GREY:DUNDF - Post Discussion
Post by
retiredcf on Apr 03, 2019 9:21am
TD
This is a flash report so it's possible they might adjust their current $16.50 target. GLTA
Dream Global REIT
(DRG.UN-T) C$14.13
Strong German Residential Market Drives Land Sale Gains Event
Dream Global REIT announced a binding agreement to sell a vacant former Deutsche Post property located in greater Frankfurt (Offenbach am Main) for total proceeds of €35.5mm, representing an unlevered IRR of ~20% since acquiring it as part of DRG's IPO in 2011.
Impact: SLIGHTLY POSITIVE
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The REIT had been working with city officials and planning authorities on a development plan of over 25,000 m2 of primarily residential space (see Exhibit).This represents 2.1x site coverage, more than double the existing building's 0.9x site coverage.
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The selling value on the property represents €1,375 per m2 buildable - on the high side versus what we thought was possible, and indicative of strong residential market conditions in addition to low residential property cap rates.
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We do expect a material fair value gain in relation to carrying value, but the overall impact will be modest (estimated at ~$0.15/unit) since the sale price represents just 1% of DRG's total assets. Our NAV estimate already includes some value for this excess density potential.
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The transaction is expected to close during Q3/2019, with all proceeds being reinvested within DRG's target markets in Germany and the Netherlands.
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We believe the strong valuation on the Offenbach property is indicative of the upside potential on many of DRG's twenty other redevelopment properties (which represent 3% of assets). Much like the Offenbach asset, many of DRG's redevelopment assets are former Deutsche Post properties that are centrally-located and adjacent to, or very near, the main local train station, making them prime candidates for intensification, in our view.
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With the leasing cycle progressing and rents rising, more and more opportunities exist for NAV-enhancing projects, including expansions, intensifications, redevelopments, and renovations/upgrades, in our view. DRG’s Q4/18 pipeline totaled €60mm of investment, the single largest of which is Handwerkstrasse 5 in Stuttgart, where €30mm is to be spent. At Atoomweg 100 in Utrecht (where DRG has several nearby buildings), management is now pursuing a larger redevelopment based on tenant demand. Based on project metrics, market strength, and DRG’s past success, we are confident that these will all add to NAV growth going forward.
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