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Edited Transcript of DRG.UN.TO earnings conference call or presentation 9-Aug-19 12:00pm GMT

Q2 2019 Dream Global REIT Earnings Call

Toronto Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Dream Global REIT earnings conference call or presentation Friday, August 9, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Sannikov

Dream Global Real Estate Investment Trust - COO

* Bruce Traversy

Dream Global Real Estate Investment Trust - Head of Investment

* P. Jane Gavan

Dream Global Real Estate Investment Trust - President, CEO & Trustee

* Rajeev Viswanathan

Dream Global Real Estate Investment Trust - CFO

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Conference Call Participants

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* Matt Kornack

National Bank Financial, Inc., Research Division - Analyst

* Michael Markidis

Desjardins Securities Inc., Research Division - Real Estate Analyst

* Pammi Bir

RBC Capital Markets, LLC, Research Division - Analyst

* Sam Damiani

TD Securities Equity Research - Analyst

* Sumayya Hussain

CIBC Capital Markets, Research Division - Associate

* Todd A. Voigt

Ranger Global Real Estate Advisors, LLC - Portfolio Manager

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the Dream Global REIT Second Quarter 2019 Conference Call for Friday, August 9, 2019.

During this call, management of Dream Global REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Global REIT's control, that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Global REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Global REIT's website at www.dreamglobalreit.ca.

(Operator Instructions)

Your host for today will be Ms. Jane Gavan, President and CEO of Dream Global REIT. Ms. Gavan, please go ahead.

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [2]

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Thank you, operator. Good morning, everyone. Welcome to the Second Quarter Conference call for Dream Global REIT. With me today are Rajeev Viswanathan, our Chief Financial Officer; and Alex Sannikov, our Chief Operating Officer. We're going to make a few remarks, and then we'll open up the call for questions.

For the second quarter, we continued the positive momentum from the first quarter of 2019 with significant valuation gains, solid operating performance and continued balance sheet improvement. The REIT recorded strong fair value gains this quarter on the back of continued yield compression and rental growth in the REITs' core markets. The limited supply of institutional grade office product, along with the low interest rate environment, has continued to compress real estate yields in our core markets. In addition, low vacancy rates combined with moderate incoming supply of high-quality office product has continued to increase rental rates, the impact of which has continued to strengthen the performance of our business.

Year-over-year, the REIT delivered strong comparative property NOI results with growth of 3.4% on the back of increases in rental rates in our core/core+ assets, occupancy gains in the core/core+ and value-add assets as well as indexation and built-in escalations on existing leases. The continued market rental growth has increased our rental spread by another 100 basis points, and it now stands at 9%, the widest spread in the REIT's history.

Total portfolio occupancy has improved by approximately 200 basis points over the year driven largely by the completion of our value-add projects and strong leasing and execution of our capital recycling strategy. Over 95% of the trust in-place's leases are subject to indexation or built-in rental escalations, providing the REIT with solid cash flow growth over the coming years.

We've progressed well in executing our disposition program over the first half of 2019, as we continue to improve the quality and risk profile. We are now more than halfway through our disposition target for noncore properties, and we've also opportunistically sold some nonstrategic assets in our portfolio, such as the redevelopment property in Offenbach we've spoken about before.

In terms of capital allocation, over the first half of 2019, we acquired properties that improve the overall risk profile and quality of the portfolio immediately as well as properties that allow us to leverage our operating platform to drive long-term NOI and NAV growth. And Alex is going to give you a little more color on those acquisitions shortly.

In June this year, we announced the offering of EUR 300 million unsecured notes, which was accompanied with a 1 notch upgrade in our credit rating to Baa2 from Baa3. Proceeds from the debenture are being used to pay down the operating line, repay some secured indebtedness and any excess is going to fund some acquisitions. Along with this, our leverage declined by 80 basis points over the first quarter of 2019, strengthening our debt profile and improving the quality of our balance sheet.

