2015
Annual Report
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Dream Global REIT provides investors
with the opportunity to invest in
commercial real estate exclusively
outside of Canada.
Cover image: Rivergate, Vienna, Austria
Letter to
Unitholders
2015 was a significant year for Dream Global. Our
accomplishments included our first acquisition outside of
Germany, with the purchase of Rivergate in Vienna, Austria;
the early refinancing of the credit facility obtained at the time
of our initial public offering (“IPO”) at terms that will generate
significant interest savings; and the Trust’s strong leasing
performance, including the retention of Deutsche Post in most
of the space they could have terminated in 2016.
The year-end results also reflect our continued efforts in
respect of our asset recycling program. This includes the
disposition of some of our Initial Properties and redeployment
of the proceeds into high-quality real estate. We believe this
program continues to benefit the Trust as it increases the
overall quality of the portfolio and enhances the stability of
the underlying cash flows. In total, we sold 51 assets in 2015,
increasing sales of our Initial Properties since we started our
capital recycling program in 2012 to over $300 million.
Active asset and capital management has been a focus of
Dream Global since its inception and in just over four years,
the Trust has assembled a portfolio of scale that is desired
by some of the largest real estate investors in the world.
We completed approximately $511 million of high-quality
office property acquisitions in 2015, including our expansion
into Vienna, Austria, with the acquisition of a 50% interest
in Rivergate, a jointly owned asset with an Asian sovereign
wealth fund.
By the end of 2015, the Trust’s total equity per unit increased
to $11.41, from $10.05 at the end of 2014. The 13.5% increase
in book equity per unit reflects our continued leasing efforts,
which resulted in a tenant retention ratio of 79%, the highest
in the Trust’s history. We continue to identify and add high-
quality assets to our portfolio, which have benefited from
both cap rate compression as more buyers enter the German
market, and a 7% currency appreciation of the euro against
the Canadian dollar since the end of 2014.
P. Jane Gavan
President and Chief Executive Officer
Leasing remained a key operational focus in 2015, with the
completion of approximately 1.3 million square feet of new
leases and renewals. Approximately 479,000 square feet of
leasing was completed in Q4 2015 alone, including eight
leases with Postbank in properties that were subject to
Deutsche Post’s 2016 termination rights. With the signing of
these leases, the gross rental income (“GRI”) retention rate
related to the 2016 terminations increased to approximately
99% as at December 31, 2015.
The German economy continues to benefit from a robust
labour market, which experienced sustained wage growth,
with unemployment rates remaining among the lowest in the
European Union. The country’s economic growth was supported
by a continued low interest rate environment and healthy
domestic demand. Underlying fundamentals in the office sector
remained strong, with overall net absorption of office space
continuing to be positive across the major office markets,
along with declining vacancy rates.
Since our IPO in August 2011, Dream Global’s portfolio has
transformed from 292 mixed use and industrial properties to a
portfolio that includes desirable office buildings in Germany’s
Big 7 office markets, and now Austria. Our portfolio quality has
never been better, with most of the acquired properties being
categorized as institutional-quality assets. With our platform
and brand recognized in Europe, Dream Global has established
itself as a credible and capable joint venture partner. Looking
ahead, we will continue to pursue investment opportunities that
are accretive to our business, take advantage of our platform
and strengthen the stability of our cash flow over the long run.
On behalf of our management team and our Board of
Trustees, I would like to thank you for your continued support.
P. Jane Gavan
President and Chief Executive Officer
March 15, 2016
Portfolio
at-a-Glance
DECEMBER 31, 2015
Dream Global REIT is an
owner and operator of
13.4 million square feet of
office and mixed use space
in Germany and Austria, and
provides a unique opportunity
to gain exposure to the
European real estate market.
17%
HAMBURG
3%
HANNOVER
11%
BERLIN
13%
DÜSSELDORF
10%
COLOGNE
GERMANY
9%
FRANKFURT
5%
STUTTGART
5%
NUREMBERG
7%
MUNICH
3%
VIENNA
AUSTRIA
Geographic Diversification
(% of gross rental income (“GRI”) in key markets)
Diversified, High-Quality Tenants
TENANT COMPOSITION
Deutsche Post
Freshfields Bruckhaus Deringer
ERGO Direkt Lebensversicherungs AG
City of Hamburg
Deutsche Rentenversicherung Knappschaft Bahn-See
BNP Paribas Fortis SA/NV
CinemaxX Entertainment GmbH & Co. KG
Google Germany GmbY
Deutsche Postbank AG
Other third-party tenants
Total
TOTAL ANNUALIZED
GRI (%)
22.4
3.4
3.0
2.8
2.0
1.9
1.5
1.5
1.5
60.0
100.0
CREDIT RATING
BBB+
n/a
AA-
AAA
n/a
A+
n/a
AA
BBB+
n/a
IFRS Book Equity per Unit
In-place Rent
(per square foot per year)
2015 Adjusted Funds from Operations
(“AFFO”)
(Q4/2015)
$12
$9
$6
$3
$0
$8.25
$6.76
$11.41
$10.05
$9.43
12 €
9 €
€8.46
€8.86
€9.61
€6.25
€5.40
6 €
3 €
0 €
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
18%
INITIAL
PROPERTIES
82%
ACQUISITION
PROPERTIES
$0.21
$0.20
$0.19
$0.18
$0.16
$0.15
105%
100%
95%
90%
85%
80%
$0.202
$0.202
86.6%
$0.17
86.6%
$0.17
105%
100%
95%
90%
85%
80%
$0.21
$0.20
$0.19
$0.18
$0.16
$0.15
Q4-12
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q4-12
Q2-14
Q1-13
Q3-14
Q2-13
Q4-14
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
n Payout Ratio n AFFO/Unit
n Payout Ratio n AFFO/Unit
1.3 million
SQUARE FEET OF NEW LEASING IN 2015
Zimmer 56,
Berlin
$2.8 billion
TOTAL ASSETS
Europa-Center,
Essen
79%
TENANT RETENTION
1.3 million
SQUARE FEET OF NEW LEASING IN 2015
Cologne Tower,
Cologne
208
PROPERTIES
$11.41
TOTAL EQUITY PER UNIT
Millerntorplatz 1,
Hamburg
Table of Contents
Management’s Discussion and Analysis
Management’s Responsibility
for the Financial Statements
Independent Auditor’s Report
Consolidated Financial Statements
Notes to the Consolidated
Financial Statements
Trustees
Corporate Information
1
47
48
49
53
IBC
IBC
Management’s discussion and analysis
All dollar amounts in our tables are presented in thousands of Canadian dollars, except rental rates, unit and per unit amounts.
SECTION I – OVERVIEW AND FINANCIAL HIGHLIGHTS
KEY PERFORMANCE INDICATORS
Portfolio
Number of properties(1)
Gross leasable area (“GLA”) (in square feet)(1)
Occupancy rate – including committed (period-end)(1)
Occupancy rate – in-place (period-end)(1)
Average in-place net rent per square foot (period-end)(1)
Market rents above in-place net rents(1)
December 31,
2015
September 30,
2015
December 31,
2014
208
13,428,169
87.5 %
86.8 %
214
13,221,425
86.8 %
86.2 %
€
9.61 €
6.1 %
9.46 €
3.7 %
266
14,839,661
85.3 %
84.7 %
8.86
2.9 %
December 31,
September 30,
2015(2)
2015(2)
December 31,
2014(2)
2015(2)
2014(2)
Three months ended,
Year ended December 31,
Operating results – in €
Investment properties revenue(2)
Total portfolio
Initial Properties
Acquisition Properties
Net operating income (“NOI”)(3)
Total portfolio
Initial Properties
Acquisition Properties
Operating results – in $(4)
Investment properties revenue(2)
Total portfolio
Initial Properties
Acquisition Properties
Net operating income (“NOI”)(3)
Total portfolio
Initial Properties
Acquisition Properties
Funds from operations (“FFO”)(5)
Adjusted funds from operations (“AFFO”)(6)
Average exchange rate
(Canadian dollars to one euro)
Distributions
Declared distributions
DRIP participation ratio (for the period)
Per unit amounts(7)
Distribution
Basic:
FFO
AFFO
Diluted:
FFO
€
$
$
$
37,692 €
14,996
22,696
25,780
7,739
18,041
55,081 $
21,888
33,193
37,692
11,303
26,389
21,338
20,548
€
$
38,242
15,781
22,461
26,190
8,462
17,728
55,693
23,000
32,693
38,116
12,316
25,800
21,999
20,717
€
$
43,483
20,668
22,815
30,356
11,652
18,704
61,690
29,325
32,365
43,069
16,537
26,532
23,428
22,401
€
$
157,493
66,656
90,837
107,881
34,603
73,278
223,169
94,336
128,833
152,855
48,981
103,874
86,660
81,524
175,586
90,404
85,182
122,306
51,816
70,490
257,725
132,964
124,761
179,464
76,202
103,262
97,496
91,370
1.461
1.457
1.419
1.419
1.467
22,578 $
14.2%
$
22,500
14.8%
$
22,263
15.5%
$
89,858
14.6%
88,547
16.4%
0.20 $
0.20
$
0.20
$
0.80
$
0.19
0.18
0.19
0.20
0.18
0.20
0.21
0.20
0.21
0.77
0.73
0.77
0.80
0.88
0.83
0.87
Dream Global REIT 2015 Annual Report | 1
Financing
Weighted average face rate of interest on
debt (period-end)(1)(11)
Interest coverage ratio(1)(8)(9)
Level of debt (net debt-to-gross book value, net of cash)
at period-end(1)(8)(9)
Average level of debt, net of cash (1)(3)(10)
Debt – average term to maturity (years)(1)(9)(10)
Unsecured convertible debentures
December 31,
2015
September 30,
2015
December 31,
2014
2.49 %
3.08 times
3.00 %
3.09 times
3.23 %
3.26 times
54 %
52 %
5.0
154,558 $
51 %
52 %
4.3
153,993 $
51 %
55 %
4.3
152,365
$
(1) Reflects Owned Share of joint venture properties. Number of properties includes the joint venture properties but excludes properties classified as assets held for sale starting in
Q1 2015. Joint venture properties are accounted for using the equity method in our consolidated financial statements.
(2) Investment properties revenue (non-GAAP measure) is defined as total revenue, including the share of investment property revenue from investments in joint ventures from the
date of closing of the sale of the respective properties. The reconciliation of investment property revenue can be found in the section “Non-GAAP measures and other
disclosures”.
(3) NOI (non-GAAP measure) is defined as total of net rental income, including the share of net rental income from investment in joint ventures from the date of closing of the sale
of the respective properties. The reconciliation of NOI to net rental income can be found in the section “Non-GAAP measures and other disclosures” under net operating income.
(4) Results from operations were converted into Canadian dollars from euros using the average exchange rates found on page 28.
(5) FFO (non-GAAP measure) – The reconciliation of FFO to net income can be found in the section “Our results of operations” under the heading “Funds from operations and
adjusted funds from operations”.
(6) AFFO (non-GAAP measure) – The reconciliation of AFFO to cash generated from (utilized in) operating activities can be found in the section “Non-GAAP measures and other
disclosures” under the heading “Cash generated from operating activities to AFFO reconciliation”.
(7) A description of the determination of basic and diluted amounts per unit can be found in the section “Non-GAAP measures and other disclosures” under the heading “Weighted
average number of units”.
(8) The calculations of the interest coverage ratio and level of debt (net debt-to-gross book value) are included in the section “Non-GAAP measures and other disclosures” under the
headings “Interest coverage ratio” and “Level of debt (net debt-to-gross book value, net of cash)”.
(9) This metric includes the REIT’s share of the mortgages on joint venture properties.
(10) This metric excludes the revolving credit facility, which was drawn down temporarily to fund the acquisition of Rivergate.
(11) Weighted average face rate of all interest bearing debt.
FINANCIAL OVERVIEW
The fourth quarter and year-end results reflect the continued efforts of the Trust’s asset recycling program. This includes the
disposition of lower quality, but higher yielding Initial Properties, and replacing them with higher quality, but lower yielding
Acquisition Properties. We believe this program has and will continue to benefit the Trust as it increases the overall quality of
the portfolio and enhances the quality and stability of the underlying cash flows. The portfolio now includes assets that are
highly desired, which we believe are of institutional quality. As a result of the asset recycling program and significant
transformation in the business of the Trust, it is management’s view that certain operating metrics may not be directly
comparable on a year-over-year basis.
As at December 31, 2015, the Trust’s total equity per unit increased to $11.41, from $10.05 as at December 31, 2014. The
13.5% increase in book equity per unit primarily reflects the addition of high-quality assets that benefited from continued cap
rate compression in Germany, and a 7% currency appreciation of the euro against the Canadian dollar since Q4 2014. We
completed $510.9 million (Trust’s share – $368.2 million) of high-quality office property acquisitions in 2015, including our
expansion into Vienna, Austria, with the acquisition of a 50% interest in Rivergate, a jointly owned asset with an Asian
sovereign wealth fund. Subsequent to year-end, we completed the acquisition of a multi-tenant office tower in Essen,
Germany, for $41.5 million.
We continue to make progress on our asset recycling strategy each quarter, with the sale of 11 properties during Q4 2015 for
gross proceeds of $40.9 million, increasing total sales of our Initial Properties in 2015 to 51 properties for gross proceeds of
$110.9 million at an average cap rate of 7.5%. In addition, 12 properties were held for sale at December 31, 2015 for an
approximate aggregate sale price of $32.5 million. Including the properties held for sale, we have sold over $300 million of our
Initial Properties since 2012. In terms of operations, we continue to actively manage our assets to drive the long-term value of
our portfolio.
The Trust completed approximately 1.3 million square feet of leasing in 2015. Approximately 479,000 square feet of new
leasing and renewals were completed in Q4 2015, including eight leases with Postbank in properties that were subject to
Deutsche Post’s 2016 termination rights. With the signing of these leases, the gross rental income (“GRI”) retention rate
pertaining to the 2016 terminations increased to approximately 99% as at December 31, 2015.
Dream Global REIT 2015 Annual Report | 2
As at Q4 2015, active leasing has resulted in an improvement in in-place and committed occupancy of 70 basis points (“bps”) to
87.5% quarter-over-quarter, and by 220 bps since the end of 2014. Year-over-year, in-place rents increased from €8.86 per
square foot in Q4 2014 to €9.61 per square foot in Q4 2015, largely due to the completed acquisitions in 2015, which have a
higher average per square foot rent compared to our overall portfolio. We are also seeing an increase in rents on lease
renewals and the signing of new leases in our Initial Properties.
