2016 Q1 Report

Transcription

2016 Q1 Report

Q1 2016
Dream Global REIT
Table of contents
Letter to unitholders
Management’s discussion and analysis Condensed consolidated financial statements Notes to the condensed consolidated financial statements Corporate information 1
2
39
43
IBC
Letter to unitholders
The German real estate market continues to demonstrate strong fundamentals with
vacancy declining in all the major markets, which has translated into continued occupancy
growth in our portfolio. As part of our strategy to recycle capital into higher quality real
estate, we completed the acquisitions of two high-quality office properties in Essen and
Munich for an aggregate purchase price of over $65 million at a going-in cap rate of 7.1%,
and sold six assets from our initial portfolio at attractive prices.
Our leasing team in Germany continues to see high levels of activity, which has both translated into more potential tenants
touring our buildings and continued to drive our leasing activity in Q1. We completed over 400,000 square feet of new leases
and renewals during the quarter, including a 15.5-year lease with a national chain of fitness clubs for approximately
68,000 square feet in our redevelopment property in Saarbrücken. This is one of our largest properties in the initial portfolio.
After Deutsche Post vacated its space in 2014, we took the opportunity to enhance and rebrand this centrally located asset.
With a strong leasing pipeline, we expect to achieve stabilized occupancy by the end of next year, which will be a significant
contributor to future growth in the Trust’s net operating income.
Strong leasing momentum across our portfolio resulted in an increase of our overall in-place and committed occupancy to
88.0% and an average in-place rent increase to €9.66 per square foot in Q1, the fifth consecutive quarter of occupancy and
rental rate increases, respectively. To date, we have already addressed over 70% of our total 2016 expiries.
The majority of the Trust’s leases are inflation-indexed. After an extended period of low inflation, the threshold for an upward
adjustment for leases with Deutsche Post was met, which will increase the rental rate of the Trust’s largest tenant by 4.3%
effective as at March 2016. The last such adjustment took place in December 2011.
The German lending environment remains very attractive with mortgage rates near the lowest level in the Trust’s history, as
evidenced by our most recent financing of an asset in Munich at a fixed interest rate of 1.07% for a seven-year term. We
continue to take advantage of the current low interest rate environment by extending debt maturities and lowering the
overall cost of borrowing through debt refinancings.
We are pleased with our progress so far in 2016 and remain optimistic about the opportunities that exist within our diverse
portfolio. We believe that our proactive leasing and asset management initiatives, coupled with a rent increase in the Trust’s
Initial Properties, will further strengthen the stability and quality of our cash flow going forward.
On behalf of our management team and our Board of Trustees, I’d like to thank you for your continued support.
P. Jane Gavan
President and Chief Executive Officer
May 4, 2016
Dream Global REIT 2016 First Quarter Report | 1
Management’s discussion and analysis
All dollar amounts in our tables are presented in thousands of Canadian dollars, except rental rates, unit and per unit
amounts.
SECTION I – OVERVIEW AND FINANCIAL HIGHLIGHTS
KEY PERFORMANCE INDICATORS
Portfolio
(1)
Number of properties
(1)
Gross leasable area (“GLA”) (in square feet)
(1)
Occupancy rate – including committed (period-end)
(1)
Occupancy rate – in-place (period-end)
(1)
Average in-place net rent per square foot (period-end)
(1)
Market rents above in-place net rents
€
March 31,
December 31,
March 31,
2016
2015
2015
203
13,454,248
88.0 %
86.5 %
9.66
6.6 %
208
13,428,169
87.5 %
86.8 %
9.61
6.1 %
237
13,863,404
86.0 %
85.6 %
9.26
3.3 %
€
€
Three months ended,
March 31,
2016(2)
Operating results – in €
(2)
Investment properties revenue
Total portfolio
Initial Properties
Acquisition Properties
(3)
Net operating income (“NOI”)
Total portfolio
Initial Properties
(4)
Operating results – in $
(2)
Total portfolio
Initial Properties
(3)
Total portfolio
Initial Properties
(5)
Funds from operations (“FFO”)
(6)
Adjusted funds from operations (“AFFO”)
Average exchange rate (Canadian dollars to one euro)
Distributions
Declared distributions
DRIP participation ratio (for the period)
(7)
Per unit amounts
Distribution
Basic:
FFO
AFFO
Diluted:
FFO
€
39,505
15,186
24,319
December 31,
2015(2)
€
27,388
8,053
19,335
$
59,855
22,981
36,874
37,692
14,996
22,696
March 31,
2015(2)
€
25,780
7,739
18,041
$
41,538
12,207
29,331
22,667
22,131
1.516
55,081
21,888
33,193
40,774
18,032
22,742
27,441
8,829
18,612
$
37,692
11,303
26,389
21,338
20,548
1.461
56,910
25,165
31,745
38,298
12,321
25,977
21,244
19,862
1.397
$
22,666
12.7%
$
22,578
14.2%
$
22,353
14.8%
$
0.20
$
0.20
$
0.20
0.20
0.20
0.19
0.18
0.19
0.18
0.20
0.19
0.19
Financing
(1)(11)
Weighted average face rate of interest on debt (period-end)
(1)(8)(9)
Interest coverage ratio
(1)(8)(9)
Level of debt (net debt-to-gross book value, net of cash) at period-end
(1)(3)(10)
Average level of debt, net of cash
(1)(9)(10)
Debt – average term to maturity (years)
Unsecured convertible debentures
$
March 31,
2016
December 31,
2015
March 31,
2015
2.48%
2.78 times
55%
54%
4.7
155,132
2.49%
3.08 times
54%
52%
5.0
154,558
3.10%
3.02 times
52%
52%
4.6
152,898
$
$
(1) Reflects Owned Share of joint venture properties. Number of properties includes the joint venture properties but excludes properties classified as assets held for sale starting
in Q1 2015. Joint venture properties are accounted for using the equity method in our condensed consolidated financial statements.
(2) Investment properties revenue (non-GAAP measure) is defined as total revenue, including the share of investment property revenue from investments in joint ventures from
the date of closing of the sale of the respective properties. The reconciliation of investment property revenue can be found in the section “Non-GAAP measures and other
disclosures”.
(3) NOI (non-GAAP measure) is defined as total of net rental income, including the share of net rental income from investment in joint ventures from the date of closing of the sale
of the respective properties. The reconciliation of NOI to net rental income can be found in the section “Non-GAAP measures and other disclosures” under net operating
income.
(4) Results from operations were converted into Canadian dollars from euros using the average exchange rates found on page 27.
(5) FFO (non-GAAP measure) – The reconciliation of FFO to net income can be found in the section “Our results of operations” under the heading “Funds from operations and
adjusted funds from operations”.
(6) AFFO (non-GAAP measure) – The reconciliation of AFFO to cash generated from (utilized in) operating activities can be found in the section “Non-GAAP measures and other
disclosures” under the heading “Cash generated from operating activities to AFFO reconciliation”.
(7) A description of the determination of basic and diluted amounts per unit can be found in the section “Non-GAAP measures and other disclosures” under the heading
“Weighted average number of units”.
(8) The calculations of the interest coverage ratio and level of debt (net debt-to-gross book value) are included in the section “Non-GAAP measures and other disclosures” under
the headings “Interest coverage ratio” and “Level of debt (net debt-to-gross book value, net of cash)”.
(9) This metric includes the REIT’s share of the mortgages on joint venture properties.
(10) This metric excludes the revolving credit facility, which was drawn down temporarily to fund the acquisition of Rivergate.
(11) Weighted average face rate of all interest bearing debt.
FINANCIAL OVERVIEW
The first quarter results were in line with our expectations with funds from operations (“FFO”) and adjusted funds from
operations (“AFFO”) of $22.7 million and $22.1 million, respectively. By comparison, FFO and AFFO for Q1 2015 were
$21.2 million and $19.9 million, respectively. The increase in Q1 2016 compared to Q1 2015 levels reflects the impact of
acquisitions, strong leasing, additional fees from our joint ventures as well as a favourable exchange rate. On a per unit basis,
basic FFO and basic AFFO were 20 cents each in Q1 2016, compared to 19 cents and 18 cents, respectively, in Q1 2015.
Quarter-over-quarter, FFO and AFFO per unit increased by 1 cent and 2 cents, respectively, compared to Q4 2015.
During the quarter, we completed two high-quality office property acquisitions, including the acquisition of Europa-Center,
a 147,000 square foot, multi-tenant office building centrally located in Essen, Germany for $41.5 million and WernerEckert-Strasse 14, 16 and 18, a multi-tenant office property adjacent to one of the Trust’s existing properties in Munich for
$23.2 million.
Our leasing momentum and the overall leasing pipeline remained strong during Q1 2016, buoyed by solid market
fundamentals in Germany’s office markets. Overall in-place and committed occupancy increased to 88.0% in Q1 2016,
compared to 87.5% at the end of 2015. Year-over-year occupancy increased by 200 basis points from 86.0% at the end of Q1
2015, partially as a result of acquisitions at above-average occupancy rates and strong leasing in our portfolio. We completed
over 400,000 square feet of new leases and renewals in Q1 2016. The largest transaction completed during the quarter was a
15.5-year lease with a national chain of a large-scale fitness club for approximately 68,200 square feet at the Trust’s
repositioned property in Saarbrücken. The lease, which is subject to municipal approvals, is expected to commence in
September 2016.
Year-over-year, in-place rents increased to €9.66 per square foot in Q1 2016 from €9.26 per square foot in Q1 2015, largely
due to above average rental rates for completed acquisitions since Q1 2015, as well as rental rate increase on lease renewals
and the signing of new leases.
The lending environment in Germany remains favourable with historically low interest rates, as evidenced by our most recent
mortgage financing for the acquisition of Werner-Eckert-Strasse 14, 16 and 18 in Munich at a rate of 1.07% for a 7-year term.
Year-over-year, we reduced the average face interest rate to 2.48% at the end of Q1 2016, from 3.10% at the end of Q1 2015.
At the end of Q1 2016, our leverage was 55% (debt-to-gross book value, net of cash), up slightly from 54% at the end of 2015,
reflecting the use of our revolving credit facility on a temporary basis to partially fund our Q1 acquisitions. The interest
coverage ratio dropped slightly in Q1 2016, reflecting higher interest expense relating to the temporary use of the revolving
credit facility and lower one-time interest and other income compared to Q4 2015.
OUTLOOK
In 2016, we continued to focus on strengthening the quality of our overall portfolio. During the first quarter of 2016, we
closed the acquisitions of two high-quality office properties in Essen and Munich and remained committed to our capital
recycling program, selling six properties from our Initial Properties portfolio. We realized sales proceeds of $10.0 million,
representing the assets’ fair value. In addition, we held a total of 13 properties for sale at March 31, 2016, with a total sale
price of $33.4 million.
At the end of Q1 2016, we reached a significant milestone in terms of an anticipated rental rate adjustment in our Deutsche
Post portfolio. Rents in this portfolio are subject to automatic adjustments in relation to the German Consumer Price Index
(“CPI”). After an extended period of low inflation, leases with Deutsche Post met the threshold for an upward adjustment,
which will increase Deutsche Post’s rental rate by 4.3% effective as at March 2016. The last such adjustment took place in
December 2011.
The German economy continues to benefit from a robust labour market and strong domestic demand. The country’s economic
growth is mainly driven by private consumption and public sector spending. The unemployment rate remains among the
lowest in the European Union and underlying fundamentals in the office sector are strong, with overall net absorption of
office space continuing to be positive across the major office markets, along with declining vacancy rates. Vacancy rates in the
(1)
Big 7 German office markets continued to decline in Q1 2016 to a record low of 6.3%. In this favourable environment and
(2)
with a 2016 GDP growth forecast of 1.8%, we expect that occupancy of our portfolio will continue to grow for the balance
of 2016.
With the current favourable lending environment in Germany, we see further opportunities to extend maturities and lower
the overall cost of borrowing through refinancing mortgages in the Trust’s Acquisition Properties. This initiative will enable us
to capture value appreciation in these properties that occurred since the time of acquisition.
We are pleased with our progress so far in 2016 and feel we are well positioned to take advantage of our platform and
portfolio. Looking ahead, we will continue to pursue investment opportunities that are accretive to our business, take
advantage of our platform, continue with our active recycling program and strengthen the stability of our cash flow over the
long run.
(1) JLL Investment Market Overview Q1 2016
(2) Deutsche Bundesbank
BASIS OF PRESENTATION
Our discussion and analysis of the financial position and results of operations of Dream Global Real Estate Investment Trust
(“Dream Global REIT”, the “REIT” or the “Trust”) should be read in conjunction with the audited consolidated financial
statements and unaudited condensed financial statements of the Trust for the periods ended December 31, 2015 and
March 31, 2016, respectively.
The Trust’s basis of financial reporting is International Financial Reporting Standards (“IFRS”).
The REIT complies with IFRS 11, “Joint Arrangements”, and accounts for investments in joint ventures in its consolidated
financial statements using the equity method of accounting. All references herein to “consolidated” refer to amounts as
reported under IFRS. For the purpose of this management’s discussion and analysis (“MD&A”), all references to “REIT’s
Interest” or “Owned Share” refer to a non-GAAP financial measure representing Dream Global REIT’s proportionate share of
the financial position and results of operations of its entire portfolio, including equity-accounted investments under the
assumption that all investments in joint ventures have been proportionately consolidated. For a reconciliation of the Trust’s
results of operations and statement of financial position, please see “Non-GAAP measures and other disclosures” in
this MD&A.
This MD&A has been dated as at May 4, 2016. For simplicity, throughout this discussion, we may make reference to the
following:
•
“Debentures”, meaning the 5.5% convertible unsecured subordinated debentures of the Trust due July 31, 2018;
•
“GLA”, meaning gross leasable area;
•
“GRI”, meaning gross rental income;
•
“Initial Properties”, meaning the income-producing properties we acquired on August 3, 2011;
•
“Acquisition Properties”, meaning the income-producing properties acquired subsequent to the Trust’s initial public
offering on August 3, 2011;
•
“Units”, meaning the Units of the Trust; and
•
“POBA”, meaning Public Officials Benefit Association, a South Korean pension fund.
Certain information has been obtained from Colliers International (“Colliers”) and Jones Lang LaSalle (“JLL”), commercial firms
that provide information relating to the German real estate industry. Although we believe this information is reliable, the
accuracy and completeness of this information is not guaranteed. We have not independently verified this information and
make no representation as to its accuracy.
When we use terms such as “we”, “us” and “our”, we are referring to the REIT and its subsidiaries.
When we refer to Deutsche Post as being the lessee or the tenant of the Initial Properties, we are referring to Deutsche Post
Immobilien GmbH (“DPI”), which is a wholly owned subsidiary of Deutsche Post AG. Deutsche Post AG has provided a letter of
support with respect to DPI and its ability to carry out its obligations under leases for the Initial Properties.
Estimated market rents disclosed throughout the MD&A are management’s estimates and are based on current leasing
fundamentals. The current estimated market rents are at a point in time and are subject to change based on future market
conditions.
In addition, certain disclosure incorporated by reference into this report includes information regarding our largest tenants
that has been obtained from publicly available information. We have not independently verified any such information.
Certain information herein contains or incorporates comments that constitute forward-looking information within the
meaning of applicable securities legislation. Forward-looking information is based upon a number of assumptions and is
subject to a number of risks and uncertainties, including but not limited to statements regarding our objectives and strategies,
proposed acquisitions and dispositions, development of our portfolio, stability and growth of our cash flows and distributions,
future financings, future maintenance and leasing expenditures, projected costs, economic performance or expectations, or
the assumptions underlying any of the foregoing, many of which are beyond Dream Global REIT’s control, which 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, business and government conditions; the financial
condition of tenants; concentration of our tenants; our ability to refinance maturing debt; leasing risks, including those
associated with the ability to lease vacant space and the timing of lease terminations; our ability to source and complete
accretive acquisitions; changes in tax and other laws or the application thereof; and interest and currency rate fluctuations.
Although the forward-looking statements contained in this MD&A are based upon 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; the Trust’s continued exemption from the
specified investment flow-through trust (“SIFT”) rules under the Income Tax Act (Canada); 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 May 4, 2016, except where otherwise noted. 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 our filings with
securities regulators. These filings are also available on our website at www.dreamglobalreit.ca.
BACKGROUND
Dream Global REIT is an unincorporated, open-ended real estate investment trust that was formed to provide investors with
the opportunity to invest in real estate exclusively outside of Canada. Dream Global REIT was founded by Dream Asset
Management Corporation (“DAM”), a subsidiary of Dream Unlimited Corp. (TSX: DRM), which is our asset manager. Our Units
are listed on the Toronto Stock Exchange under the trading symbol DRG.UN.
As at March 31, 2016, our portfolio consisted of 203 properties (excluding 13 assets that are held for sale) and comprises
approximately 13.5 million square feet of GLA. Of this total, 202 of the properties are located in Germany and one property is
located in Vienna, Austria. Nine properties, including the asset in Austria, are held within joint ventures of which Dream Global
REIT retained a 50% ownership interest.
We will be exempt from the SIFT rules, taking into account all proposed amendments to such rules, as long as we comply at all
times with our investment guidelines which, among other things, only permit us to invest in properties or assets located
outside of Canada. We do not rely on the REIT exception under the Income Tax Act (Canada) in order to be exempt from the
SIFT rules. As a result, we are not subject to the same restrictions on our activities as those that apply to Canadian real estate
investment trusts that do rely on the REIT exception. This gives us flexibility in terms of the nature and scope of our
investments and other activities. Because we do not own taxable Canadian property, as defined in the Income Tax Act
(Canada), we are not subject to restrictions on our ownership by non-Canadian investors.
OUR OBJECTIVES
We are committed to:
•
managing our investments to provide stable, sustainable and growing cash flows through investments in commercial real
estate located outside of Canada;
•
building a diversified portfolio of commercial properties;
•
capitalizing on internal growth and seeking accretive acquisition opportunities in our target markets;
•
increasing the value of our assets and maximizing the long-term value of our Units through the active and efficient
management of our assets; and
•
providing predictable cash distributions per unit, on a tax-efficient basis.
Distributions
We currently pay monthly distributions to unitholders of 6.667 cents per unit, or 80 cents per unit on an annual basis. At
March 31, 2016, approximately 12.6% of our total Units were enrolled in the Distribution Reinvestment and Unit Purchase
Plan (“DRIP”).
March 31,
Annualized distribution rate
Monthly distribution rate
Period-end closing unit price
Annualized distribution yield
on closing unit price
December 31,
September 30,
June 30,
2016
2015
2015
2014
2015
2014
2015
2014
$
0.80
$ 0.0667
$
8.71
$
0.80
$ 0.0667
$
9.84
$
0.80
$ 0.0667
$
8.66
$
0.80
$ 0.0667
$
8.57
$
0.80
$ 0.0667
$
8.84
$
0.80
$ 0.0667
$
9.08
$
0.80
$ 0.0667
$
9.93
$
0.80
$ 0.0667
$
9.82
9.19%
8.13%
9.24%
9.34%
9.05%
8.81%
8.06%
8.15%
OUR STRATEGY
Our core strategy to meet our objectives includes the following:
Optimizing the performance, value and long-term cash flow of our properties
We manage our properties to optimize their performance, value and long-term cash flow. We seek to do this by achieving high
occupancy and rental rates. Together with our management team in Canada, we also have an established management team
in Germany and Luxembourg, bringing a history with our Initial Properties, deep market knowledge and established
relationships with other market participants. Leasing, capital expenditure and construction initiatives are either internally
managed or overseen by us, while property management services, including general maintenance, rent collection and
administration of operating expenses and tenant leases, are carried out by third-party service providers under the oversight of
our internal team.
Diversifying our portfolio to mitigate risk
We continuously seek to diversify our portfolio to increase value on a per unit basis, further improve the sustainability of our
distributions and enhance our tenant profile. We focus on adding high-quality tenants in the most desirable office markets in
addition to increasing our overall asset base in our target markets. A key criterion when considering potential acquisitions is
the multi-tenant nature of a property.
Investing in stable income-producing properties outside of Canada
When considering acquisition opportunities, we look for properties with quality tenancies and strong occupancy, and assess
how these opportunities complement our properties and have the potential to create additional value. In considering future
acquisitions, we intend to focus on countries with a stable business and operating environment, a liquid market for real estate
investments, a legal framework that provides adequate rights and protections for owners of property, and a manageable
foreign investment regime. We will consider investment opportunities in income-producing properties that are accretive,
provide stable, sustainable and growing cash flows, and enable us to realize synergies within our portfolio of properties. The
execution of this strategy will be continuously reviewed and will also include dispositions of properties and optimizing our
capital structure.
Maintaining and strengthening a conservative financial profile
We operate our investments in a disciplined manner, with a focus on financial analysis and balance sheet management to
ensure we maintain a prudent capital structure and conservative financial profile. We intend to generate stable cash flows
sufficient to fund our distributions while maintaining a conservative debt ratio. Our preference will be to stagger our debt
maturities to mitigate our interest rate risk and limit refinancing exposure in any particular period. We have also implemented
a foreign exchange hedging strategy to provide greater certainty regarding the payment of distributions to unitholders and
interest to debenture holders.
OUR ASSETS
Throughout this document, we make reference to the following two asset categories:
Initial Properties
As at March 31, 2016, this category included 168 properties (excluding assets held for sale). The assets can be characterized as
national and regional administration offices, mixed use retail and distribution properties, and regional logistics headquarters
of Deutsche Post as well as other third-party tenants, including Postbank as well as municipal and state government agencies.
The properties are generally strategically located near central train stations and main retail areas and are easily accessible by
public transportation.
As at March 31, 2016, this category included 35 office properties, which were acquired since our IPO in 2011. Of this total,
34 properties are located in cities across Germany. A 50% interest in eight properties was sold in late 2014 and early 2015 to
POBA, a South Korean pension fund. In addition, one of the Trust’s properties, jointly owned with an Asian sovereign wealth
fund, is located in Vienna, Austria. In comparison to the Initial Properties, the Acquisition Properties are generally larger,
newer or recently refurbished, multi-tenant buildings.
The majority of our portfolio is concentrated in Germany’s largest office markets:
Geographic composition of portfolio(1)
Berlin
Cologne
Düsseldorf
Frankfurt
Hamburg
Hannover
Munich
Nuremberg
Stuttgart
Other
Total
Total GLA (sq. ft.)
924,196
888,607
1,783,091
916,344
1,596,768
603,199
618,659
536,427
496,848
5,090,109
13,454,248
(1) Reflects the REIT’s Owned Share basis.