At the start of the year, our key priorities for 2019 were to deliver organic growth, high-grade our portfolio and improve the strength and flexibility of our balance sheet, and we're pleased with our performance in addressing these priorities over the first half of 2019. While there are economic headwinds in Europe, we continue to execute a strategy of buying and managing buildings that are competitive by location, quality and service, and that we're confident will deliver strong occupancy and NOI performance. We've aggressively been selling assets in markets where we don't believe we'll get the appropriate return over the long run and replacing them with better assets that are resilient through cycles.

I'm going to turn it over to Alex to give you an overview on our operations.

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [3]

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Thank you, Jane. Good morning, everyone. The occupier market fundamentals in Germany and the Netherlands continue to be resilient. In Germany, office vacancy rates fell further across the Big 7 markets and now stands at 3.3%, a decline of 100 basis points year-over-year and 20 basis points from Q1 2019. Over the past 12 months, prime rents have increased in all Big 7 markets with the strongest growth in Cologne at 14%, Berlin at 13% and Hamburg at 9%. In terms of value, these markets comprised almost 30% of our portfolio. New supply has been moderate and mostly spoken for.

In the Netherlands, office vacancy rates at the end of Q2 were at 7%, a decline of 80 basis points year-over-year. Amsterdam remains the strongest market in the country with vacancy rate of 4.1%. Prime rents have increased on average by over 7% across the G5 markets compared to Q2 2018 with Amsterdam and Rotterdam posting the largest increases over that period, where the trust has approximately 1/3 of its Dutch portfolio by value.

In Q2, we had strong leasing activity across the board with just under 100,000 square meters of new leases and renewals signed. Our leasing activity this quarter was highlighted by a major lease of 12,000 square meters with Rabobank and our redevelopment asset Atoomweg in Utrecht. As you may recall, the trust acquired Atoomweg for EUR 10 million in May 2018. We expected the property -- as we expected, the property was vacated in May 2019 by the previous tenant.

During marketing of the redevelopment project for pre-leasing, we identified an opportunity to lease the entire property to Rabobank, who is a tenant in 2 other Dutch properties in our portfolio. We're committed to the lease at attractive rents effectively on as-is basis resulting in high net effective rents, plus a 1-year tenant renewal option, commencing on October 1, 2019. This is expected to generate $2.2 million in net rent per annum.

Including the rent paid by the previous tenant, the combined cash flow from the property by the end of Rabobank lease will amount to approximately EUR 9 million, or virtually the entire purchase price for the asset. We are very pleased with this lease because it allows us to recoup the majority of our initial investment via rental income, prior to commencement, any significant refurbishment or redevelopment of the property. And it significantly increases our returns relative to our initial underwriting.

We operate in a highly competitive investment environment. However, our acquisition strategy remains focused on very disciplined and deliberate allocation of capital and the one that leverage in-house expertise in our local platforms to drive NOI growth. We continue to pursue a balanced portfolio strategy in our acquisitions program with a goal to maintain both our geographic allocation targets and our exposure to value-add and core/core+ assets. We have a good pipeline of assets similar to what we have been buying over the past 6 to 9 months, and we expect to deploy the proceeds from noncore sales and the excess proceeds from the bond issuance effectively.

In Q2, we closed or firmed up on 4 assets totaling approximately EUR 88 million. Roughly 60% was investment -- invested in 2 properties in the Netherlands and 40% was invested in 2 properties in Germany. The investment in these assets are expected to further improve the risk profile of our portfolio and offer us opportunities for long-term NOI and NAV growth through active asset management. The German acquisitions are well suited for our core+ portfolio. They have an average occupancy of over 90% with an average WALT of over 6 years. They include an industrial property in Kassel that we announced last quarter and an office asset in Ludwigshafen, one of the 3 core cities in Rhine-Neckar metropolitan area, a top German secondary market.