In Q4 2015, the Trust completed the refinancing of a mortgage for $48.6 million (Trust’s share – $24.3 million), resulting in an
interest rate reduction from 2.37% to 1.59% and extension of the term by 4.5 years to September 2022. Subsequent to year-
end, the Trust secured a 10-year €16.3 million mortgage at a fixed interest rate of 1.62% for Europa-Center in Essen. With the
current favourable lending environment in Germany, the Trust intends to take advantage of further opportunities to extend
debt maturities and lower the overall cost of borrowing through refinancing mortgages in the Trust’s Acquisition Properties.
Excluding the impact from foreign exchange, net operating income (“NOI”) for the quarter was €25.8 million, compared to
€30.4 million in Q4 2014. The year-over-year reduction in NOI for the quarter was primarily due to:
• Timing between sale and subsequent redeployment of Initial Properties sales proceeds, resulting in a decrease of
€2.8 million in NOI;
• Timing between the sale of our 50% interest in Officium to POBA in January 2015 and subsequent redeployment of net
proceeds received, resulting in a €1.4 million decrease in NOI; and
• A remaining difference, which is largely due to the unforeseen insolvency of Imtech.
For the year ended December 31, 2015, NOI was €107.9 million, compared to €122.3 in the prior year. The decrease from the
prior year was primarily due to:
• Timing between sale and subsequent redeployment of Initial Properties sales proceeds resulting in a decrease of
€10.4 million in NOI;
• Full-year impact of the expiry of the Lonestar head lease payments taking effect in mid-2014 of €2.8 million;
• Full-year impact of the Deutsche Post lease terminations taking effect in mid-2014 of €2.4 million;
• Timing between the expiry of the SEB head lease payments in 2015 and subsequent re-leasing of this space, resulting in a
€1.0 million decrease in NOI. We have now replaced 88% of the income from the head lease; and
• Unforeseen insolvency of Imtech, resulting in a NOI reduction of €0.8 million.
Partially offset by:
• An increase in NOI of €3.3 million, resulting from the full-year impact of 2014 acquisitions and a partial-year impact from
2015 acquisitions.
Funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) for Q4 2015 were $21.3 million and $20.5 million,
respectively. By comparison, the FFO and AFFO for Q4 2014 were $23.4 million and $22.4 million, respectively. The reduction in
both metrics was largely attributed to the decline in NOI as noted above, slightly offset by a higher average exchange rate in
Q4 2015 compared to 2014, as well as a reduction in interest expense due to a lower average level of debt and a lower average
face interest rate in 2015 compared to the prior year. On a per unit basis, basic FFO and basic AFFO were 19 cents and 18 cents,
respectively, in Q4 2015, compared to 21 cents and 20 cents in Q4 2014.
FFO and AFFO for the full year of 2015 were $86.7 million and $81.5 million, respectively. By comparison, FFO and AFFO for
2014 were $97.5 million and $91.4 million, respectively. The year-over-year reduction in both metrics was largely attributed to
the decline in NOI as noted above, a lower average exchange rate in 2015 compared to 2014, slightly offset by a reduction in
interest expense due to lower average level of debt and lower average face interest rates in 2015, compared to the prior year.
On a per unit basis, basic FFO and basic AFFO were 77 cents and 73 cents, respectively, in 2015, compared to 88 cents and
83 cents in 2014.
Going forward, we expect our AFFO per unit to increase in 2016 and 2017 as we continue to execute on our asset management
and leasing initiatives as well as our capital recycling, joint venture and debt refinancing initiatives.
Dream Global REIT 2015 Annual Report | 3
OUTLOOK
During the fourth quarter of 2015, two significant milestones were completed:
• First, the early refinancing of our term loan credit facility obtained at the time of our initial public offering (“IPO”), which
will result in significant interest savings and will extend the Trust’s debt maturity profile. The interest savings will add
incremental AFFO of approximately $6 million, or $0.05/unit, on an annual basis.
• Second, the first acquisition outside of Germany with the purchase of Rivergate in Vienna, Austria. Vienna is among the
wealthiest and most attractive corporate locations in Europe. This 50/50 joint venture deal with an Asian sovereign wealth
fund is the second joint venture for the REIT with an international investor.
Dream Global has built a platform and brand that is recognized in Europe and by global investors and has quickly established
itself as a highly credible and capable joint venture partner. Joint ventures benefit the Trust’s business as they provide a
valuable source of capital, fee income and opportunities for additional business.
The German economy continues to benefit from a robust labour market and strong domestic demand, fuelled by low inflation
and low interest rates. The country’s economic growth is mainly driven by private consumption and public sector spending. The
unemployment rate remains among the lowest in the European Union and underlying fundamentals in the office sector are
strong, with overall net absorption of office space continuing to be positive across the major office markets, along with
declining vacancy rates. At the end of 2015, German office vacancy rates reached a low not seen since 2002.
The demand for real estate investments in Germany increased by 40%(1) in 2015, compared to 2014 levels. Despite the
investment market getting increasingly competitive, we continue to find opportunities to invest in the most sought-after
markets.
We remain committed to our capital recycling program, which improves the quality of our portfolio as well as the stability of
our cash flows by further lowering our exposure to Deutsche Post. In 2015, over 80% of the Trust’s AFFO was generated from
Acquisition Properties. During Q4 2015, we sold 11 properties from our Initial Properties portfolio, realizing $40.9 million in
gross proceeds and increasing the assets sold during 2015 to 51 for an aggregate gross sales price of approximately
$110.9 million. In addition, we held a total of 12 properties for sale at December 31, 2015, with a total sale price of
$32.5 million.
With the current favourable lending environment in Germany, we see further opportunities to extend maturities and lower the
overall cost of borrowing through refinancing mortgages in the Trust’s Acquisition Properties. This initiative will enable us to
capture value appreciation in these properties that occurred since the time of acquisition.
For 2016, we will continue to pursue investment opportunities that are accretive to our business, take advantage of our
platform and strengthen the stability of our cash flow over the long run.
(1) JLL Investment Market Overview Q4 2015.
BASIS OF PRESENTATION
Our discussion and analysis of the financial position and results of operations of Dream Global Real Estate Investment Trust
(“Dream Global REIT”, the “REIT” or the “Trust”) should be read in conjunction with the audited consolidated financial
statements of the Trust for the years ended December 31, 2015 and December 31, 2014, respectively.
The Trust’s basis of financial reporting is International Financial Reporting Standards (“IFRS”).
The REIT complies with IFRS 11, “Joint Arrangements”, and accounts for investments in joint ventures in its consolidated
financial statements using the equity method of accounting. All references herein to “consolidated” refer to amounts as
reported under IFRS. For the purpose of this management’s discussion and analysis (“MD&A”), all references to “REIT’s
Interest” or “Owned Share” refer to a non-GAAP financial measure representing Dream Global REIT’s proportionate share of
the financial position and results of operations of its entire portfolio, including equity-accounted investments under the
assumption that all investments in joint ventures have been proportionately consolidated. For a reconciliation of the Trust’s
results of operations and statement of financial position, please see “Non-GAAP measures and other disclosures” in this MD&A.
Dream Global REIT 2015 Annual Report | 4
This MD&A has been dated as at February 17, 2016. For simplicity, throughout this discussion, we may make reference to
the following:
• “Debentures”, meaning the 5.5% convertible unsecured subordinated debentures of the Trust due July 31, 2018;
• “GLA”, meaning gross leasable area;
• “GRI”, meaning gross rental income;
• “Initial Properties”, meaning the income-producing properties we acquired on August 3, 2011;
• “Acquisition Properties”, meaning the income-producing properties acquired subsequent to the Trust’s initial public
offering on August 3, 2011;
• “Units”, meaning the Units of the Trust; and
• “POBA”, meaning Public Officials Benefit Association, a South Korean pension fund.
Certain information has been obtained from Colliers International (“Colliers”) and Jones Lang LaSalle (“JLL”), commercial firms
that provide information relating to the German real estate industry. Although we believe this information is reliable, the
accuracy and completeness of this information is not guaranteed. We have not independently verified this information and
make no representation as to its accuracy.
When we use terms such as “we”, “us” and “our”, we are referring to the REIT and its subsidiaries.
When we refer to Deutsche Post as being the lessee or the tenant of the Initial Properties, we are referring to Deutsche Post
Immobilien GmbH (“DPI”), which is a wholly owned subsidiary of Deutsche Post AG. Deutsche Post AG has provided a letter of
support with respect to DPI and its ability to carry out its obligations under leases for the Initial Properties.
Estimated market rents disclosed throughout the MD&A are management’s estimates and are based on current leasing
fundamentals. The current estimated market rents are at a point in time and are subject to change based on future
market conditions.
In addition, certain disclosure incorporated by reference into this report includes information regarding our largest tenants that
has been obtained from publicly available information. We have not independently verified any such information.
Certain information herein contains or incorporates comments that constitute forward-looking information within the meaning
of applicable securities legislation. Forward-looking information is based upon a number of assumptions and is subject to a
number of risks and uncertainties, including but not limited to statements regarding our objectives and strategies, proposed
acquisitions and dispositions, development of our portfolio, stability and growth of our cash flows and distributions, future
financings, future maintenance and leasing expenditures, projected costs, economic performance or expectations, or the
assumptions underlying any of the foregoing, many of which are beyond Dream Global REIT’s control, which could cause actual
results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and
uncertainties include, but are not limited to, global and local economic, business and government conditions; the financial
condition of tenants; concentration of our tenants; our ability to refinance maturing debt; leasing risks, including those
associated with the ability to lease vacant space and the timing of lease terminations; our ability to source and complete
accretive acquisitions; changes in tax and other laws or the application thereof; and interest and currency rate fluctuations.
Although the forward-looking statements contained in this management’s discussion and analysis are based upon what we
believe are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking
statements. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements
and information include, but are not limited to, general economic conditions; local real estate conditions, including the
development of properties in close proximity to the Trust’s properties; timely leasing of vacant space and re-leasing of occupied
space upon expiration; dependence on tenants’ financial condition; the uncertainties of acquisition activity; the ability to
effectively integrate acquisitions; interest rates; availability of equity and debt financing; the Trust’s continued exemption from
the specified investment flow-through trust (“SIFT”) rules under the Income Tax Act (Canada); and other risks and factors
described from time to time in the documents filed by the Trust with securities regulators.
All forward-looking information is as of February 17, 2016, except where otherwise noted. Dream Global REIT does not
undertake to update any such forward-looking information whether as a result of new information, future events or otherwise,
except as required by law. Additional information about these assumptions and risks and uncertainties is contained in our
filings with securities regulators. These filings are also available on our website at www.dreamglobalreit.ca.
Dream Global REIT 2015 Annual Report | 5
BACKGROUND
Dream Global REIT is an unincorporated, open-ended real estate investment trust that was formed to provide investors with
the opportunity to invest in real estate exclusively outside of Canada. Dream Global REIT was founded by Dream Asset
Management Corporation (“DAM”), a subsidiary of Dream Unlimited Corp. (TSX: DRM), which is our asset manager. Our Units
are listed on the Toronto Stock Exchange under the trading symbol DRG.UN.
As at December 31, 2015, our portfolio consisted of 208 properties (excluding 12 assets that are held for sale) and comprises
approximately 13.4 million square feet of GLA. 207 of the properties are located in Germany and one property is located in
Vienna, Austria. Nine properties, including the asset in Austria, are held within joint ventures of which Dream Global REIT
retained a 50% ownership interest.
We will be exempt from the SIFT rules, taking into account all proposed amendments to such rules, as long as we comply at all
times with our investment guidelines which, among other things, only permit us to invest in properties or assets located
outside of Canada. We do not rely on the REIT exception under the Income Tax Act (Canada) in order to be exempt from the
SIFT rules. As a result, we are not subject to the same restrictions on our activities as those that apply to Canadian real estate
investment trusts that do rely on the REIT exception. This gives us flexibility in terms of the nature and scope of our
investments and other activities. Because we do not own taxable Canadian property, as defined in the Income Tax Act (Canada),
we are not subject to restrictions on our ownership by non-Canadian investors.
OBJECTIVES
We are committed to:
• managing our investments to provide stable, sustainable and growing cash flows through investments in commercial real
estate located outside of Canada;
• building a diversified portfolio of commercial properties;
• capitalizing on internal growth and seeking accretive acquisition opportunities in our target markets;
•
increasing the value of our assets and maximizing the long-term value of our Units through the active and efficient
management of our assets; and
• providing predictable cash distributions per unit, on a tax-efficient basis.
Distributions
We currently pay monthly distributions to unitholders of 6.667 cents per unit, or 80 cents per unit on an annual basis. At
December 31, 2015, approximately 13.3% of our total Units were enrolled in the Distribution Reinvestment and Unit Purchase
Plan (“DRIP”).
Annualized distribution rate
Monthly distribution rate
Period-end closing unit price
Annualized distribution yield
on closing unit price
December 31,
2014
0.80 $
0.0667 $
8.57 $
2015
0.80 $
0.0667 $
8.66 $
$
$
$
September 30,
2014
0.80 $
2015
0.80 $
0.0667 $ 0.0667 $
9.93 $
9.08 $
2015
0.80 $
0.0667 $
8.84 $
June 30,
2014
0.80 $
0.0667 $
9.82 $
March 31,
2015
0.80 $
0.0667 $
9.84 $
2014
0.80
0.0667
9.28
9.24 %
9.34 %
9.05 %
8.81 %
8.06 %
8.15 %
8.13 %
8.62 %
OUR STRATEGY
Our core strategy to meet our objectives includes the following:
Optimizing the performance, value and long-term cash flow of our properties
We manage our properties to optimize their performance, value and long-term cash flow. We seek to do this by achieving high
occupancy and rental rates. Together with our management team in Canada, we also have an established management team in
Germany and Luxembourg, bringing a history with our Initial Properties, deep market knowledge and established relationships
with other market participants. Leasing, capital expenditure and construction initiatives are either internally managed or
overseen by us, while property management services, including general maintenance, rent collection and administration of
operating expenses and tenant leases, are carried out by third-party service providers under the oversight of our internal team.
Diversifying our portfolio to mitigate risk
We continuously seek to diversify our portfolio to increase value on a per unit basis, further improve the sustainability of our
distributions and enhance our tenant profile. We focus on adding high-quality tenants in the most desirable office markets in
addition to increasing our overall asset base in our target markets. A key criterion when considering potential acquisitions is the
multi-tenant nature of a property.