Total GLA (%)
Total GRI (%)
7
7
13
7
12
4
5
4
4
37
100
7
10
14
8
16
3
7
5
5
25
100
TENANTS
Through our active acquisitions, dispositions and leasing program, we continue to focus on the diversification of our tenant
base. The table below highlights the diversification away from the single-tenant nature of our Initial Properties. At the end of
Q1 2016, Deutsche Post’s GRI was approximately 22.0% of the Trust’s overall occupied and committed GRI, down from 22.4%
at the end of 2015.
Total annualized
GRI (%)
Tenant composition(1)
Deutsche Post
Freshfields Bruckhaus Deringer
ERGO Direkt Lebensversicherungs AG
City of Hamburg
Deutsche Rentenversicherung Knappschaft Bahn-See
BNP Paribas Fortis SA/NV
Deutsche Postbank AG
CinemaxX Entertainment GmbH & Co. KG
Google Germany GmbH
City of Düsseldorf
Other third-party tenants
Total
22.0
3.4
3.0
2.8
2.0
1.8
1.6
1.5
1.5
1.2
59.2
100.0
Credit rating(2)(3)
BBB+
n/a
AAAAA
n/a
A+
BBB+
n/a
AA
n/a
n/a
(1) Reflects the REIT’s Owned Share.
(2) Source: Standard & Poor’s, Fitch
(3) n/a means not applicable.
Deutsche Post
Deutsche Post is an integral part of the German economy and continues to be an important part of day-to-day life in Germany.
Through its acquisition of DHL in 2002, Deutsche Post DHL has become a global logistics market leader. It employs
(1)
approximately 480,000 people in more than 220 countries and territories. As the only provider of universal postal services in
Germany, Deutsche Post must provide certain minimum levels of service to German residents.
Some of the space leased to Deutsche Post is occupied by Postbank, a public company controlled by Deutsche Bank. Postbank
offers retail financial services in its branches within Deutsche Post’s network, which generates increased traffic through the
postal services offered in those branches. As at March 31, 2016, our portfolio featured approximately 119 Postbank branches,
allowing for the delivery of integrated financial and postal services. Leases for 32 Postbank branches are direct leases.
Postbank branches are typically located at ground level with a view to attracting a high volume of retail and business
customers seeking financial or postal services.
Freshfields Bruckhaus Deringer (“Freshfields”)
Freshfields is the second largest tenant in our portfolio as measured by GRI. Freshfields is an international law firm with offices
(2)
in Europe, Asia, North America and the Middle East. Freshfields occupies 71% of the space in our property located at
Feldmühleplatz 1 and generated approximately 3.4% of the REIT’s overall GRI as at March 31, 2016.
ERGO Direkt Lebensversicherungs AG (“ERGO”)
ERGO is the third largest tenant in our portfolio as measured by GRI. With approximately 43,000 employees in over
(3)
30 countries, ERGO is one of the largest insurance companies in Germany. ERGO, which belongs to the Munich RE group of
companies, occupies the entire space in our property located at Karl-Martell-Strasse 60 in Nuremberg, and generated
approximately 3.0% of the REIT’s overall GRI as at March 31, 2016.
City of Hamburg
(4)
The City of Hamburg, Germany’s second largest municipality with a population of 1.7 million is one of the 16 federal states
of Germany and is considered the economic centre of northern Germany. The City of Hamburg occupies approximately 16% of
the space in our property at Millerntorplatz 1, 9% of the space in our property at Schlossstrasse 8, and, starting in November
2016, it will occupy the entire space at our property located at Hammer Strasse 30-34. lncluding the annualized GRI from the
lease at Hammer Strasse 30-34, the City of Hamburg will contribute approximately 2.8% to the REIT’s overall GRI based on
total GRI as at March 31, 2016.
Deutsche Rentenversicherung Knappschaft Bahn-See (“Deutsche Rentenversicherung”)
Deutsche Rentenversicherung is Germany’s state pension fund covering over 50 million people. About €266 billion was paid to
(5)
recipients in 2014 alone. Deutsche Rentenversicherung occupies approximately 37% of the space in our property located at
Millerntorplatz 1 in Hamburg, and generated approximately 2.0% of the REIT’s overall GRI as at March 31, 2016.
BNP Paribas Fortis SA/NV (“BNP Paribas Fortis”)
BNP Paribas Fortis is a financial services provider, offering services to private and professional clients, corporate clients and
(6)
public entities through a number of networks. The company, with strong roots in Europe’s economic history, occupies
approximately 55% of the space in Cäcilienkloster in Cologne as well as 8% in Z-UP in Stuttgart and generated approximately
1.8% of the REIT’s overall GRI as at March 31, 2016.
Deutsche Postbank AG (“Postbank”)
Postbank is one of Germany’s largest financial service providers with approximately 14 million clients, 15,000 employees and
total assets of approximately €150 billion. Postbank mainly focuses on private customers and small to medium-sized
companies and has the densest branch network of any bank in Germany with 1,100 of its own branches and 4,500 Deutsche
(7)
Post partner branches as well as 700 Postbank advisory centres. As at March 31, 2016, Postbank generated approximately
1.6% of the REIT’s overall GRI.
CinemaxX Entertainment GmbH & Co. KG (“CinemaxX”)
(8)
CinemaxX is a well-known cinema chain in Germany and Denmark with 33 cinemas and 2,000 employees. CinemaxX
occupies approximately 62% of the GLA in our property located at Bertoldstrasse 48/Sedanstrasse 7 in Freiburg and generated
approximately 1.5% of the REIT’s overall GRI as at March 31, 2016.
Google Germany GmbH (“Google”)
Google is an American multinational corporation specializing in internet-related services and products and employs over
(9)
60,000 people worldwide. Google Hamburg is the company’s commercial headquarters for Germany, Austria, Switzerland
and the Nordics and occupies approximately 88% of the GLA in ABC Bogen, our property located in the heart of Hamburg at
ABC Strasse 19. Google generated approximately 1.5% of the REIT’s overall GRI as at March 31, 2016.
City of Düsseldorf
The City of Düsseldorf is the capital of the German state of North Rhine-Westphalia and the centre of the Rhine-Ruhr
(10)
metropolitan region with a population of over 11 million people. The City of Düsseldorf occupies approximately 49% of the
GLA in our asset at Moskauer Strasse 25-27 in Düsseldorf and generated approximately 1.2% of the REIT’s overall GRI as at
March 31, 2016.
(1) As disclosed at Deutsche Post DHL’s website at www.dpdhl.com
(2) As disclosed at Freshfields’ website at www.freshfields.com
(3) As disclosed at ERGO’s website at www.ergo.com
(4) As disclosed at the City of Hamburg’s website www.hamburg.de
(5) As disclosed at Deutsche Rentenversicherung’s website at www.deutsche-rentenversicherung.de
(6) As disclosed at BNP Paribas’ website at www.bnpparibas.com
(7) As disclosed at Deutsche Postbank AG’s website at www.postbank.com
(8) As disclosed at CinemaxX’s website at www.cinemaxx.com
(9) As disclosed at Google’s website at www.google.com and www.google.ca/about/careers/locations/hamburg
(10) As disclosed at City of Düsseldorf's website at www.duesseldorf.de
MARKET OVERVIEW – GERMANY AND AUSTRIA
German economy
The German economy has established itself as a key location for production sites and is a country with a favourable business
environment. Similar to Canada, Germany is a country with a history of political, legal and financial stability and provides an
attractive climate for long-term investment.
Overall, the German economy continues to be the main driving force of Europe and benefits from a robust labour market. The
most important drivers of growth in Q1 2016 were domestic consumption and public sector spending. Germany’s
(1)
unemployment rate of 4.5% in March 2016 remains among the lowest in the European Union. German gross domestic
(2)
(2)
product (“GDP”) grew by 1.7% in 2015 and is expected to grow by 1.8% in 2016, largely driven by consumer spending.
The German real estate sector
Germany remains one of the most highly sought-after real estate investment markets in Europe, benefiting from strong local
(3)
and international investor demand. In Q1 2016, the total investment volume for commercial real estate reached €8.2 billion,
a decrease of 14% compared to the same quarter in 2015, largely due to the lack of large transactions and portfolio deals. A
trend that started in 2015 and continued in Q1 2016 was the rising investment volume outside of the Big 7 office markets.
Over 50% of all commercial real estate transactions took place in markets outside of these seven key markets. Demand from
(3)
international investors decreased to below 40% in Q1 2016 from over 50% in 2015.
The underlying fundamentals in the office sector remain strong with overall net absorption of office space continuing to be
positive across the Big 7 office markets. The average vacancy rate in these markets further declined in Q1 2016, resulting in a
(4)
10 basis point decline since the end of 2015 to 6.3% at March 31, 2016.
Austrian economy
The Austrian economy is closely linked to Germany and features a skilled labour force and a high standard of living. Similar to
Germany, it has a high degree of financial stability, a reliable protection of property rights and a transparent legal system.
(5)
Economic growth has been below that of Germany in recent years with GDP growth of 0.7% in 2015.
The Austrian real estate sector
In Q1 2016, the total investment volume for commercial real estate in Austria reached €495 million, a decrease of 20%
compared to the same quarter in 2015. Approximately half of the transactions were carried out by international investors and
(6)
about 44% of all transactions took place in the office sector.
The underlying fundamentals in the office sector in Vienna remain strong. The average vacancy rate in this market declined to
(7)
6.3% at the end of 2015 and is expected to decline further in 2016, largely due to limited new construction and sustained
demand.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
ILO labour market statistics overview, Destatis – Germany’s Federal Statistical Office
Deutsche Bundesbank – the central bank of the Federal Republic of Germany
JLL Investment Market Overview Q1 2016
JLL Office Market Overview Q1 2016
European Commission’s 2016 country report for Austria
CBRE Market View – Investments Austria, Q1 2016
CBRE Market View – Vienna Office Market, Q4 2015
SECTION II – EXECUTING THE STRATEGY
OUR OPERATIONS
Occupancy
Overall in-place and committed occupancy was 88.0% at March 31, 2016, an increase of 50 basis points from the end of 2015,
and 140 basis points year-over-year compared to Q1 2015. Occupancy in our Initial Properties increased from 81.8% at the
end of 2015 to 83.0% at March 31, 2016, due to our leasing efforts as well as property dispositions, including properties that
were sold but have not closed as at March 31, 2016. These properties are classified under “Assets held for sale” in our
financial statements and have been removed from our property level metrics disclosed under “Our Operations”, including
occupancy and vacancy rates, lease maturities, weighted average remaining lease term (“WALT”) and rental rates. Occupancy
in our Acquisition Properties decreased from 96.4% at the end of 2015 to 95.3% at March 31, 2016, partially as a result of the
lease expiry of Maersk, a former top 10 tenant, in a property in Hamburg at the beginning of 2016. To date, efforts to replace
this tenant have resulted in the leasing of 55% of this space.
The table below details the percentage of occupied and committed space for the total portfolio as well as the comparative
portfolio. The comparative portfolio comprises properties owned by the Trust at December 31, 2015 and March 31, 2016, and
excludes properties that were acquired or sold during Q1 2016.
Total portfolio
Portfolio (%)
Initial Properties
Acquisition Properties(1)
Total
Comparative portfolio
March 31,
2016
December 31,
2015
March 31,
2016
December 31,
2015
83.0
95.3
88.0
81.8
96.4
87.5
83.0
95.4
87.9
82.3
96.4
87.9
Vacancy schedule
The table below highlights our leasing activity for the three months ended March 31, 2016. During Q1 2016, our overall space
available for lease decreased by 70,601 square feet. The decrease in vacancy was largely the result of dispositions and strong
leasing in our Initial Properties, offset by increased vacancy in our Acquisitions Portfolio. Overall, we maintained a retention
rate of 64% across the entire portfolio in Q1 2016.
For the three months ended March 31, 2016
(in square feet)
Available for lease – December 31, 2015
Change in vacancy due to acquisitions
Change in vacancy due to dispositions
Remeasurements
Subtotal – available for lease
Expiries(2)
Early termination and bankruptcies
New leases
Renewals(2)
Future leases for the period(2)
Available for lease – March 31, 2016
Initial Properties
Total
1,496,262
—
(77,307)
(4,401)
1,414,554
81,695
14,723
(11,620)
(39,436)
(101,609)
1,358,307
187,114
12,364
—
7,803
207,281
270,171
27,806
(21,591)
(168,344)
(60,855)
254,468
1,683,376
12,364
(77,307)
3,402
1,621,835
351,866
42,529
(33,211)
(207,780)
(162,464)
1,612,775
(2) For the purposes of calculating tenant retention, 13,000 square feet currently included in new and future leases were added back to renewals, reflecting
tenant expansions and related company lease takeovers; 5,800 square feet were deducted from expiries to reflect space subject to interim usage as well as
known expiries in recent acquisitions.
The table below highlights our occupancy, leasing activity and rental rates for the last eight quarters. Committed occupancy
includes in-place occupancy as well as space for which leases have been signed but do not commence until a future quarter.
Q1 2016(1)(2)
Q4 2015(1)(2)
Q3 2015(1)(2)
Q2 2015(1)(2)
Q1 2015(1)(2)
Q4 2014(1)
Q3 2014
Q2 2014
11,841,472
88.0%
11,744,793
87.5%
11,478,813
86.8%
11,523,398
86.1%
11,920,554
86.0%
12,660,524
85.3%
13,788,078
87.1%
13,787,918
87.9%
11,644,004
86.5%
11,653,086
86.8%
11,403,146
86.2%
11,488,609
85.8%
11,867,554
85.6%
12,568,632
84.7%
13,603,696
85.9%
13,644,620
87.0%
(351,866)
(269,929)
(235,519)
(330,102)
(232,711)
(210,323)
(203,087)
(175,716)
(42,529)
33,211
207,780
162,464
(179,917)
52,794
128,283
297,643
(3,584)
49,346
124,820
71,803
(2,898)
44,309
225,341
70,626
(15,819)
21,725
143,968
35,150
(18,214)
37,589
153,804
31,773
(38,709)
89,075
143,271
101,670
(8,908)
21,370
133,149
68,328
92,220
38,223
Occupancy
Committed occupancy
(square feet)
Committed occupancy
In-place occupancy
(square feet)
In-place occupancy
Leasing activity
Expiries
Early termination and
bankruptcies
New leases
Renewals
Future leases
Net leasing absorption
(before DP terminations)
9,060
28,874
6,866
7,276
(47,687)
(5,371)
—
—
—
—
—
(99,214)
(1,756,589)
—
—
—
—
(30,363)
(105,515)
(231,311)
—
—
—
—
—
—
—
1,492,986
—
9,060
28,874
6,866
(23,087)
(153,202)
(236,682)
(171,383)
38,223
€9.66
0.5%
€9.61
1.6%
€9.46
0.7%
€9.39
1.4%
€9.26
4.5%
€8.86
(0.4)%
€8.90
1.8%
€8.74
0.3%
Deutsche Post leasing activity
Deutsche Post terminations
Expiries of Deutsche Post
extensions
Deutsche Post/Postbank
renewals and extensions
99,214
Net leasing absorption
(incl. DP terminations)
Average in-place rent
(€/sq. ft./year)
% change
(2) Excludes properties held for sale.
In-place rental rates
Average in-place rents have increased from €9.61 per square foot/year at December 31, 2015 to €9.66 per square foot/year at
March 31, 2016, reflecting higher in-place rents in the Initial Properties. Overall, average market rents remain above in-place
rents as at March 31, 2016, with an overall spread between in-place rents and market rents at 6.6%. The difference between
in-place rents and market rents in our Initial Properties is approximately 15.6%, allowing for rental rate growth in this segment
of our portfolio.
For our Acquisition Properties, market rents exceeded in-place rents by 2.5% as at March 31, 2016.
The table below provides a comparison between in-place rents and estimated market rents in our portfolio as at
March 31, 2016.
In $
(as at March 31, 2016)
(per square foot/year)
Initial Properties – Deutsche Post
Initial Properties – third party
(2)
Total Initial Properties
(3)
Overall
In-place rent
(1)
$
$
In €
(as at March 31, 2016)
Market rent
7.82 $
8.84
8.08
22.26
14.30 $
9.16
9.84
9.34
22.82
15.25
In-place rent
€
€
(1) Includes renewals of space relating to the Deutsche Post 2016 termination rights.
5.29 €
5.97
5.46
15.04
9.66 €
% of market rents
above (below)
Market rent
in-place rents
6.19
6.65
6.31
15.42
10.30
17.0
11.4
15.6
2.5
6.6
Market rent represents management’s best estimate of the net rental rate that would be achieved in the event a unit becomes
vacant in a new arm’s length lease after a reasonable marketing period with an inducement and lease term appropriate for the
particular space. Market rent by property is determined on a quarterly basis by our leasing and portfolio management teams.
The basis of calculating market rents depends on leasing deals that are completed for similar space in comparable properties
in the area. Market rents may differ by property or by unit within the property and depend on a number of factors. Some of
the factors include the condition of the space, the location within the building, the extent of office build-out for the units,
appropriate lease term and normal 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.
At March 31, 2016, the WALT of all leases was approximately 4.4 years.
WALT at
March 31, 2016
(years)(1)
WALT at
December 31, 2015
2.6(2)
6.1
3.5(3)
5.5
4.4
Initial Properties – Deutsche Post
Initial Properties – third party
Overall
2.8
5.7
3.5
5.6
4.4
(1) For the purpose of calculating WALT, month-to-month leases are reflected as leases with a one-year term.
Leasing and tenant profile
Lease rollover profile
The following table outlines our lease maturity profile by asset type as at March 31, 2016. Our lease maturity profile remains
staggered with less than 10% (excluding space leased on a month-to-month basis) of our portfolio expiring prior to 2018.
(in square feet)
Initial
Properties(1)
Acquisition
Properties
Total GLA
Total GLA (%)
Total GRI ($)
Total GRI (%)
Current
vacancy
Month-tomonth
2016
2017
2018
2019
2020+
Total
1,358,307
257,005
94,533
322,854
3,690,498
795,814
1,492,295
8,011,306
254,468
1,612,775
12.0%
41,386
298,391
2.2%
3,769,163
2.1%
265,465
359,998
2.7%
7,006,507
3.9%
622,404
945,258
7.0%
15,838,043
8.9%
371,984
4,062,482
30.2%
37,348,714
21.0%
538,178
1,333,992
9.9%
20,944,901
11.8%
3,349,057
4,841,352
36.0%
92,882,361
52.3%
5,442,942
13,454,248
100.0%
177,789,689
100.0%
Deutsche Post leases
The leases with Deutsche Post, which primarily expire on June 30, 2018 (many of which provide Deutsche Post with an option
to extend the term until June 30, 2023) and contractual extensions described below comprise approximately 37.0% of the
portfolio’s GLA and account for approximately 22.0% of the portfolio’s GRI.
Below is a detailed expiry schedule for all Deutsche Post leases within our Initial Properties:
Total GLA (sq. ft.)
Deutsche Post lease expiries
2016
2017
2018
2019
2020
2021
2022
2023
Total Deutsche Post lease expiries
13,222
164,911
3,617,183
617,372
483,239
57,890
6,376
5,745
4,965,938
Rent adjustment
The rents under the Deutsche Post leases are subject to automatic adjustments (up or down) in relation to the German CPI. If
the CPI for Germany changes by more than 4.3 index points as compared to the index at the commencement of the applicable
lease or the previous rent adjustment, the rent payable under the Deutsche Post leases is automatically adjusted by 100% of
the index change, with effect as of the time of the index change. Based on the index at the last CPI adjustment date, the index
has to exceed 107.2 index points before the next adjustment will become effective. CPI numbers from March 2016 indicate
that the CPI has reached 107.3 index points. As a result, the threshold for a rent adjustment has been met and Deutsche Post ’s
rental rate will increase by 4.3% effective as of March 2016.
Termination rights
In general, the Deutsche Post leases have a fixed term of ten years, expiring on June 30, 2018. These leases entitled Deutsche
Post to terminate space in 2012, 2014 and 2016, subject to certain limitations and requirements. The rights of Deutsche Post
to terminate a lease are limited by various tests that apply collectively to the Deutsche Post leases and the leases in respect of
the remaining properties forming the portfolio the vendor of the Initial Properties acquired from Deutsche Post in July 2008
(the “Caroline DP Leases”), considered as a whole.
In addition, by June 30, 2017, Deutsche Post is required to provide the REIT with a list of Deutsche Post leases and/or Caroline
DP Leases for which the term of such lease shall be extended for two additional years. This list must amount to at least 33.33%
of the total reference rent of all Deutsche Post leases and Caroline DP Leases, considered as a whole, which at the beginning
of the lease had no termination options. With the contractual extension, the Trust will receive a continuation of income of at
least 7% of the reference rent (equivalent of 220,900 square feet of space) pertaining to the Deutsche Post leases that are
scheduled to expire in 2018 for the additional two years, which are reflected in the 2020 lease expiries in the table above.
2012 termination rights
One of the opportunities that Deutsche Post terminations afforded the REIT is the ability to take advantage of the large blocks
of contiguous vacant space the tenant left, making the terminated space more attractive for re-leasing to some prospective
tenants. When combined with higher rents that we generally achieve on the terminated space, we see this reflected in the
overall performance of the terminated properties. On July 1, 2012, Deutsche Post terminated a total of approximately
1.1 million square feet of space of which approximately 203,000 square feet were either extended by Deutsche Post or released to Postbank. Through our leasing efforts, as of March 31, 2016, we have been able to successfully replace
(1)
approximately 86% of the GRI generated by the terminated properties prior to the 2012 terminations.
(1) Compared to GRI of the terminated properties as of Q2 2012, excluding properties sold or held for sale. GRI as of March 31, 2016 includes in-place leases
and leases committed for future occupancy.
On July 1, 2014, Deutsche Post terminated a total of approximately 1,757,000 square feet of space of which approximately
1,493,000 square feet were either extended by Deutsche Post or re-leased to Postbank. Lease extensions with Deutsche Post
(1)
as well as third-party leases for 2014 terminated buildings have replaced approximately 85% of the GRI generated from the
2014 terminated properties as at March 31, 2016.
(1) Compared to GRI of the terminated properties as of Q2 2014, excluding properties sold or held for sale. GRI as of March 31, 2016 includes in-place leases
and leases committed for future occupancy.
Excluding dispositions and assets held for sale, Deutsche Post had the right to terminate up to approximately 392,600 square
feet in 16 properties effective as at June 30, 2016. We retained Deutsche Post in 14 of the 16 properties, or 342,049 square
feet of space. Lease negotiations with Deutsche Post resulted in the renewal of space in eight assets, in addition to the tenant
not exercising their termination rights in six assets. Deutsche Post exercised their termination right with respect to two assets
for 24,526 square feet.