The property in Ludwigshafen is a 10,000 square meter multi-tenant property with a committed occupancy of 92%. The rents at the property are approximately 20% below market, and we intend to refurbish the common areas to capture rental upside as leases roll. The property offers high-quality, Class A office space, and we intend to revitalize the assets including common areas to bring out the lost character of the asset to the forefront, driving incremental demand and rents. The purchase price of EUR 16.6 million represents a going-in cap rate of 5.4%. The acquisition is in line with our clustering strategy to achieve operational synergies with our office property in Mannheim, Burohaus Galilei, which is a short 5-minute drive away. We expect this acquisition to close later in Q3.

The other acquisitions consist of value-add properties, one in Sloterdijk, a major submarket in the city of Amsterdam, and the other in Hoofddorp, a suburb of Amsterdam. The combined average occupancy of these 2 assets was roughly 65% of acquisition, and we expect to drive NOI and net asset value growth through executing a manage-to-core strategy by applying our boutique and smart office concepts to the common areas and unoccupied floors. The weighted average going-in cap rate for these 2 acquisitions is 4.7%, and we expect to stabilize the cap rate at 7.5% over 18 to 24 months' period.

TW38, our acquisition in Sloterdijk, was acquired with an occupancy of 73%. Almost immediately after acquisition, we were able to lease up approximately half of the vacancy of rental rates in line with underwriting to achieve committed occupancy of 87%. Most of the remaining vacancy will become a new smart office location, which should open within next few months. The property was purchased for EUR 30.5 million, representing a going-in cap rate of 4.8% with an expected stabilized cap rate of 7.3% at full occupancy.

Spicalaan, our acquisition in Hoofddorp, is a multi-tenant property which is directly adjacent to Polaris and in close proximity to Aquarius, the other 2 well-performing assets we own in the strong office knell of Hoofddorp. Similar to Ludwigshafen, this is in line with our strategy of clustering properties to achieve operational and leasing synergies.

Turning to our programmatic sales. For 2019, we expect to sell over EUR 100 million of noncore assets in Germany and the Netherlands. Currently, we have roughly $45 million of noncore dispositions remaining. We expect to sign binding sale agreements for most of these assets in 2019. The capital from these sales will be allocated to the acquisitions and value-add and redevelopment projects.

I will now turn the call over to Rajeev, to discuss our financial results.

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Rajeev Viswanathan, Dream Global Real Estate Investment Trust - CFO [4]

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Thanks, Alex, and good morning, everyone. The second quarter results were in line with our expectations. The business continues to deliver strong operating results with FFO per unit of $0.26, consistent with Q1 and 0.5% lower than Q2 of 2018. This quarter, the decline in FFO per unit relative to last year's quarter resulted from lower Euro/CAD FX rates and lower leverage.

Given how dynamic the German and Dutch real estate markets have been this year and to better align with how our European peers do semiannual appraisals, we obtained external third-party valuations as of June 30, 2019. We engaged with the same appraisers from year-end, JLL for our Dutch portfolio, Colliers for our Deutsche Post portfolio in Germany and CBRE for the rest across Germany, Austria and Belgium. Since year-end, we have recorded approximately EUR 200 million of fair value gains, representing an increase of approximately 8%. The fair value gains in the portfolio were driven largely by our core/core+ assets in the Big 7 German markets and Vienna, which is the largest segment of our total portfolio. The value of properties in this segment improved by approximately EUR 500 per square meter or 13% from yield compression and market rent growth. This segment is valued at an implied 3.9% capitalization rate, representing 40 basis points of compression since year-end. Over the same period, we've seen market rent growth of approximately 4% in this segment.

The other main driver of fair value gains was in the G5 markets in our Dutch portfolio, where capitalization rates declined by approximately 50 basis points since year-end. The cap rate for the portfolio at the end of the quarter was 4.8%, a 30 basis point decline relative to year-end. For reference, the yield on the 10-year German Bund has declined approximately 80 basis points over the same period. Largely driven by fair value gains, our upper NAV per unit and IFRS per NAV per unit improved by approximately 9% each to $17.50 and $16.30 per unit, respectively.

