Dream Global REIT
(DRG.UN-T) C$10.39
Expansion into Brussels With $143mm Airport Plaza Acquisition
Sam Damiani, CFA
Michelle Garrett, CA,CBV,(Associate)
Event
DRG announced the completion of the acquisition of Airport Plaza, Brussels,
Belgium. DRG also remains in exclusive negotiations for an acquisition in Stuttgart,
Germany, with closing expected by June 30, 2017, fully redeploying the recent equity
offering proceeds.
Impact: SLIGHTLY POSITIVE
Expansion into Belgium
This marks DRG's second acquisition outside of Germany, following the Vienna acquisition in 2015. Proforma, DRG's assets will be 4% in each of Brussels and Vienna, and 92% in Germany.
Brussels appears to share many of the favourable characteristics with the office markets in both Germany and Vienna. The acquisition diversifies the REIT's portfolio and further emphasizes the strength of DRG's management platform, in our view.
Belgium is centrally located within Europe, with Brussels housing the headquarters of the European Union and NATO, and the regional headquarters for many international companies.
Brussels is a top-six European office market, with comparability to Hamburg and Frankfurt, based on its 143mmsf inventory of office space (just shy of Toronto's).
The average vacancy rate is the lowest since 2002 at 9%, and market reports
suggest rental rate growth may pick up. The 'North' submarket (where Airport
Plaza sits) has higher vacancy; however, we believe the market for newer, class
A space like this is much tighter.
Brussels prime yields average ~4.75% (in the CBD), compared to 3.5% on
average for Germany's Big 7 markets.
In reference to the Brussels market, management views Airport Plaza as an "excellent first step, with a strong yield and great tenant roster".
Airport Plaza
Purchase price of €95.9mm or $143mm (€2,664/sq.m. or $369/sf), representing a 7.1% cap rate. DRG expects to arrange long-term debt priced at 1.8%, resulting in an accretive yield. (Our existing FFO & AFFO estimates already assumed acquisitions, at an average 6% cap rate.)
Built in 2011, the property contains five multi-storey office buildings total 387,500sf. It is located next to the Brussels International Airport, and a 20-minute train ride into central Brussels.
Occupancy is 97%, and the WALT is a lengthy 8.1 years. High-profile tenants include Samsung, Levi Strauss, Air Products, Este Lauder, Sanofi, McDonalds, Chevron and NN Belgium (ING).