Added 200 DRG:CA at C$8.92
Bought Pursuant to:
Snapshot of Trade:
2014 Bought 200 DRG:CA at C$8.92
Security Description: Dream Global Real Estate Investment Trust (DRG.UN:TOR) is a Canadian REIT that owns office buildings in Germany. This is a relatively new REIT that started trading in August 2011.
As of 6/30/14, Dream Global's portfolio consisted of 286 properties consisting of approximately 15.7M square feet located in Germany. Portfolio | Dream Global REIT
The early history is summarized on page 1 of the 2011 Annual Report. Annual-Report-2011.pdf The Dundee Group initially funded this REIT with $120M and an IPO was completed in August 2011. The initial foray into Germany involved the purchase of a portfolio primarily occupied by Deutsche Post.
Link to October 2014 Investor Presentation: Dream_Global_Presentation.pdf
("all of our acquisitions have been completed at (approximately) 400 bps between cap rate and cost of financing, which equate to 10%-12% levered return of equity"; gross rental income from Deutsche Post has been reduced to 34% from 85% at the time of the IPO)
Monthly Distribution: C$.06667 Investors | Dream Global REIT
Assuming a continuation of that C$.06667 monthly rate per share and a total cost of C$8.92 per share, the dividend yield would be about 8.97%.
I would emphasize that no dividend increases are likely in the foreseeable future since this REIT is already paying out over 90% of its AFFO.
Since I bought the ordinary shares in Toronto, I will receive those distributions in Canadian Dollars after a 15% withholding tax.
I bought these shares in a taxable account. A foreign dividend tax is not recoverable when the security is owned in a retirement account. (see Schwab Publication)
It is also my understanding that Canadian REIT distributions paid into a U.S. investor's retirement account will be taxed since those distributions are not considered "dividends" within the meaning of the U.S.-Canada tax treaty.
Sponsor's website: Dream Global REIT
Recent Earnings Report: DreaM Global reported a 10% increase in AFFO for the 2014 second quarter compared to the same period a year ago. Occupancy increased to 87.9% from 87.7% at the beginning of the second quarter.
I took some snapshots from the second quarter report that have more details.
Click to Enlarge:
Key Performance Numbers
As noted in footnote number one to the preceding table, results are converted from Euros to Canadian Dollars. This creates two currency risk issues for a U.S. investor. I have both the CAD to USD risk and the Euro to CAD risk. In exchange for the currency and other risks, I receive a good monthly dividend and exposure to high quality real estate in Europe's strongest economy without having to buy a European REIT with Euros.
Rationale and Risks: I am using a basket approach in the REIT sector similar to what I do with other sectors. This purchase gives me exposure to Germany, which improves my geographical diversification, and provides me with a monthly dividend yield of about 8.97%.
I mentioned the dual currency risk above. Needless to say, sitting at a desk in the SUV Capital of the World, I know zilch about the German real estate market. I did note that the occupancy rate increased to 87.9% as of 6/30/14 from 83.2% on 12/31/12. Occupancy levels, particularly during recessionary times, can be a significant risk for obvious reasons. If this REIT can lease more of its vacant space over the course of 2014, this will increase funds from operations and increase the spread between the dividend payout and AFFO.
When a U.S. investor buys any foreign security, then there are additional risks that are inherent in that purchase, including currency and country risks.
I am a long term holder of Canadian dollars and consequently I am not concerned about the short or intermediate fluctuations in the CAD/USD exchange rates. The fluctuation will impact my tax reportable gains and losses, however, even though I am buying the securities in CADs and receiving CAD when I sell the security.
For tax reporting purposes, the cost and proceeds are converted from CADs to USDs. If the CAD falls in value after the purchase, I would have a smaller gain for U.S. tax reporting purposes than the profit actually realized in CADs. This has happened several times already this year due to the decline in the CAD against the USD. I buy and sell a number of Canadian securities and the currency impact on reportable profits (or losses) can be significant. I highlighted that differential when discussing two recent Canadian REIT dispositions.
For Healthlease, which agreed to be acquired by the American REIT HCN, I had a reportable profit of $1,039.15, but the profit in CADs was C$1,123.65.
The ordinary shares for Dream Global may be bought on the U.S. "Grey Market" using USDs. DUNDF Dream Global Real Estate Investment Trust: Chart The symbol ends in an "F" which indicates that the investor is buying the ordinary shares, not an ADR, using USDs rather than the foreign currency used for transactions in the host market.
I prefer to avoid that dark market whenever possible. Some brokerages will charge a fee in addition to the regular commission to buy foreign ordinary shares in that market. No bid or ask quotes are displayed and limit orders are absolutely essential when buying or selling in that market.
To determine the limit price, I would first acquire a quote from the host market. Dream Global Real Estate Investment Trust (DRG.UN:TOR). I would then use a currency converter to find out the value of that foreign currency price in USDs in order to set my limit order for a possible purchase of those ordinary shares in the Grey Market. For example, if the ordinary shares were being traded at C$8.94, and that converted into USD$7.93, I would then have an idea where to set my limit price for a USD priced ordinary share.
While Germany generally has a strong economy compared to other European nations, GDP growth is slowing to a crawl and may tilt over into a recession. The German government recently downgraded its forecast for GDP growth in both 2014 and 2015. REITs that own offices are particularly vulnerable to economic slowdowns and recessions which result in lower demand for space and the need to offer rent concessions to attract or to maintain tenants.
Future Buys: Unlikely. I am full at 500 shares. I will consider selling my highest cost shares when and if I can do so profitably after harvesting a year or more of monthly distributions. One purpose of my Canadian Dollar strategy is simply to earn a return on my Canadian Dollars and to hopefully realize a profit on the shares.
Disclosure: The author is long DUNDF.
Additional disclosure: I am long Dream Global's Toronto listed shares rather than the Grey Market traded DUNDF priced in USDs. I may start to write an Instablog discussing one purchase that will be included in my next weekly blog post published at Google's blog site. I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. For purchases of bonds and preferred stocks, the prospectuses need to be reviewed until fully understood by the investor.Frequently, Google can not find my Blog's URL published at Google's Blogger website. An alternative way to gain access is to bookmark a particular post or a month's archive or to simply click a link in the instablog. If my blog's URL link results in a delay following by a notice that the request took too long, then access can be achieved by clicking "blogger help" in that message which will take the reader to the blog which can then be navigated using the "blog archive" section on the right hand side.