Dream Global REIT 2015 Annual Report | 6
Investing in stable income-producing properties outside of Canada
When considering acquisition opportunities, we look for properties with quality tenancies and strong occupancy, and assess
how these opportunities complement our properties and have the potential to create additional value. In considering future
acquisitions, we intend to focus on countries with a stable business and operating environment, a liquid market for real estate
investments, a legal framework that provides adequate rights and protections for owners of property, and a manageable
foreign investment regime. We will consider investment opportunities in income-producing properties that are accretive,
provide stable, sustainable and growing cash flows, and enable us to realize synergies within our portfolio of properties. The
execution of this strategy will be continuously reviewed and will also include dispositions of properties and optimizing our
capital structure.
Maintaining and strengthening a conservative financial profile
We operate our investments in a disciplined manner, with a focus on financial analysis and balance sheet management to
ensure we maintain a prudent capital structure and conservative financial profile. We intend to generate stable cash flows
sufficient to fund our distributions while maintaining a conservative debt ratio. Our preference will be to stagger our debt
maturities to mitigate our interest rate risk and limit refinancing exposure in any particular period. We have also implemented a
foreign exchange hedging strategy to provide greater certainty regarding the payment of distributions to unitholders and
interest to debenture holders.
OUR ASSETS
Throughout this document, we make reference to the following two asset categories:
Initial properties
As at December 31, 2015, this category included 175 properties (excluding assets held for sale). The assets can be characterized
as national and regional administration offices, mixed-use retail and distribution properties, and regional logistics headquarters
of Deutsche Post as well as other third-party tenants, including Postbank as well as municipal and state government agencies.
The properties are generally strategically located near central train stations and main retail areas and are easily accessible by
public transportation.
Acquisition properties
As at December 31, 2015, this category included 33 office properties, which were acquired since our IPO in 2011. 32 of the
33 properties are located in cities across Germany. A 50% interest in eight of these 32 properties, which was sold in late 2014
and early 2015, is jointly owned with POBA, a South Korean pension fund. In addition, one property is located in Vienna,
Austria, which is jointly owned with an Asian sovereign wealth fund. In comparison to the Initial Properties, the Acquisition
Properties are generally larger, newer or recently refurbished, multi-tenant buildings.
The majority of our portfolio is concentrated in Germany’s largest office markets:
Geographic composition of portfolio(1)
Berlin
Cologne
Düsseldorf
Frankfurt
Hamburg
Hannover
Munich
Nuremberg
Stuttgart
Other
Total
(1) Reflects the REIT’s Owned Share basis.
Total GLA (sq. ft.)
1,026,269
907,794
1,691,742
966,192
1,590,603
602,959
554,957
536,427
496,848
5,054,378
13,428,169
Total GLA (%)
8
7
13
7
12
4
4
4
4
37
100
Total GRI (%)
11
10
13
9
17
3
7
5
5
20
100
Dream Global REIT 2015 Annual Report | 7
TENANTS
Through our active acquisitions, dispositions and leasing program, we continue to focus on the diversification of our tenant
base. The table below highlights the diversification away from the single-tenant nature of our Initial Properties. At the end of
Q4 2015, Deutsche Post’s GRI was approximately 22.4% of the Trust’s overall occupied and committed GRI, down from 29.5% at
the end of 2014.
Tenant composition(1)
Deutsche Post
Freshfields Bruckhaus Deringer
ERGO Direkt Lebensversicherungs AG
City of Hamburg
Deutsche Rentenversicherung Knappschaft Bahn-See
BNP Paribas Fortis SA/NV
CinemaxX Entertainment GmbH & Co. KG
Google Germany GmbY
Deutsche Postbank AG
Maersk Deutschland A/S & Co. KG
Other third-party tenants
Total
(1) Reflects the REIT’s Owned Share.
(2) Source: Standard & Poor’s, Fitch.
(3) n/a means not applicable.
Total annualized
GRI (%)
22.4
3.4
3.0
2.8
2.0
1.9
1.5
1.5
1.5
1.3
58.7
100.0
Credit rating(2)(3)
BBB+
n/a
AA-
AAA
n/a
A+
n/a
AA
BBB+
BBB+
n/a
Deutsche Post
Deutsche Post is an integral part of the German economy and continues to be an important part of day-to-day life in Germany.
Through its acquisition of DHL in 2002, Deutsche Post DHL has become a global logistics market leader. It employs
approximately 480,000 people in more than 220 countries and territories.(1) As the only provider of universal postal services in
Germany, Deutsche Post must provide certain minimum levels of service to German residents.
Some of the space leased to Deutsche Post is occupied by Postbank, a public company controlled by Deutsche Bank. Postbank
offers retail financial services in its branches within Deutsche Post’s network, which generates increased traffic through the
postal services offered in those branches. As at December 31, 2015, our portfolio featured approximately 117 Postbank
branches, allowing for the delivery of integrated financial and postal services. Leases for 28 Postbank branches are direct
leases. Postbank branches are typically located at ground level with a view to attracting a high volume of retail and business
customers seeking financial or postal services.
Freshfields Bruckhaus Deringer (“Freshfields”)
Freshfields is the second largest tenant in our portfolio as measured by GRI. Freshfields is an international law firm with offices
in Europe, Asia, North America and the Middle East.(2) Freshfields occupies 71% of the space in our property located at
Feldmühleplatz 1 and generated approximately 3.4% of the REIT’s overall GRI as at December 31, 2015.
ERGO Direkt Lebensversicherungs AG (“ERGO”)
ERGO is the third largest tenant in our portfolio as measured by GRI. With approximately 43,000 employees in over 30
countries, ERGO is one of the largest insurance companies in Germany.(3) ERGO, which belongs to the Munich RE group of
companies, occupies the entire space in our property located at Karl-Martell-Strasse 60 in Nuremberg, and generated
approximately 3.0% of the REIT’s overall GRI as at December 31, 2015.
City of Hamburg
The City of Hamburg, Germany’s second largest municipality with a population of 1.7 million(4) is one of the 16 federal states of
Germany and is considered the economic centre of northern Germany. The City of Hamburg occupies approximately 15% of the
space in our property at Millerntorplatz 1, 9% of the space in our property at Schlossstrasse 8, and, starting in November 2016,
it will occupy the entire space at our property located at Hammer Strasse 30–34. lncluding the annualized GRI from the lease at
Hammer Strasse 30–34, the City of Hamburg will contribute approximately 2.8% to the REIT’s overall GRI based on total GRI as
at December 31, 2015.
Dream Global REIT 2015 Annual Report | 8
Deutsche Rentenversicherung Knappschaft Bahn-See (“Deutsche Rentenversicherung”)
Deutsche Rentenversicherung is Germany’s state pension fund covering over 50 million people. About €266 billion was paid to
recipients in 2014 alone.(5) Deutsche Rentenversicherung occupies approximately 38% of the space in our property located at
Millerntorplatz 1 in Hamburg, and generated approximately 2.0% of the REIT’s overall GRI as at December 31, 2015.
BNP Paribas Fortis SA/NV (“BNP Paribas Fortis”)
BNP Paribas Fortis is a financial services provider, offering services to private and professional clients, corporate clients and
public entities through a number of networks.(6) The company, which is deeply rooted in Belgium’s economy, occupies
approximately 55% of the space in Cäcilienkloster in Cologne as well as 8% in Z-UP in Stuttgart and generated approximately
1.9% of the REIT’s overall GRI as at December 31, 2015.
CinemaxX Entertainment GmbH & Co. KG (“CinemaxX”)
CinemaxX is a well-known cinema chain in Germany and Denmark with 33 cinemas and 2,000 employees.(7) CinemaxX occupies
approximately 62% of the GLA in our property located at Bertoldstrasse 48/Sedanstrasse 7 in Freiburg and generated
approximately 1.5% of the REIT’s overall GRI as at December 31, 2015.
Google Germany GmbH (“Google”)
Google is an American multinational corporation specializing in internet-related services and products and employs over
40,000 people worldwide.(8) Google Hamburg is the company’s commercial headquarters for Germany, Austria, Switzerland and
the Nordics and occupies approximately 88% of the GLA in ABC Bogen, our property located in the heart of Hamburg at ABC
Strasse 19. Google generated approximately 1.5% of the REIT’s overall GRI as at December 31, 2015.
Deutsche Postbank AG (“Postbank”)
Postbank is one of Germany’s largest financial service providers with approximately 14 million clients, 15,000 employees and
total assets of approximately €152 billion. Postbank mainly focuses on private customers and small to medium-sized companies
and has the densest branch network of any bank in Germany with 1,100 of its own branches and 4,500 Deutsche Post partner
branches as well as 700 Postbank advisory centres.(9) As at December 31, 2015, Postbank generated approximately 1.5% of the
REIT’s overall GRI.
Maersk Deutschland A/S & Co. KG (“Maersk”)
Maersk is one of the world’s largest shipping companies and operates in approximately 130 countries. Through its various
divisions, the group employs approximately 89,000 people and generated over US$40 billion in revenues in 2015.(10) Maersk
occupies approximately 61% of the GLA in Humboldt House, our property located at Am Sandtorkai 37 in Hamburg. Maersk
generated approximately 1.3% of the REIT’s overall GRI as at December 31, 2015. The lease contract with Maersk expired on
December 31, 2015. To date, we have leased approximately 37,500 square feet of space to three separate tenants, or 55% of
the expiring space, for a weighted average lease term of 5.5 years.
(1) As disclosed at Deutsche Post DHL’s website at www.dpdhl.com
(2) As disclosed at Freshfields’ website at www.freshfields.com
(3) As disclosed at ERGO’s website at www.ergo.com
(4) As disclosed at the City of Hamburg’s website www.hamburg.de
(5) As disclosed at Deutsche Rentenversicherung’s website at www.deutsche-rentenversicherung.de
(6) As disclosed at BNP Paribas’ website at www.bnpparibas.com
(7) As disclosed at CinemaxX’s website at www.cinemaxx.com
(8) As disclosed at Google’s website at www.google.com and www.google.ca/about/careers/locations/hamburg
(9) As disclosed at Deutsche Postbank AG’s website at www.postbank.com
(10) As disclosed at Maersk’s website at www.maersk.com
MARKET OVERVIEW – GERMANY
German economy
The German economy has established itself as a key location for production sites and is a country with a favourable business
environment. Similar to Canada, Germany is a country with a history of political, legal and financial stability and provides an
attractive climate for long-term investment.
Recent developments
Overall, the German economy continues to be the main driving force of Europe and benefits from a robust labour market. The
most important drivers of growth in 2015 were domestic consumption and public sector spending. Germany’s unemployment
rate of 4.5%(1) at the end of December 2015 remains among the lowest in the European Union. German gross domestic product
(“GDP”) grew by 1.7%(2) in 2015, largely driven by consumer spending, and 2015 inflation remained fairly low, mostly as a result
of the decline in energy costs.
Dream Global REIT 2015 Annual Report | 9
Economic impact on the German real estate sector
Germany remains one of the most highly sought-after real estate investment markets in Europe, benefiting from strong local
and international investor demand. In 2015, the total investment volume for commercial real estate increased for the sixth time
in as many years, reaching €55 billion.(3) This represented an increase of 40%(3) compared to the investment volume in 2014.
With €8 billion(1) in investments in Berlin alone, investments in Germany’s capital were the highest ever seen in any German
city. Another trend in 2015 was the rising investment volume outside of the “Big 7” office markets. €24 billion(3) were invested
in markets outside of the seven key markets. International investors continued to show a strong interest in German commercial
real estate, accounting for over half of the investment volume in 2015.(3)
The underlying fundamentals in the office sector remain strong with overall net absorption of office space continuing to be
positive across the Big 7 office markets. The average vacancy rate in the Big 7 office markets further declined in Q4 2015,
resulting in a 120 basis point decline from 7.6% at the end of 2014 to 6.4%(4) at December 31, 2015, and reaching its lowest
level since 2002.
(1) ILO labour market statistics overview, Destatis – Germany’s Federal Statistical Office.
(2) Deutsche Bundesbank – the central bank of the Federal Republic of Germany.
(3) JLL Investment Market Overview Q4 2015.
(4) JLL Office Market Overview Q4 2015.
SECTION II – EXECUTING THE STRATEGY
OUR OPERATIONS
Occupancy
Overall in-place and committed occupancy was 87.5% at December 31, 2015, an increase of 220 basis points from the end of
2014, and 70 basis points quarter-over-quarter compared to Q3 2015. Occupancy in our Initial Properties increased from 80.1%
at the end of 2014 to 81.8% at the end of 2015, due to our leasing efforts as well as property dispositions, including properties
that were sold but have not closed as at December 31, 2015. These properties are classified under “Assets held for sale” in the
consolidated financial statements and have been removed from our property level metrics disclosed under “Our Operations”,
including occupancy and vacancy rates, lease maturities, weighted average remaining lease term (“WALT”) and rental rates.
Occupancy in our Acquisition Properties decreased from 97.9% at the end of 2014 to 96.4% at December 31, 2015, reflecting
lease expiries during 2015 and below-average occupancy rates in the three properties acquired in 2015.
The table below details the percentage of occupied and committed space for the total portfolio as well as the comparative
portfolio. The comparative portfolio comprises properties owned by the Trust at December 31, 2014 and December 31, 2015,
and excludes properties that were acquired or sold during 2015.
Portfolio (%)
Initial Properties
Acquisition Properties(1)
Total
(1) Reflects the REIT’s Owned Share.
December 31,
2015
81.8
96.4
87.5
Total portfolio
December 31,
2014
80.1
97.9
85.3
December 31,
2015
81.8
97.2
87.0
Comparative portfolio
December 31,
2014
82.0
98.2
87.5
Dream Global REIT 2015 Annual Report | 10
Vacancy schedule
The tables below highlight our leasing activity for the three-month and twelve-month periods ended December 31, 2015.
During Q4 2015, our overall space available for lease decreased by 59,237 square feet. The decrease in vacancy was largely the
result of dispositions of Initial Properties and strong leasing during the quarter, slightly offset by some acquired vacancy.
Overall, we maintained a high retention rate of 72% across the entire portfolio in Q4 2015 and 79% for the year.
