Dream Global REIT Releases In-line Second Quarter Results

On Thursday, before market opened, Dream Global REIT delivered in-line second quarter of 2014 fund from operations per unit of $0.24 versus $0.22 previous year, in-line with our $0.25 forecast and the $0.24 Street consensus. The less of $0.006 per unit difference to our estimate was mainly from higher General and Administrative expense. The 9% year-over-year growth in fund from operations per unit was led specifically by acquisitions and a solid euro, partially canceled out by financing dilution.

Occupancy increased by 21 basis points quarter on quarter to 87.10% (increased by 221 basis points year-over-year), albeit on lighter net absorption (39,000 square feet versus 105,000 square feet in first quarter). For the Deutsche Post IPO assets, occupancy enhanced to 84.3% (increased by 21 basis points quarter on quarter, increased by 101 basis points YTD).

We noticed that long-run strategic joint venture formed with South Korean pension fund, (Public Officials Benefit Association), which will acquire a 51% stake in 7 company properties for $333 million (second half of 2014 estimate closing). Along with surfacing value (assets sold at 5.4% cap rate, including portfolio premium versus 6.4% capital rate on approximately $247 million preliminary purchase price at company’s 51%), the JV enables the REIT to leverage its operating platform to create management fees and provides another source of capital to fund growth.

Placing liquidity and recycled capital into work should help firm. In July, company acquired a Stuttgart office property for $68.5 million (6.7% cap rate, $256 per square feet), funded in part by a 7.6 year mortgage at an eye-catching 3% (61% LTV). Non-core asset sales ongoing with $11.10 million sold at 104% of BV ($31.3 million YTD). We maintain “Sector Perform” rating with C$10 target price with likely 20% rate of returns in a year.


Deaver Brown, MBA, is equity analyst and covers Services, Financial & REIT and Energy & Utilities sectors. Prior joining Whitestone Wire, Deaver Brown worked with Wells Fargo.