In addition, we signed eight leases with Postbank, retaining them as a tenant in the entire 26,011 square feet of space they
originally subleased from Deutsche Post, as well as approximately 7,100 square feet of space in two properties for which
Deutsche Post exercised termination notices.
With the signing of these leases, the GRI retention rate pertaining to the 2016 terminations was 99% as at March 31, 2016.
Number of assets
Total GLA (sq. ft.)
1
3
4
8
6
14
2
135,766
57,806
57,310
250,882
91,167
342,049
24,526
26,011
392,586
(1)
1-year renewal
3-year renewal
5-year renewal
2016 renewals
No termination exercised
Subtotal of space retained
Termination notice exercised
Space subleased to Postbank
Total
16
(1) This property, located in Hamburg, will be a redevelopment site once Deutsche Post vacates the space.
OUR RESOURCES AND FINANCIAL CONDITION
Investment properties
As at March 31, 2016, the value of our investment property portfolio was $2.4 billion (December 31, 2015 – $2.4 billion).
The REIT’s management is responsible for determining fair value measurements included in the condensed consolidated
financial statements, including fair values of investment properties, which are valued on a highest and best use basis. Fair
values for investment properties are calculated using both the direct income capitalization and discounted cash flow (“DCF”)
methods. The results of both methods are evaluated by considering the reasonableness of the range of values calculated
under both methods. Fair value of a property is determined at the point within that range that is most representative of the
fair value in the circumstances.
Changes in the value of our investment properties for the three months ended March 31, 2016 and for the year ended
December 31, 2015 are summarized in the table below as follows:
March 31, 2016
Amounts per
condensed
consolidated
financial
statements
Balance at beginning of period
$ 2,392,281 $
Additions
Acquisitions
69,528
Building improvements
3,724
Lease incentives and initial direct leasing
costs
2,183
Amortization of lease incentives
(658)
Dispositions (Initial Properties)
(14)
Reclassified to assets held for sale
(12,101)
POBA joint venture assets reclassified to assets
held for sale
—
Fair value adjustments
3,690
Transaction and other costs related to
acquisition
—
Foreign currency translation
(41,764)
Balance at end of period
$ 2,416,869 $
Share from
investment
in joint
ventures
Total
517,087 $ 2,909,368
December 31, 2015
Amounts per
consolidated
financial
statements
$ 2,079,671 $
—
240
69,528
3,964
237,019
14,375
243
(44)
—
—
2,426
(702)
(14)
(12,101)
8,332
(2,245)
(252)
(97,472)
—
5,244
(69,368)
80,898
—
1,554
—
—
(11,401)
(8,747)
(50,511)
152,724
510,333 $ 2,927,202 $ 2,392,281 $
Share from
investment
in joint
ventures
Total
284,417 $ 2,364,088
142,805
181
627
(116)
—
—
34,684
30,805
379,824
14,556
8,959
(2,361)
(252)
(97,472)
(34,684)
111,703
—
(11,401)
23,684
176,408
517,087 $ 2,909,368
During the quarter ended March 31, 2016, we acquired two properties for $69.5 million (including transaction costs) and
reclassified seven properties from the Initial Properties valued at $12.1 million as assets held for sale.
During the three months ended March 31, 2016, Acquisition Properties increased by $5.2 million, mainly due to capitalization
rate (“cap rate”) compression, strong leasing performance as well as asset management and repositioning efforts. Due to the
depreciation of the euro against the Canadian dollar from $1.503 at the end of 2015 to $1.478 at the end of the quarter ended
March 31, 2016, the investment property value decreased by $50.5 million, representing an unrealized foreign exchange loss.
Investment properties held for sale
For the three
months ended
March 31,
2016
Investment properties reclassified as held for sale
Investment properties reclassified as held for sale – POBA joint venture assets
Dispositions
Dispositions – POBA joint venture assets
$
$
32,543
12
12,101
—
(585)
(10,004)
—
(636)
33,431
For the year
ended
December 31,
2015
$
$
42,897
50
97,472
69,368
(1,061)
(110,665)
(69,368)
3,850
32,543
Acquisitions
During the three months ended March 31, 2016, we completed the following acquisitions:
Office property
Friedrichstraße 45, 47 (Europa-Center), Essen
Werner-Eckert-Str. 14, 16, 18, Munich
Total
Acquired GLA
(sq. ft.)
Occupancy at
acquisition (%)
147,188
63,895
211,083
96
96
96
Purchase price(1)
$
$
41,474
23,170
64,644
Date acquired
February 3, 2016
February 29, 2016
(1) Excludes transaction costs of $4.9 million.
Dispositions
The REIT completed the sale of six properties during the three months ended March 31, 2016, for an aggregate gross sales
price of approximately $10.0 million, which was their fair value at December 31, 2015. A portion of the net proceeds of
$9.4 million was used to reduce our term loan credit facility. Including the seven assets for which we signed purchase and sale
agreements in the current quarter, we had a total of 13 properties under contract for sale as at March 31, 2016 for an
aggregate gross sales price of $33.4 million, representing the assets’ approximate fair value. As at March 31, 2016, these
properties were reclassified as assets held for sale on the balance sheet and excluded from the value of investment properties,
as the REIT has committed to a plan of sale for these investment properties. In total, we recorded a fair value loss of
$0.6 million on these properties and dispositions.
Building improvements represent investments made in our investment properties to ensure our buildings are operating at an
optimal level. Such improvements are expected to increase the Trust’s ability to obtain higher rental rates. During the three
months ended March 31, 2016, we spent $4.0 million on building improvements. In general, building improvements are nonrecoverable from the tenants unless specifically provided for in the lease agreement.
Initial direct leasing costs and lease incentives
Initial direct leasing costs include external leasing fees and related costs, and broker commissions incurred in negotiating and
arranging tenant leases. Lease incentives include costs incurred to make leasehold improvements to tenant spaces and cash
allowances. They generally help to attract and put in place high value tenancies or to improve the quality of the asset. Initial
direct leasing costs and lease incentives are dependent on 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.
During the three months ended March 31, 2016, we incurred $2.4 million of lease incentives and initial direct leasing costs. As
at March 31, 2016, we had outstanding initial direct leasing cost commitments of $14.4 million, for lease terms in excess of
ten years on average, including commitments related to a 20-year lease deal with the City of Hamburg for the entire
172,000 square feet of space at our property located at Hammer Strasse 30-34 in Hamburg.
Investment in joint ventures and associates
As at March 31, 2016, the carrying amount of the investment in joint ventures and associates was $272.5 million
(December 31, 2015 – $272.7 million).
The Trust participates in partnerships (“joint ventures”) with other parties that own investment properties and accounts for its
interests using the equity method in the condensed consolidated financial statements. The discussion of our operations
includes our share of the joint ventures. Refer to the section “Non-GAAP measures and other disclosures” for a reconciliation
to the condensed consolidated financial statements.
Ownership interest (%)
Name
Location
POBA joint venture
Löwenkontor
Vordernbergstrasse 6/Heilbronner Strasse 35 (Z-UP)
Speicherstrasse 55 (Werfthaus)
Derendorfer Allee 4–4a (doubleU)
Neue Mainzer Strasse 28 (K26)
ABC-Strasse 19 (ABC Bogen)
Marsstrasse 20–22
Liebknechtstr. 33/35, Heßbrühlstr. 7 (Officium)
Rivergate joint venture
Dream Technology Ventures LP
Berlin, Germany
Stuttgart, Germany
Frankfurt, Germany
Düsseldorf, Germany
Frankfurt, Germany
Hamburg, Germany
Munich, Germany
Stuttgart, Germany
Vienna, Austria
Toronto, Canada
March 31,
2016
50
50
50
50
50
50
50
50
50
10
December 31,
2015
50
50
50
50
50
50
50
50
50
n/a
During Q1 2015, the REIT agreed to sell a 50% interest in an Acquisition Property that was held in a separate subsidiary to
POBA. As a result, the property valued at $69.4 million (at 100%) and its related mortgage valued at $40.7 million were
derecognized as at January 30, 2015. The total consideration to the REIT for the 50% interest in the property was
$36.8 million. The REIT incurred transaction costs of $0.3 million relating to the sale, resulting in net proceeds to the REIT of
$16.0 million. The REIT recorded a gain on the sale of $3.2 million, including $0.4 million of deferred tax loss. As at March 31,
2016, the REIT co-owned a total of eight Acquisition Properties with POBA.
On December 16, 2015, the REIT entered into a joint venture with an Asian sovereign wealth fund to jointly acquire Rivergate,
an office property located in Vienna, Austria. The total consideration paid on the date of closing for the equity interest was
$157.6 million, which was subsequently financed by an additional mortgage of $29.4 million held within the joint venture. The
property was acquired for $285.4 million (Trust’s share – $142.7 million) with a mortgage totalling $156.9 million (Trust’s
share – $78.5 million). The mortgage carries a fixed rate of 1.60% per annum, maturing on December 16, 2020. The REIT holds
a 50% interest in the property, which is held in a separate subsidiary. The REIT incurred an additional $0.8 million in
transaction costs related to the acquisition, during the three months ended March 31, 2016, bringing the total transaction
costs to $2.7 million, which are reflected in investments in joint ventures in the condensed consolidated financial statements.
During the three months ended March 31, 2016, the fair value of the investment properties held by joint ventures increased
by $3.2 million. The REIT’s 50% share of this increase was $1.6 million, which was reflected in the investment in joint ventures
as at March 31, 2016.
During the three months ended March 31, 2016, the REIT recorded fee income relating to joint ventures of $1.1 million (three
months ended March 31, 2015 – $0.7 million), which is included in interest and other income.
The investment properties the joint ventures hold are consistent in terms of the class and type of properties held in the Trust’s
portfolio.
OUR CAPITAL
Liquidity and capital resources
Dream Global’s primary sources of capital are cash generated from operating activities, a credit facility, 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 amortization and
interest payments, and property acquisitions. We expect to meet all of our ongoing obligations through current cash and cash
equivalents, cash generated from (utilized in) operations, draws on the credit facility, debt refinancings and, as growth
requires and when appropriate, new equity or debt issues.
In our condensed consolidated financial statements, our current liabilities exceed our current assets by $91.9 million, which
includes the temporary draw of $60.1 million drawn on our revolving credit facility as at March 31, 2016. Typically, real estate
entities seek to address liquidity needs by having a balanced debt maturity schedule and undrawn credit facilities. We are able
to use our 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 mortgage principal repayments that are due within one year amount to $18.3 million and there are no
mortgage debt maturities that are due within one year. A total of $14.1 million of the term loan credit facility is payable within
one year in connection with assets held for sale, and will be financed with proceeds from dispositions. 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, capital expenditures incurred as well as the impact of
transaction costs incurred on any acquisitions completed during the reporting period.
As at March 31, 2016, we had $25.3 million of cash on hand. Our debt-to-gross book value (net of cash) at March 31, 2016 was
55%. Excluding cash and convertible debentures, our debt-to-gross book value (net of cash) was 50%.
Debt
March 31,
2016
Total debt
Less debt related to:
Investment in joint ventures
Debt (per condensed consolidated financial statements)
December 31,
2015
$
1,684,955
$
1,647,967
$
261,894
1,423,061
$
267,075
1,380,892
March 31,
2016
Mortgage debt
Less mortgage debt related to:
Mortgage debt (per condensed consolidated financial statements)
December 31,
2015
$
1,123,113
$
1,108,176
$
261,894
861,219
$
267,075
841,101
Debt strategy
Our debt strategy is to obtain non-recourse secured mortgage financing, with a term to maturity that is appropriate in relation
to the lease maturity profile of our portfolio. Our preference is to have staggered debt maturities to mitigate interest rate risk
and limit refinancing exposure in any particular period. We also intend to enter into long-term loans at fixed rates when
borrowing conditions are favourable. This strategy will be complemented with the use of unsecured convertible debentures
and floating rate credit facilities. We operate within a targeted debt-to-gross book value (net of cash) range of 50% to 60%.
Our average level of debt, net of cash, increased to 54% at March 31, 2016 from 52% at December 31, 2015. As at March 31,
2016, the debt-to-gross book value ratio (net of cash) was 55%, an increase from 54% at December 31, 2015, which largely
reflects the temporary draw-down on our revolving credit facility to fund our acquisition of Friedrichstraße 45, 47, Essen and
Werner-Eckert-Str. 14, 16, 18, in Munich, which were completed in February 2016. Proceeds of dispositions will be used to pay
down debt.
The key performance indicators in the management of our debt are as follows:
For the three
months ended
March 31,
2016
Financing activities
(1)(2)
Weighted average interest rate
(2)(4)
Weighted average effective rate
(2)(3)
Level of debt (debt-to-gross book value, net of cash, net of convertible debentures)
(2)(3)(5)
Level of debt (debt-to-gross book value, net of cash) at period-end
(2)(3)(6)
(2)(3)
(2)(6)
Debt – average term to maturity (years)
2.48 %
3.00 %
50 %
55 %
54 %
2.78 times
4.7
For the year
ended
December 31,
2015
2.49 %
3.02 %
49 %
54 %
52 %
3.08 times
5.0
(1) Weighted average interest rate is calculated as the weighted average face rate of all interest bearing debt.
(3) Level of debt and interest coverage ratio are non-GAAP measures. Calculations for each reconciled to IFRS balances can be found under “Non-GAAP
measures and other disclosures”.
(4) 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.
(5) Increase of debt level to 55% at the end of March 31, 2016 was largely a result of the temporary draw-down of the Trust’s revolving credit facility to fund
acquisitions.
(6) This metric excludes the revolving credit facility.
We currently use cash flow performance and debt level indicators to assess our ability to meet our financing obligations. Our
current interest coverage ratio for the first quarter is 2.78 times and reflects our ability to cover interest expense
requirements. The interest coverage ratio dropped slightly in Q1 2016, reflecting the higher interest expense relating to the
temporary use of the revolving credit facility and lower one-time interest and other income compared to Q4 2015.
Financing activities
We finance our ownership of assets using equity as well as conventional mortgage financing, term debt, floating rate credit
facilities and convertible debentures.
New debt
During the three months ended March 31, 2016, we obtained the following new mortgages:
Mortgage
($000s)
Property
Total
$
$
24,884 €
14,108
38,992 €
Mortgage
(€000s)
16,260
9,600
25,860
Face rate
1.62 %
1.07 %
Date of funding
Date of maturity
February 3, 2016
February 29, 2016
January 31, 2026
February 28, 2023
On February 3, 2016, the Trust secured a mortgage with a principal balance of $24.9 million (€16.3 million) at a fixed rate of
1.62% per annum, maturing on January 31, 2026, in connection with the acquisition of Friedrichstraße 45, 47 in Essen.
On February 29, 2016, the Trust secured a mortgage with a principal balance of $14.1 million (€9.6 million) at a fixed rate of
1.07% per annum, maturing on February 28, 2023, in connection with the acquisition of Werner-Eckert-Str. 14, 16, 18 in
Munich.
Debt composition
March 31, 2016
Variable
Term loan credit facility
Revolving credit facility
(1)(2)
Mortgage debt
(1)
Debentures
Total
Percent
(1)
$
$
346,576
60,134
38,498
—
445,208
26%
Fixed
$
$
—
—
1,084,615
155,132
1,239,747
74%
December 31, 2015
Total
$
$
346,576
60,134
1,123,113
155,132
1,684,955
100%
Variable
$
$
355,325
29,908
39,267
—
424,500
26%
Fixed
$
$
—
—
1,068,909
154,558
1,223,467
74%
Total
$
$
355,325
29,908
1,108,176
154,558
1,647,967
100 %
(1) Balance shown is net of deferred financing costs and mark-to-market adjustments.
(2) Includes the REIT’s share of mortgages related to the joint ventures.
Amounts recorded as at March 31, 2016 for the Debentures are net of $3.2 million of premiums allocated to their conversion
features on issuance. The premiums are amortized to interest expense over the term to maturity of the related debt using the
effective interest rate method.
Concurrent with the closing of our initial public offering, we obtained a term loan credit facility (the “Facility”) from a
syndicate of German and French banks. On December 14, 2015, we successfully refinanced the Facility with a new, interestonly facility with a major U.S. financial institution (the “New Facility”) for gross proceeds of $369.5 million (€244.1 million) and
fully repaid and discharged the remaining outstanding balance under the Facility. The New Facility has a term of five years and
a variable interest rate calculated and payable quarterly at a rate equal to the aggregate of the three-month EURIBOR plus a
margin of 225 basis points (the “margin”). Pursuant to the requirement of the New Facility, we purchased EURIBOR interest
rate caps with a weighted average strike rate of 1.03% to cover 95% of the New Facility. Costs relating to the New Facility were
$11.6 million (€7.7 million).
As at March 31, 2016, the weighted average rate of the New Facility was 2.25%. Including financing costs, the effective interest
rate under the Facility was 3.01%.
The New Facility agreement requires that at each interest payment date, and each date of prepayment of the New Facility, the
interest coverage ratio is equal to or above 2.35 times and the loan-to-value ratio does not exceed 60%.
There are no prepayment fees on property dispositions for up to 25% of the portfolio value within the first two years of the
loan and up to 40% of the portfolio value during the term of the loan. On property dispositions, 110% of the loan amount
allocated to the disposed property has to be repaid. The prepayment amount exceeding the established thresholds for
property dispositions within the first two years of the loan is subject to a prepayment fee equal to a yield maintenance fee.
Commencing in year three, a prepayment fee of 2.0% is payable, which subsequently drops to 1.5% in year four, and no
prepayment fee is payable in the final year of the New Facility.
During the three months ended March 31, 2016, the Trust repaid $3.4 million (€2.3 million) in connection with the disposition
of the six properties, in accordance with the terms of the New Facility.
On October 10, 2013, the Trust entered into a credit agreement with a Canadian bank to provide a revolving credit facility not
to exceed €25 million. The interest rate on Canadian dollar advances is prime plus 200 basis points and/or bankers’ acceptance
rates plus 300 basis points. The interest rate for euro advances is 300 basis points over the three-month EURIBOR rate. On
August 14, 2014, the REIT increased the revolving credit facility to €50 million and on April 1, 2015 further increased it to
€75 million.
On November 20, 2015, the REIT obtained lender approval to increase the principal amount of the revolving credit facility
from €75 million to €100 million, with no change in the covenants or interest rate spreads. In addition, the term was extended
by one year to September 25, 2017. As at March 31, 2016, there was a drawn balance of $60.1 million (€40.7 million) on the
revolving credit facility. There was also an undrawn letter of credit commitment for €1.2 million against the facility as at
March 31, 2016.
Convertible debentures
As at March 31, 2016, the total principal amount of Debentures outstanding was $161 million, convertible into an aggregate of
12,384,619 Units. The Debentures bear interest at 5.5% per annum, are payable semi-annually on July 31 and January 31 each
year, and mature on July 31, 2018. Each $1,000 principal amount of the Debentures is convertible at any time by the holder
into 76.9231 Units, representing a conversion price of $13.00 per unit. On or after August 31, 2014, and prior to August 31,
2016, the Debentures may be redeemed by the Trust, in whole or in part, at a price equal to the principal amount plus accrued
and unpaid interest on not more than 60 days’ and not less than 30 days’ prior written notice, provided the weighted average
trading price for the Units for the 20 consecutive trading days, ending on the fifth trading day immediately preceding the date
on which notice of redemption is given, is not less than 125% of the conversion price. On or after August 31, 2016, and prior
to July 31, 2018, the maturity date, the Debentures may be redeemed by the Trust at a price equal to the principal amount
plus accrued and unpaid interest.
The conversion feature of the Debentures is remeasured in each reporting period to fair value, with changes in fair value
recorded in comprehensive income. The Trust recorded a fair value gain of $4.6 million for the three-month period ended
March 31, 2016, attributed to the conversion feature.
The table below highlights our debt maturity profile:
Debt maturities
Remainder of 2016
2017
2018
2019
2020
2021 and thereafter
$
$
74,258
56,035
(2)
334,470
32,396
551,447
574,311
1,622,917
Scheduled
principal
repayments on
non-matured debt
$
$
Acquisition date fair value adjustments
Financing costs
(1)
Total
13,860
17,772
14,533
13,591
11,333
20,854
91,943
Total
$
$
88,118
73,807
349,003
45,987
562,780
595,165
1,714,860
(3,216)
(26,689)
1,684,955
(1) Includes the REIT’s share of mortgages related to the joint ventures.
(2) Includes $161 million of convertible debentures.
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.
As at March 31, 2016, the REIT’s future minimum commitments under operating leases are as follows:
Operating lease payments
Less than 1 year
1–5 years
Longer than 5 years
Total
$
$
1,043
1,155
—
2,198
During the three months ended March 31, 2016, the Trust paid $0.3 million in minimum lease payments, which have been
included in comprehensive income for the period.
Foreign currency contracts
At March 31, 2016, we had various currency forward contracts in place to sell euros for Canadian dollars for the next
45 months. On settlement of a contract, we realize a gain or loss on the difference between the forward rate and the spot
rate. We also mark the contracts to market quarterly and recorded an unrealized gain of $6.5 million for the quarter ended
March 31, 2016.
At March 31, 2016, the Trust had foreign exchange forward contracts to sell €213.7 million in total from April 2016 to
December 2019 at an average exchange rate of $1.498 per euro.
The table below highlights the forward contracts outstanding as at March 31, 2016:
Contracts by quarter
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Total
€
€
Hedge value
Weighted average
hedge rate
16,848
16,493
16,718
16,629
16,739
16,367
16,747
14,869
11,500
12,121
11,891
11,799
11,673
11,670
11,667
213,731
1.427
1.448
1.440
1.452
1.446
1.484
1.461
1.522
1.476
1.520
1.523
1.601
1.596
1.601
1.606
1.498
Equity
The table below highlights our outstanding equity:
Unitholders’ equity
March 31, 2016
Amount
Number of Units
Units
113,476,512
$
1,276,885
December 31, 2015
Number of Units
Amount
113,024,465
$
1,289,158
Units
Our Declaration of Trust authorizes the issuance of an unlimited number of two classes of units: Units and Special Trust Units.
The Special Trust Units may only be issued to holders of securities exchangeable for Units, are not transferable and are used to
provide holders of such securities with voting rights with respect to Dream Global REIT. Each Unit and Special Trust Unit
entitles the holder thereof to one vote for each Unit at all meetings of unitholders of the Trust.
The Trust has a Deferred Unit Incentive Plan (“DUIP”) that provides for the grant of deferred trust units and income deferred
units to trustees, officers, employees and affiliates and their service providers, including DAM, our asset manager.