For the three months ended December 31, 2015
(in square feet)
Available for lease – October 1, 2015
Change in vacancy due to acquisitions
Change in vacancy due to dispositions
Remeasurements
Subtotal – available for lease
Expiries(2)
Early termination and bankruptcies
Deutsche Post extension expiries
New leases
Renewals(2)
Future leases for the period(2)
Available for lease – December 31, 2015
Initial Properties
1,529,238
–
(40,842)
(4,101)
1,484,295
93,981
–
–
(7,321)
(19,796)
(54,898)
1,496,261
Acquisition Properties(1)
213,374
18,801
–
(4,221)
227,954
175,948
179,917 (3)
–
(45,473)
(108,487)
(242,745) (3)
187,114
Total
1,742,612
18,801
(40,842)
(8,322)
1,712,249
269,929
179,917
–
(52,794)
(128,283)
(297,643)
1,683,375
(1) Reflects the REIT’s Owned Share.
(2) For the purposes of calculating tenant retention, 22,435 square feet of former head lease space was deducted from expiries as it was released to third
parties and Postbank leases for 51,140 square feet were treated as renewals.
(3) Approximately 172,300 square feet of space currently occupied by Imtech, a tenant who declared insolvency in August 2015, has been leased to the City of
Hamburg effective as at November 2016 and is therefore reflected in “Early termination and bankruptcies” and included in “Future leases for the period”.
For the year ended December 31, 2015
(in square feet)
Available for lease – January 1, 2015
Change in vacancy due to acquisitions
Change in vacancy due to dispositions(2)
Remeasurements
Subtotal – available for lease
Expiries(3)
Early termination and bankruptcies
Deutsche Post extension expiries
New leases
Renewals(3)
Future leases for the period
Available for lease – December 31, 2015
Initial Properties
2,085,616
–
(651,602)
(36,911)
1,397,103
297,826
3,584
135,878
(99,547)
(122,805)
(115,778)
1,496,261
Acquisition Properties(1)
93,521
73,243
(16,032)
(5,010)
145,722
770,434
198,634 (4)
–
(68,626)
(499,606)
(359,444) (4)
187,114
Total
2,179,137
73,243
(667,634)
(41,921)
1,542,825
1,068,260
202,218
135,878
(168,173)
(622,411)
(475,222)
1,683,375
(1) Reflects the REIT’s Owned Share.
(2) The reduction in vacancy in our Acquisition Properties resulted from the sale of a 50% interest in a property to POBA.
(3) For the purposes of calculating tenant retention, 105,000 square feet were deducted from expiries to reflect space that is subject to interim usage and
head lease space released to third parties; 80,000 square feet were added to renewals, currently included in new and future leases, reflecting tenant
takeovers and new leases with Postbank; 250,900 square feet were added to renewals and expiries to reflect Deutsche Post renewals relating to 2016
termination rights.
(4) Approximately 172,300 square feet of space currently occupied by Imtech, a tenant who has declared insolvency in August 2015, has been leased to the City
of Hamburg effective as at November 2016 and is therefore reflected in “Early termination and bankruptcies” and included in “Future leases for the period”.
Dream Global REIT 2015 Annual Report | 11
The table below highlights our occupancy, leasing activity and rental rates for the last eight quarters. Committed occupancy
includes in-place occupancy as well as space for which leases have been signed but do not commence until a future quarter.
Q4 2015(1)(2)
Q3 2015(1)(2)
Q2 2015(1)(2)
Q1 2015(1)(2)
Q4 2014(1)
Q3 2014
Q2 2014
Q1 2014
Occupancy
Committed occupancy
(square feet)
Committed occupancy
In-place occupancy
(square feet)
In-place occupancy
Leasing activity
Expiries
Early termination and
bankruptcies
New leases
Renewals
Future leases
Net leasing absorption
(before DP terminations)
11,744,793
87.5%
11,478,813
86.8%
11,523,398
86.1%
11,920,554
86.0%
12,660,524
85.3%
13,788,078
87.1%
13,787,918
87.9%
13,874,523
87.7%
11,653,086
86.8%
11,403,146
86.2%
11,488,609
85.8%
11,867,554
85.6%
12,568,632
84.7%
13,603,696
85.9%
13,644,620
87.0%
13,753,248
86.9%
(269,929 )
(235,519 )
(330,102 )
(232,711 )
(210,323 )
(203,087 )
(175,716 )
(113,105 )
(179,917 )
52,794
128,283
297,643
(3,584 )
49,346
124,820
71,803
(2,898 )
44,309
225,341
70,626
(15,819 )
21,725
143,968
35,150
(18,214 )
37,589
153,804
31,773
(38,709 )
89,075
143,271
101,670
(8,908 )
21,370
133,149
68,328
(24,143 )
46,185
52,633
142,236
28,874
6,866
7,276
(47,687 )
(5,371 )
92,220
38,223
103,806
Deutsche Post leasing activity
Deutsche Post terminations
Expiries of Deutsche Post
extensions
Deutsche Post/Postbank
renewals and extensions
Net leasing absorption
(incl. DP terminations)
Average in-place rent
(€/sq. ft./year)
% change
–
–
–
–
–
–
–
–
(99,214 )
(1,756,589 )
(30,363 )
(105,515 )
(231,311 )
–
–
–
99,214
1,492,986
–
–
–
–
–
–
28,874
6,866
(23,087 )
(153,202 )
(236,682 )
(171,383 )
38,223
103,806
€9.61
1.6%
€9.46
0.7%
€9.39
1.4%
€9.26
4.5%
€8.86
(0.4)%
€8.90
1.8%
€8.74
0.3%
€8.72
3.0%
(1) Reflects the REIT’s Owned Share.
(2) Excludes properties held for sale.
In-place rental rates
In-place rents have increased from approximately €8.86 per square foot/year at December 31, 2014 to approximately €9.61 per
square foot/year at December 31, 2015, reflecting higher in-place rents in the Acquisition Properties as well as higher rents on
renewals and new leases. The majority of the leases in the Acquisition Properties portfolio include rent adjustment clauses
linked to an increase in the consumer price index (“CPI”). Overall, average market rents remain above in-place rents as at
December 31, 2015. As at December 31, 2015, the overall spread between in-place rents and market rents was 6.1%. The
difference between in-place rents and market rents in our Initial Properties is approximately 15.3%, allowing for rental rate
growth in this segment of our portfolio.
For certain Acquisition Properties, where in-place rents exceeded estimated market rents, the purchase price was adjusted to
reflect such above-market rents. The gap between market and in-place rental rates continued to narrow throughout the year
and as at December 31, 2015, market rents exceeded in-place rents by 1.8%. This was largely a result of increasing market rents
across the portfolio as well as the acquisition of Rivergate in Vienna, Austria at an average in-place rent below the current
market rent.
Dream Global REIT 2015 Annual Report | 12
The table below provides a comparison between in-place rents and estimated market rents in our portfolio as at December 31, 2015.
(per square foot/year)
Initial Properties – Deutsche Post(1)
Initial Properties – third party
Total Initial Properties(2)
Acquisition Properties(3)
Overall
In $
(as at December 31, 2015)
In-place rent Market rent
$ 9.28
$ 7.92
9.89
8.96
9.43
8.18
23.22
22.82
$ 15.34
$ 14.46
(1) Includes renewals of space relating to the Deutsche Post 2016 termination rights.
(2) Excludes properties held for sale.
(3) Reflects the REIT’s Owned Share.
In €
(as at December 31, 2015)
In-place rent Market rent
€ 6.17
6.57
6.27
15.44
€ 10.20
€ 5.27
5.96
5.44
15.17
€ 9.61
% of market rents
above (below)
in-place rents
17.1
10.2
15.3
1.8
6.1
Market rent represents management’s best estimate of the net rental rate that would be achieved in the event a unit becomes
vacant in a new arm’s length lease after a reasonable marketing period with an inducement and lease term appropriate for the
particular space. Market rent by property is determined on a quarterly basis by our leasing and portfolio management teams.
The basis of calculating market rents depends on leasing deals that are completed for similar space in comparable properties in
the area. Market rents may differ by property or by unit within the property and depend on a number of factors. Some of the
factors include the condition of the space, the location within the building, the extent of office build-out for the units,
appropriate lease term and normal tenant inducements. Market rental rates are also compared against the external appraisal
information that is gathered on a quarterly basis, as well as other external market data sources.
At December 31, 2015, the WALT of all leases was approximately 4.4 years.
(years)(1)
Initial Properties – Deutsche Post
Initial Properties – third party
Total Initial Properties
Acquisition Properties(4)
Overall
WALT at
December 31, 2015
2.8 (2)
5.7
3.5 (3)
5.6
4.4
WALT at
December 31, 2014
3.5
5.4
3.9
5.3
4.4
(1) For the purpose of calculating WALT, month-to-month leases are reflected as leases with a one-year term.
(2) Includes renewals of space relating to the Deutsche Post 2016 termination rights.
(3) Excludes properties held for sale.
(4) Reflects the REIT’s Owned Share.
Leasing and tenant profile
Lease rollover profile
The following table outlines our lease maturity profile by asset type as at December 31, 2015. Our lease maturity profile
remains staggered with only approximately 11% (excluding space leased on a month-to-month basis) of our portfolio expiring
prior to 2018.
(in square feet)
Initial
Properties(1)
Acquisition
Properties
Total GLA
Total GLA (%)
Total GRI ($)
Total GRI (%)
Current
vacancy
Month-to-
month
2016
2017
2018
2019
2020+
Total
1,496,261
281,416
155,474
321,631
3,717,482
786,556
1,447,223
8,206,043
187,114
1,683,375
12.5%
34,264
315,680
2.4%
423,359
578,833
4.3%
337,960
4,055,442
30.2%
3,897,830 12,209,575 15,905,468 37,493,953
20.9%
617,639
939,270
7.0%
8.9%
6.8%
2.2%
530,542
1,317,098
9.8%
3,091,248
4,538,471
33.8%
5,222,126
13,428,169
100%
20,883,663 88,611,202 179,001,691
100.0%
49.5%
11.7%
(1) Includes renewals of space relating to the Deutsche Post 2016 termination rights.
Deutsche Post leases
The leases with Deutsche Post, which primarily expire on June 30, 2018 (many of which provide Deutsche Post with an option
to extend the term until June 30, 2023) and contractual extensions described below comprise approximately 37.7% of the
portfolio’s GLA and account for approximately 22.4% of the portfolio’s GRI.
Dream Global REIT 2015 Annual Report | 13
Below is a detailed expiry schedule for all Deutsche Post leases within our Initial Properties:
Deutsche Post lease expiries
Q4 2015
2016
2017
2018
2019
2020
2021
2022
2023
Total Deutsche Post lease expiries
Total GLA (sq. ft.)
8,958
13,222
164,911
3,655,643
617,372
527,425
57,890
6,376
5,745
5,057,542
Rent adjustment
The rents under the Deutsche Post leases are subject to automatic adjustments (up or down) in relation to the German CPI. If
the CPI for Germany changes by more than 4.3 index points as compared to the index at the commencement of the applicable
lease or the previous rent adjustment, the rent payable under the Deutsche Post leases is automatically adjusted by 100% of
the index change, with effect as of the time of the index change. Based on the index at the last CPI adjustment date, the index
will have to exceed 107.2 index points before the next adjustment will become effective. CPI numbers from December 2015
indicate that the CPI has reached 107.0 index points. German inflation rates remained fairly low in 2015, largely as a result of
the decline in energy costs.
Termination rights
In general, the Deutsche Post leases have a fixed term of 10 years, expiring on June 30, 2018. These leases entitled Deutsche
Post to terminate space in 2012, 2014 and 2016, subject to certain limitations and requirements. The rights of Deutsche Post to
terminate a lease are limited by various tests that apply collectively to the Deutsche Post leases and the leases in respect of the
remaining properties forming the portfolio the vendor of the Initial Properties acquired from Deutsche Post in July 2008 (the
“Caroline DP Leases”), considered as a whole.
In addition, by June 30, 2017, Deutsche Post is required to provide the REIT with a list of Deutsche Post leases and/or Caroline
DP Leases for which the term of such lease shall be extended for two additional years. This list must amount to at least 33.33%
of the total reference rent of all Deutsche Post leases and Caroline DP Leases, considered as a whole, which at the beginning of
the lease had no termination options. With the contractual extension, the Trust will receive a continuation of income of at least
8% of the reference rent (equivalent of 265,100 square feet of space) pertaining to the Deutsche Post leases that are scheduled
to expire in 2018 for the additional two years, which are reflected in the 2020 lease expiries in the table above.
2012 termination rights
One of the opportunities that Deutsche Post terminations afforded the REIT is the ability to take advantage of the large blocks
of contiguous vacant space the tenant left, making the terminated space more attractive for re-leasing to some prospective
tenants. When combined with higher rents that we generally achieve on the terminated space, we see this reflected in the
overall performance of the terminated properties. On July 1, 2012, Deutsche Post terminated a total of approximately
1.1 million square feet of space of which approximately 203,000 square feet were either extended by Deutsche Post or
re-leased to Postbank. Through our leasing efforts, as of December 31, 2015, we have been able to successfully replace
approximately 86%(1) of the GRI generated by the terminated properties prior to the 2012 terminations.
(1) Compared to GRI of the terminated properties as of Q2 2012, excluding properties sold or held for sale. GRI as of December 31, 2015 includes in-place
leases and leases committed for future occupancy.
2014 termination rights
On July 1, 2014, Deutsche Post terminated a total of approximately 1,757,000 square feet of space of which approximately
1,493,000 square feet were either extended by Deutsche Post or re-leased to Postbank. Lease extensions with Deutsche Post as
well as third-party leases for 2014 terminated buildings have replaced approximately 77%(1) of the GRI generated from the 2014
terminated properties as at December 31, 2015.
(1) Compared to GRI of the terminated properties as of Q2 2014, excluding properties sold or held for sale. GRI as of December 31, 2015 includes in-place
leases and leases committed for future occupancy.
Dream Global REIT 2015 Annual Report | 14
2016 termination rights
Excluding dispositions and assets held for sale, Deutsche Post had the right to terminate up to approximately 392,600 square
feet in 16 properties effective as at June 30, 2016. We retained Deutsche Post in 14 of the 16 properties, or 342,049 square feet
of space, retaining 84% of the GRI with respect to the terminated space. Lease negotiations with Deutsche Post resulted in the
renewal of space in eight assets, in addition to the tenant not exercising their termination rights in six assets. Deutsche Post
exercised their termination right with respect to two assets for 24,526 square feet.
1-year renewal(1)
3-year renewal
5-year renewal
2016 renewals
No termination exercised
Subtotal of space retained
Termination notice exercised
Space subleased to Postbank
Total
Number of assets
1
3
4
8
6
14
2
16
Total GLA (sq. ft.)
135,766
57,806
57,310
250,882
91,167
342,049
24,526
26,011
392,586
(1) This property located in Hamburg will be a redevelopment site once Deutsche Post vacates the space. The Trust is working on rezoning plans for a
multi-use project.
