Dream Global REIT buys Vienna property in Asian JV
The Toronto-based Dream Global REIT, which is a pure play on German commercial real estate for Canadian investors, has dipped its toe for the first time outside of Germany. It has teamed up with an Asian sovereign wealth fund to buy a 50% interest in the high-profile Rivergate office complex in the Austrian capital Vienna, for a price of €189m.
Dream said the Asian partner, (not named, although the REIT has prior history of selling a 50% share of eight properties two years ago to the South Korean Public Officials Benefit Association), would be its 50% joint venture partner in the investment. The cap rate is 5.2%, with upside potential through leasing and annual indexations, while Dream will also earn asset management fees from the JV. Dream finance the deal with a 5-year interest-only mortgage at a 55% loan-to-value rate, and at an interest rate of 1.6%.
Located on the Danube waterfront, and adjacent to Handelskai station, a key transit hub, Rivergate comprises 54,000 sqm and comprises two towers connected by an enclosed atrium. The property is 95% occupied or committed with a weighted average lease term of 7.3 years. Major tenants include the City of Vienna, Thales, Global Blue, Grant Thornton, Sky and Mars. Built in 2010, it was the first property in Austria to receive LEED Platinum sustainability certification.
While busy expanding, Dream has also been refinancing its initial German portfolio, which it says will save it annual debt service costs of more than €11m. It refinanced a €244m, five-year facility with Bank of America Merrill Lynch, that bears a variable interest rate equal to three-month EURIBOR capped at a weighted average 1.03%, and margin of 225bp.
In a significant deal last November, Dream signed a 20-year lease with the City of Hamburg for the entire 16,000 sqm of space at Hammer Strasse in the city, currently occupied by Imtech Deutschland, which filed for insolvency last August. The City of Hamburg will move in in November 2016, while Dream repositions the property after Imtech move out in April this year.
According to Michael Schwöbel, head of real estate Europe for the Canadian group, "Signing this lease has helped us turn the insolvency of a tenant into a value-enhancing opportunitiy for the property. The long lease combined with a triple-A covenant will enhance the attractiveness of the property and improve the quality and stability of the cash flow."
Not counting the Vienna acquisition, Dream Global REIT owns and operates German assets worth Can$2.6bn, with its investment focused on Germany's seven biggest cities. At the end of September its occupancy rate was 86.8%, up on the 85.3% rate of 2014. In Canadian terms, the stock at Can$8.05 has been trading downwards for much of the past year and is now about 25% below its book value.