The following table summarizes the changes in our outstanding equity:
Units
Total Units outstanding on December 31, 2015
Units issued pursuant to the DUIP
(1)
Units issued pursuant to the DRIP
Total Units outstanding on March 31, 2016
Units issued pursuant to the DRIP on April 15, 2016
Total Units outstanding on April 30, 2016
113,024,465
73,534
378,513
113,476,512
109,743
113,586,255
(1) Distribution Reinvestment and Unit Purchase Plan.
For the three months ended March 31, 2016, 73,534 Units were issued pursuant to the Deferred Unit Incentive Plan
(December 31, 2015 – 86,415 Units) to trustees, officers and employees. A total of 2,599,225 deferred trust units and income
deferred trust units were outstanding as at March 31, 2016.
Distribution policy
Our Declaration of Trust provides our trustees with the discretion to determine the percentage payout of income that would
be in the best interest of the Trust. Amounts retained in excess of the declared distributions are used to fund leasing costs and
capital expenditure requirements. Given that working capital tends to fluctuate over time and should not affect our
distribution policy, we disregard it when determining our distributions. We also exclude the impact of leasing costs, which
fluctuate with lease maturities, renewal terms and the type of asset being leased. We evaluate the impact of leasing activity
based on averages for our portfolio over a two- to three-year time frame. We exclude the impact of transaction costs
expensed on business combinations as these costs are considered to be non-recurring. In order to manage the exposure to
currency risk of unitholders and holders of Debentures, the Trust has entered into foreign exchange forward contracts.
For the quarter ended March 31, 2016, distributions declared amounted to $22.7 million. Of this amount, $2.9 million was
reinvested in additional units pursuant to the DRIP, resulting in a cash payout ratio of 87.3%.
Declared
amounts
2016 distributions
Paid in cash or reinvested in Units
Payable at March 31, 2016
Total distributions
2016 reinvestment
Reinvested to March 31, 2016
Reinvested on April 15, 2016
Total distributions reinvested
Distributions paid in cash
Reinvestment to distribution ratio (for the period)
Cash payout ratio
$
$
$
$
$
Three months ended March 31, 2016
4% bonus
distribution
Total
15,101
7,565
22,666
$
1,932
951
2,883
19,783
12.7%
87.3%
$
$
$
77
—
77
$
77
38
115
$
$
$
15,178
7,565
22,743
2,009
989
2,998
We currently pay monthly distributions to unitholders of $0.06667 per unit, or $0.80 per unit on an annual basis. During 2016,
approximately 12.7% of our total Units were enrolled in the DRIP.
Normal course issuer bid
On December 18, 2015, the Trust renewed its normal course issuer bid (the “Bid”), which expired on December 17, 2015. The
Bid will remain in effect until the earlier of December 17, 2016 or the date on which the Trust has purchased the maximum
number of Units permitted under the Bid. Under the Bid, the Trust has the ability to purchase for cancellation up to a
maximum of 11,128,923 Units (representing 10% of the Trust’s public float of 111,289,235 Units at the time of entering the
bid through the facilities of the TSX). Daily purchases are limited to 57,293 Units, other than purchases pursuant to applicable
block purchase exceptions. To date, no purchases have been made under the Bid or the prior Bid.
OUR RESULTS OF OPERATIONS
Basis of accounting
Our discussion of results of operations includes our proportionate share of income from investments in joint ventures. Refer to
“Non-GAAP measures and other disclosures” for a reconciliation to our condensed consolidated financial statements.
Three months ended March 31,
2016(1)
Investment properties operating expenses
Net rental income
Other income
Interest and other income
Share of net income from investment in other joint ventures
$
Other expenses
Portfolio management
General and administrative
Depreciation and amortization
Interest expense
Fair value adjustments, gain (loss) on sale of investment properties and other activities
Fair value gain to investment properties
Fair value gain to financial instruments
Internal direct leasing costs
Debt settlement costs
Gain (loss) on sale of investment properties
Income before income taxes
Current income tax expense
Deferred income tax expense
Provision for income taxes
Net income
$
Total net income for the period attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Net income
$
Foreign currency translation adjustments for the period attributable to:
Other operations
59,855
(18,317)
41,538
2015(1)
$
2,585
5
2,590
1,069
5
1,074
(1,576)
(5,873)
(40)
(13,174)
(20,663)
(1,450)
(4,668)
(30)
(11,008)
(17,156)
4,659
7,581
(864)
(93)
(624)
10,659
34,124
(344)
(1,597)
(1,941)
32,183
15,949
7,688
(542)
—
976
24,071
46,287
(143)
(2,774)
(2,917)
43,370
31,980
203
32,183
$
$
(21,008)
(4,090)
(25,098)
(196)
(25,294)
Comprehensive income for the period attributable to:
$
56,910
(18,612)
38,298
6,882
7
6,889
43,234
136
43,370
(32,753)
(4,634)
(37,387)
(231)
(37,618)
$
5,847
(95)
5,752
(1) Results from operations were converted into Canadian dollars from euros using the following average exchange rates: the three-month period ended
March 31, 2016 was converted at $1.516:€1; for 2015, the three-month period ended March 31, 2015 was converted at $1.397:€1.
Investment properties revenue includes net rental income from investment properties as well as the recovery of operating
costs and property taxes from tenants.
Investment properties revenue for the quarter was €39.5 million ($59.9 million), a decrease of €1.3 ($2.9 million), or 3.1%,
over the prior year comparative quarter. The primary drivers for this decrease were the impact of Initial Properties
dispositions in 2015 (51 assets sold in 2015 and six assets sold in the first quarter of 2016), the insolvency of Imtech in August
2015, partially offset by acquisitions completed in 2015 and 2016, in addition to strong leasing performance.
Investment properties operating expenses comprise occupancy costs and property taxes as well as certain expenses that are
not recoverable from tenants, the majority of which are related to major repairs and maintenance. Operating expenses
fluctuate with changes in occupancy levels and levels of repairs and maintenance.
Investment properties operating expenses for the quarter were €12.1 million ($18.3 million), a decrease of €1.2 million or
9.1%, over the prior year comparative quarter, mainly due to the disposition of Initial Properties (51 assets sold in 2015 and six
assets sold in the first quarter of 2016), partially offset by an increase due to acquisitions completed in 2015 and 2016.
2016
(1)
Net operating income
€
€
39,505
(12,117)
27,388
2015
€
€
40,774
(13,333)
27,441
(1) Net operating income (“NOI”) is a non-GAAP measure. See “Non-GAAP measures and other disclosures” for the definition of NOI.
For the three months ended March 31, 2016, net operating income was €27.4 million ($41.5 million), representing a marginal
decrease of €0.1 million, compared to the comparative prior year period. On a Canadian dollar denominated basis, net
operating income increased by $3.2 million, mainly as a result of the appreciation of the euro against the Canadian dollar over
the comparative periods.
The table below summarizes our revenue and operating expenses in Canadian dollars:
Initial Properties
(1)
Net operating income
$
$
2016
12,207
29,331
41,538
$
$
2015
12,321
25,977
38,298
(1) Net operating income (“NOI”) is a non-GAAP measure. See “Non-GAAP measures and other disclosures” for the definition of NOI and a reconciliation to
net rental income.
Interest and other income comprise interest earned on notes receivable, the management fees and loan facility income
earned with respect to the POBA joint ventures, as well as other fees. Except for the fees earned from our third-party joint
venture agreements, the income included in interest and other income is not necessarily of a recurring nature and the
amounts may vary quarter-over-quarter.
Interest and other income was $2.6 million for the three months ended March 31, 2016, representing a $1.5 million increase
compared to the prior year comparative periods. $0.4 million of the increase was a result of the higher fees generated from
managing the POBA and the Rivergate joint ventures, the latter of which was completed in late 2015. Another $0.2 million
increase was due to higher income from mortgage refinancing services provided to POBA, pursuant to terms of the POBA loan
amortization facility. We also received lease termination and other payments from tenants totalling $1.0 million during the
quarter, which are non-recurring in nature.
Our portfolio management team comprises the employees of our advisory subsidiaries in Germany and Luxembourg who are
responsible for providing asset management services for the investment properties, including asset strategy and leasing
activities.
Portfolio management expense was $1.6 million for the quarter ended March 31, 2016, or $0.1 million higher than the
amount incurred in the comparative quarter in 2015, primarily due to a stronger euro in Q1 2016 compared to Q1 2015.
General and administrative expenses totalled $5.9 million for the quarter ended March 31, 2016, representing an increase of
$1.2 million over Q1 2015. The increase mainly results from higher asset management fees due to completed acquisitions and
higher regulatory, corporate and tax compliance costs, in addition to a higher euro in Q1 2016 compared to Q1 2015.
Interest expense
Interest expense was $13.2 million for the quarter ended March 31, 2016, an increase of $2.2 million compared to the prior
year. Excluding the impact of a higher euro in Q1 2016 compared to Q1 2015, interest expense increased by $1.4 million. New
acquisitions in 2015 and 2016 contributed $0.6 million to the increase in mortgage interest expenses. In addition, a higher
drawn balance on the revolving line contributed a further $0.7 million to interest expense.
For the three months ended March 31, 2016, a gain of $4.7 million was recognized compared to a gain of $15.9 million in the
comparative quarter last year. The gain in the current quarter was primarily driven by a $13.9 million increase in the fair value
of the Acquisition Properties, primarily due to cap rate compression and improved leasing, partially offset by a $4.9 million fair
value loss related to transaction costs of properties acquired during the quarter, and the write-off of $3.7 million of
capitalized costs and a fair value loss of $0.6 million on investment properties held for sale.
For the three months ended March 31, 2016, we incurred an unrealized gain in the fair value of financial instruments of
$7.6 million compared to a gain of $7.7 million in the comparative period. The fair value adjustments in the quarter mainly
comprise the following components:
•
a $2.1 million loss was recognized on the fair value change in the interest rate cap as a result of a decrease in forward
price of interest rates;
•
a $4.6 million fair value gain was recognized on the conversion feature of the convertible debentures, mainly reflecting a
decrease in the credit spread and a decrease in the risk-free interest rate applicable to our Units, compared to a gain of
$4.3 million in the same period in 2015;
•
an unrealized gain of $6.5 million was recognized related to our foreign currency forward contracts due to the
depreciation of the euro compared to the Canadian dollar since the end of 2015, versus a $5.9 million unrealized gain
during the comparative quarter due to an appreciation of the Canadian dollar compared to the euro; and
•
a $1.4 million loss was recognized related to our DUIP, mainly reflecting an increase in the market price of our Units
compared to a loss of $2.3 million in the same period in 2015.
A total of $0.9 million of internal leasing staff costs for the three months ended March 31, 2016 have been incurred in the
respective properties, compared to $0.5 million in 2015. The increase of $0.4 million reflects additional resources to support
our leasing initiatives and higher leasing volumes.
Loss on sale of investment properties for the quarter was $0.6 million, compared to a $1.0 million gain on the sale of
investment properties during the same quarter last year. The loss in the current year was mainly attributable to the
transaction costs for property dispositions incurred during the three months ended March 31, 2016.
Income taxes
We recognized current income tax expenses of $0.3 million for the three months ended March 31, 2016, compared to a
current income tax expense of $0.1 million for the comparative quarter in 2015.
We also recognized deferred income tax expenses of $1.6 million for the three months ended March 31, 2016, compared to
deferred income tax expense of $2.8 million for the comparative quarter in 2015. The lower deferred tax in 2016 is mainly a
result of the impact associated with the loss carry-forwards, fair value adjustments related to investment properties net of tax
depreciation, and fair value changes related to financial instruments.
Asset management and management service agreements
The REIT entered into an asset management agreement with DAM (“Asset Management Agreement”) pursuant to which DAM
provides certain asset management services to the REIT and its subsidiaries.
Costs paid to DAM under the Asset Management Agreement are outlined below:
2016
Incurred under the Asset Management Agreement:
Asset management fees in Deferred units (included in general and administrative expenses)
Asset management fees in cash (included in general and administrative expenses)
Asset acquisition fees (capitalized as acquisition costs, and then written off
on remeasurement of investment properties)
Financing fees (included in debt/unitholders’ equity)
Reimbursement for out-of-pocket and incidental costs (included in general and
administrative expenses)
Total incurred under the Asset Management Agreement
$
461
1,909
2015
$
481
1,536
323
71
224
2,988
$
681
91
152
2,941
$
As at March 31, 2016, the Trust has recorded $3.9 million (December 31, 2015 – $3.8 million) in amounts payable and
$0.3 million (December 31, 2015 – $0.1 million) in amounts receivable related to the Asset Management Agreement
with DAM.
The Trust also entered into a Shared Services and Cost Sharing Agreement with DAM on December 1, 2013. Fees paid to DAM
under this agreement are on a cost recovery basis. As at January 1, 2016, the shared services agreements were amended such
that future funding costs incurred in respect of technology personnel and technology-related platforms cease subsequent to
December 31, 2015. There were no other material changes to the agreement.
2016
Incurred under the Shared Services and Cost Sharing Agreement:
Branding, process improvements and technology transformations (included in general
and administrative)
Total incurred under the Shared Services and Cost Sharing Agreement
$
$
75
75
2015
$
$
85
85
The Trust’s future commitment under the Shared Services and Cost Sharing Agreement over the remaining term to 2017 is
$0.4 million.
Impact of foreign exchange
Exchange rate fluctuations between the Canadian dollar and the euro impact the Trust’s reported revenues, expenses, income,
cash flows, assets and liabilities. The table below summarizes changes in the exchange rates.
Average exchange rate (Cdn. dollars to one euro)
Exchange rate at period-end (Cdn. dollars to one euro)
2016
2015
Change
1.516
1.478
1.397
1.362
8.5 %
8.5 %
Comprehensive income was impacted by a foreign currency translation loss of $25.3 million for the three months ended
March 31, 2016. The exchange rate decreased from $1.503:€1 as at December 31, 2015 to $1.478:€1 as at March 31, 2016.
The quarterly results of our euro-denominated operations included in net income were translated at an average exchange rate
of $1.516:€1 compared to $1.397:€1 in the same quarter last year.
Funds from operations and adjusted funds from operations
2016
Net income for the period
Add (deduct):
Net loss attributable to non-controlling interest
Net FFO impact attributable to non-controlling interests
Cash settlement on interest rate swap
Gain (loss) on settlement of foreign currency contracts
(1)
FFO
Add (deduct):
Amortization of financing costs
Amortization of initial discount on convertible debentures
Amortization of fair value adjustment on acquired debt
Deferred unit compensation expense
Deferred asset management fees
Straight-line rent
Deduct:
Normalized initial direct leasing costs and lease incentives
Normalized non-recoverable recurring capital expenditures
(1)
AFFO
$
32,183
$
(203)
(7)
702
864
93
624
1,597
—
(946)
(4,659)
(7,581)
22,667
$
$
1,688
311
—
533
461
(206)
25,454
(1,869)
(1,454)
22,131
2015
$
43,370
$
(136)
(56)
533
542
—
(976)
2,774
(1,662)
492
(15,949)
(7,688)
21,244
$
$
863
287
(30)
449
481
(369)
22,925
(1,723)
(1,340)
19,862
(1) Funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) are non-GAAP measures. See “Non-GAAP measures and other disclosures”.
Funds from operations
2016
2015
FFO
$
22,667
$
21,244
FFO per unit – basic
$
0.20
$
0.19
FFO per unit – diluted
$
0.20
$
0.19
Total FFO for the quarter was $22.7 million, an increase of $1.4 million, or 6.7%, over the prior year comparative quarter,
mainly reflecting the impact of completed acquisitions, favourable exchange rates, strong leasing performance and additional
fees from our joint ventures.
For the quarter ended March 31, 2016, basic FFO on a per unit basis increased to $0.20 per unit from $0.19 per unit in the
prior year comparative quarter. For the quarter ended March 31, 2016, diluted FFO on a per unit basis was $0.20 per unit, an
increase from $0.19 per unit in the prior year comparative quarter.
Adjusted funds from operations
2016
AFFO
AFFO per unit – basic
$
$
22,131
0.20
2015
$
$
19,862
0.18
Total AFFO for the quarter ended March 31, 2016 increased by $2.3 million over the prior year comparative quarter, mainly
reflecting the impact of completed acquisitions, favourable exchange rates, strong leasing performance and additional fees
from our joint venture platforms. For the quarter ended March 31, 2016, basic AFFO on a per unit basis was $0.20 per unit, an
increase from $0.18 per unit in the prior year comparative quarter.
QUARTERLY INFORMATION (per condensed consolidated financial statements)
The following table shows quarterly information since April 1, 2014:
Net rental income
Other income
Interest and other income (expense)
Share of net income from investment in joint ventures
$
Other expenses
Amortization and depreciation
Interest expense
Fair value adjustments, loss on sale of investment
properties and other activities
Fair value gain (loss) to investment properties
Fair value gain (loss) to financial instruments
Contract termination fees
Income (loss) before taxes
Current income taxes recovery (expense)
Deferred income taxes recovery (expense)
Recovery of (provision for) income taxes
Net income (loss)
Total income (loss) for the period attributable to:
Shareholders of the subsidiaries
Net income (loss)
Add (deduct):
Income allocated to non-controlling interest
Net FFO impact attributable to non-controlling
interest
(Gain) loss on sale of investment properties
Tax on gains on sale of investment properties
Deferred income tax expense (recovery)
Term debt swap settlement
Gain (loss) on settlement of Forex contracts
Fair value gain (loss) to investment properties
Fair value gain (loss) to financial instruments
FFO
FFO per unit – basic
FFO per unit – diluted
Funds from operations
Add (deduct):
Accretion of debenture conversion feature
Amortization of fair value adjustment of debt
Contract termination fees incurred on sale to
the POBA joint venture
Deferred compensation expense
Deferred asset management expense
Straight-line rent
Deduct:
Normalized initial direct leasing costs and lease
incentives
Normalized non-recoverable recurring
capital expenditures
AFFO
AFFO per unit – basic
Weighted average number of Units:
Basic
Diluted
Quarterly average exchange rate ($:€1)
$
$
$
$
$
$
$
$
Q1 2016
51,726 $
(16,854)
34,872
Q4 2015
49,025 $
(16,186)
32,839
Q3 2015
49,798 $
(16,423)
33,375
Q2 2015
49,761 $
(15,846)
33,915
Q1 2015
51,458 $
(17,573)
33,885
Q4 2014
60,042 $
(18,325)
41,717
Q3 2014
61,388 $
(17,872)
43,516
2,136
5,502
7,638
3,211
4,992
8,203
2,547
2,626
5,173
480
17,126
17,606
1,014
10,931
11,945
382
2,494
2,876
(1,576)
(4,928)
(40)
(11,544)
(18,088)
(1,412)
(4,335)
(31)
(10,148)
(15,926)
(1,521)
(3,520)
(27)
(9,813)
(14,881)
(1,247)
(3,997)
(30)
(9,562)
(14,836)
(1,450)
(4,049)
(30)
(9,834)
(15,363)
(1,067)
(4,557)
(45)
(11,690)
(17,359)
(1,019)
(4,295)
(30)
(12,221)
(17,565)
(1,207)
(4,350)
(38)
(12,273)
(17,868)
(5,185)
(17,550)
(697)
41,586
(604)
(676)
7,740
7,688
(542)
(12,876)
876
(324)
49,335
6,914
(577)
42,011
3,434
(541)
(1,728)
—
(25,160)
(1,493)
(284)
(863)
(1,147)
(2,640) $
(2,033)
—
38,273
74,958
63
(7,503)
(7,440)
67,518 $
976
—
15,862
46,329
(185)
(2,774)
(2,959)
43,370 $
44,332
(510)
31,498
58,732
110
1,455
1,565
60,297 $
(1,172)
—
54,500
80,466
(857)
(8,223)
(9,080)
71,386 $
(811)
—
44,093
73,285
(383)
(8,140)
(8,523)
64,762
64,762
—
64,762
8
7
15
Q2 2014
67,514
(20,435)
47,079
(28)
9
(19)
3,105
7,581
(864)
(93)
(624)
—
9,105
33,527
(345)
(999)
(1,344)
32,183 $
24,295
(568)
(556)
(5,541)
(108)
—
17,522
42,638
(586)
(4,474)
(5,060)
37,578 $
31,980 $
203
32,183 $
37,188 $
390
37,578 $
(2,776) $
136
(2,640) $
67,101 $
417
67,518 $
43,234 $
136
43,370 $
59,388 $
909
60,297 $
71,386 $
—
71,386 $
(203)
(390)
(136)
(417)
(136)
(909)
—
—
(7)
702
864
93
624
—
1,597
—
(946)
(4,659)
(7,581)
22,667 $
0.20 $
0.20
22,667 $
199
631
556
6,074
108
—
3,332
(1,218)
(513)
(25,587)
568
21,338 $
0.19 $
0.19
21,338 $
(37)
617
697
254
580
676
(56)
533
542
634
554
324
(29)
110
577
(34)
424
541
1,728
—
1,015
(1,825)
(222)
5,252
17,550
21,999 $
0.20 $
0.20
21,999 $
2,033
—
14,765
(1,663)
686
(62,957)
604
22,079 $
0.20 $
0.20
22,079 $
(976)
—
2,774
(1,662)
492
(15,949)
(7,688)
21,244 $
0.19 $
0.19
21,244 $
(44,332)
(159)
(1,455)
(1,695)
(128)
11,173
(876)
23,428 $
0.21 $
0.21
23,428 $
1,172
337
8,223
(1,628)
(666)
(49,335)
(6,914)
23,233 $
0.21 $
0.21
23,233 $
1,688
311
—
1,050
306
—
950
298
—
833
292
—
863
287
(30)
859
281
(96)
904
276
(96)
909
270
(97)
—
533
461
(206)
25,454
—
516
460
(107)
23,563
—
500
467
(448)
23,766
—
507
462
(676)
23,497
—
449
481
(369)
22,925
510
377
616
(129)
25,846
—
394
638
(182)
25,167
—
538
645
(378)
27,966
(1,869)
(1,696)
(1,715)
(1,744)
(1,723)
(1,938)
(1,958)
(2,119)
(1,454)
22,131 $
0.20 $
(1,319)
20,548 $
0.18 $
(1,334)
20,717 $
0.18 $
(1,356)
20,397 $
0.18 $
(1,340)
19,862 $
0.18 $
(1,507)
22,401 $
0.20 $
(1,523)
21,686 $
0.20 $
(1,648)
24,199
0.22
113,401,973
128,153,728
1.516
112,939,520
127,561,321
1.461
112,541,940
127,047,118
1.457
112,174,846
126,540,665
1.360
111,760,819
125,953,069
1.397
111,301,061
125,355,097
1.419
110,878,351
124,824,789
1.442
811
98
8,140
(1,567)
(1,651)
(42,011)
(3,434)
26,079
0.24
0.23
26,079
110,469,257
124,295,625
1.496
NON-GAAP MEASURES AND OTHER DISCLOSURES
The following additional 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
standardized meaning and may not be comparable with similar measures presented by other income trusts.