In Q4 2015, we signed eight leases with Postbank, retaining them as a tenant in the entire 26,011 square feet of space they
originally subleased from Deutsche Post, in addition to approximately 7,100 square feet of space in two properties for which
Deutsche Post exercised termination notices. With the signing of these leases, the GRI retention rate pertaining to the 2016
terminations increased to approximately 99% as at December 31, 2015.
OUR RESOURCES AND FINANCIAL CONDITION
Investment properties
As at December 31, 2015, the value of our investment property portfolio was $2.4 billion (December 31, 2014 – $2.1 billion).
The REIT’s management is responsible for determining fair value measurements included in the consolidated financial
statements, including fair values of investment properties, which are valued on a highest and best use basis. Fair values for
investment properties are calculated using both the direct income capitalization and discounted cash flow (“DCF”) methods.
The results of both methods are evaluated by considering the reasonableness of the range of values calculated under both
methods. Fair value of a property is determined at the point within that range that is most representative of the fair value in
the circumstances.
Changes in the value of our investment properties for the year ended December 31, 2015 and for the year ended December 31,
2014 are summarized in the table below as follows:
Amounts per
consolidated
financial
statements
$ 2,079,671 $
Balance at beginning of year
Additions
Acquisitions
Building improvements
Lease incentives and initial direct leasing costs
Amortization of lease incentives
Dispositions (Initial Properties)
Reclassified to assets held for sale
POBA joint venture assets reclassified to assets
held for sale
Fair value adjustments
Transaction and other costs related to acquisition
Foreign currency translation
Balance at end of year
237,019
14,375
8,332
(2,245 )
(252 )
(97,472 )
(69,368 )
80,898
(11,401 )
152,724
$ 2,392,281 $
December 31, 2015
December 31, 2014
Share from
investment
in joint
ventures
Total
284,417 $ 2,364,088 $ 2,390,244 $
Amounts per
consolidated
financial
statements
Share from
investment
in joint
ventures
Total
– $ 2,390,244
142,805
181
627
(116 )
–
–
379,824
14,556
8,959
(2,361 )
(252 )
(97,472 )
422,166
12,730
14,908
(1,458 )
(144 )
(161,174 )
6
244
229
(9 )
–
–
422,172
12,974
15,137
(1,467 )
(144 )
(161,174 )
34,684
(34,684 )
111,703
30,805
–
(11,401 )
23,684
176,408
517,087 $ 2,909,368 $ 2,079,671 $
(573,521 )
97,505
(20,866 )
(100,719 )
286,760
1,703
–
(4,516 )
(286,761 )
99,208
(20,866 )
(105,235 )
284,417 $ 2,364,088
Dream Global REIT 2015 Annual Report | 15
Investment properties held for sale
Balance at beginning of year
Building improvements
Lease incentives and initial direct leasing costs
Investment properties reclassified as held for sale
Investment properties reclassified as held for sale – POBA joint venture assets
Fair value adjustments
Dispositions
Dispositions – POBA joint venture assets
Foreign currency translation
Balance at end of year
For the year
ended
December 31,
2015
42,897
50
–
97,472
69,368
(1,061 )
(110,665 )
(69,368 )
3,850
32,543
$
$
For the year
ended
December 31,
2014
21,147
11
(131 )
161,174
573,521
(4,392 )
(130,746 )
(573,521 )
(4,166 )
42,897
$
$
During the year ended ended December 31, 2015, one Acquisition Property was reclassified as asset held for sale and then sold
to POBA at a fair value of $69.4 million, with the REIT retaining a 50% interest. In addition, we reclassified other properties from
the Initial Properties valued at $97.5 million as assets held for sale. During 2015, we acquired three properties for
$237.0 million (including transaction costs). We also acquired a 50% interest in a property in Vienna, Austria, through an
investment in a joint venture for $142.7 million during the year which is reflected as investment in joint ventures in the
consolidated financial statements.
During the year ended December 31, 2015, Acquisition Properties increased by $111.7 million, mainly due to capitalization rate
(“cap rate”) compression, strong leasing performance as well as asset management and repositioning efforts. Due to the
appreciation of the euro against the Canadian dollar from $1.404 at the end of 2014 to $1.503 at the end of 2015, the
investment property value increased by $176.4 million, representing an unrealized foreign exchange gain.
Acquisitions
During the year ended December 31, 2015, we completed the following acquisitions:
Office property
Millerntorplatz 1, Hamburg
Anger Entrée, Krämpferstrasse 2,4,6, Erfurt
Zimmerstraße 56 / Schützenstraße 15-17
Acquisition through joint venture
Rivergate, Vienna, Austria(2)
Total
Acquired GLA
(sq. ft.)
374,477
131,116
169,424
675,017
Occupancy at
acquisition (%)
88
96
99
92
Purchase price(1)
Date acquired
$
133,351
27,481
64,678
225,510
February 6, 2015
September 4, 2015
October 27, 2015
287,144
962,161
94
93
$
142,676
368,186
December 16, 2015
(1) Excludes transaction costs of $11.5 million and $0.1 million related to the acquisition through joint venture.
(2) Represents the REIT’s 50% interest in the Rivergate joint venture.
Dispositions
The REIT completed the sale of 11 properties during the three months ended December 31, 2015, for an aggregate gross sales
price of approximately $40.9 million, which represented 102% of their fair value at the last reporting period prior to their sale.
A portion of the net proceeds of $25.3 million was used to reduce our term loan credit facility. During the year ended
December 31, 2015, we disposed of 51 investment properties for an aggregate gross sales price of approximately
$110.9 million. Including the eight assets for which we signed purchase and sale agreements in Q4 2015, we had a total of
12 properties under contract for sale at December 31, 2015 for an aggregate gross sales price of $32.5 million, representing the
assets’ approximate fair value. As at December 31, 2015, these properties were reclassified as assets held for sale on the
balance sheet and excluded from the value of investment properties, as the REIT has committed to a plan of sale for these
investment properties. In total, we realized a fair value loss of $1.1 million on these properties and dispositions.
Building improvements
Building improvements represent investments made in our investment properties to ensure our buildings are operating at an
optimal level. Such improvements are expected to increase the Trust’s ability to obtain higher rental rates. During the three
months and year ended December 31, 2015, we spent $7.0 million and 14.6 million, respectively, on building improvements. In
general, building improvements are non-recoverable from the tenants unless specifically provided for in the lease agreement.
Dream Global REIT 2015 Annual Report | 16
Initial direct leasing costs and lease incentives
Initial direct leasing costs include external leasing fees and related costs, and broker commissions incurred in negotiating and
arranging tenant leases. Lease incentives include costs incurred to make leasehold improvements to tenant spaces and cash
allowances. They generally help to attract and put in place high value tenancies or to improve the quality of the asset. Initial
direct leasing costs and lease incentives are dependent on asset type, lease terminations and expiries, the mix of new leasing
activity compared to renewals, portfolio growth and general market conditions. Short-term leases generally have lower costs
than long-term leases.
During the three months and year ended December 31, 2015, we incurred $2.4 million and $9.0 million, respectively, of lease
incentives and initial direct leasing costs. As at December 31, 2015, we had outstanding initial direct leasing cost commitments
of $11.2 million, for lease terms in excess of 10 years on average, including commitments related to a 20-year lease deal with
the City of Hamburg for the entire 172,000 square feet of space at our property located at Hammer Strasse 30–34 in Hamburg.
Investment in joint ventures
As at December 31, 2015, the carrying amount of the investment in joint ventures was $272.7 million (December 31, 2014 –
$160.0 million).
The Trust participates in partnerships (“joint ventures”) with other parties that own investment properties and accounts for its
interests using the equity method in the consolidated financial statements. The discussion of our operations includes our share
of the joint ventures. Refer to the section “Non-GAAP measures and other disclosures” for a reconciliation to the consolidated
financial statements.
Name
POBA joint venture
Löwenkontor
Vordernbergstrasse 6/Heilbronner Strasse 35 (Z-UP)
Speicherstrasse 55 (Werfthaus)
Derendorfer Allee 4–4a (doubleU)
Neue Mainzer Strasse 28 (K26)
ABC-Strasse 19 (ABC Bogen)
Marsstrasse 20–22
Liebknechtstr. 33/35, Heßbrühlstr. 7 (Officium)
Rivergate joint venture
Location
Berlin, Germany
Stuttgart, Germany
Frankfurt, Germany
Düsseldorf, Germany
Frankfurt, Germany
Hamburg, Germany
Munich, Germany
Stuttgart, Germany
Vienna, Austria
Ownership interest (%)
December 31,
2015
December 31,
2014
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
100
n/a
During Q1 2015, the REIT agreed to sell a 50% interest in an Acquisition Property that was held in a separate subsidiary to
POBA. As a result, the property valued at $69.4 million (at 100%) and its related mortgage valued at $40.7 million were
derecognized as at January 30, 2015. The total consideration to the REIT for the 50% interest in the property was $36.8 million.
The REIT incurred transaction costs of $0.3 million relating to the sale, resulting in net proceeds to the REIT of $16.0 million.
The REIT recorded a gain on the sale of $3.2 million, including $0.4 million of deferred tax loss. As at December 31, 2015, the
REIT co-owned a total of eight Acquisition Properties with POBA.
On December 16, 2015, the REIT entered into a joint venture with an Asian sovereign wealth fund to jointly acquire Rivergate,
an office property located in Vienna, Austria. The total consideration paid on the date of closing for the equity interest was
$157.6 million, which was subsequently financed by an additional mortgage of $29.4 million held within the joint venture.
The property was acquired for $285.4 million (Trust’s share – $142.7 million) with a mortgage totalling $156.9 million (Trust’s
share – $78.5 million). The mortgage carries a fixed rate of 1.60% per annum, maturing on December 16, 2020. The REIT holds
a 50% interest in the property, which is held in a separate subsidiary. The REIT incurred $1.9 million in transaction costs related
to the acquisition, which are reflected in investments in joint ventures in the consolidated financial statements.
During the year ended December 31, 2015, the fair value of the investment properties held by joint ventures increased by
$61.6 million. The REIT’s 50% share of this increase was $30.8 million, which was reflected in the investment in joint ventures
as at December 31, 2015.
During the year ended December 31, 2015, the REIT recorded fee income relating to the POBA joint venture of $3.2 million
(year ended December 31, 2014 – $nil), which is included in interest and other income.
The investment properties that the joint ventures hold are consistent in terms of the class and type of properties held in the
Trust’s portfolio.
Dream Global REIT 2015 Annual Report | 17
OUR CAPITAL
Liquidity and capital resources
Dream Global’s primary sources of capital are cash generated from operating activities, a credit facility, mortgage financing and
refinancing, and equity and debt issues. Our primary uses of capital include the payment of distributions, costs of attracting
and retaining tenants, recurring property maintenance, major property improvements, debt amortization and interest
payments, and property acquisitions. We expect to meet all of our ongoing obligations through current cash and cash
equivalents, cash generated from (utilized in) operations, draws on the credit facility, debt refinancings and, as growth requires
and when appropriate, new equity or debt issues.
In our consolidated financial statements (“IFRS”), our current liabilities exceed our current assets by $57.3 million, which
includes the temporary draw of $29.9 million drawn on our revolving credit facility as at December 31, 2015. Typically, real
estate entities seek to address liquidity needs by having a balanced debt maturity schedule and undrawn credit facilities. We
are able to use our credit facility on short notice, which eliminates the need to hold a significant amount of cash and cash
equivalents on hand. Working capital balances fluctuate significantly from period to period depending on the timing of receipts
and payments. Scheduled principal repayments that are due within one year amount to $18.2 million and there are no debt
maturities that are due within one year. A total of $11.2 million of the term loan credit facility is payable within one year in
connection with assets held for sale and will be financed with proceeds from dispositions. The debt maturities are typically
refinanced with mortgages of terms between five and ten years. Amounts payable outstanding at the end of any reporting
period depend primarily on the timing of leasing costs, capital expenditures incurred as well as the impact of transaction costs
incurred on any acquisitions completed during the reporting period.
As at December 31, 2015, we had $28.7 million of cash on hand. Our debt-to-gross book value (net of cash) at December 31,
2015 was 54%. Excluding cash and convertible debentures, our debt-to-gross book value (net of cash) was 49%.
Debt
Total debt
Less debt related to:
Investment in joint ventures
Debt (per consolidated financial statements)
Mortgage debt
Less mortgage debt related to:
Investment in joint ventures
Mortgage debt (per consolidated financial statements)
December 31,
2015
1,647,967 $
December 31,
2014
1,381,132
267,075
1,380,892 $
152,736
1,228,396
December 31,
2015
1,108,176 $
December 31,
2014
854,061
267,075
841,101 $
152,736
701,325
$
$
$
$
Debt strategy
Our debt strategy is to obtain non-recourse secured mortgage financing, with a term to maturity that is appropriate in relation
to the lease maturity profile of our portfolio. Our preference is to have staggered debt maturities to mitigate interest rate risk
and limit refinancing exposure in any particular period. We also intend to enter into long-term loans at fixed rates when
borrowing conditions are favourable. This strategy will be complemented with the use of unsecured convertible debentures
and floating rate credit facilities. We operate within a targeted debt-to-gross book value (net of cash) range of 50% to 60%. Our
average debt-to-gross book value ratio for 2015 decreased to 52% from 55% in 2014. At December 31, 2015, the debt-to-gross
book value ratio (net of cash) was 54%, an increase from 51% at December 31, 2014, which largely reflects the temporary draw-
down on our revolving credit facility to fund our acquisition of Rivergate, which was completed on December 16, 2015.
Dream Global REIT 2015 Annual Report | 18
The key performance indicators in the management of our debt are as follows:
Financing activities
Weighted average interest rate(1)(2)
Weighted average effective rate(2)(4)
Level of debt (debt-to-gross book value, net of cash, net of convertible debentures)(2)(3)
Level of debt (debt-to-gross book value, net of cash) at period-end(2)(3)(5)
Average level of debt, net of cash(2)(3)(6)
Interest coverage ratio(2)(3)
Debt – average term to maturity (years)(2)(6)
For the year
ended
December 31,
2015
For the year
ended
December 31,
2014
2.49 %
3.02 %
49 %
54 %
52 %
3.08 times
5.0
3.23 %
3.54 %
45 %
51 %
55 %
3.26 times
4.3
(1) Weighted average interest rate is calculated as the weighted average face rate of all interest bearing debt.
(2) Reflects the REIT’s Owned Share.