The primary difference between our upper NAV per unit and our IFRS book value per unit is deferred taxes, which we record as the tax-effected difference between our property fair values and the related tax basis for accounting purposes. As the deferred tax liability would generally only become payable in an individual asset sale disposition scenario, we used the upper NAV as a primary net asset value metric consistent with our European peers.

Given the favorable credit market conditions, we were active in the debt capital markets last quarter, issuing a EUR 300 million 7-year bond at a 1.89% yield and extending our debt maturity profile. Concurrent with the offering, Moody's upgraded us to Baa2 from Baa3, enabling us to achieve one of our near-term strategic objectives, resulting in a more diversified funding mix, building out our credit curve and further derisking the rollover risk on our 2021 EUR 375 million bond maturity. The bond proceeds went immediately to repaying $90 million drawn on our line to fund recent acquisitions that Alex spoke about, with the remainder set aside to repay about EUR 165 million of secured debt maturities, namely the blanket facility in Q4 and 2 upcoming German mortgages maturing in Q1 of 2020. The repayment of the secured debt maturities will increase our pool of unencumbered assets to approximately 40% of total assets, a key criteria in our credit upgrade. While the recent bond is expected to have over a set negative impact on FFO for the remainder of 2019, we expect that as we deploy the proceeds into debt repayment and acquisitions, the impact will be over $0.01 positive in 2020 and onwards.

Our balance sheet and liquidity position have never been stronger, and we have no unaddressed debt maturities between now and December 2020. This positions the REIT well to continue to deliver on its focus areas of high grading the portfolio and driving long-term NAV and NOI growth.

And with that, I'll turn it back over to Jane.

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [5]

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Thanks, Rajiv. Operator, we'll now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Sam Damiani from TD Securities.

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Sam Damiani, TD Securities Equity Research - Analyst [2]

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That was a great overview. Just wanted to delve into the sort of macro headwinds that we all read about again here. Just more specifically, where -- is there any part of the business where you're seeing that play out more than others? The office versus industrial, secondary markets versus primary markets. Just wondering what -- where you're seeing different today than maybe a year ago since we've been seeing these headlines?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [3]

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That's interesting, Sam. Certainly, they are in the headlines and we read about them all the time. So far, I mean, like last quarter and the quarter before, we haven't really seen it reflected in our business. The Industrial segment is leasing up well and you would think that would be the first one to start to show signs of weakness, but we haven't seen it. We've got a pretty robust pipeline in terms of our leasing for the next year. I think offsetting the headwinds is the fact that the supply is so limited and vacancy is so low. So I think, so far, as I mentioned in my remarks, we've been buying assets that we believe people want to be in, that are resilient through the cycles, and it's playing through in our numbers.

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Sam Damiani, TD Securities Equity Research - Analyst [4]

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You touched on supply. And I think maybe 2, 3 quarters ago, you talked about the sort of 2% to 3% supply growth that was playing out in a handful of major markets in Germany. I'm just wondering, how are you seeing that being absorbed into the market? Or is it -- is much of that still to come in the balance of '19?

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [5]

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Sam, if we look at the supply relative to the inventory, it has been stable for the last 12 to 18 months and the outlook didn't really change. If anything, we expected maybe some of the headwinds in the headlines that we just spoke about will probably impact supply downwards.

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Sam Damiani, TD Securities Equity Research - Analyst [6]

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Okay. That sounds good. And looking at the deal in Atoomweg, that was quite incredible. I guess the NOI that you're getting from Rabobank is about -- is in excess of a 20% cap rate on cost, I think. I mean, was there some unique circumstances there with Rabobank? Or is that the market rent for that building in its current state? I'm just wondering what is the situation there?