Funds from operations (“FFO”)
Management believes FFO is an important measure of our operating performance. This non-IFRS measurement is a commonly
used measure of performance of real estate operations; however, it does not represent net income or cash flow from
operating activities as defined by IFRS and is not necessarily indicative of cash available to fund Dream Global REIT’s needs.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, FFO has been reconciled to net income in the section “Our results of operations” under the
heading “Funds from operations and adjusted funds from operations”.
Adjusted funds from operations (“AFFO”)
Management believes AFFO is an important measure of our economic performance and is indicative of our ability to pay
distributions. This non-IFRS measurement is commonly used for assessing real estate performance; however, it does not
represent cash generated from (utilized in) operating activities as defined by IFRS and is not necessarily indicative of cash
available to fund Dream Global REIT’s needs.
Our calculation of AFFO includes an estimated amount (8% of net rental income) of normalized non-recoverable recurring
capital expenditures, as well as initial direct leasing costs and lease incentives that we expect to incur based on our current
property portfolio and expected average leasing activity over the next two to three years. This estimate may differ from actual
amounts incurred due to the timing of expenditures and the related leasing activities.
Additional GAAP Measures”, AFFO has been reconciled to cash generated from operating activities in this section under the
heading “Cash generated from operating activities to AFFO reconciliation”.
NOI is defined by the Trust as the total investment properties revenue less investment properties operating expenses,
including the share of net rental income from investment in joint ventures. This non-GAAP measurement is an important
measure used by the Trust in evaluating property 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. In compliance with
Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP
Measures”, NOI has been reconciled to net rental income in the table below:
2016
Net rental income (per condensed consolidated financial statements)
Add: Share of net rental income from investments in joint ventures
NOI
$
$
34,872
6,666
41,538
2015
$
$
33,885
4,413
38,298
Weighted average number of Units
The basic weighted average number of Units outstanding used in the FFO and AFFO calculations includes all Units. The diluted
weighted average number of Units assumes the conversion of the Debentures and incremental unvested deferred trust units
related to the Deferred Unit Incentive Plan represented by the potential Units that would have to be purchased in the open
market to fund the unvested obligation. The weighted average number of Units outstanding for basic FFO and AFFO and
diluted FFO calculations for the three months ended March 31, 2016 is noted in the table below. Diluted FFO includes interest
and amortization adjustments related to the Debentures of $2.8 million for the three months ended March 31, 2016.
Weighted average Units outstanding for basic per unit amounts
Weighted average Units outstanding for diluted per unit amounts
2016
2015
113,401,973
128,153,728
111,760,819
125,953,069
The Trust’s proportionate share of the financial position and results of operation of its investment in joint ventures, which are
accounted for using the equity method under IFRS in the condensed consolidated financial statements, are presented and
discussed throughout the MD&A using the proportionate consolidation method, which is not in accordance with IFRS. These
non-GAAP measures are referred to as the REIT’s owned share throughout this MD&A. A reconciliation of the financial
position and results of operations to the condensed consolidated balance sheets and condensed consolidated statements of
net income and comprehensive income is included in the following tables.
Balance sheet reconciliation to condensed consolidated financial statements
March 31, 2016
Amounts per
condensed
consolidated
financial
statements
Assets
NON-CURRENT ASSETS
Notes receivable
Derivative financial instruments
Deferred income tax assets
Other non-current assets
CURRENT ASSETS
Amounts receivable
Prepaid expenses
Cash
Assets held for sale
Total assets
Liabilities
NON-CURRENT LIABILITIES
Debt
Deposits
Deferred Unit Incentive Plan
Deferred income tax liabilities
CURRENT LIABILITIES
Debt
Amounts payable and accrued liabilities
Income tax payable (receivable)
Distributions payable
Liabilities related to assets held for sale
Total liabilities
Share from
investment
in joint
ventures and
associates
Total
December 31, 2015
Amounts per
consolidated
financial
statements
Share from
investment
in joint
ventures
Total
$ 2,416,869 $
272,476
6,509
6,947
4,106
2,861
2,709,768
510,333 $ 2,927,202
(241,929)
30,547
—
6,509
—
6,947
—
4,106
1,226
4,087
269,630
2,979,398
$ 2,392,281 $
272,720
6,621
4,377
3,788
2,723
2,682,510
517,087 $ 2,909,368
(242,982)
29,738
—
6,621
—
4,377
—
3,788
1,262
3,985
275,367
2,957,877
11,640
3,657
25,286
40,583
33,893
$ 2,784,244 $
4,087
15,727
43
3,700
3,273
28,559
7,403
47,986
—
33,893
277,033 $ 3,061,277
15,706
4,430
28,700
48,836
32,855
$ 2,764,201 $
1,561
17,267
48
4,478
4,603
33,303
6,212
55,048
—
32,855
281,579 $ 3,045,780
$ 1,333,804 $
2,509
—
15,915
22,006
1,374,234
258,589 $ 1,592,393
193
2,702
—
—
—
15,915
7,361
29,367
266,143
1,640,377
$ 1,324,889 $
2,395
6,295
14,150
20,644
1,368,373
263,732 $ 1,588,621
196
2,591
—
6,295
—
14,150
6,877
27,521
270,805
1,639,178
89,257
30,489
2,197
2,938
7,565
132,446
679
$ 1,507,359 $
3,305
92,562
7,592
38,081
(7)
2,190
—
2,938
—
7,565
10,890
143,336
—
679
277,033 $ 1,784,392
56,003
35,613
1,976
5,022
7,535
106,149
521
$ 1,475,043 $
3,343
59,346
7,442
43,055
(11)
1,965
—
5,022
—
7,535
10,774
116,923
—
521
281,579 $ 1,756,622
Statement of net income and comprehensive income reconciliation to condensed
consolidated financial statements
2015
2016
Amounts per
condensed
consolidated
financial
statements
Net rental income
Other income
Share of net income from investment in
joint ventures and associates
Share of net income from investment in other
joint ventures
$
Other expenses
Interest expense
Fair value adjustments, gain (loss) on sale of
investment properties and other activities
Current income tax recovery (expense)
Net income
Total net income for the period
attributable to:
Net income
$
$
Foreign currency translation adjustments for
the period attributable to:
Other operations
51,726 $
(16,854)
34,872
8,129 $
(1,463)
6,666
2,136
449
$
Amounts per
consolidated
financial
statements
Total
59,855 $
(18,317)
41,538
Share of
income from
investments
in joint
ventures
Total
51,458 $
(17,573)
33,885
5,452 $
(1,039)
4,413
56,910
(18,612)
38,298
2,585
1,014
55
1,069
5,497
(5,497)
—
10,926
(10,926)
—
5
7,638
—
(5,048)
5
2,590
5
11,945
—
(10,871)
5
1,074
(1,576)
(4,928)
(40)
(11,544)
(18,088)
—
(945)
—
(1,630)
(2,575)
(1,576)
(5,873)
(40)
(13,174)
(20,663)
(1,450)
(4,049)
(30)
(9,834)
(15,363)
—
(619)
—
(1,174)
(1,793)
(1,450)
(4,668)
(30)
(11,008)
(17,156)
3,105
7,581
(864)
(93)
(624)
9,105
33,527
(345)
(999)
(1,344)
32,183 $
1,554
—
—
—
—
1,554
597
1
(598)
(597)
— $
31,980 $
203
32,183
— $
—
—
(21,008)
(4,090)
(25,098)
(196)
(25,294)
Comprehensive income for the period
attributable to:
Share of
income from
investments
in joint
ventures and
associates
6,882
7
6,889 $
—
—
—
—
—
—
—
— $
4,659
7,581
(864)
(93)
(624)
10,659
34,124
(344)
(1,597)
(1,941)
32,183 $
7,740
7,688
(542)
—
976
15,862
46,329
(185)
(2,774)
(2,959)
43,370 $
8,209
—
—
—
—
8,209
(42)
42
—
42
— $
15,949
7,688
(542)
—
976
24,071
46,287
(143)
(2,774)
(2,917)
43,370
31,980
203
32,183
43,234 $
136
43,370
— $
—
—
43,234
136
43,370
$
(21,008)
(4,090)
(25,098)
(196)
(25,294)
6,882
7
6,889
(32,753)
(4,634)
(37,387)
(231)
(37,618)
$
5,847
(95)
5,752 $
—
—
—
—
—
—
—
— $
(32,753)
(4,634)
(37,387)
(231)
(37,618)
5,847
(95)
5,752
Cash generated from operating activities to AFFO reconciliation
AFFO is not defined by IFRS and, therefore, may not be comparable to similar measures presented by other real estate
investment trusts. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial
Measures and Additional GAAP Measures”, the table below reconciles AFFO to cash generated from operating activities.
2016
Cash generated from operating activities
Add (deduct):
Change in non-cash working capital
Share of net income from investment in joint ventures and associates
Non-cash impact of income attributable to non-controlling
interest
Unrealized loss on settlement of foreign exchange contracts
Investment in lease incentives and initial direct leasing costs
Adjustments for investment in joint ventures:
Fair value adjustments to investment properties
Deferred income tax expense attributable to joint ventures
Normalized initial direct leasing costs and lease incentives
Normalized non-recoverable recurring capital expenditures
AFFO
$
$
2015
15,163 $
14,185
1,501
5,497
864
1,160
10,926
542
(22)
(40)
1,127
2,183
93
(131)
(30)
1,245
3,216
—
(1,554)
44
598
(1,869)
(1,454)
22,131 $
(8,209)
21
—
(1,723)
(1,340)
19,862
Net income, cash generated from (utilized in) operating activities and distributions declared
In any given period, actual distributions declared may differ from cash generated from (utilized in) operating activities,
primarily due to seasonal fluctuations in non-cash working capital and the impact of leasing costs, which fluctuate with lease
maturities, renewal terms and the type of asset being leased. The Trust determines the distribution rate by, among other
considerations, its assessment of cash flow as determined using adjusted cash generated from (utilized in) operating activities
(a non-GAAP measure), which includes cash generated from (utilized in) operating activities of our investments in joint
ventures that are equity accounted and excludes the fluctuations in non-cash working capital, and transaction costs on
acquisitions and dispositions as well as investment in lease incentives and initial direct leasing costs. As such, the Trust
believes the cash distributions are not an economic return of capital, but a distribution of sustainable adjusted cash flow from
operating activities.
The Trust funds its working capital needs and investments in lease incentives and initial direct leasing costs with cash and cash
equivalents on hand and its credit facilities. Accordingly, management believes adjusted cash generated from (utilized in)
operating activities is an important measure that reflects our ability to pay cash distributions. This non-GAAP measurement
does not represent cash generated from (utilized in) operating activities, as defined by IFRS.
In any given period, the Trust anticipates that actual distributions declared will, in the foreseeable future, continue to vary
from net income as net income includes non-cash items such as fair value adjustments to investment properties and fair value
adjustments to financial instruments. Accordingly, the Trust does not use net income as a proxy for distributions.
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the tables below outline the differences
between cash generated from (utilized in) operating activities (per condensed consolidated financial statements) and total
distributions declared, as well as the differences between net income and total distributions declared, in accordance with the
guidelines.
As a general rule, we do not take fluctuations in working capital into consideration and we use a normalized amount as a proxy
for leasing and building improvement costs in establishing our distribution policy. The surplus or shortfall in net income for
each period reflects mainly fair value adjustments to financial instruments and investment properties. These non-cash items
do not impact cash flows and are not considered when we establish our distribution policy. To the extent that there are
shortfalls in cash flow, the Trust uses existing credit facilities as a source of funding.
2016
Cash generated from operating activities (per condensed consolidated financial statements)
Add:
Investment in joint ventures’ cash flows from operating activities
Cash generated from operating activities (including investment in joint ventures)
Add (deduct):
Lease incentives and initial direct leasing costs
Adjusted cash generated from operating activities (including investment in joint ventures)
Total declared distributions
Surplus (shortfall) of adjusted cash generated from (utilized in) operating activities over
total distributions
$
$
15,163
2015
$
14,185
2,471
17,634
202
14,387
2,426
3,525
23,585
22,743
3,302
3,699
21,388
22,442
842
$
(1,054)
Once the fluctuations in lease incentives and initial direct leasing costs and changes in our non-cash working capital have been
removed, and the cash generated from operating activities of our equity accounted investments in joint ventures have been
included, adjusted cash generated from operating activities for the three months ended March 31, 2016, exceeded total
distributions, before taking into consideration the DRIP, by $0.8 million (shortfall of $1.1 million for the same period in 2015).
The surplus for the three months ended March 31, 2016 was largely a result of the impact of our completed acquisitions and a
strong euro compared to 2015.
2016
Adjusted cash generated from operating activities (including investment in joint ventures)
Declared distributions paid in cash
Surplus (shortfall) of adjusted cash generated from (utilized in) operating activities over
distributions paid in cash
2015
$
23,585
19,783
$
21,388
19,044
$
3,802
$
2,344
Cash distributions, after factoring in our DRIP program, for the three months ended March 31, 2016, amounted to
$19.8 million. Adjusted cash generated from operating activities (including investment in joint ventures), exceed the cash
distribution $3.8 million for the three months ended March 31, 2016 ($2.3 million for the same period in 2015). 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 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.
As the Trust uses adjusted cash generated from (utilized in) operating activities (a non-GAAP measure) in determining its cash
available for distribution, the following table also outlines the differences between adjusted cash generated from (utilized in)
operating activities and distributions declared.
2016
Cash generated from operating activities (per condensed consolidated financial statements)
Shortfall of cash flow from operating activities (per condensed consolidated financial statements)
over total distributions
2015
$
15,163
22,743
$
14,185
22,442
$
(7,580)
$
(8,257)
For the three months ended March 31, 2016, the Trust recorded a shortfall of cash generated from operating activities over
total distributions of $7.6 million. In comparison, in 2015 a shortfall of $8.3 million was recorded for the three months ended
March 31, 2015. The shortfall of cash generated from operating activities over total distributions for the period is mainly
driven by short-term fluctuations in our non-cash working capital and the impact of investments in lease incentives and initial
direct leasing costs, as well as the fact that cash flows generated from operating activities of our investments in joint ventures,
which are equity accounted, are excluded from this calculation, despite the fact that they form part of the Trust’s
determination of its cash available for distribution.
For the three months ended March 31, 2016, net income exceeded total distributions by $9.4 million (surplus of $20.9 million
for the same period in 2015).
2016
Surplus of net income over total distributions
$
$
32,183
22,743
9,440
2015
$
$
43,370
22,442
20,928
Level of debt (debt-to-gross book value)
Management believes this non-GAAP measurement is an important measure in the management of our debt levels. Level of
debt as shown below is determined as total debt, divided by total assets.
Additional GAAP Measures”, the table below calculates the level of debt.
March 31, 2016
Amounts per
condensed
consolidated
financial statements
(1)
Non-current debt
Current debt
Total debt
Less cash
Total adjusted debt, net of cash
Total assets
Adjustments: Investment in joint ventures
$
Less cash
Total assets, net of cash
Debt-to-gross book value
Debt-to-gross book value, net of cash
Debt-to-gross book value, net of cash, net of convertible debentures
$
1,333,804
89,257
1,423,061
25,286
1,397,775
2,784,244
(272,476)
2,511,768
25,286
2,486,482
(1) Non-current debt includes convertible debentures valued at $155,132 at March 31, 2016.
Share of amounts
from investment
in joint ventures
$
$
258,589
3,305
261,894
3,273
258,621
277,033
272,476
549,509
3,273
546,236
Total
$
$
1,592,393
92,562
1,684,955
28,559
1,656,396
3,061,277
—
3,061,277
28,559
3,032,718
55 %
55 %
54 %
50 %
December 31, 2015
Amounts per
consolidated
(1)
Non-current debt
Current debt
Total debt
Less cash
Total adjusted debt, net of cash
Total assets
Adjustments: Investment in joint ventures
$
Less cash
Total assets, net of cash
Debt-to-gross book value
Debt-to-gross book value, net of cash
Debt-to-gross book value, net of cash, net of convertible debentures
$
1,324,889
56,003
1,380,892
28,700
1,352,192
2,760,413
(272,720)
2,487,693
28,700
2,458,993
Share of amounts
from investment
in joint ventures
$
$
263,732
3,343
267,075
4,603
262,472
281,579
272,720
554,299
4,603
549,696
Total
$
$
1,588,621
59,346
1,647,967
33,303
1,614,664
3,041,992
—
3,041,992
33,303
3,008,689
54 %
54 %
52 %
49 %
(1) Non-current debt includes convertible debentures valued at $154,558 at December 31, 2015.
Management believes this non-GAAP measurement is an important measure in determining our ability to cover interest
expense based on our operating performance. Interest coverage ratio as shown below is calculated as net rental income plus
interest and other income, less general and administrative expenses and portfolio management expenses, all divided by
interest expense on total debt.
The interest coverage ratio dropped slightly in Q1 2016, reflecting higher interest expense relating to the temporary use of the
revolving credit facility and lower one-time interest and other income compared to Q4 2015.
Additional GAAP Measures”, the table below calculates the interest coverage ratio.
For the three months ended March 31, 2016
Amounts per
condensed
consolidated
Net rental income
Add: Interest and other income
Less: General and administrative expenses
Less: Portfolio management expenses
$
Interest expense
$
34,872
2,136
4,928
1,576
30,504
11,544
Share of amounts
from investment
in joint ventures
$
$
6,666
449
945
—
6,170
1,630
Total
$
$
41,538
2,585
5,873
1,576
36,674
13,174
2.78
For the year ended December 31, 2015
Amounts per
consolidated
Net rental income
(1)
Add: Interest and other income
Less: General and administrative expenses
Less: Portfolio management expenses
$
Interest expense
$
134,014
7,252
15,901
5,630
119,735
39,357
(1) Includes one-time income items totalling $3.5 million.
Share of amounts
from investment
in joint ventures
$
$
18,841
433
2,715
—
16,559
4,898
Total
$
$
152,855
7,685
18,616
5,630
136,294
44,255
3.08
SECTION III – DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS
OVER FINANCIAL REPORTING
At March 31, 2016, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the Trust, along with the
assistance of senior management, have designed disclosure controls and procedures to provide reasonable assurance that
material information relating to Dream Global REIT is made known to the CEO and CFO in a timely manner and information
required to be disclosed by Dream Global REIT is recorded, processed, summarized and reported within the time periods
specified in securities legislation, and have designed internal controls over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the condensed consolidated financial statements in
accordance with IFRS.
SECTION IV – RISKS AND OUR STRATEGY TO MANAGE
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 discussion of the risks and uncertainties identified by Dream
Global REIT, please refer to our 2015 Annual Report and our 2015 Annual Information Form filed on SEDAR (www.sedar.com).
SECTION V – CRITICAL ACCOUNTING POLICIES
CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES
Preparing the condensed consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosures of contingent
liabilities. Management bases its judgments and estimates on historical experience and other factors it believes to be
reasonable under the circumstances, but that 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 amounts of the asset or liability affected.
Dream Global REIT’s critical accounting judgments, estimates and assumptions in applying accounting policies are described in
Note 4 to the condensed consolidated financial statements and also in our annual consolidated financial statements for the
year ended December 31, 2015.
CHANGES IN ACCOUNTING ESTIMATES AND CHANGES IN ACCOUNTING POLICIES
Accounting policy changes
Dream Global REIT’s future accounting policy changes are described in Note 3 to the condensed consolidated financial
statements.
Additional information relating to Dream Global REIT, including our Annual Information Form dated March 24, 2016, is
available on SEDAR at www.sedar.com.
Condensed consolidated balance sheets
(unaudited)
(in thousands of Canadian dollars)
Assets
NON-CURRENT ASSETS
Notes receivable
Deferred income tax asset
6
7
20
11
19
8
CURRENT ASSETS
Amounts receivable
Prepaid expenses
Cash
$
9, 20
Total assets
16
$
Liabilities
NON-CURRENT LIABILITIES
Debt
Deposits
Deferred income tax
10
$
11
12
19
CURRENT LIABILITIES
Debt
Income tax payable
10
13, 20
11
14
Total liabilities
Equity
Unitholders’ equity
Retained earnings
Accumulated other comprehensive income
Total unitholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
16
20
15
$
See accompanying notes to the condensed consolidated financial statements.