(3) Level of debt and interest coverage ratio are non-GAAP measures. Calculations for each reconciled to IFRS balances can be found under “Non-GAAP
measures and other disclosures”.
(4) Weighted average effective interest rate is calculated as the weighted average face rate of interest net of amortization of fair value adjustments and
financing costs of all interest bearing debt.
(5) Increase of debt level to 54% at the end of 2015 was largely a result of the temporary draw-down of the Trust’s revolving credit facility to fund acquisitions.
(6) This metric excludes the revolving credit facility, which was drawn down temporarily to fund the acquisition of Rivergate.
We currently use cash flow performance and debt level indicators to assess our ability to meet our financing obligations. Our
current interest coverage ratio for the first quarter is 3.08 times and reflects our ability to cover interest expense requirements.
Financing activities
We finance our ownership of assets using equity as well as conventional mortgage financing, term debt, floating rate credit
facilities and convertible debentures.
New debt
During the year ended December 31, 2015, we obtained the following new mortgages:
Property
Millerntorplatz 1, Hamburg
Anger Entrée, Krämpferstrasse 2,4,6, Erfurt
Zimmerstraße 56 / Schützenstraße 15-17
Mortgage through joint venture
Rivergate, Vienna, Austria
Total
Mortgage
($000s)
84,283 €
15,358
38,807
138,448
Mortgage
(€000s)
59,400
10,300
26,520
96,220
78,472
216,920 €
51,975
148,195
$
$
Face rate
Date of funding
Date of maturity
February 6, 2015
1.71 %
February 6, 2025
1.42 % September 25, 2015 September 30, 2022
October 31, 2022
0.95 % October 30, 2015
1.60 % December 17, 2015 December 16, 2020
On February 6, 2015, the Trust secured a mortgage with a principal balance of $84.3 million (€59.4 million) at a fixed rate of
1.71% per annum, maturing on February 6, 2025, in connection with the acquisition of Millerntorplatz 1, in Hamburg.
On September 25, 2015, the Trust secured a mortgage with a principal balance of $15.4 million (€10.3 million) at a fixed rate of
1.42% per annum, maturing on September 30, 2022, in connection with the acquisition of Anger Entrée in Erfurt.
On October 27, 2015, the Trust secured a mortgage with a principal balance of $38.8 million (€26.5 million) at a variable rate of
three-month EURIBOR plus 0.95% per annum, maturing on October 31, 2022, in connection with the acquisition of
Zimmerstrasse, in Berlin. Concurrent with the closing of the mortgage, the Trust purchased an interest rate cap with a 1% strike
price, which effectively caps the mortgage interest at 1.95%.
On December 16, 2015, the REIT and its joint venture partner closed the acquisition of Rivergate in Vienna, Austria. In
connection with this transaction, a mortgage was secured with a principal balance of $156.9 million (€104.0 million) at a fixed
rate of 1.60% per annum, maturing on December 16, 2020. The REIT’s 50% interest in the mortgage was $78.5 million
(€52.0 million).
Dream Global REIT 2015 Annual Report | 19
During the year ended December 31, 2015, the REIT sold a 50% interest in an additional Acquisition Property as part of a joint
venture agreement with POBA. In conjunction with this sale, $40.7 million of the mortgage debt relating to the asset was
assumed by the joint venture (net of deferred financing costs – $40.2 million). As the REIT retained a 50% interest in the POBA
joint venture, the REIT is liable for $267.1 million of mortgage debt through its obligations in the joint venture investments.
Debt refinancings
On September 24, 2015, the REIT refinanced a mortgage totalling $37.1 million (€24.8 million) pertaining to a property in
Düsseldorf. The property is 50% owned by POBA as part of the joint venture and the REIT’s share of the mortgage is
$18.5 million (€12.4 million). The original mortgage had an interest rate of 2.09% per annum, with a maturity date of July 31,
2017. The refinanced mortgage has an interest rate of 1.40% per annum, with a maturity date of December 31, 2021. Due to
appreciation of the value of the property, the mortgage was increased by $7.8 million (€5.2 million) upon refinancing. The REIT
received a 50% share of the proceeds from the increase, or $3.9 million (€2.6 million), which was used for general corporate
purposes. The refinanced loan has an amortization of 2% per annum, an increase from 1.4% per annum under the previous
mortgage.
On October 14, 2015, the REIT refinanced a mortgage totalling $48.6 million (€33.0 million) pertaining to a property in Berlin.
The property is 50% owned by POBA as part of the joint venture and the REIT’s share of the mortgage is $24.3 million
(€16.5 million). The original mortgage had an interest rate of 2.37% per annum, with a maturity date of March 29, 2018. The
refinanced mortgage has an interest rate of 1.59% per annum, with a maturity date of September 30, 2022. Upon refinancing,
the mortgage was increased by $10.0 million (€6.8 million) and the REIT’s 50% share of the proceeds from the increase,
$5.0 million (€3.4 million), will be used for general corporate purposes. The refinanced loan requires no principal amortization
until June 2019, when a 2% amortization per annum on the initial loan amount will be required. This compared to the 2% per
annum under the previous mortgage. Debt settlement cost incurred for the refinancing amounted to $1.1 million (€0.7 million),
which is non-recurring in nature, and the REIT’s share is included in investments in joint ventures. The REIT’s 50% share of the
costs amounted to $0.5 million (€0.4 million).
Debt composition
Term loan credit facility(1)
Revolving credit facility
Mortgage debt(1)(2)
Debentures(1)
Total
Percent
$
$
Variable
355,325 $
29,908
39,267
–
424,500 $
26 %
Fixed
December 31, 2015
Total
355,325 $
29,908
1,108,176
154,558
1,647,967 $
100 %
– $
–
1,068,909
154,558
1,223,467 $
74 %
December 31, 2014
Variable
7,957 $
Fixed
366,749 $
Total
374,706
–
–
7,957 $
1 %
854,061
152,365
1,373,175 $
99 %
854,061
152,365
1,381,132
100 %
(1) Balance shown is net of deferred financing costs and mark-to-market adjustments.
(2) Includes the REIT’s share of mortgages related to the joint ventures.
Amounts recorded as at December 31, 2015 for the Debentures are net of $3.5 million of premiums allocated to their
conversion features on issuance. The premiums are amortized to interest expense over the term to maturity of the related debt
using the effective interest rate method.
Term loan credit facility
Concurrent with the closing of our initial public offering, we obtained a term loan credit facility (the “Facility”) from a syndicate
of German and French banks. On December 14, 2015, we successfully refinanced the Facility with a new, interest-only facility
with a major U.S. financial institution (the “New Facility”) for gross proceeds of $369.5 million (€244.1 million) and fully repaid
and discharged the remaining outstanding balance under the Facility. The New Facility has a term of five years and a variable
interest rate calculated and payable quarterly at a rate equal to the aggregate of the three-month EURIBOR plus a margin of
225 basis points (the “margin”). Pursuant to the requirement of the New Facility, we purchased EURIBOR interest rate caps with
a weighted average strike rate of 1.03% to cover 95% of the New Facility. Costs relating to the New Facility were $11.6 million
(€7.7 million). In connection with the refinancing, the Trust incurred an interest rate swap debt settlement cost of $5.4 million
(€3.6 million) relating to the Facility, which is non-recurring in nature and equates to less than the amount of interest savings
pertaining to the New Facility for one year.
As at December 31, 2015, the weighted average rate of the New Facility was 2.25%. Including financing costs, the effective
interest rate under the Facility was 3.01%.
The New Facility agreement requires that at each interest payment date, and each date of prepayment of the New Facility, the
interest coverage ratio is equal to or above 2.35 times and the loan-to-value ratio does not exceed 60%.
Dream Global REIT 2015 Annual Report | 20
There are no prepayment fees on property dispositions for up to 25% of the portfolio value within the first two years of the
loan and up to 40% of the portfolio value during the term of the loan. On property dispositions, 110% of the loan amount
allocated to the disposed property has to be repaid. The prepayment amount exceeding the established thresholds for property
dispositions within the first two years of the loan is subject to a prepayment fee equal to a yield maintenance fee. Commencing
in year 3, a prepayment fee of 2.0% is payable, which subsequently drops to 1.5% in year 4, and no prepayment fee is payable
in the final year of the New Facility.
Revolving credit facility
On October 10, 2013, the Trust entered into a credit agreement with a Canadian bank to provide a revolving credit facility not
to exceed €25 million. The interest rate on Canadian dollar advances is prime plus 200 basis points and/or bankers’ acceptance
rates plus 300 basis points. The interest rate for euro advances is 300 basis points over the three-month EURIBOR rate. On
August 14, 2014, the REIT increased the revolving credit facility to €50 million and on April 1, 2015 further increased it to
€75 million.
On November 20, 2015, the REIT obtained lender approval to increase the principal amount of the revolving credit facility from
€75 million to €100 million, with no change in the covenants or interest rate spreads. In addition to the additional capacity, the
term was extended by one year to September 25, 2017. As at December 31, 2015, there was a drawn balance of $29.9 million
(€19.9 million) on the revolving credit facility. There was also an undrawn letter of credit commitment for €1.2 million against
the facility at December 31, 2015.
Convertible debentures
As at December 31, 2015, the total principal amount of Debentures outstanding was $161 million, convertible into an aggregate
of 12,384,619 Units. The Debentures bear interest at 5.5% per annum, are payable semi-annually on July 31 and January 31
each year, and mature on July 31, 2018. Each $1,000 principal amount of the Debentures is convertible at any time by the
holder into 76.9231 Units, representing a conversion price of $13.00 per unit. On or after August 31, 2014, and prior to
August 31, 2016, the Debentures may be redeemed by the Trust, in whole or in part, at a price equal to the principal amount
plus accrued and unpaid interest on not more than 60 days’ and not less than 30 days’ prior written notice, provided the
weighted average trading price for the Units for the 20 consecutive trading days, ending on the fifth trading day immediately
preceding the date on which notice of redemption is given, is not less than 125% of the conversion price. On or after August 31,
2016, and prior to July 31, 2018, the maturity date, the Debentures may be redeemed by the Trust at a price equal to the
principal amount plus accrued and unpaid interest.
The conversion feature of the Debentures is remeasured in each reporting period to fair value, with changes in fair value
recorded in comprehensive income. The Trust recorded a fair value loss of $3.0 million for the three-month period, and a fair
value gain of $0.1 million for the twelve-month period ended December 31, 2015, attributed to the conversion feature.
The table below highlights our debt maturity profile:
2016
2017
2018
2019
2020
2021 and thereafter
Acquisition date fair value adjustments
Financing costs
Total(1)
(1) Includes the REIT’s share of mortgages related to the joint ventures.
(2) Includes $161 million of convertible debentures.
Debt maturities
41,117
56,998
(2)
337,453
32,955
567,504
550,438
1,586,465
$
$
Scheduled
principal
repayments on
non-matured debt
$
$
18,229 $
17,520
14,218
13,251
10,949
18,772
92,939
$
Total
59,346
74,518
351,671
46,206
578,453
569,210
1,679,404
(3,527 )
(27,910 )
1,647,967
Dream Global REIT 2015 Annual Report | 21
Commitments and contingencies
We are contingently liable with respect to guarantees that are issued in the normal course of business and with respect to
litigation and claims that may arise from time to time. In the opinion of management, any liability that may arise from such
contingencies would not have a material adverse effect on our consolidated financial statements.
As at December 31, 2015, the REIT’s future minimum commitments under operating leases are as follows:
Less than 1 year
1–5 years
Longer than 5 years
Total
$
Operating lease payments
985
1,236
–
2,221
$
During the three months and year ended December 31, 2015, the Trust paid $0.2 million and $0.9 million in minimum lease
payments, respectively, which have been included in comprehensive income for the period.
Foreign currency contracts
At December 31, 2015, we had various currency forward contracts in place to sell euros for Canadian dollars for the next
36 months. On settlement of a contract, we realize a gain or loss on the difference between the forward rate and the spot rate.
We also mark the contracts to market quarterly and recorded an unrealized loss of $1.7 million and $13.4 million for the three-
month and twelve-month periods ended December 31, 2015, respectively.
At December 31, 2015, the Trust had foreign exchange forward contracts to sell €163.9 million in total from January 2016 to
December 2018 at an average exchange rate of $1.450 per euro.
The table below highlights the forward contracts outstanding as at December 31, 2015:
Contracts by quarter
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Total
Hedge value Weighted average hedge rate
1.417
$ 16,825
1.427
16,848
1.448
16,493
1.440
16,718
1.452
16,629
1.446
16,738
1.484
16,367
1.461
16,748
1.427
6,353
1.420
7,207
1.497
8,715
1.496
8,252
1.450
$ 163,893
Subsequent to December 31, 2015, we increased the forward contracts in place by €42.8 million for the period starting in
February 2018 until December 2019 at an average exchange rate of $1.599 per euro, which locks in the value for three years at
an attractive rate.
Equity
The table below highlights our outstanding equity:
Unitholders’ equity
Units
Number of Units
113,024,465
December 31, 2015
Amount
1,289,158
$
Number of Units
111,466,697
December 31, 2014
Amount
1,120,220
$
Units
Our Declaration of Trust authorizes the issuance of an unlimited number of two classes of units: Units and Special Trust Units.
The Special Trust Units may only be issued to holders of securities exchangeable for Units, are not transferable and are used to
provide holders of such securities with voting rights with respect to Dream Global REIT. Each Unit and Special Trust Unit entitles
the holder thereof to one vote for each Unit at all meetings of unitholders of the Trust.
The Trust has a Deferred Unit Incentive Plan (“DUIP”) that provides for the grant of deferred trust units and income deferred
units to trustees, officers, employees, affiliates and their service providers, including DAM, our asset manager.
Dream Global REIT 2015 Annual Report | 22
The following table summarizes the changes in our outstanding equity:
Total Units outstanding on December 31, 2014
Units issued pursuant to the DUIP
Units issued pursuant to the DRIP(1)
Total Units outstanding on December 31, 2015
Units issued pursuant to the DRIP on January 15, 2016
Total Units outstanding on January 31, 2016
(1) Distribution Reinvestment and Unit Purchase Plan.
Units
111,466,697
61,920
1,495,848
113,024,465
128,215
113,152,680
For the year ended December 31, 2015, 61,920 Units were issued pursuant to the Deferred Unit Incentive Plan (December 31,
2014 – 86,415 Units) to trustees, officers and employees. A total of 2,408,750 deferred trust units and income deferred trust
units were outstanding as at December 31, 2015.