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [7]

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We think it is close to the market rent for the building in the current state because the supply of vacancy in Utrecht is very low. Especially if you're looking at supply of contiguous office space with -- of the size of 12,000 square meters, there's probably 1 or 2 options in the entire Utrecht market. And if you -- and probably if you even include Amsterdam, there won't be a lot of options. So the circumstances there was that Rabobank needed the spacing very quickly and needed all of the space under one roof. And therefore, the deal came together. And this was pretty much the only option that was available in Utrecht market.

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Sam Damiani, TD Securities Equity Research - Analyst [8]

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Was that a 3 plus 1-year deal because they have another building they're hoping to move into in 3 to 4 years? Or is this all that you're willing to give them in terms of term?

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [9]

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It actually worked out well because we didn't want to commit to a long-term lease because we want to redevelop the asset. They wanted to have flexibility because that was sort of the mandate that was given to the real estate group by the Board of the bank. And so it sort of came together nicely.

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Sam Damiani, TD Securities Equity Research - Analyst [10]

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One last question, then I'll turn it back. In -- co-working, we work and everybody else has been gobbling up space in North America at a rapid pace. They're lagging in Europe. I'm just wondering, are you seeing that sector really eat up a lot of absorption in Germany and the Netherlands? Doesn't really look like there's a lot of ability for them to grow very quickly given the tight vacancy rates. But I'm just wondering, how much of a factor is that component of demand in driving the vacancy rates and rents in the current market?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [11]

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Well, that's interesting. I mean I think you're quite right. In the Netherlands, co-working is certainly present. As you know, we've got our own brand of co-working. In Germany, less so, and I think you're quite right, it's chicken and egg. It's very difficult to get large amounts of contiguous space. So I mean it's a factor, it's present, but I think they're having a harder time moving into the German market. Part of it is a function that works well in Germany. It's still isn't a complete open concept kind of market. But nonetheless, they're definitely present.

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Operator [12]

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Our next question comes from Mike Markidis from Desjardins.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [13]

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You guys have been very successful finding assets with vacancy and repositioning opportunities that have created great returns, which I think speaks to the quality of your platform and the strength of the fundamentals that you speak of. Is there a -- I'm just curious though, in that environment, what's the profile of the typical seller of these buildings? Is there a common theme? Or is it just circumstance?

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Bruce Traversy, Dream Global Real Estate Investment Trust - Head of Investment [14]

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It's Bruce here. I think the theme is mostly private equity vendors and private vendors. They obviously, especially in the Netherlands, acquired a lot of assets over the last 5, 6 years. They're coming to the end of their life in terms of their investment horizon. The market is strong, and I think that they're seeing opportunities to do deals, in many cases, off-market, to make a profit. And they're happy to leave room for us on the table to do what we do better.

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [15]

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I think in Germany also, for us, because our platform is so spread out, we have the opportunity to act quickly. A lot of institutional buyers or even more family offices have a harder time to do it. So when we see something in a market, as you know, we're quite diverse market-wise, we can act quickly. And that's been a real advantage to us to have the platform and the confidence to take up a building, maybe with some vacancy or that needs repositioning.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [16]

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Okay. And given what you're seeing today, do you see a lot of runway to continue to do this sort of stuff for the next couple of years?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [17]

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Yes, I think so.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [18]

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Okay. Last question for me before I turn it back. Just given the growing disconnect between your -- whether it's your IFRS book value or your upper NAV and the current share price, has the thought of the -- and sorry, and the increased financial flexibility that you guys have and the strength of your balance sheet, has the thought of an NCIB been percolating in your discussions of late?

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Rajeev Viswanathan, Dream Global Real Estate Investment Trust - CFO [19]

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Mike, look, we look at everything, and we talk to our Board; that disconnect is something we're really looking to try to close. So that's certainly an option that we've sort of looked at, but nothing to announce at this point.

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Operator [20]

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Our next question comes from Sumayya Hussain from CIBC.