On Behalf of the Board of Trustees of Dream Global Real Estate Investment Trust:
MICHAEL J. COOPER
Trustee
March 31,
2016
Note
P. JANE GAVAN
Trustee
2,416,869
272,476
6,509
6,947
4,106
2,861
2,709,768
11,640
3,657
25,286
40,583
33,893
2,784,244
1,333,804
2,509
—
15,915
22,006
1,374,234
December 31,
2015
$
$
$
2,392,281
272,720
6,621
4,377
3,788
2,723
2,682,510
15,706
4,430
28,700
48,836
32,855
2,764,201
1,324,889
2,395
6,295
14,150
20,644
1,368,373
89,257
30,489
2,197
2,938
7,565
132,446
679
1,507,359
56,003
35,613
1,976
5,022
7,535
106,149
521
1,475,043
1,109,096
54,753
103,712
1,267,561
9,324
1,276,885
2,784,244
1,105,485
45,555
128,810
1,279,850
9,308
1,289,158
2,764,201
$
Condensed consolidated statements of net income and comprehensive income
(unaudited)
Note
Net rental income
Other income
Other expenses
Interest expense
2016
$
7
20
17
Fair value adjustments, gain (loss) on sale of investment properties and
other activities
Fair value adjustments to financial instruments
Net income
6, 16
18
10
6
19
$
Total net income for the period attributable to:
Net income
$
20
Foreign currency translation adjustments for the period attributable to:
Other operations
$
2015
$
51,458
(17,573)
33,885
2,136
5,502
7,638
1,014
10,931
11,945
(1,576)
(4,928)
(40)
(11,544)
(18,088)
(1,450)
(4,049)
(30)
(9,834)
(15,363)
3,105
7,581
(864)
(93)
(624)
9,105
33,527
(345)
(999)
(1,344)
32,183
7,740
7,688
(542)
—
976
15,862
46,329
(185)
(2,774)
(2,959)
43,370
31,980
203
32,183
$
$
(21,008)
(4,090)
(25,098)
(196)
(25,294)
Comprehensive income (loss) for the period attributable to:
51,726
(16,854)
34,872
6,882
7
6,889
43,234
136
43,370
(32,753)
(4,634)
(37,387)
(231)
(37,618)
$
5,847
(95)
5,752
Condensed consolidated statements of changes in equity
Attributable to unitholders of the Trust
(unaudited)
(in thousands of Canadian dollars,
except number of Units)
Note
Balance at January 1, 2016
Distributions paid
Contribution from noncontrolling interest
Distribution Reinvestment Plan
Unit Purchase Plan
Issue costs
adjustment
Balance at March 31, 2016
14
14
15
15
15
Number
of Units
113,024,465 $
—
—
—
—
377,648
865
73,534
—
—
113,476,512 $
Unitholders’
equity
1,105,485 $
—
—
—
—
3,048
7
605
(49)
—
1,109,096 $
Accumulated
other
Retained comprehensive
earnings
income
45,555 $
31,980
(15,217)
(7,565)
128,810 $
—
—
—
—
—
—
—
—
—
54,753 $
—
—
—
—
—
(25,098)
103,712 $
Total
unitholders’
equity
1,279,850 $
31,980
(15,217)
(7,565)
—
3,048
7
605
(49)
(25,098)
1,267,561 $
Noncontrolling
interest
9,308 $
203
—
—
9
—
—
—
—
(196)
9,324 $
Total
1,289,158
32,183
(15,217)
(7,565)
9
3,048
7
605
(49)
(25,294)
1,276,885
Attributable to unitholders of the Trust
(unaudited)
(in thousands of Canadian dollars,
except number of Units)
Note
Balance at January 1, 2015
Distributions paid
Distribution Reinvestment Plan
Unit Purchase Plan
Issue costs
adjustment
Balance at March 31, 2015
14
14
15
15
15
Number
of Units
111,466,697 $
—
—
—
385,994
527
51,188
—
—
111,904,406 $
Unitholders’
equity
1,091,317 $
—
—
—
3,486
5
508
65
—
1,095,381 $
Accumulated
Retained
other
earnings comprehensive
(deficit)
income (loss)
(8,808) $
43,234
(15,022)
(7,461)
—
—
—
—
—
11,943 $
31,516 $
—
—
—
—
—
—
—
(37,387)
(5,871) $
Total
unitholders’
equity
1,114,025 $
43,234
(15,022)
(7,461)
3,486
5
508
65
Noncontrolling
interest
6,195 $
136
—
—
—
—
—
—
(37,387)
(231)
1,101,453 $
6,100 $
Total
1,120,220
43,370
(15,022)
(7,461)
3,486
5
508
65
(37,618)
1,107,553
Condensed consolidated statements of cash flows
(unaudited)
Note
Generated from (utilized in) operating activities
Non-cash items:
Amortization of fair value adjustment on acquired debt
Amortization of initial discount on convertible debentures
Deferred unit compensation expense and asset management fees
Straight-line rent adjustment
Fair value adjustments to financial instruments
Cash settlement on foreign exchange contracts
Cash settlement on interest rate swap
Generated from (utilized in) investing activities
Investment in building improvements
Acquisition of investment properties
Net proceeds from sale of interest to POBA
Cash sold to the POBA joint venture
Net proceeds from disposal of investment properties
Distributions from investment in joint ventures
2016
$
7
12
18
11
6
21
6, 16
5
Generated from (utilized in) financing activities
Mortgage proceeds
Financing costs on debts placed
Mortgage principal repayments
Term loan repayment on property dispositions and amortization
Drawdown on revolving credit facility
Units issued for cash
Unit issue costs
Distributions paid on Units
6
7
10
15
14
Decrease in cash
Effect of exchange rate changes on cash
Cash, beginning of period
Cash, end of period
$
32,183
2015
$
43,370
(5,502)
999
658
1,534
—
311
624
40
993
(234)
(7,581)
(3,105)
(2,073)
—
(2,183)
(1,501)
15,163
(10,931)
2,774
512
774
(30)
287
(976)
30
930
(336)
(7,688)
(7,740)
(753)
(1,662)
(3,216)
(1,160)
14,185
(3,736)
(68,669)
—
(932)
—
9,394
2,710
(61,233)
(2,629)
(140,701)
16,094
—
(5,186)
20,357
1,627
(110,438)
38,992
(772)
(3,704)
(3,350)
31,632
7
(49)
(19,704)
43,052
(3,018)
(396)
28,700
25,286 $
107,393
(1,730)
(23,127)
(17,876)
—
5
65
(18,967)
45,763
(50,490)
(3,529)
121,939
67,920
Notes to the condensed consolidated financial statements
(All dollar amounts in thousands of Canadian dollars, except unit amounts)
Note 1
ORGANIZATION
Dream Global Real Estate Investment Trust (the “REIT” or the “Trust”) is an open-ended investment trust created pursuant to a
Declaration of Trust dated April 21, 2011, under the laws of the Province of Ontario, and is domiciled in Ontario. The
condensed consolidated financial statements of the REIT include the accounts of the REIT and its consolidated subsidiaries.
The REIT’s portfolio comprises office, industrial and mixed use properties located in Germany and Austria.
The principal office and centre of administration of the Trust is 30 Adelaide Street East, Suite 301, State Street Financial
Centre, Toronto, Ontario, Canada M5C 3H1. The Trust is listed on the Toronto Stock Exchange under the symbol DRG.UN. The
Trust’s condensed consolidated financial statements for the period ended March 31, 2016 were authorized for issue by the
Board of Trustees on May 4, 2016, after which date the condensed consolidated financial statements may only be amended
with Board approval.
Note 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These condensed consolidated financial statements have been prepared in accordance with International Accounting Standard
(“IAS”) 34, “Interim Financial Reporting” (“IAS 34”), as issued by the International Accounting Standards Board (“IASB”).
Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements
prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the IASB, have been omitted or
condensed. These condensed consolidated financial statements should be read in conjunction with the Trust’s annual
consolidated financial statements for the year ended December 31, 2015, which have been prepared in accordance with IFRS,
as issued by IASB.
Note 3
ACCOUNTING POLICIES SELECTED AND APPLIED FOR SIGNIFICANT TRANSACTIONS AND EVENTS AND FUTURE
CHANGES IN ACCOUNTING STANDARDS
Accounting policies
These condensed consolidated financial statements have been prepared using the same significant accounting policies and
methods as those used in the Trust’s annual consolidated financial statements for the year ended December 31, 2015.
Future accounting policy changes
Statement of cash flows
IAS 7, “Statement of cash flows” (“IAS 7”), has been amended by the IASB to introduce additional disclosure that will allow
users to understand changes in liabilities arising from financing activities. This amendment to IAS 7 is effective for annual
periods beginning on or after January 1, 2017. The Trust is currently evaluating the impact of adopting this standard on the
consolidated financial statements.
Note 4
CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES
The preparation of the condensed consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and
expenses. Actual results may differ from those estimates.
In preparing these condensed consolidated financial statements, the significant judgments made by management in applying
the Trust’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended December 31, 2015.
Note 5
PROPERTY ACQUISITIONS
Detailed below are the acquisitions completed during the three months ended March 31, 2016:
Property type
Office
Office
Interest
acquired
Purchase
price(1)
100 % $
100 %
Prior year acquisition cost adjustments
Total
$
45,080
24,434
69,514
14
69,528
Date acquired
February 3, 2016
February 29, 2016
(1) Includes transaction costs.
On February 3, 2016, the REIT acquired Friedrichstraße 45, 47, an office property located in Essen, Germany, for $45,080
(€29,456). The acquisition was partially financed by a new mortgage of $24,884 (€16,260).
On February 29, 2016, the REIT acquired Werner-Eckert-Str. 14, 16, 18, an office property located in Munich, Germany, for
$24,434 (€16,626). The acquisition was partially financed by a new mortgage of $14,108 (€9,600).
The assets acquired and liabilities assumed in the transaction were allocated as follows:
For the three
months ended
March 31,
2016
Total purchase price
(1)
$
$
69,528
69,528
$
68,669
859
69,528
The consideration paid consists of:
Cash
Transaction costs
Total consideration
$
(1) Includes transaction costs.
Note 6
INVESTMENT PROPERTIES
The REIT has determined that it has two asset classes of investment properties reflecting their distinct nature, characteristics
and risks.
Initial Properties
The Initial Properties consist of the properties that were acquired on August 3, 2011. These properties consist of national and
regional administration offices, mixed use retail and distribution properties and regional logistics headquarters of Deutsche
Post. The properties, which are dispersed throughout Germany, are generally strategically located near central train stations
and main retail areas and are easily accessible by public transportation.
The Acquisition Properties, which were acquired since the Trust’s Initial Public Offering in 2011, consist of high-quality office
buildings located in Germany’s largest office markets. The assets are generally larger, newer or recently refurbished buildings
in comparison to the Initial Properties. A 50% interest in eight Acquisition Properties was sold in Q4 2014 and Q1 2015. These
assets are jointly owned with the Public Officials Benefit Association (“POBA”), a South Korean pension fund. A 50% interest in
an Acquisition Property in Austria was acquired with a joint venture partner in Q4 2015. Refer to Note 7 for the details
regarding the jointly owned properties.
Note
Balance as at January 1, 2016
Purchase of investment properties:
Acquisition of properties
Total additions to investment properties
Disposal of investment properties:
Sales of investment properties
Transfers to disposal groups classified as assets held for sale
Total disposal of investment properties
Gains (losses) and amortization included in net income:
Change in fair value of investment properties
Total gains (losses) and amortization included in net income
Gains and losses included in other comprehensive income:
Foreign currency translation loss
Total losses included in other comprehensive income
Balance as at March 31, 2016
Changes in unrealized gains (losses) included in net income for the period
ended March 31, 2016:
$
2,392,281
5
$
1,631,525
(14)
(12,101)
(12,115)
(14)
(12,101)
(12,115)
3,690
(658)
3,032
(493)
(514)
(1,007)
4,183
(144)
4,039
(41,764)
(41,764)
2,416,869
$
(12,687)
(12,687)
737,748
$
(29,077)
(29,077)
1,679,121
$
(493)
$
$
3,690
2,079,671
$
237,019
14,375
8,332
259,726
16
16
69,528
1,507
1,599
72,634
—
—
—
Initial
Properties
Total
$
760,756
—
2,217
584
2,801
16
$
$
Acquisition
Properties
69,528
3,724
2,183
75,435
Note
Balance as at January 1, 2015
Purchase of investment properties:
Acquisition of properties
Total additions to investment properties
Disposal of investment properties:
Sales of investment properties
Transfers to disposal groups classified as assets held for sale – POBA
(1)
joint venture assets
Transfers to disposal groups classified as assets held for sale
Total disposal of investment properties
Gains (losses) and amortization included in net income:
Total gains (losses) and amortization included in net income
Gains and losses included in other comprehensive income:
Foreign currency translation gain
Total gains included in other comprehensive income
Balance as at December 31, 2015
Changes in unrealized gains (losses) included in net income for the year
ended December 31, 2015:
Initial
Properties
Total
795,362
4,183
Acquisition
Properties
$
—
9,130
6,119
15,249
1,284,309
237,019
5,245
2,213
244,477
(252)
(252)
(69,368)
(97,472)
(167,092)
—
(97,472)
(97,724)
(69,368)
—
(69,368)
69,497
(2,245)
67,252
(162)
(1,931)
(2,093)
69,659
(314)
69,345
$
152,724
152,724
2,392,281
$
$
69,497
$
49,962
49,962
760,756
(162)
—
$
102,762
102,762
1,631,525
$
69,659
(1) POBA joint venture refers to the Public Officials Benefit Association joint venture.
Straight-line rent receivable, composed of free rent and contractual rent increases accrued to rental revenue, of $2,632
(December 31, 2015 – $2,458) has been included in other non-current assets.
During the three months ended March 31, 2016, the balance of the investment properties increased by $24,588, mainly due
to acquisitions during the year totalling $69,528 (refer to Note 5 for details of the acquisitions) and an increase in fair value of
$3,690. The increase was partially offset by the reclassification to assets held for sale of $12,101 and an unrealized foreign
exchange loss of $41,764 due to the depreciation of the euro against the Canadian dollar since December 31, 2015.
During the three months ended March 31, 2016, $3,106 (December 31, 2015 – $7,458) of building improvements and tenant
improvements were capitalized to the carrying amount of the Acquisition Properties. The fair value of the Acquisition
Properties increased by a further $4,183 (December 31, 2015 – $69,659) in the quarter.
During the three months ended March 31, 2016, $2,801 (December 31, 2015 – $15,249) of building improvements and tenant
improvements were capitalized to the carrying amount of the Initial Properties.
During the three months ended March 31, 2016, the REIT disposed of six investment properties that were acquired in 2011 as
part of the Initial Properties, six of which were reclassified as assets held for sale as at December 31, 2015. Net proceeds of
$9,394 (December 31, 2015 – $104,838) were received on these sales and a loss on sale of $624 (December 31, 2015 –
$6,079) related to the transaction costs incurred was recorded. As at March 31, 2016, the REIT had entered into binding
purchase and sale agreements to sell 12 properties and committed to sell one additional property, totalling $33,431. These
properties have been reclassified as assets held for sale. In total, the REIT also recorded a fair value loss of $585 on these
properties. (Refer to Note 16 for details on the assets held for sale.)
Note 7
JOINT ARRANGEMENTS AND ASSOCIATES
The Trust participates in partnerships (“joint ventures”) with other parties that own investment properties and accounts for its
interests using the equity method.
As at March 31, 2016, the REIT has a total of eight Acquisition Properties under a co-ownership arrangement with POBA
(POBA joint venture) and one Acquisition Property under a similar co-ownership agreement with an Asian sovereign wealth
fund (Rivergate joint venture). Pursuant to these arrangements, the REIT does not have control of these property subsidiaries
and, as such, has classified its 50% interest in the entities as investment in joint ventures and accounted for the investment
using the equity method.
Effective January 1, 2016, a limited partnership (Dream Technology Ventures LP or “DTV LP”) was established by a wholly
owned subsidiary of DAM acting as general partner and DAM, Dream Office REIT, Dream Industrial REIT, Dream Global REIT,
Dream Alternatives as Limited Partners. Each of the limited partners, including Dream Global REIT, will fund DTV LP for costs
incurred relating to technology personnel and technology-related platforms and will license the technology through DTV LP.
The REIT accounted for this investment in associates using the equity method and it is included in investment in joint ventures.
The investment properties that the joint ventures hold are consistent in terms of the class and type of properties held in the
Trust’s portfolio.
Ownership interest (%)
Name
Location
POBA joint venture
Löwenkontor
Marsstrasse 20–22
Lorac Investment Management S.à r.l.
Berlin, Germany
Stuttgart, Germany
Frankfurt, Germany
Düsseldorf, Germany
Frankfurt, Germany
Hamburg, Germany
Munich, Germany
Stuttgart, Germany
Vienna, Austria
Luxembourg, Luxembourg
Toronto, Canada
March 31,
2016
December 31,
2015
50
50
50
50
50
50
50
50
50
50
10
50
50
50
50
50
50
50
50
50
50
n/a
Net assets at % ownership interest
March 31,
2016
Name
Löwenkontor
Marsstrasse 20–22
Investment in POBA joint venture
Total investment in joint ventures and associates
$
$
23,425
14,367
25,983
19,345
30,125
39,170
30,189
23,321
205,925
66,263
193
95
272,476
December 31,
2015
$
$
23,343
13,973
26,106
19,104
30,171
39,707
30,405
23,106
205,915
66,613
192
—
272,720
Share of net income at
% ownership interest for
three months ended March 31,
Name
2016
Löwenkontor
Marsstrasse 20–22
Share of net income from POBA joint venture
$
$
608
754
588
479
396
328
633
753
4,539
987
5
(29)
5,502
2015
$
$
2,042
159
365
335
315
3,784
2,245
1,681
10,926
—
5
—
10,931
As part of the arrangement with POBA, the REIT has extended a loan facility to POBA to fund POBA’s share of the loan
amortization payments over the term of the outstanding mortgages assumed on the eight properties. As at March 31, 2016,
the loan amounted to $1,421. During the three months ended March 31, 2016, the REIT recorded fee income relating to the
POBA joint venture of $1,135 (three months ended March 31, 2015 – $663), which is included in interest and other income.
The following amounts represent 100% as well as the Trust’s respective share of the assets, liabilities, revenues, expenses and
cash flows in the equity accounted investments in which the Trust participates.
POBA joint venture at 100%
March 31,
2016
Non-current assets
$
Current assets
Amounts receivable
Prepaid expenses
Cash
Total assets
Non-current liabilities
Debt
Deposits
Deferred income tax payable
Current liabilities
Debt
Income tax (receivable) payable
Total liabilities
Net assets
Fair value remeasurement on the retained interest
Investment in POBA joint venture
Net rental income
Other income
Interest income and other income
$
741,428
2,416
743,844
$
750,126
2,524
752,650
March 31,
2016
$
Fair value adjustments to investment properties and other
activities
$
$
375,063
1,262
376,325
1,830
96
5,514
7,440
760,090
2,105
43
2,245
4,393
376,315
915
48
2,757
3,720
380,045
365,702
386
14,372
380,460
373,494
392
13,716
387,602
182,851
193
7,186
190,230
186,747
196
6,858
193,801
6,610
9,060
(14)
15,656
396,116
356,514
6,686
9,330
(22)
15,994
403,596
356,494
3,305
4,530
(7)
7,828
198,058
178,257
27,668
205,925
3,343
4,665
(11)
7,997
201,798
178,247
27,668
205,915
$
$
$
$
2016
2015
2016
2015
12,004
(2,206)
9,798
$
860
860
Other expenses
Interest expense
370,714
1,208
371,922
December 31,
2015
4,210
86
4,490
8,786
752,630
$
$
Foreign currency translation adjustments for the period
December 31,
2015
10,904
(2,078)
8,826
$
110
110
6,002
(1,103)
4,899
$
430
430
5,452
(1,039)
4,413
55
55
(1,514)
(2,512)
(4,026)
(1,238)
(2,348)
(3,586)
(757)
(1,256)
(2,013)
(619)
(1,174)
(1,793)
3,330
3,330
9,962
2
(886)
9,078
(6,096)
2,982
16,418
16,418
21,768
84
—
21,852
(9,258)
12,594
1,665
1,665
4,981
1
(443)
4,539
(3,048)
1,491
8,209
8,209
10,884
42
—
10,926
(4,629)
6,297
$
$
$
Cash flow generated from (utilized in):
Operating activities
Investing activities
Financing activities (excluding owners’ distributions)
Cash flow before owners’ distributions
Joint ventures’ distributions to owners
Increase (decrease) in cash
$
$
2016
2015
2016
2015
4,340
(480)
(1,676)
2,184
(3,208)
(1,024)
$
404
5,620
(1,586)
4,438
(3,254)
1,184
$
$
$
Rivergate joint venture at 100%
March 31,
2016
Non-current assets
$
Current assets
Amounts receivable
Cash
Total assets
Debt
Deferred income tax payable
Current liabilities
Total liabilities
Net assets
Carrying costs attributable to joint venture
Investment in Rivergate joint venture
$
279,238
10
279,248
284,048
—
284,048
$
$
202
2,810
(793)
2,219
(1,627)
592
Rivergate joint venture at 50%
December 31,
2015
$
2,170
(240)
(838)
1,092
(1,604)
(512)
March 31,
2016
$
139,619
5
139,624
December 31,
2015
$
142,024
—
142,024
3,784
2,056
5,840
285,088
1,292
3,692
4,984
289,032
1,892
1,028
2,920
142,544
646
1,846
2,492
144,516
151,476
350
151,826
153,970
38
154,008
75,738
175
75,913
76,985
19
77,004
6,108
6,108
157,934
127,154
5,554
5,554
159,562
129,470
3,054
3,054
78,967
63,577
2,686
66,263
2,777
2,777
79,781
64,735
1,878
66,613
$
$
$
$
$
Rivergate joint venture March 31, 2016
At 100%
Net rental income
Other income
Interest income and other income
$
Other expenses
Interest expense
Foreign currency translation adjustments for the period
$
$
4,254
(720)
3,534
At 50%
$
2,127
(360)
1,767
38
38
19
19
(318)
(748)
(1,066)
(159)
(374)
(533)
(222)
(222)
2,284
(310)
1,974
(598)
1,376
(111)
(111)
1,142
(155)
987
(299)
688
$
$
Rivergate joint venture March 31, 2016
At 100%
At 50%
Cash flow generated from:
Operating activities
Cash flow before owners’ distributions
Joint ventures’ distributions to owners
Decrease in cash
$
$
576
576
(2,212)
(1,636)
$
$
288
288
(1,106)
(818)
Note 8
OTHER NON-CURRENT ASSETS
March 31,
2016
Other assets
Fixtures and computer equipment
Straight-line rent receivable
Total
$
$
37
192
2,632
2,861
December 31,
2015
$
$
37
228
2,458
2,723
Note 9
AMOUNTS RECEIVABLE
March 31,
2016
Trade receivables
Less: Provision for impairment of trade receivables
Trade receivables, net
Other amounts receivable
Total
$
$
4,493
(2,024)
2,469
9,171
11,640
December 31,
2015
$
$
9,966
(2,127)
7,839
7,867
15,706
The movement in the provision for impairment of trade receivables for the three months ended March 31, 2016 was as
follows:
2016
As at January 1
Provision for impairment of trade receivables
$
Receivables written off during the period as uncollectible
Total
$
2,127
177
2,304
(280)
2,024
2015
$
$
1,165
9
1,174
(43)
1,131
As at March 31, 2016, other amounts receivable include unbilled amounts from tenants in relation to operating cost
recoveries of $3,829 (December 31, 2015 – $3,623).
The carrying amount of amounts receivable approximates fair value due to their current nature. As at March 31, 2016, trade
receivables relates primarily to billed amounts to tenants for operating cost recoveries of approximately $2,469, of which $723
(December 31, 2015 – $4,419) were past due. These amounts are not considered impaired as the Trust has ongoing
relationships with these tenants and the aging of these trade receivables is not indicative of default.
Note 10
DEBT
March 31,
2016
Mortgage debt
(1)
Total
(1)
Less: Current portion
Non-current debt
$
$
861,219
155,132
60,134
346,576
1,423,061
89,257
1,333,804
December 31,
2015
$
$
841,101
154,558
29,908
355,325
1,380,892
56,003
1,324,889
(1) The current portion of debt includes $14,124 of the term loan credit facility associated with the assets held for sale. This balance will be paid from the
proceeds from disposition when the respective asset sales close.