Distribution policy
Our Declaration of Trust provides our trustees with the discretion to determine the percentage payout of income that would be
in the best interest of the Trust. Amounts retained in excess of the declared distributions are used to fund leasing costs and
capital expenditure requirements. Given that working capital tends to fluctuate over time and should not affect our distribution
policy, we disregard it when determining our distributions. We also exclude the impact of leasing costs, which fluctuate with
lease maturities, renewal terms and the type of asset being leased. We evaluate the impact of leasing activity based on
averages for our portfolio over a two- to three-year time frame. We exclude the impact of transaction costs expensed on
business combinations as these costs are considered to be non-recurring. In order to manage the exposure to currency risk of
unitholders and holders of Debentures, the Trust has entered into foreign exchange forward contracts.
For the quarter ended December 31, 2015, distributions declared amounted to $22.6 million. Of this amount, $3.2 million was
reinvested in additional units pursuant to the DRIP, resulting in a cash payout ratio of 85.8%. Distributions declared for the year
ended December 31, 2015 were $89.9 million. Of this amount, $13.1 million was reinvested in additional units pursuant to the
DRIP, resulting in a cash payout ratio of 85.4%.
Three months ended December 31, 2015
Year ended December 31, 2015
Declared
amounts
4% bonus
distribution
Total
Declared
amounts
4% bonus
distribution
2015 distributions
Paid in cash or reinvested in Units
Payable at December 31, 2015
Total distributions
2015 reinvestment
Reinvested to December 31, 2015
Reinvested on January 15, 2016
Total distributions reinvested
Distributions paid in cash
Reinvestment to distribution ratio
(for the period)
Cash payout ratio
$
$
$
$
$
15,043 $
7,535
22,578 $
2,216 $
999
3,215 $
19,363
14.2%
85.8%
88 $
–
88 $
88 $
40
128 $
15,131 $
7,535
22,666 $
82,323 $
7,535
89,858 $
2,304 $
1,039
3,343 $
$
12,084 $
999
13,083 $
76,775
483 $
–
483 $
483 $
40
523 $
14.6%
85.4%
Total
82,806
7,535
90,341
12,567
1,039
13,606
We currently pay monthly distributions to unitholders of $0.06667 per unit, or $0.80 per unit on an annual basis. During 2015,
approximately 14.6% of our total Units were enrolled in the DRIP.
Normal course issuer bid
On December 18, 2015, the Trust renewed its normal course issuer bid (the “Bid”), which expired on December 17, 2015. The
Bid will remain in effect until the earlier of December 17, 2016 or the date on which the Trust has purchased the maximum
number of Units permitted under the Bid. Under the Bid, the Trust has the ability to purchase for cancellation up to a maximum
of 11,128,923 Units (representing 10% of the Trust’s public float of 111,289,235 Units at the time of entering the bid through
the facilities of the TSX). Daily purchases are limited to 57,293 Units, other than purchases pursuant to applicable block
purchase exceptions. To date, no purchases have been made under the Bid or the prior Bid.
Dream Global REIT 2015 Annual Report | 23
OUR RESULTS OF OPERATIONS
Basis of accounting
Our discussion of results of operations includes our proportionate share of income from investments in joint ventures. Refer to
“Non-GAAP measures and other disclosures” for a reconciliation to our consolidated financial statements.
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and other income
Share of net income from investment in other joint ventures
Other expenses
Portfolio management
General and administrative
Depreciation and amortization
Interest expense
Fair value adjustments, loss on sale of investment
properties and other activities
Fair value gain (loss) to investment properties
Fair value gain (loss) to financial instruments
Internal direct leasing costs
Debt settlement costs
Gain (loss) on sale of investment properties
Contract termination fees incurred on sale to POBA
Income before income taxes
Current income taxes recovery (expense)
Deferred income taxes recovery (expense)
Provision for income taxes
Net income
Total net income for the period attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Net income
Foreign currency translation adjustments for the period
attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Comprehensive income for the period attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
$
Three months ended December 31,
2014(1)
61,690 $
(18,621 )
43,069
2015(1)
55,081 $
(17,389 )
37,692
Year ended December 31,
2014(1)
257,725
(78,261 )
179,464
2015(1)
223,169 $
(70,314 )
152,855
3,500
4
3,504
(1,412 )
(5,063 )
(31 )
(11,434 )
(17,940 )
25,587
(568 )
(556 )
(6,074 )
(108 )
–
18,281
41,537
(627 )
(3,332 )
(3,959 )
37,578 $
396
7
403
(1,067 )
(4,763 )
(45 )
(12,063 )
(17,938 )
(11,173 )
876
(324 )
–
44,332
(510 )
33,201
58,735
107
1,455
1,562
60,297 $
7,685
20
7,705
(5,630 )
(18,616 )
(118 )
(44,255 )
(68,619 )
99,241
(11,034 )
(2,471 )
(6,074 )
(2,893 )
–
76,769
168,710
(999 )
(21,885 )
(22,884 )
145,826 $
432
26
458
(4,571 )
(17,058 )
(138 )
(48,571 )
(70,338 )
73,950
3,056
(1,954 )
–
41,873
(510 )
116,415
225,999
(1,328 )
(15,734 )
(17,062 )
208,937
37,188 $
390
37,578
59,388 $
909
60,297
144,747 $
1,079
145,826
208,028
909
208,937
9,207
115
9,322
(10,068 )
(98 )
(10,166 )
97,294
670
97,964
(54,671 )
(98 )
(54,769 )
46,395
505
46,900 $
49,320
811
50,131 $
242,041
1,749
243,790 $
153,357
811
154,168
$
$
$
(1) Results from operations were converted into Canadian dollars from euros using the following average exchange rates: the three- and twelve-month periods
ended December 31, 2015 were converted at $1.461:€1 and $1.419:€1, respectively; for 2014, the three- and twelve-month periods ended December 31,
2014 were converted at $1.419:€1 and $1.467:€1, respectively.
Dream Global REIT 2015 Annual Report | 24
Investment properties revenue
Investment properties revenue includes net rental income from investment properties as well as the recovery of operating
costs and property taxes from tenants.
Investment properties revenue for the quarter was €37.7 million ($55.1 million), a decrease of €5.8 million ($6.6 million), or
13.3%, over the prior year comparative quarter. The primary drivers for this decrease were the impact of Initial Properties
dispositions in 2015 (51 assets sold in 2015), the insolvency of Imtech in August 2015, partially offset by acquisitions completed
in 2015 in addition to strong leasing performance. For the year ended December 31, 2015, investment property revenue was
€157.5 million ($223.2 million), a decrease of €18.1 million ($34.6 million), or 10.3%, over the prior year comparative period.
The decrease is largely as a result of Initial Properties dispositions in 2015 as well as the Deutsche Post terminations and the
expiry of the Lonestar head lease payments, both coming into effect in mid-2014, partially offset by an increase in revenue due
to acquisitions and strong leasing.
Investment properties operating expenses
Investment properties operating expenses comprise occupancy costs and property taxes as well as certain expenses that are
not recoverable from tenants, the majority of which are related to major repairs and maintenance. Operating expenses
fluctuate with changes in occupancy levels and levels of repairs and maintenance.
Investment properties operating expenses for the quarter were €11.9 million ($17.4 million), a decrease of €1.2 million, or
9.3%, over the prior year comparative quarter, mainly due to the disposition of Initial Properties (51 assets sold in 2015),
partially offset by an increase due to acquisitions completed in 2015. For the year ended December 31, 2015, investment
properties operating expenses were €49.6 million ($70.3 million), a decrease of €3.7 million, or 6.9%, over the prior year
comparative period. The decrease is largely as a result of Deutsche Post terminations and disposition of Initial Properties,
partially offset by an increase due to acquisitions completed in 2015.
Net operating income (“NOI”)
Investment properties revenue
Investment properties operating expenses
Net operating income(1)
Three months ended December 31,
2014
43,483 €
(13,127 )
30,356 €
2015
37,692 €
(11,912 )
25,780 €
€
€
Year ended December 31,
2015
157,493 €
(49,612 )
107,881 €
2014
175,586
(53,280 )
122,306
(1) Net operating income (“NOI”) is a non-GAAP measure. See “Non-GAAP measures and other disclosures” for the definition of NOI.
For the three months ended December 31, 2015, net operating income was €25.8 million ($37.7 million), representing a
decrease of €4.6 million ($5.4 million) compared to the comparative prior year period. The decrease is mainly as a result of the
impact of timing between sale and subsequent redeployment of Initial Properties sales proceeds as well as the timing between
the sale of our 50% interest in Officium to POBA in January 2015 and subsequent redeployment of net proceeds received.
For the year ended December 31, 2015, net operating income was €107.9 million ($152.9 million), representing a decrease of
€14.4 million ($26.6 million). The decrease from the prior year was primarily due to the timing of redeployment of net
proceeds from the sale of Initial Properties, the expiry of the Lonestar head lease payments taking effect in mid-2014, the full-
year impact of the Deutsche Post lease terminations and the timing between the expiry of the SEB head lease payments in
2015 and subsequent re-leasing of this space, in addition to the unforeseen insolvency of Imtech, offset by an increase in NOI
resulting from the full-year impact of 2014 acquisitions and a partial-year impact from 2015 acquisitions.
The table below summarizes our revenue and operating expenses in Canadian dollars:
Initial Properties
Acquisition Properties
Net operating income(1)
Three months ended December 31,
2014
16,537 $
26,532
43,069 $
2015
11,303 $
26,389
37,692 $
$
$
Year ended December 31,
2015
2014
76,202
48,981 $
103,262
103,874
179,464
152,855 $
(1) Net operating income (“NOI”) is a non-GAAP measure. See “Non-GAAP measures and other disclosures” for the definition of NOI and a reconciliation to net
rental income.
Dream Global REIT 2015 Annual Report | 25
Interest and other income
Interest and other income comprise interest earned on notes receivable, the management fees and loan facility income earned
with respect to the POBA joint ventures, as well as other fees. Except for the fees earned from our third-party joint venture
agreements, the income included in interest and other income is not necessarily of a recurring nature and the amounts may
vary quarter-over-quarter.
Interest and other income was $3.5 million and $7.7 million for the three months and year ended December 31, 2015,
respectively, a significant increase compared to the prior year comparative periods, primarily as a result of the fees generated
from the POBA joint venture, which was completed in late 2014. Included in the income were fees earned from managing the
POBA joint venture and POBA loan facility in the amount of $1.1 million and $3.2 million for the three months and year ended
December 31, 2015, respectively. We also received head lease settlement fees of $1.7 million and $3.5 million for the three
months and year ended December 31, 2015, respectively, as part of a post-acquisition settlement, which are non-recurring in
nature.
Portfolio management
Our portfolio management team comprises the employees of our advisory subsidiaries in Germany and Luxembourg who are
including asset strategy and
responsible for providing asset management services for the
leasing activities.
investment properties,
Portfolio management expense was $1.4 million for the quarter ended December 31, 2015, about $0.3 million higher than
the amount incurred in the comparative quarter in 2014, primarily due to a stronger euro in Q4 2015 compared to Q4 2014.
For the year ended December 31, 2015, portfolio management expense was $5.6 million, an increase of $1.1 million compared
to the prior year, primarily reflecting additional resources to support our business growth and corporate strategy, partially
offset by a weaker euro on average in 2015 compared to 2014.
General and administrative
General and administrative expenses totalled $5.1 million for the quarter ended December 31, 2015, representing an increase
of $0.3 million over Q4 2014. The increase mainly resulted from higher asset management fees and regulatory, corporate and
tax compliance costs, in addition to a stronger euro in Q4 2015 compared to Q4 2014. For the year ended December 31, 2015,
general and administrative expenses totalled and $18.6 million, representing an increase of $1.6 million due to higher asset
management fees and regulatory, corporate and tax compliance costs, partially offset by a weaker euro on average in 2015
compared to 2014.
Interest expense
Interest expense was $11.4 million for the quarter ended December 31, 2015, a decrease of $0.6 million compared to the prior
year. Excluding the impact of a higher average exchange rate in Q4 2015 compared to Q4 2014, interest expense decreased by
$0.9 million, primarily due to repayments on our Facility during the year relating to property dispositions, resulting in interest
savings of $0.8 million.
Interest expense was $44.3 million for the year ended December 31, 2015, a decrease of $4.3 million compared to the same
period last year. Excluding the impact of a lower euro on average in 2015 compared to 2014, the interest expense decreased by
$3.2 million. The repayments on our Facility during the year relating to property dispositions resulted in interest savings of
$3.4 million.
Until mid-December 2015, we had interest rate swaps in place that fixed the interest rate payable on our previous Facility at an
underlying rate of 1.89%. The REIT did not apply hedge accounting in relation to these swaps and, as a result, their impact was
not included in interest expense but accounted for through the fair value adjustments as described below. During the quarter,
$1.2 million of swaps were settled prior to refinancing the Facility, $0.5 million lower than the same quarter last year. Upon
refinancing the Facility, all outstanding swaps were settled.
Fair value gain (loss) to investment properties
For the three months ended December 31, 2015, a gain of $25.6 million was recognized compared to a loss of $11.2 million in
the comparative quarter last year. The gain in the current quarter was primarily driven by a $34.8 million increase in fair value
recognition for Acquisition Properties primarily due to cap rate compression and improved leasing, partially offset by a
$1.7 million fair value loss related to transaction costs.
Dream Global REIT 2015 Annual Report | 26
For the year ended December 31, 2015, a gain of $99.2 million was recognized compared to a gain of $74.0 million in the
comparative period last year. The gain in the current period was driven by a $120.6 million fair value recognition for Acquisition
Properties primarily due to cap rate compression and improved leasing, partially offset by an $11.7 million fair value loss mainly
related to transaction costs of properties acquired during the year. Of the total $120.6 million fair value gain in our Acquisition
Properties, $32.8 million relates to the REIT’s 50% ownership interest in the POBA joint venture assets and is included in the
investment in joint ventures in the consolidated financial statements.
Fair value gain (loss) to financial instruments
For the three months ended December 31, 2015, we incurred an unrealized loss in the fair value of financial instruments of
$0.6 million compared to a gain of $0.9 million in the comparative period. The fair value adjustments in the quarter mainly
comprise the following components:
• a $4.1 million gain was recognized on the fair value change in the interest rate swaps and cap as a result of the settlement
of one contract in the quarter for $1.2 million and final settlement of all the remaining outstanding interest rate swaps on
repayment of the Facility in mid-December 2015. A $0.1 million loss was recognized in the comparative quarter last year
due to a decrease in the forward price of interest rates;
• a $3.0 million fair value loss was recognized on the conversion feature of the convertible debentures, mainly reflecting an
increase in the credit spread and a decrease in risk-free interest rate applicable to our Units, compared to a loss of
$0.9 million in the same period in 2014;
• an unrealized loss of $1.7 million was recognized related to our foreign currency forward contracts due to an appreciation
of the euro compared to the Canadian dollar, versus a $1.1 million unrealized gain during the comparative quarter due to
an appreciation of the Canadian dollar compared to the euro; and
• $nil was recognized related to our DUIP compared to a gain of $0.7 million in the same period in 2014.
