted at $1.512:EUR1; the three-months ended December 31, 2013 were converted at $1.430:EUR1 and the three months ended March 31, 2013 $1.332:EUR1, respectively.
(3) FFO - net income, adjusted for fair value adjustments on investment property and financial instruments, share of income from equity-accounted investments, internal direct leasing costs, loss on sale of investment property, term debt swap settlements, loss on settlement of foreign currency contracts, amortization of lease incentives, deferred income taxes and income taxes on gains on sale.
(4) AFFO - FFO adjusted for amortization of debt costs, deferred unit compensation expense, straight line rent and the Trust's estimates of normalized leasing costs and normalized non-recoverable recurring capital expenditures.

Occupancy - Occupancy at March 31, 2014 was 87.7%, up from 86.4% at December 31, 2013 and up 300 basis points over March 31, 2013. The 130 basis point increase over December 31, 2013 resulted from strong leasing in the Trust's Initial Properties as well as the reclassification of space covered by a head lease from vacant space to occupied space in Q1 2014. Leasing contributed 80 basis points to the increase in Q1.

In-place rents - Year-over-year in-place rents increased from EUR7.87 per square foot in Q1 2013 to EUR8.72 in Q1 2014, largely due to high quality acquisitions. Overall, at EUR8.85 per square foot, average market rents in our portfolio remain approximately 1.5% above in-place rents. Average market rents are approximately 11% above in-place rents in our Initial Properties, and as such, these assets offer relatively higher upside potential.

Funds from operations - FFO for the three months ended March 31, 2014 was $0.23/unit. The Trust had an average balance of $82 million of excess undeployed cash during the quarter. Excluding the impact of undeployed cash, FFO would be $0.24/unit.

Adjusted funds from operations - AFFO for the three months ended March 31, 2014, was $0.21/unit. Excluding the impact of undeployed cash, AFFO would be $0.23/unit.

GROWTH INITIATIVES

Acquisitions - During Q1 2014, the Trust completed the acquisition of Werner-Eckert-Strasse 8,10, 12 in Munich, Germany, for approximately $22.1 million and My Falkenried in Hamburg, Germany for approximately $92.2 million. These acquisitions, which were completed on average at a 400 bps spread between cap rates and mortgage interest rates, with an average occupancy rate of 98%, added approximately 286,000 square feet of high quality office space in two of the most desirable markets in Germany to our portfolio.

To view the photo of My Falkenried, Hamburg, please visit the following link: http://www.marketwire.com/library/20140507-My%20FalkenriedL.jpg.

Leasing - The Trust recorded its most active leasing quarter in its history with the 6th consecutive quarter of positive net absorption. The primary drivers of the positive absorption were future lease deals in the Trust's Initial Properties, which were completed during the quarter.

"Our leasing team in Germany is seeing higher levels of activity compared to prior years which is translating into more people touring our space and driving our leasing performance. The strength of the German economy helped reduce the vacancy in the Big 7 office markets by 15 bps in Q1 over Q4 2013 to 8.1%. We are pleased that 2014 is off to such a good start," said Jane Gavan, Chief Executive Officer of Dundee International REIT.

Dispositions - The Trust completed the sale of five properties during Q1 2014 for an aggregate sales price of approximately $19.3 million, which represents approximately 120% of the assets' book value. These dispositions are part of the Trust's capital recycling program, which is focused on acquiring newer, higher quality properties to replace certain Initial Properties.

CAPITAL INITIATIVES

Equity - On April 30, 2014, the Trust had 110,332,279 units outstanding. At the April 30, 2014 closing price of $9.36 per unit, the Trust's market capitalization was $1.0 billion.

Financing - During Q1 2014, the Trust drew down a mortgage with a principal balance of $13.2 million at a fixed rate of 1.98% for a five-year term in connection with the acquisition of Werner-Eckert-Strasse 8,10,12 in Munich. The Trust also committed to a mortgage agreement with a principal balance of $55.8 million at a fixed rate of 2.33% for a seven-year term in connection with the acquisition of My Falkenried in Hamburg.

"Mortgage rates in Germany are among the lowest in the Trust's history, as increased competition in the German lending market has put pressure on credit spreads. Coupled with our success in building strong relationships with German lenders, we continue to achieve highly attractive rates for new acquisitions," said Rene Gulliver, Chief Financial Officer of Dundee International REIT.

Key performance indicators with respect to the Trust's financing activities are:

March 31, 2014 December 31, 2013 March 31, 2013
Financing activities
Weighted average interest rate 3.35 % 3.37 % 3.39 %
Level of debt (debt-to-book value, net of cash and convertible debentures) 50 % 48 % 46 %
Level of debt (debt-to-book value, net of cash) 56 % 54 % 54 %
Interest coverage ratio 3.41 times 3.41 times 3.45 times
Debt-to-EBITDFV (years) 9.0 8.7 8.8
Debt - average term to maturity (years) 4.2 4.6 5.2 %
Variable rate debt as percentage of total debt 4 % 5 % 7

As at March 31, 2014, the Trust had a debt-to-book value of 56% (or 50%, if Debentures are excluded), had a weighted average interest rate of 3.35% for all of its interest-bearing debt and an interest coverage ratio of 3.41 times, reflecting the Trust's ability to cover its interest expense requirements. The Trust targets a debt-to-book value range of 50% - 60%.

CONFERENCE CALL DETAILS

Dundee International REIT's management team will be holding a conference call tomorrow, May 8, 2014 at 9:00 a.m. (ET) to discuss the results. 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 7277 087#. A taped replay of the call will be available for ninety days. For access details, please go to Dundee International REIT's website at www.dundeeinternational.com and click on the Investor 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.dundeeinternational.com and on SEDAR at www.sedar.com.

Dundee International 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. Dundee International REIT's portfolio currently consists of approximately 15.8 million square feet of gross leasable area of office, industrial and mixed use properties across Germany. For more information, please visit www.dundeeinternational.com.

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 Dundee International 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. Dundee International 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 Dundee International REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at Dundee International REIT's website at www.dundeeinternational.com.

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