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Sumayya Hussain, CIBC Capital Markets, Research Division - Associate [21]

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Jane, you touched on the yield compression, you've seen in a lot of your markets on the office side. I know it's a growing area for you. But just curious what that cap rate trend kind of looks like for industrial assets?

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Bruce Traversy, Dream Global Real Estate Investment Trust - Head of Investment [22]

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The trend is similar in industrial. We're seeing continued compression. There aren't as many opportunities in Germany to buy industrial, smaller industrial buildings simply because they're often owned by users, but the trend is similar.

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [23]

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Sumayya, what we're also seeing is that there is portfolio premium for -- whenever there is large portfolios or medium-sized portfolios of industrial assets being offered that there is portfolio premium because there is -- it's hard to get exposure to the asset class. As Bruce said, it tends to be very granular.

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Sumayya Hussain, CIBC Capital Markets, Research Division - Associate [24]

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All right. That's helpful. And I just wanted to touch on the spread to market rents. They are large at 9% I think this quarter. Can you give us an indication on what kind of lifts you're getting on renewals?

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [25]

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Look, on average, we are about 9% on the rented; for the entire portfolio, we're close to 12% in Germany. So that's kind of what we're seeing on average. And it varies by market in places like Munich and Berlin, where some cases, doubling the rents. In some other markets, it's 10%. So -- but it's virtually across the board. The portfolio in Germany is under-rented. The Amsterdam portfolio is kind of getting there in terms of rental upside. We're seeing very strong pickup in some of our Amsterdam assets and the rest of the Dutch portfolio is roughly at market.

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Operator [26]

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Our next question comes from Matt Kornack from National Bank Financial.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [27]

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Alex, just wanted to quickly touch timing-wise for Atoomweg. When will that NOI come online? And also, I think in your disclosure, you mentioned the transitory vacancy within the core portfolio that was also leased in Q3 at higher rents. Can you give us a sense as to the NOI impact of that as well?

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [28]

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Yes. So for the Rabobank deal, it will come online October 1. For the downtime vacancy that we refer to, that's relating to Caecilium, our property in Cologne, where a large tenant BNP has -- gave back some vacancy, and we let that to KPMG at higher rents. And there is going to be some downtime during Q2 and the beginning of Q3, and then it's going to come online towards the end of Q3.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [29]

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So net-net between Q2 and Q3, there is probably -- it would be similar NOI contribution? But for Q4, what would be the total sort of quarterly amount, that of both end?

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [30]

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Yes. I think it's going to be some in Q3 and then it's going to stabilize in Q4.

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Matt Kornack, National Bank Financial, Inc., Research Division - Analyst [31]

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Okay. And then, Rajeev, other than the $0.01 difference on FFO as a result of the financing guidance, otherwise similar to what you had provided in the past?

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Rajeev Viswanathan, Dream Global Real Estate Investment Trust - CFO [32]

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Correct. The other thing is FX has been a little bit choppy. It was $1.46 last week, and it's back up to $1.48 today. Our budget assumption was $1.50.

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Operator [33]

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Our next question comes from Christina. Christina, if you could please state your full name and company name.

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Unidentified Analyst, [34]

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Christina Wright from (inaudible) Bank. A follow-up on the Dutch market because I'm not that familiar with it. I know the German market. In general, where would you see the market going and further decline of vacancies and maybe increasing rents? And that would be then the implications for your portfolio that follows the trend of the overall market. And then -- and I remember correctly, like 1 or 2 years ago, we heard of a big topic about conversions into residential, so that is helping the office market. Is that still the case? And what's by way the -- what do you see there also in Germany for the product? This is the first question.

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [35]

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Yes. For -- I mean -- yes, our portfolio is trending nicely with the Dutch market. You can see when we did the Merin transaction, our occupancy was 82%. Now we're close to 88% 2 years later. We continue to see that -- the tick up, and you can see that in our results, the tick up is very strong in the Dutch portfolio. And yes, it is fueled by -- I mean very limited supply coming on and also a lot coming off, I mean, Alex will talk about, almost flat new supply because there continues to be a lot of conversion in the Dutch market to residential.