First-ranking mortgages on all of the investment properties have been provided as security for either the mortgage debt or the
term loan credit facility.
Mortgage debt
On February 3, 2016, the Trust drew on a mortgage with a principal balance of $24,884 (€16,260) at a fixed rate of 1.62% per
annum, maturing on January 31, 2026, in connection with the acquisition of Friedrichstraße 45, 47, in Essen. The mortgage
requires quarterly repayments with a principal amortization of 1.50% per annum of the initial loan amount.
On February 29, 2016, the Trust drew on a mortgage with a principal balance of $14,108 (€9,600) at a fixed rate of 1.07% per
annum, maturing on February 28, 2023, in connection with the acquisition of Werner-Eckert-Str. 14, 16, 18, in Munich. The
mortgage requires quarterly repayments with a principal amortization of 1.25% per annum of the initial loan amount.
On August 3, 2011, the Trust issued a $140,000 principal amount of convertible unsecured subordinated debentures (the
“Debentures”). On August 29, 2011, the Trust issued an additional $21,000 principal amount of Debentures. The Debentures
bear interest at 5.5% per annum, payable semi-annually on July 31 and January 31 each year, and mature on July 31, 2018.
Each Debenture is convertible at any time by the debenture holder into 76.9231 Units per one thousand dollars of face value,
representing a conversion price of $13.00 per REIT Unit. On or after August 31, 2014, and prior to August 31, 2016, the
Debentures may be redeemed by the Trust, in whole or in part, at a price equal to the principal amount plus accrued and
unpaid interest on not more than 60 days’ and not less than 30 days’ prior written notice, provided the weighted average
trading price for the Trust’s Units for the 20 consecutive trading days, ending on the fifth trading day immediately preceding
the date on which notice of redemption is given, is not less than 125% of the conversion price. On or after August 31, 2016,
and prior to July 31, 2018, the maturity date, the Debentures may be redeemed by the Trust at a price equal to the principal
amount plus accrued and unpaid interest. The Debentures were initially recorded on the consolidated balance sheets as debt
of $152,894 less costs of $6,931. In addition, the Trust allocated $8,106 to the conversion feature on initial recognition, which
was deducted from the principal balance and will be accreted to the principal amount of the Debenture over its term. As at
March 31, 2016, the outstanding principal amount was $161,000 (December 31, 2015 – $161,000).
On December 14, 2015, the Trust fully refinanced the then term loan credit facility in the amount of $316,352 (€208,965), by a
new term loan credit facility (the “New Facility”) for gross proceeds of $369,543 (€244,100). The New Facility has a term of
five years and there are no principal amortization payments required during the term. Variable rate interest is calculated and
payable quarterly under the New Facility at a rate equal to the aggregate of the three-month EURIBOR plus a margin of
225 basis points (the “margin”). Pursuant to the requirements of the New Facility, the Trust purchased interest rate caps with a
weighted average strike rate of 1.03% (excluding the margin) to cover 95% of the New Facility loan amount. Transaction costs
relating to the New Facility were $11,618 (€7,674).
The New Facility includes covenants requiring the Trust to maintain certain loan-to-value and debt service coverage ratios,
each of which are calculated on a quarterly basis. The New Facility agreement requires the debt service coverage ratio to be
equal to or above 235% at each interest payment date and the loan-to-value ratio not to exceed 60%. As at March 31, 2016,
the Trust was in compliance with its loan covenants.
There are no prepayment fees on property disposals for up to 25% of the portfolio value within the first two years of the loan
and up to 40% of the portfolio value during the term of the loan. On property disposals, 110% of the loan amount allocated to
the disposed property has to be repaid. Prepayment amounts exceeding the established thresholds for property disposals
within the first two years of the loan are subject to a prepayment fee equal to a yield maintenance fee. Commencing in year
three, a prepayment fee of 2.0% is payable, which subsequently drops to 1.5% in year four, and no prepayment fee is payable
in the final year of the New Facility. As of March 31, 2016, the Trust is in compliance with the terms of the New Facility.
During the three months ended March 31, 2016, the REIT repaid $3,350 (€2,275) in connection with the disposition of six
properties in accordance with the terms of the New Facility. At the same time, the REIT also wrote off the unamortized
deferred financing costs associated with the debt and recorded them as debt settlement costs. For the three months ended
March 31, 2016, the amount charged was $93.
On October 10, 2013, the REIT entered into an agreement with a Canadian bank to provide a revolving credit facility not to
exceed €25,000. The REIT increased the revolving credit facility to €50,000 on August 14, 2014, increased it to €75,000
subsequently on April 1, 2015, and further increased it to €100,000 on November 20, 2015, with no change to the covenants
or interest rate spreads and the term has been extended to September 25, 2017. The REIT has provided a general security
agreement as collateral for the revolving credit facility. The interest rate on any Canadian dollar advances is prime plus
200 basis points and/or bankers’ acceptance rates plus 300 basis points. For euro advances, the rate is 300 basis points over
the three-month EURIBOR rate. Total financing costs incurred amounted to $1,276 as at March 31, 2016. The revolving credit
facility agreement requires the Trust to maintain: a debt-to-book value rating not to exceed 0.6:1; a minimum interest
coverage ratio of 2:1; and a minimum net worth of $700,000. As at March 31, 2016, the outstanding balance of the credit
facility was $60,134 (€40,700) and the Trust was in compliance with the covenants of the revolving credit facility. As at
March 31, 2016, the Trust had an undrawn letter of credit in the amount of $1,773 committed against the revolving
credit facility.
The weighted average interest rates for the fixed and floating components of debt are as follows:
Fixed rate
Mortgage debt
Total fixed rate debt
Variable rate
(1)
Mortgage debt
(1)
Total variable rate debt
Total debt
Face interest rates
Weighted average
effective interest rate
March 31, December 31,
2016
2015
March 31, December 31,
2016
2015
Debt amount
Maturity
dates
2.14 %
5.50 %
2.67 %
2.17 %
5.50 %
2.71 %
2.44 %
7.31 %
3.21 %
2.47 %
7.31 %
3.25 %
2017–2026
2018
0.95 %
3.00 %
2.25 %
2.24 %
2.54 %
0.95 %
3.00 %
2.25 %
2.18 %
2.55 %
1.17 %
3.00 %
3.01 %
2.85 %
3.10 %
1.17 %
3.00 %
3.01 %
2.84 %
3.13 %
2022
2016
2020
March 31,
2016
$
$
December 31,
2015
822,721 $
155,132
977,853
801,834
154,558
956,392
38,498
60,134
346,576
445,208
1,423,061 $
39,267
29,908
355,325
424,500
1,380,892
(1) Subject to interest rate cap.
The scheduled principal repayments and debt maturities are as follows:
Mortgages
Remainder of 2016
2017
2018
2019
2020
2021 and thereafter
$
$
11,391
70,467
156,496
42,806
115,862
474,429
871,451
Convertible
debentures
Term loan
$
$
14,124
—
—
—
343,172
—
357,296
$
$
—
—
161,000
—
—
—
161,000
Revolving
credit facility
$
60,134
—
—
—
—
—
60,134
$
Total
$
Acquisition date fair value adjustments
Transaction costs
$
85,649
70,467
317,496
42,806
459,034
474,429
1,449,881
(3,216)
(23,604)
1,423,061
Interest rate derivatives
The following table provides details on the interest rate derivatives outstanding as at March 31, 2016:
Hedging item
Interest rate cap
Total
$
$
Notional
Rate
Maturity
381,600
381,600
1.03 %
2020–2022
Carrying value
$
$
2,162
2,162
Note 11
DERIVATIVE FINANCIAL INSTRUMENTS
March 31,
2016
Interest rate caps (Note 22)
Foreign exchange forward contracts (Note 22)
Conversion feature on the convertible debentures (Note 22)
Total
$
$
(2,162)
2,676
(4,523)
(4,009)
December 31,
2015
$
$
(4,377)
11,284
33
6,940
March 31,
2016
Non-current assets
Interest rate cap
Foreign exchange forward contracts
Conversion feature on the convertible debentures
Total derivative assets
Current liabilities
$
Total derivative liabilities
Total derivative financial instruments
$
(2,162)
(262)
(4,523)
(6,947)
December 31,
2015
$
(4,377)
—
—
(4,377)
2,938
2,938
5,022
5,022
—
—
—
2,938
(4,009)
6,262
33
6,295
11,317
6,940
$
The movement in the conversion feature on the convertible debentures was as follows:
For the three
months ended
March 31,
2016
$
Remeasurement of conversion feature
$
33
(4,556)
(4,523)
The movement in the interest rate caps was as follows:
For the three
months ended
March 31,
2016
Fair value change
$
$
(4,377)
2,133
82
(2,162)
The Trust has various currency forward contracts in place to sell euros for Canadian dollars for the next 45 months. The Trust
currently has foreign exchange forward contracts to sell €213,731 from April 2016 to December 2019 at an average exchange
rate of $1.498 per euro.
The movement in the foreign exchange forward contracts was as follows:
For the three
months ended
March 31,
2016
Loss on settlement
Fair value change
$
$
11,284
(2,073)
(6,535)
2,676
Note 12
DEFERRED UNIT INCENTIVE PLAN
The movement in the Deferred Unit Incentive Plan balance was as follows:
As at January 1, 2015
Compensation during the year
Asset management fees during the year
Issue of deferred units
Remeasurements of carrying value
As at December 31, 2015
Compensation during the period
Asset management fees during the period
Issue of deferred units
Remeasurements of carrying value
As at March 31, 2016
$
$
9,365
1,972
1,870
(577)
1,520
14,150
532
461
(605)
1,377
15,915
DAM elected to receive the first $3,500 of the base asset management fees payable on the Initial Properties acquired on
August 3, 2011 by way of deferred trust units under the Asset Management Agreement in each year for the first five years.
The deferred trust units granted to DAM vest annually over five years, commencing on the sixth anniversary date of the units
being granted.
On termination of the Asset Management Agreement, unvested trust units granted to DAM vest immediately.
Deferred units granted to DAM for payment of asset management fees are initially measured, and subsequently remeasured
at each reporting date, at fair value. The deferred units are considered to be restricted stock, and the fair value is estimated by
applying a discount to the market price of the corresponding Units. The discount is estimated based on a hypothetical put-call
option, valued using a Black Scholes option pricing model, which takes into consideration the volatility of the Canadian REIT
and the German real estate equity markets, the respective holding period of the deferred units, and the risk-free interest rate.
The fair value of the deferred units granted to DAM is most sensitive to changes in volatility and the relative weighting of the
put option and call option values.
The fair value of the deferred trust units is based on the market price of Dream Global REIT units and the application of an
appropriate discount rate to reflect the vesting period. The significant unobservable inputs used in determining the discount
include the following:
Risk-free rate
Expected volatility
For the three
months ended
March 31,
2016
For the year
ended
December 31,
2015
0.53%–1.27%
18.0%–33.0%
0.56%–1.10%
17.0%–36.0%
The volatility of the units is estimated based on comparable companies in both the German and Canadian real estate markets.
The discount rate used to value the deferred trust units is determined by weighting a put-and-call model calculated using the
Black Scholes option pricing model. A higher volatility or risk-free rate will decrease the value of the deferred trust units and
vice versa.
Fair value as at March 31, 2016
Units at March 31, 2016, closing price of $8.71 per unit
Discount rate of 17% per unit for units issued in 2011
$
$
16,651
(175)
(627)
(766)
(1,034)
(1,059)
(624)
12,366
Fair value as at December 31, 2015
Units at December 31, 2015, closing price of $8.66 per unit
$
$
15,522
(195)
(654)
(866)
(1,186)
(2,103)
10,518
During the three months ended March 31, 2016, $461 of asset management fees were recorded (March 31, 2015 – $481)
based on the fair value of the deferred units issued, with an appropriate discount to reflect the restricted period of exercise,
and are included in general and administrative expenses. The fees were settled by the grant of 95,646 deferred trust units
during the period (March 31, 2015 – 83,349) and 23,725 deferred trust units granted on April 1, 2016 (April 1, 2015 – 24,478).
As at April 1, 2016, 1,887,990 unvested deferred trust units and income deferred units (April 1, 2015 – 1,472,486) were
outstanding with respect to the asset management fee. Compensation expense of $532 for the year (March 31, 2015 – $449)
was also included in general and administrative expenses.
On February 17, 2016, 120,900 deferred trust units were granted to senior management and trustees. Of the 120,900 units
granted, 85,000 relate to trustees and key management personnel. The grant date value for the deferred trust units was $7.97.
On March 31, 2016, 7,270 deferred trust units were granted to trustees who elected to receive their 2016 annual retainer in
the form of deferred units rather than cash. The grant date value for the deferred trust units was $8.63.
Note 13
AMOUNTS PAYABLE AND ACCRUED LIABILITIES
March 31,
2016
Trade payables
Accrued liabilities and other payables
Accrued interest
Total
$
$
1,977
26,472
2,040
30,489
December 31,
2015
$
$
4,199
26,568
4,846
35,613
Note 14
DISTRIBUTIONS
The following table breaks down distribution payments for the three months ended March 31:
2016
Paid in cash
Paid by way of reinvestment in Units
Less: Payable at January 1
Plus: Payable at March 31
Total
$
$
19,704
3,048
(7,535)
7,565
22,782
2015
$
$
18,967
3,486
(7,431)
7,461
22,483
The distribution for the month of March 2016 in the amount of $0.0667 per unit, declared on March 18, 2016 and payable on
April 15, 2016, amounted to $7,565. The amount payable as at March 31, 2016 was satisfied on April 15, 2016 by $6,614 cash
and $951 through the issuance of 105,523 Units. The distribution for the month of April 2016 was declared in the amount of
$0.0667 per unit, payable on May 15, 2016.
The Trust declared distributions of $0.0667 per unit per month for the months of January 2016 to March 2016.
Note 15
EQUITY
March 31, 2016
Number of Units
Total
113,476,512
$
December 31, 2015
Amount
Number of Units
1,276,885
113,024,465
Amount
$
1,289,158
REIT Units
The REIT is authorized to issue an unlimited number of Units and an unlimited number of Special Trust Units. The Special Trust
Units may only be issued to holders of Exchangeable Notes.
Distribution Reinvestment and Unit Purchase Plan
The Distribution Reinvestment Plan (“DRIP”) allows holders of Units, other than unitholders who are resident of or present in
the United States of America, to elect to have all cash distributions from the REIT reinvested in additional Units. Unitholders
who participate in the DRIP receive an additional distribution of Units equal to 4% of each cash distribution that was
reinvested. The price per unit is calculated by reference to a five-day weighted average closing price of the Units on the
Toronto Stock Exchange preceding the relevant distribution date, which is typically on or about the 15th day of the month
following the declaration. For the three months ended March 31, 2016, 377,648 Units were issued pursuant to the DRIP for
$3,048 (March 31, 2015 – 385,994 Units for $3,486).
The Unit Purchase Plan feature of the DRIP facilitates the purchase of additional Units by existing unitholders. Participation in
the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional Units that may be
acquired. The price per unit is calculated in a similar manner to the DRIP. No commission, service charges or brokerage fees
are payable by participants in connection with either the reinvestment or purchase features of the DRIP. For the three months
ended March 31, 2016, 865 Units were issued under the Unit Purchase Plan for $7 (March 31, 2015 – 527 Units for $5).
The Deferred Unit Incentive Plan (“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, each deferred trust unit
and the related distribution of income deferred trust units vests evenly over a three- or five-year period on the anniversary
date of the grant except for certain deferred trust units granted to DAM under the Asset Management Agreement. Subject to
an election option available for certain participants to postpone receipt of Units, such Units will be issued immediately on
vesting. On May 6, 2015, the unitholders of the Trust approved the increase of the number of deferred units that may be
granted or credited under the plan by a further 1,626,000 units, increasing the maximum issuable under the DUIP to
3,700,000 deferred trust units. As at March 31, 2016, 2,842,316 deferred trust units were granted.
For the three months ended March 31, 2016, 73,534 Units were issued to trustees, officers and employees pursuant to the
DUIP for $605 (March 31, 2015 – 51,188 Units for $508).
Note 16
ASSETS HELD FOR SALE
As at March 31, 2016, the Trust classified 13 properties as held for sale. Management has committed to a plan of sale, and
therefore the properties have been reclassified as assets held for sale.
March 31,
2016
Prepaid expenses and other assets
Net assets
$
$
33,431
11
451
33,893
(679)
(679)
33,214
December 31,
2015
$
$
32,543
6
306
32,855
(521)
(521)
32,334
Investment properties held for sale
For the three
months ended
March 31,
2016
Investment properties reclassified as held for sale
Investment properties reclassified as held for sale – POBA joint venture assets
Dispositions
Dispositions – POBA joint venture assets
$
$
32,543
12
12,101
—
(585)
(10,004)
—
(636)
33,431
For the year
ended
December 31,
2015
$
$
42,897
50
97,472
69,368
(1,061)
(110,665)
(69,368)
3,850
32,543
Note 17
INTEREST EXPENSE
Interest on debt
Interest on debt incurred and charged to comprehensive income is recorded as follows:
2016
Interest on term loan credit facility
Interest on convertible debentures
Interest on mortgage debt
Interest and stand-by fees on revolving credit facility
Amortization of financing costs, discounts and fair value adjustments on acquired debt
Interest other
Interest expense
$
$
2,098
2,218
4,624
718
1,845
41
11,544
2015
$
$
2,265
2,190
4,121
209
1,031
18
9,834
Note 18
FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS
Note
Fair value loss on interest rate swaps and caps
Fair value gain on conversion feature of convertible debentures
Fair value loss on Deferred Unit Incentive Plan
Fair value gain on foreign exchange forward contracts
Fair value gain adjustment to financial instruments
11
11
12
11
2016
$
(2,133)
4,556
(1,377)
6,535
7,581
$
2015
$
$
(292)
4,323
(2,253)
5,910
7,688
Note 19
INCOME TAXES
Reconciliation of tax expense
2016
Income attributable to shareholders of subsidiaries
Income before income taxes attributable to unitholders of the Trust
Tax calculated at the German corporate tax rate of 15.825%
Increase (decrease) resulting from:
Income related to equity accounted investments
Effect of different tax rates in countries in which the group operates
Income distributed and taxable to unitholders
Tax benefits (costs) not previously recognized
Impact from sale of assets
Taxes not based on profit – Minimum Taxes
Foreign exchange adjustment and other items
$
$
33,527
(203)
33,324
5,274
(579)
(153)
(2,838)
(30)
—
58
(388)
1,344
2015
$
$
46,329
(136)
46,193
7,310
(1,472)
(30)
(2,830)
(266)
390
—
(143)
2,959
German deferred income tax assets (liabilities) consist of the following:
March 31,
2016
Deferred tax liability related to difference in tax and book basis of investment properties
Deferred tax asset (liability) related to difference in tax and book basis of financial instruments
Deferred tax asset related to tax loss carry-forwards
Deferred tax liability related to differences in tax and book basis of financing costs
Deferred tax liability related to investment in joint venture
Total deferred income tax liabilities
$
$
(44,969)
258
23,841
(1,091)
(45)
(22,006)
December 31,
2015
$
$
(42,158)
(45)
22,713
(1,108)
(46)
(20,644)
Austrian and Luxembourg deferred income tax assets consist of the following:
March 31,
2016
Deferred tax asset related to tax loss carry-forwards for Austria
Deferred tax asset related to tax loss carry-forwards for Luxembourg
Total deferred income tax assets
$
$
181
3,925
4,106
December 31,
2015
$
$
61
3,727
3,788
Note 20
RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
Deferred units granted to DAM for payment of asset management fees are included in general and administrative expenses
during the year as they relate to services provided during the year, and the units and fees are initially measured by applying a
discount to the fair value of the corresponding Units. The discount is estimated by applying the Black Scholes option pricing
model, taking into consideration the volatility of the Canadian REIT equity market and the German real estate industry. Once
recognized, the liability is remeasured at each reporting date at a discount to the fair values of the corresponding Units, with
the change being recognized in comprehensive income as a fair value adjustment to financial instruments.
2016
Incurred under the Asset Management Agreement:
Asset management fees in deferred units (included in general and administrative expenses)
Asset management fees in cash (included in general and administrative expenses)
Asset acquisition fees (capitalized as acquisition costs and then written off
on remeasurement of investment properties)
Financing fees (included in debt/unitholders’ equity)
Reimbursement for out-of-pocket and incidental costs (included in general and
administrative expenses)
Total incurred under the Asset Management Agreement
$
461
1,909
2015
$
323
71
$
224
2,988
481
1,536
681
91
$
152
2,941
As at March 31, 2016, the Trust has recorded $3,849 (December 31, 2015 – $3,794) in amounts payable and $338
(December 31, 2015 – $117) in amounts receivable related to the Asset Management Agreement with DAM.
Shared Services and Cost Sharing Agreement
The Trust entered into a Shared Services and Cost Sharing Agreement with DAM on December 1, 2013. The agreement was for
a one-year term and will be automatically renewed for further one-year terms unless and until the agreement is terminated in
accordance with its terms or by mutual agreement of the parties. Pursuant to the agreement, DAM will be providing
additional administrative and support services in order to expand and improve DAM’s service capability in connection with the
provision of its asset management services. DAM will receive an annual fee sufficient to reimburse it for all the expenses
incurred in providing these additional administrative and support services. Additionally, the Trust will also reimburse DAM in
each calendar year for its share of costs incurred in connection with certain business transformation services provided by
DAM. As of January 1, 2016, the shared services agreements were amended such that future funding costs incurred in respect
of technology personnel and technology-related platforms cease subsequent to December 31, 2015. There were no other
material changes to the agreement.
Effective January 1, 2016, a limited partnership (Dream Technology Ventures LP or “DTV LP”) was established by a wholly
owned subsidiary of DAM acting as general partner and DAM, Dream Office REIT, Dream Industrial REIT, Dream Global REIT,
and Dream Alternatives as Limited Partners. Each of the limited partners, including Dream Global REIT, will fund DTV LP for
costs incurred relating to technology personnel and technology-related platforms and will license the technology through DTV
LP. The REIT accounted for this investment in an associate using the equity method, and it is included in investment in
joint venture.
2016
Incurred under the Shared Services and Cost Sharing Agreement:
Branding, process improvements and technology transformations (included in general
and administrative)
Total incurred under the Shared Services and Cost Sharing Agreement
$
$
75
75
2015
$
$
85
85
The Trust’s future commitment under the Shared Services and Cost Sharing Agreement over the remaining term to 2017
is $418.