And on the German market, as you said -- I mean I think -- I mean we're full. We've got -- I mean virtually full. That gives us a lot of confidence in our buying in terms of when we get a vacant building or big buildings with some vacancy, we're seeing quite fast lease up. So those fundamentals are still pretty robust.

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Unidentified Analyst, [36]

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Okay. And for acquisitions, do you prefer Germany or Netherlands? Or is that -- that doesn't matter depending on the assets. Or do you have any favor at the moment given what you had in mind for the next 1 to 2 to 3 years of market development, I don't know?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [37]

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I think we like both markets a lot. And they have different driving fundamentals. Currently, our mix is, say, 20, 25 Netherlands, 75, 80 Germany. I think we've been pursuing that kind of allocation, but it depends where the opportunity is compelling because we've got good teams in both markets.

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Unidentified Analyst, [38]

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Okay. All right. I think that it -- and then -- yes, like-for-like drivers going forward. I mean that's probably then because for the Dutch portfolio, it's still also occupancy increase and -- but then for the rest, mainly rent increases. And like the 3%, 3% to 4%, is that something that you should be comfortable with?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [39]

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Yes.

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Operator [40]

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Our next question comes from [Jonas Stenberg], Private Investor.

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Unidentified Shareholder, [41]

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Just 1 year concerning lease renewals, where do you stand for this year? And how much percentage-wise is to be renewed in 2020 and 2021?

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [42]

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For 2019, we virtually have completed all of our renewals outstanding. In our MD&A, we disclosed the remaining lease expiries for 2019, which is about 49,000 square meters, and we are well underway for 2020. So we're already securing some of the renewals in the portfolio. And we are in advance discussions with the majority of tenants.

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Unidentified Shareholder, [43]

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Okay. So percentage-wise, how much is due in next year and '21?

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Alexander Sannikov, Dream Global Real Estate Investment Trust - COO [44]

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So right now what we have left in terms of expiries for 2019 is about 2.7% of the GLA. Well, it's expiring in 2019 and 10% is expiring in 2020.

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Operator [45]

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Our next question comes from Sam Damiani from TD Securities.

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Sam Damiani, TD Securities Equity Research - Analyst [46]

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Just a follow-up on the acquisition market. If you were to buy the core asset in a major market today in, let's say, Germany, what would the cap rate be? I'm guessing it would be in the sort of low 3s. And what would the cost of 10-year debt today be on -- on an asset like that?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [47]

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So core, like prime core would be, Sam, in the 2s. For the best of the best, it can be in the high 1s. I mean it's -- people want quality assets and they will pay up for it. And 10-year money, with a 10-year mortgage, would be low-to-mid-1s.

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Rajeev Viswanathan, Dream Global Real Estate Investment Trust - CFO [48]

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Yes.

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Sam Damiani, TD Securities Equity Research - Analyst [49]

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So does that make sense at all for Dream Global in any way, in any market? Because you had your acquisition -- has been shifting towards core+ and value-add the last couple of years. Is there an opportunity opening up? Do you see either now or in the near-term to refocus more on the core and like the prime assets in the major cities?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [50]

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I think we've always sort of done a mix and match kind of approach in any event. Occasionally, we buy those cores, real expensive ones, but frankly, as our teams matured and our development -- we've got more development chops, we've been focusing on doing those value-add projects. So what we don't do is sort of those long WALT kind of leases; that's not that interesting for us. But most definitely, I think it gives us a lot of confidence. And you can see in the acquisitions that Alex ran through, they've got leasing, they've got repositioning. And there is opportunities for folks who have a platform. So we're delighted with that. And by the way, those manage-to-cores end up being highly sought-after assets. Look at Millerntorplatz. That was a great asset we bought with opportunity to do some redevelopment in. That's now -- that would be a trophy asset.

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Operator [51]

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Our next question comes from Paul Pamenter from RBC Capital Markets.

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Pammi Bir, RBC Capital Markets, LLC, Research Division - Analyst [52]

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Wow, that's a new one. Just a question. Jane, coming back to your comments around the geographic mix between Germany and the Netherlands. Just given the success that you have had, are there other markets that maybe you're exploring today? Or that are starting to look a little more interesting, where you can maybe apply that similar playbook and catch these sort of early stage of fundamentals improving?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [53]

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I mean I think, as you probably know and you know our story, we're always looking. Our acquisition team is always looking for the right risk-adjusted return. Does it make sense to go into a new market? Does the market have those fundamentals? Can we apply something to those assets that's unique as opposed to other local players? So I'd say, we're always looking, but the fact is, in our home markets, we're finding good opportunities. And so we'll continue to -- as we said, we just ran through some acquisitions that are going to be really great for the company in our home markets. And as I said, Bruce and his team are always looking for the next market that will deliver superior returns.

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Pammi Bir, RBC Capital Markets, LLC, Research Division - Analyst [54]

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It sounds like -- and what we've seen in terms of some of the recent deals, certainly more value-add as opposed to just core stabilized assets. Is that how we should think about, call it, the next 12 months or so?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [55]

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I think so. I mean, I think when you're looking at cap rates in the 2s, it doesn't work so well for us. I think the beauty of Dream Global is it's got a platform that it can turn those value-adds into cores.

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Operator [56]

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Our next question comes from Todd Voigt from Ranger Global.

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Todd A. Voigt, Ranger Global Real Estate Advisors, LLC - Portfolio Manager [57]

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I wanted to ask a question. So Mike earlier asked a question about a stock buyback in light of the large discounts in net asset values and your financial flexibility. The answer was that, that was being considered among other strategies. Would you please expand on what those other strategies are? And is there a timeline to execute on one or any of those strategies?

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Rajeev Viswanathan, Dream Global Real Estate Investment Trust - CFO [58]

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Sure. Thanks for the question. Look, we have our strategic Board meetings every year, and we continually talk every quarter about the things we can do such as capital allocation, selling assets, joint ventures, so on and so forth, where we can sort of prove out the value of our assets on our balance sheet and potentially crystallize them into cash. So we're looking at lots of things over time and not -- it's tough to sort of talk about other things. But we're -- the other thing we're also doing, you talk about that discount. Most of our unitholders and where we trade mostly is in Toronto, we've been marketing relentlessly to Europeans. We actually think we've got about 30% to 35% of our unitholder base in Europe now relative to Canada. So that's something as well that we've been working hard on, on building our profile in Europe, where some of our peers are trading at less prominent discounts to net asset value.

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Todd A. Voigt, Ranger Global Real Estate Advisors, LLC - Portfolio Manager [59]

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So it sounds like the strategy is other than buying back stock, which is being considered as more marketing of the company globally and across Europe and potentially at more asset sales, joint ventures to, I guess, to prove out the NAV. Are there any other strategies that would be considered?

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [60]

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Well, I think also we're going to be driving FFO growth. I mean it's a myriad of things all towards narrowing the gap, for proving out the FFO, proving out the NAV, getting the story out, so people understand not just the dynamics of the company, but that the FFO is sustainable, that it deserves a better multiple. We were producing leverage. I mean there are all kinds of levers that we're working on. And I mean compared to where we were trading last year, we certainly improved the premium.

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Operator [61]

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And we are showing no further questions. I will now turn the call over to Ms. Gavan for closing comments.

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P. Jane Gavan, Dream Global Real Estate Investment Trust - President, CEO & Trustee [62]

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Thank you, everyone, for your attention this morning, and we look forward to reporting next quarter.

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Operator [63]

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Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating, and you may now disconnect.