Non-controlling interest and notes receivable
DAM has co-invested with the Trust in properties with their share of interest ranging from 0.26% to 5.2%. For the three
months ended March 31, 2016, the non-controlling interest and net income attributable to DAM amounted to $9,324
(December 31, 2015 – $9,308) and $203 (December 31, 2015 – $1,079), respectively. As part of the co-investing transactions,
the Trust provided interest-bearing loans to DAM for financing its equity interests, bearing interest at 8.5% per annum for a
10-year term. As at March 31, 2016, the notes receivable outstanding and interest accrued amounted to $6,509
(December 31, 2015 – $6,621) and $765 (December 31, 2015 – $636), respectively.
Note 21
SUPPLEMENTARY CASH FLOW INFORMATION
2016
Decrease in amounts receivable
Decrease in prepaid expenses and other assets
Decrease in amounts payable and accrued liabilities
Increase (decrease) in tenant deposits
$
$
4,178
577
(6,370)
114
(1,501)
2015
$
$
224
71
(1,339)
(116)
(1,160)
The following amounts were paid on account of interest:
2016
Debt
$
12,554
2015
$
10,987
Note 22
FINANCIAL INSTRUMENTS
Fair value measurements
The following tables summarize fair value measurements recognized in the consolidated balance sheets or disclosed in the
Trust’s consolidated financial statements by class of asset or liability and categorized by level according to the significance of
the inputs used in making the measurements.
Carrying value as at
Fair value as at March 31, 2016
March 31, 2016
Recurring measurements
Financial liabilities
Interest rate caps
Fair values disclosed
Convertible debenture excluding conversion feature
$
2,162
(2,676)
4,523
Level 1
$
(155,132)
—
—
—
Level 2
$
—
$
4,377
(11,284)
(33)
$
—
Carrying value as at
—
—
4,523
(166,489)
Fair value as at December 31, 2015
December 31, 2015
Recurring measurements
Financial liabilities
Interest rate caps
Fair values disclosed
Mortgage debt
Convertible debenture excluding conversion feature
2,162
(2,676)
—
Level 3
Level 1
$
(841,101)
(154,558)
—
—
—
—
—
Level 2
$
4,377
(11,284)
—
—
—
Level 3
$
—
—
(33)
(864,129)
(160,162)
Note 23
COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
Certain comparative balances have been reclassified from the consolidated financial statements previously presented to
conform to the presentation of the 2016 condensed consolidated financial statements.
Appendix
Address
Acquisition Properties:
Millerntorplatz 1
Im Mediapark 8 (Cologne Tower)
Handelskai 92 (Rivergate)
Karl-Martell-Straße 60
Feldmuhleplatz 1+15
Greifswalder Str. 154-156
Straßenbahnring 15, 17-19/Hoheluftchausee
18-20/Lehmweg 8, 8a, 7
Moskauer Str. 25-27
Robert-Bosch-Str. 9-11
Podbielskistraße 158-168
Cäcilienkloster 2, 6, 8, 10
Oasis III
Hammer Str. 30-34
Zimmerstrasse 56/Schützenstrasse 15-17
Schlossstr. 8
Leopoldstr. 252
Friedrichstr. 45-47/Am Europa Center 8-10
(Europa Center)
Liebknechtstraße 33/35, Heßbrühlstraße 7
(Officium)
Anger 81, Krämpferstraße 2, 4, 6 (Anger Entrée)
Beuthstraße 6-8/Seydelstraße 2-5 (Löwenkontor)
Westendstr. 160-162/Barthstr. 24-26
Bertoldstr. 48/Sedanstr. 7
Marsstraße 20-22
Am Sandtorkai 37 (Humboldthaus)
Reichskanzler-Müller-Str. 21-25
Am Stadtpark 2
Dillwächterstr. 5/Tübinger Str. 11
ABC-Str. 19 (ABC Bogen)
Speicherstr. 55 (Werfthaus)
Derendorfer Allee 4 (doubleU)
Werner-Eckert-Straße 8-12
Werner-Eckert-Straße 14, 16, 18
Neue Mainzer Str. 28 (K26)
Lörracher Str. 16/16a
Vordernbergstr. 6/Heilbronner Str. 35 (Z-Up)
Ownership
Owned GLA
(sq. ft.)
Occupancy
(%)
Hamburg
Nordrhein-Westfalen
Vienna
Bavaria
Nordrhein-Westfalen
Berlin
100%
95%
50%
100%
95%
100%
381,171
296,735
287,144
268,931
246,376
242,771
89.0%
97.7%
93.6%
100.0%
100.0%
99.2%
Hamburg
Düsseldorf
Darmstadt
Hannover
Köln
Stuttgart
Hamburg
Berlin
Hamburg
München
Hamburg
Nordrhein-Westfalen
Hessen
Niedersachsen
Nordrhein-Westfalen
Baden-Württemberg
Hamburg
Berlin
Hamburg
Bavaria
100%
100%
100%
100%
100%
100%
100%
95%
100%
100%
226,932
217,282
214,794
212,060
200,915
172,692
172,306
169,424
165,801
155,715
98.9%
91.3%
99.0%
96.3%
99.2%
86.8%
100.0%
98.6%
93.0%
98.9%
Essen
Nordrhein-Westfalen
100%
147,188
93.5%
Stuttgart
Erfurt
Berlin
München
Freiburg
München
Hamburg
Mannheim
Nürnberg
München
Hamburg
Frankfurt
Düsseldorf
München
München
Frankfurt
Freiburg
Stuttgart
Baden-Württemberg
Thüringen
Berlin
Bavaria
Baden-Württemberg
Bavaria
Hamburg
Baden-Württemberg
Bavaria
Bavaria
Hamburg
Hessen
Nordrhein-Westfalen
Bavaria
Bavaria
Hessen
Baden-Württemberg
Baden-Württemberg
50%
100%
50%
100%
100%
50%
100%
100%
100%
100%
50%
50%
50%
100%
100%
50%
100%
50%
134,736
131,056
129,179
123,837
121,553
115,400
113,391
100,613
94,649
81,714
79,244
75,914
71,114
64,772
63,895
61,765
57,606
44,266
93.5%
94.4%
98.5%
82.7%
100.0%
98.1%
67.5%
97.7%
95.2%
99.2%
99.7%
97.2%
97.2%
89.8%
95.6%
95.2%
96.5%
100.0%
5,442,942
95.3%
299,567
293,737
203,949
198,289
180,794
166,601
161,105
160,785
160,397
149,499
131,776
114,114
111,778
100.0%
30.3%
85.5%
77.5%
95.7%
100.0%
56.7%
92.7%
89.4%
57.4%
67.9%
96.1%
97.0%
City
State
Hamburg
Köln
Vienna
Nürnberg
Düsseldorf
Berlin
Total Acquisition Properties
Initial Properties:
Grüne Str. 6-8/Kurfürstenstr. 2
Am Hauptbahnhof 16-18
Kurfürstenallee 130
Poststr.4-6, Göbelstr.30, Bismarckstr.
Karlstal 1-21/Werftstr. 201
Franz-Zebisch-Str. 15
E.-Kamieth-Str. 2 b
Überseering 17/Mexikoring 22
Am Neumarkt 40/Luetkensallee 49
Bahnhofstr. 82-86
Czernyring 15
Marienstr. 80
Rüppurrer Str. 81, 87, 89/Ettlinger 67
Dortmund
Saarbrücken
Bremen
Darmstadt
Kiel
Weiden
Halle
Hamburg
Hamburg
Gießen
Heidelberg
Offenbach am Main
Karlsruhe
Nordrhein-Westfalen
Saarland
Bremen
Hessen
Schleswig-Holstein
Bavaria
Sachsen-Anhalt
Hamburg
Hamburg
Hessen
Baden-Württemberg
Hessen
Baden-Württemberg
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Address
City
State
Gerokstr. 14-20
Hindenburgstr. 9/Heeserstr. 5
Zimmermannstr. 2/Eisenstr.
Friedrich-Karl-Str. 1-7
Blücherstr. 12
Kaiserstr. 24
Pausaer Str. 1-3
Bahnhofsplatz 2, 3, 4, Pepperworth 7
Klubgartenstr. 10
Am Hauptbahnhof 2
Husemannstr. 1
Kapellenstr. 44
Kommandantenstr. 43-51
Stresemannstr. 15
Bahnhofsring 2
Kaiser-Karl-Ring 59-63/Dorotheenstr.
Bürgerreuther Str. 1
Bahnhofplatz 10
77er Str. 54
Wiener Str. 43
Bahnhofsplatz 1
Rathausplatz 2
Joachim-Campe-Str. 1.3/5/7, Posthof
Bahnhofstr. 40
Heinrich-von-Stephan-Str. 8-10
Am Bahnhof 5
Friedrich-Ebert-Str. 28
Postplatz 3
Ostbahnstr. 5
Poststr. 2 U 3
Poststr. 5-7
Bahnhofsplatz 9
Friedrich-Ebert-Str. 75-79
Baarstr. 5
Rathausplatz 4
Schützenstr. 17, 19
Willy-Brandt-Str. 6
Bahnhofstr. 2
Theodor-Heuss-Platz 13
Stembergstr. 27-29
Poststr. 14
Bahnhofplatz 3, 5
Poststr. 2
Lippertor 6
Südbrede 1-5
Bahnhofstr. 169
Vegesacker Heerstr. 111
Koblenzer Str. 67
Kardinal-Galen-Ring 84/86
Martinistr. 19
Kalkumer Str. 70
Falkenbergstr. 17-23
Balhornstr.15, 17/B. Köthenbürger-Str.
August-Bebel-Str. 6
Cavaillonstr. 2
Dresden
Siegen
Marburg
Oberhausen
Koblenz
Gütersloh
Plauen
Hildesheim
Goslar
Mülheim
Gelsenkirchen
Einbeck
Duisburg
Wuppertal
Leer
Bonn
Bayreuth
Fürth
Celle
Stuttgart
Schweinfurt
Wilhelmshaven
Salzgitter
Flensburg
Leverkusen
Zwickau
Pinneberg
Bautzen
Landau
Helmstedt
Heide
Emden
Bremerhaven
Iserlohn
Lüdenscheid
Peine
Auerbach
Cham
Neuss
Arnsberg
Rastatt
Heidenheim
Gummersbach
Lippstadt
Ahlen
Bietigheim-Bissingen
Bremen
Bonn
Rheine
Recklinghausen
Düsseldorf
Norderstedt
Paderborn
Torgau
Weinheim
Sachsen
Nordrhein-Westfalen
Hessen
Nordrhein-Westfalen
Rheinland-Pfalz
Nordrhein-Westfalen
Sachsen
Niedersachsen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Niedersachsen
Nordrhein-Westfalen
Bavaria
Bavaria
Niedersachsen
Baden-Württemberg
Bavaria
Niedersachsen
Niedersachsen
Schleswig-Holstein
Nordrhein-Westfalen
Sachsen
Schleswig-Holstein
Sachsen
Rheinland-Pfalz
Niedersachsen
Schleswig-Holstein
Niedersachsen
Bremen
Nordrhein-Westfalen
Nordrhein-Westfalen
Niedersachsen
Sachsen
Bavaria
Nordrhein-Westfalen
Nordrhein-Westfalen
Baden-Württemberg
Baden-Württemberg
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Baden-Württemberg
Bremen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Schleswig-Holstein
Nordrhein-Westfalen
Sachsen
Baden-Württemberg
Ownership
Owned GLA
(sq. ft.)
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
110,434
102,410
99,751
97,606
94,569
94,488
87,164
87,084
86,572
84,303
80,591
80,500
80,122
79,478
78,627
75,815
75,534
73,818
73,391
72,192
67,503
64,970
62,041
61,826
61,011
60,738
59,218
57,649
53,645
53,468
53,363
53,327
52,165
51,027
49,529
46,532
46,512
46,129
46,128
45,820
45,659
45,656
45,558
44,341
44,130
43,620
43,484
43,157
42,191
41,847
41,781
41,249
40,927
40,745
40,648
86.8%
77.5%
97.9%
93.7%
67.6%
61.5%
76.6%
51.9%
58.1%
81.1%
94.0%
68.3%
100.0%
59.9%
81.6%
99.8%
100.0%
75.4%
58.8%
91.8%
87.0%
97.2%
77.7%
87.2%
78.8%
66.9%
99.7%
77.3%
97.1%
20.3%
91.9%
97.9%
89.4%
85.7%
26.7%
48.8%
56.3%
61.5%
94.8%
98.8%
92.4%
86.0%
97.6%
93.4%
81.2%
98.3%
84.6%
100.0%
75.7%
97.3%
55.4%
98.1%
84.0%
86.5%
88.2%
Address
City
State
Hauptstr. 279/Hommelstr. 2
Bismarckstr. 21-23
Hindenburgstr. 8/Hohenstauf 9, 17, 19
Steinerother Str. 1 U 1a
Heinrich-von-Stephan-Platz 6
Mühlenstr. 5-7
Lönsstr. 20-22
Apostelweg 4-6
Brückenstr. 21
Kurt-Schumacher-Str. 5
Lilienstr. 3
Stadtring 3-5
Goethestr. 2-6
Gerstenstr. 5
Ölmühlweg 12
Worthingtonstr. 15
Palleskestr. 38
Hellersdorfer Str. 78
Zwieseler Str. 27-29
Markendorfer Str. 10
Bahnhofstr. 6/Luisenstr. 4-5
Tunnelweg 1
Bahnhofsplatz 2
Poststr. 24-26
Konrad-Adenauer-Str. 49-51
Feldschlößchenstr./Kunadstr. o. Nr.
Bahnhofstr. 29
Poststr. 12
Dr.-Friedrich-Uhde-Str. 18
Poststr. 1-3
Poststr. 48
Bahnhofstr. 2
Ruthenstr. 19/21
Wilhelmstr. 11/Kamperdickstr. 29
Kaiserstr. 140
Ludwigsplatz 1
In der Trift 10/12
Bahnhofstr. 6
Alleestr. 6
Uferstr. 2
Lindenstr. 11
Bahnhofsplatz 8
Poststr. 19-23
Brückenstr. 26
Lindenstr. 15
Innungsstr. 57-59
Wilhelmstr. 5
Geistmarkt 17
Martin-Pöhlmann-Str. 5/Friedrich-e
Steinstr. 6
Am Markt 4-5
Am Stadtpark 5
Saarbrücker Str. 292-294
Speckweg 24-26
Lübecker Str./Wedringer Str. o. Nr.
Idar-Oberstein
Bünde
Bocholt
Betzdorf
Naumburg
Delmenhorst
Castrop-Rauxel
Hamburg
Neunkirchen
Lünen
Leipzig
Nordhorn
Duisburg
Neubrandenburg
Königstein
Crailsheim
Frankfurt am Main
Berlin
Regen
Frankfurt an der Oder
Villingen-Schwenningen
Husum
Herborn
Ratingen
Tübingen
Dresden
Meppen
Lehrte
Einbeck
Korbach
St. Ingbert
Gifhorn
Hameln
Kamp-Lintfort
Radevormwald
Alsfeld
Olpe
Quakenbrück
Neustadt
Höxter
Bitterfeld
Marktredwitz
Hilden
Miltenberg
Landstuhl
Berlin
Ibbenbüren
Emmerich
Selb
Pulheim
Norden
Papenburg
Saarbrücken
Mannheim
Magdeburg
Rheinland-Pfalz
Nordrhein-Westfalen
Nordrhein-Westfalen
Rheinland-Pfalz
Sachsen-Anhalt
Niedersachsen
Nordrhein-Westfalen
Hamburg
Saarland
Nordrhein-Westfalen
Sachsen
Niedersachsen
Nordrhein-Westfalen
Mecklenburg-Vorpommern
Hessen
Baden-Württemberg
Hessen
Berlin
Bavaria
Brandenburg
Baden-Württemberg
Schleswig-Holstein
Hessen
Nordrhein-Westfalen
Baden-Württemberg
Sachsen
Niedersachsen
Niedersachsen
Niedersachsen
Hessen
Saarland
Niedersachsen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Hessen
Nordrhein-Westfalen
Niedersachsen
Bavaria
Nordrhein-Westfalen
Sachsen-Anhalt
Bavaria
Nordrhein-Westfalen
Bavaria
Rheinland-Pfalz
Berlin
Nordrhein-Westfalen
Nordrhein-Westfalen
Bavaria
Nordrhein-Westfalen
Niedersachsen
Niedersachsen
Saarland
Baden-Württemberg
Sachsen-Anhalt
Ownership
Owned GLA
(sq. ft.)
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
39,192
38,761
37,925
37,679
37,612
37,266
36,289
36,273
35,971
35,290
35,234
35,189
34,839
34,347
33,716
33,136
33,119
33,013
32,676
32,330
32,191
31,116
29,746
29,445
29,341
29,236
29,056
28,764
27,793
27,577
27,051
26,922
26,895
26,159
25,643
25,477
24,894
24,446
23,495
23,240
23,183
22,710
22,454
22,017
21,726
21,187
21,031
20,942
20,681
20,670
20,668
20,578
20,433
20,128
19,454
48.0%
95.6%
98.8%
94.9%
91.0%
99.3%
93.0%
97.3%
100.0%
100.0%
97.3%
80.5%
85.8%
100.0%
100.0%
100.0%
83.6%
76.0%
89.1%
97.5%
96.5%
88.7%
90.6%
100.0%
98.2%
100.0%
89.7%
97.6%
64.8%
99.8%
91.6%
92.9%
92.9%
93.9%
73.8%
32.6%
93.6%
97.1%
100.0%
79.3%
85.8%
95.1%
86.7%
88.9%
99.2%
100.0%
100.0%
100.0%
74.6%
100.0%
80.9%
16.8%
92.0%
89.8%
100.0%
Address
City
State
Ooser Karlstr. 21/23/25
Güterstr. 2-4
Poststr. 6
Bismarckstr. 12/Fr. Hoffmann-Str.
Lagerstr. 1
Bahnhofstr. 3
Bahnhofstr. 43
Friedrichstr. 2
Königstr. 20
Kornmarkt 15
Marktstr. 51
Übacher Weg 4
Niederwall 3
Hochstr. 31/Postgasse 5
Sattigstr. 33
Robert-Koch-Str. 3
Kaiserstr. 35
Bahnhofstr. 8-10
Poststr. 28
Bahnhofstr. 41
Melanchthonstr. 96
Hauptstr. 141
Herrlichkeit 7
Grenzstr. 24
Mercedesstr. 5
Münchner Str. 50
Schönbornstr. 1
Langener Landstr. 237-239
Löbauer Str. 63
Albert-Steiner-Str. 10
Fritz-Brandt-Str. 25
Dahmestr. 17
Bünder Str. 36
Poststr. 1
Gorsemannstr. 22
Bahnhofstr. 11
Gutachstr. 56
Unterstr. 14
Am Markt 4
Hauptstr. 40
Sandstr. 4
Langfuhren 9
De-Lenoncourt-Str. 2
Rosenstr. 1/Fünfhausenstr. 19/21
Melcherstätte 8
Baden-Baden
Bitburg
Beckum
Steinfurt
Meschede
Osterburken
Riesa
Monheim
Brilon
Osterode
Essen
Alsdorf
Lübbecke
Bochum
Görlitz
Laatzen
Minden
Borken
Hemer
Eberbach
Bretten
Rheda-Wiedenbrück
Syke
Halle
Hannover
Fürstenfeldbruck
Geisenheim
Bremerhaven
Bautzen
Herzogenrath
Zerbst
Mittenwalde
Löhne
Erftstadt
Bremen
Alpirsbach
Titisee-Neustadt
Bochum
St. Georgen
Porta Westfalica
Germersheim
Bad Säckingen
Dillingen
Springe
Stuhr
Baden-Württemberg
Rheinland-Pfalz
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Baden-Württemberg
Sachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Sachsen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Baden-Württemberg
Baden-Württemberg
Nordrhein-Westfalen
Niedersachsen
Sachsen-Anhalt
Niedersachsen
Bavaria
Hessen
Bremen
Sachsen
Nordrhein-Westfalen
Sachsen-Anhalt
Brandenburg
Nordrhein-Westfalen
Nordrhein-Westfalen
Bremen
Baden-Württemberg
Baden-Württemberg
Nordrhein-Westfalen
Baden-Württemberg
Nordrhein-Westfalen
Rheinland-Pfalz
Baden-Württemberg
Saarland
Niedersachsen
Niedersachsen
Total Portfolio
Ownership
Owned GLA
(sq. ft.)
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
19,444
19,340
18,831
18,800
18,683
18,498
18,275
18,156
17,733
17,690
17,661
16,991
16,563
16,359
16,279
16,126
16,043
15,893
15,782
15,634
15,501
15,178
14,560
14,533
14,504
13,326
13,117
12,803
12,686
12,667
12,654
12,631
12,625
12,498
12,379
12,112
10,813
10,732
10,324
10,315
10,132
9,717
8,995
8,881
8,196
92.9%
99.3%
100.0%
88.6%
100.0%
100.0%
89.8%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
78.6%
100.0%
98.7%
98.2%
100.0%
100.0%
90.2%
100.0%
94.3%
100.0%
100.0%
100.0%
90.2%
100.0%
100.0%
79.3%
95.8%
100.0%
100.0%
100.0%
100.0%
76.0%
100.0%
100.0%
100.0%
100.0%
100.0%
99.0%
100.0%
100.0%
100.0%
8,011,306
83.0%
13,454,248
88.0%
(this page intentionally left blank)
(this page intentionally left blank)
Corporate information
HEAD OFFICE
Dream Global
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
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
E-mail: [email protected]
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 6100
Toronto, Ontario M5X 1B8
INVESTOR RELATIONS
Phone: (416) 365-3538
Toll free: 1 (877) 365-3535
From Germany: 0 800 189-0344
E-mail: [email protected]
Website: www.dreamglobalreit.ca
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Listing symbols:
REIT Units: DRG.UN
5.5% Convertible Debentures: DRG.DB
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
DRIP, you may invest in additional units in
two ways:
Distribution reinvestment: Unitholders
will have cash distributions from Dream
Global REIT reinvested in additional units
as and when cash distributions are made.
Cash purchase: Unitholders may invest in
additional units by making cash purchases.
If you register in the DRIP you will also
receive a “bonus” distribution of units
equal to 4% 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, $1.04 worth of units will be
purchased.
Corporate Office
30 Adelaide Street East, Suite 301
Toronto, ON M5C 3H1
Phone: 416.365.3535
Fax: 416.365.6565
Email: [email protected]

2016 Q1 Report

Transcription

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