For the year ended December 31, 2015, we incurred an unrealized loss in the fair value of financial instruments of $11.0 million
compared to a gain of $3.1 million in the comparative period. The fair value adjustments in the 12-month period mainly
comprise the following components:
• a $3.8 million gain recognized on the fair value change in the interest rate swaps and cap as a result of the settlement of
three contracts in the period for $6.4 million and final settlement of all the remaining outstanding interest rate swaps on
repayment of the term loan credit facility in mid-December 2015. A $3.9 million loss was recognized in the comparative
period last year due to a decrease in the forward price of interest rates;
• a $0.1 million fair value gain recognized on the conversion feature of the convertible debentures mainly reflecting a
decrease in the credit spread and risk-free interest rate applicable to our Units, compared to a gain of $0.2 million in the
same period in 2014;
• an unrealized loss of $13.4 million was recognized related to our foreign currency forward contracts due to an appreciation
of the euro compared to the Canadian dollar, versus a $6.4 million unrealized gain during the comparative period; and
• a $1.5 million loss was recognized related to our DUIP mainly reflecting an increase in the market price of our Units
compared to a gain of $0.3 million in the same period in 2014.
Internal direct leasing costs
A total of $0.6 million and $2.5 million of internal leasing staff costs for the three months and year ended December 31, 2015
have been incurred in the respective properties. In the comparative periods in 2014, $0.3 million and $2.0 million were
incurred, respectively.
Gain (loss) on sale of investment properties
Loss on sale of investment properties for the quarter was $0.1 million, compared to a $44.3 million gain on the sale of
investment properties during the same quarter last year. For the year ended December 31, 2015, loss on sale of investment
properties was $2.9 million, compared to a $41.9 million gain over the prior year comparative period. The loss in the current
year was mainly attributable to the transaction costs for property dispositions incurred during the year ended December 31,
2015, offset by a $3.2 million gain on the sale of a 50% interest of an Acquisition Property to the POBA during the first quarter
of 2015.
Dream Global REIT 2015 Annual Report | 27
Income taxes
We recognized current income tax expenses of $0.6 million and $1.0 million for the three months and year ended
December 31, 2015, respectively, compared to a current income tax recovery of $0.1 million and a current income tax expense
of $1.3 million for the comparative periods in 2014. The increase in current income tax expenses for the three months and year
ended December 31, 2015 over their comparative periods includes $0.3 million of income tax relating to prior periods, that is
non-recurring in nature.
We also recognized deferred income tax expenses of $3.3 million and $21.9 million for the three months and year ended
December 31, 2015, respectively, compared to deferred income tax recovery of $1.5 million and deferred income tax expense
of $15.7 million for the comparative periods in 2014. The lower deferred tax in 2015 is mainly a result of the impact associated
with the loss carry-forwards, fair value adjustments related to investment properties net of tax depreciation, and fair value
changes related to financial instruments.
Asset management and management service agreements
The REIT entered into an asset management agreement with DAM (“Asset Management Agreement”) pursuant to which DAM
provides certain asset management services to the REIT and its subsidiaries.
Costs paid to DAM under the asset management agreement are outlined below:
Incurred under the Asset Management Agreement:
Asset management fees in Deferred units (included in general and administrative expenses)
Asset management fees in cash (included in general and administrative expenses)
Asset acquisition fees (capitalized as acquisition costs, and
then written off on remeasurement of investment properties)
Financing fees (included in debt/unitholders’ equity)
Reimbursement for out-of-pocket and incidental costs
(included in general and administrative expenses)
Total incurred under the Asset Management Agreement
$
Year ended December 31,
2015
2014
1,870 $
6,385
2,588
553
2,541
4,969
2,845
421
$
918
12,314 $
585
11,361
As at December 31, 2015, the Trust has recorded $3.8 million (December 31, 2014 – $3.9 million) in amounts payable and
$0.1 million (December 31, 2014 – $1.2 million) in amounts receivable related to the Asset Management Agreement with DAM.
The Trust also entered into a shared services and cost sharing agreement with DAM on December 1, 2013. Fees paid to DAM
under this agreement are on a cost recovery basis.
Incurred under the Shared Services and Cost Sharing Agreement:
Branding, process improvements and technology
transformations (included in general and administrative)
Total incurred under the Shared Services and Cost Sharing Agreement
Year ended December 31,
2015
2014
$
$
347 $
347 $
240
240
The Trust’s future commitment under the shared services and cost sharing agreement over the remaining term to 2020 is
$0.8 million.
Impact of foreign exchange
Exchange rate fluctuations between the Canadian dollar and the euro impact the Trust’s reported revenues, expenses, income,
cash flows, assets and liabilities. The table below summarizes changes in the exchange rates.
Average exchange rate (Cdn. dollars to one euro)
Exchange rate at period-end (Cdn. dollars to one euro)
Three months ended December 31,
Change
2014
2015
3.0 %
1.419
1.461
7.1 %
1.404
1.503
2015
1.419
1.503
Year ended December 31,
2014
1.467
1.404
Change
(3.3 )%
7.1 %
Dream Global REIT 2015 Annual Report | 28
Comprehensive income was impacted by a foreign currency translation gain of $9.3 million and $98.0 million for the three
months and year ended December 31, 2015, respectively. The exchange rate increased from $1.404:€1 as at December 31,
2014 to $1.503:€1 as at December 31, 2015. The quarterly results of our euro-denominated operations included in net income
were translated at an average exchange rate of $1.461:€1 compared to $1.419:€1 in the same quarter last year. For the year
ended December 31, 2015, results were translated at an average exchange rate of $1.419:€1 compared to $1.467:€1 in the
same period last year.
Funds from operations and adjusted funds from operations
Three months ended December 31,
2015
37,578 $
2014
60,297 $
$
Year ended December 31,
2015
145,826 $
2014
208,937
Net income (loss) for the period
Add (deduct):
Net loss attributable to non-controlling interest
Net FFO impact attributable to non-controlling interests
Amortization of lease incentives
Internal direct leasing costs
Debt settlement costs
Gain (loss) on sale of investment properties
Tax on gains on sale of investment properties
Deferred income tax expense (recovery)
Contract termination fee
Cash settlement on interest rate swap
Gain (loss) on settlement of foreign currency contracts
Fair value gain (loss) to investment properties
Fair value gain (loss) to financial instruments
FFO(1)
Add (deduct):
Amortization of financing costs
Amortization of initial discount on convertible debentures
Amortization of fair value adjustment on acquired debt
Deferred unit compensation expense
Deferred asset management fees
Straight-line rent
$
$
Deduct:
Normalized initial direct leasing costs and lease incentives
Normalized non-recoverable recurring capital expenditures
AFFO(1)
$
(390 )
199
631
556
6,074
108
—
3,332
—
(1,218 )
(513 )
(25,587 )
568
21,338 $
1,050 $
306
—
—
516
460
(107 )
23,563
(1,696 )
(1,319 )
20,548 $
(909 )
634
554
324
—
(44,332 )
(159 )
(1,455 )
—
(1,695 )
(128 )
11,173
(876 )
23,428 $
859 $
281
(96 )
510
377
616
(129 )
25,846
(1,938 )
(1,507 )
22,401 $
(1,079 )
360
2,361
2,471
6,074
2,893
—
21,886
—
(6,368 )
443
(99,241 )
11,034
86,660 $
3,696 $
1,184
(30 )
—
1,972
1,870
(1,601 )
93,751
(6,878 )
(5,349 )
81,524 $
(909 )
535
1,467
1,954
—
(41,873 )
342
—
15,734
(6,493 )
(5,192 )
(73,950 )
(3,056 )
97,496
3,484
1,092
(387 )
510
1,648
2,541
(657 )
105,727
(8,076 )
(6,281 )
91,370
(1) Funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) are non-GAAP measures. See “Non-GAAP measures and other disclosures”.
Funds from operations
FFO
FFO per unit – basic
FFO per unit – diluted
Three months ended December 31,
2015
21,338 $
0.19 $
0.19 $
2014
23,428 $
0.21 $
0.21 $
$
$
$
Year ended December 31,
2015
86,660 $
0.77 $
0.77 $
2014
97,496
0.88
0.87
Total FFO for the quarter was $21.3 million, a decrease of $2.1 million, or 8.9%, over the prior year comparative quarter, mainly
reflecting the impact of our Initial Properties disposition program and the timing between the sale and subsequent
redeployment of proceeds into acquisitions, as well as leasing activity in 2015. Total FFO for the year ended December 31, 2015
was $86.7 million, a decrease of $10.8 million, or 11.1%, over the prior year comparative period, primarily due to the full-year
impact of the Deutsche Post terminations and the expiry of the Lonestar head lease payments, both coming into effect in mid-
2014, as well as our Initial Properties disposition program and the timing between the sale and subsequent redeployment of
proceeds into acquisitions, partially offset by an increase due to the full-year impact of 2014 acquisitions and leasing activity.
Dream Global REIT 2015 Annual Report | 29
For the quarter ended December 31, 2015, basic FFO on a per unit basis decreased to $0.19 per unit from $0.21 per unit in the
prior year comparative quarter. For the year ended December 31, 2015, basic FFO decreased to $0.77 per unit from $0.88 per
unit in the prior year comparative period. For the quarter ended December 31, 2015, diluted FFO on a per unit basis was
$0.19 per unit, a decrease from $0.21 per unit in the prior year comparative quarter. For the year ended December 31, 2015,
diluted FFO decreased to $0.77 per unit from $0.87 per unit over the prior year comparative period.
Adjusted funds from operations
AFFO
AFFO per unit – basic
Three months ended December 31,
2015
20,548 $
0.18 $
2014
22,401 $
0.20 $
$
$
Year ended December 31,
2015
81,524 $
0.73 $
2014
91,370
0.83
Total AFFO for the quarter ended December 31, 2015 decreased by $1.9 million over the prior year comparative quarter, mainly
reflecting the impact of our Initial Properties disposition program and the timing between the sale and subsequent
redeployment of proceeds into acquisitions, as well as leasing activity in 2015. Total AFFO for the year ended December 31,
2015 was $81.5 million, a decrease of $9.8 million, or 10.8%, over the prior year comparative period, primarily due to the full-
year impact of Deutsche Post terminations and the expiry of the Lonestar head lease payments, both coming into effect in mid-
2014, and our Initial Properties disposition program and the timing between the sale and subsequent redeployment of
proceeds into acquisitions, as well as leasing activity in 2015.
For the quarter ended December 31, 2015, basic AFFO on a per unit basis was $0.18 per unit, a decrease from $0.20 per unit in
the prior year comparative quarter. For the year ended December 31, 2015, basic AFFO decreased from $0.83 per unit to $0.73
per unit over the prior year comparative period.
The following table provides selected information for the past three years:
Investment properties revenue(1)
Net income
Total assets(1)
Non-current liabilities(1)
Distributions declared
REIT Units
$
For the year
ended
December 31,
2015
223,169 $
145,826
3,041,992
1,635,390
90,384
113,024,465
For the year
ended
December 31,
2014
257,725 $
208,937
2,588,425
1,323,081
89,134
111,466,697
For the year
ended
December 31,
2013
220,220
22,765
2,558,674
1,428,461
80,173
109,698,977
(1) Reflects the REIT’s Owned Share. For a reconciliation of the Trust’s results and statement of financial position, please see “Non-GAAP measures and other
disclosures” in the MD&A.
Dream Global REIT 2015 Annual Report | 30
QUARTERLY INFORMATION (per consolidated financial statements)
The following table shows quarterly information since January 1, 2014:
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and other income (expense)
Share of net income from investment in joint ventures
Other expenses
Portfolio management
General and administrative
Amortization and depreciation
Interest expense
Fair value adjustments, loss on sale of investment
properties and other activities
Fair value gain (loss) to investment properties
Fair value gain (loss) to financial instruments
Internal direct leasing costs
Debt settlement costs
Gain (loss) on sale of investment properties
Contract termination fees
Income (loss) before taxes
Current income taxes recovery (expense)
Deferred income taxes recovery (expense)
Recovery of (provision for) income taxes
Net income (loss)
Total income (loss) for the period attributable to:
Unitholders of the Trust
Shareholders of the subsidiaries
Net income (loss)
Add (deduct):
Income allocated to non-controlling interest
Net FFO impact attributable to non-controlling
interest
Amortization of lease incentives
Internal direct leasing costs
Debt settlement costs
(Gain) loss on sale of investment properties
Tax on gains on sale of investment properties
Deferred income tax expense (recovery)
Term debt swap settlement
Gain (loss) on settlement of Forex contracts
Fair value gain (loss) to investment properties
Fair value gain (loss) to financial instruments
FFO
FFO per unit – basic
FFO per unit – diluted
Funds from operations
Add (deduct):
Amortization of financing costs
Accretion of debenture conversion feature
Amortization of fair value adjustment of debt
Contract termination fees incurred on sale to
the POBA joint venture
Deferred compensation expense
Deferred asset management expense
Straight-line rent
Deduct:
Normalized initial direct leasing costs and lease
incentives
Normalized non-recoverable recurring
capital expenditures
AFFO
AFFO per unit – basic
Weighted average number of Units:
Basic
Diluted
Quarterly average exchange rate ($:€1)
$
Q4 2015
49,025 $
(16,186 )
32,839
Q3 2015
49,798 $
(16,423 )
33,375
Q2 2015
49,761 $
(15,846 )
33,915
Q1 2015
51,458 $
(17,573 )
33,885
Q4 2014
60,042 $
(18,325 )
41,717
Q3 2014
61,388 $
(17,872 )
43,516
Q2 2014
67,514 $
(20,435 )
47,079
Q1 2014
67,133
(21,333 )
45,800
3,211
4,992
8,203
(1,412 )
(4,335 )
(31 )
(10,148 )
(15,926 )
24,295
(568 )
(556 )
(5,541 )
(108 )
—
17,522
42,638
(586 )
(4,474 )
(5,060 )
37,578 $
37,188 $
390
37,578 $
(390 )
199
631
556
6,074
108
–
3,332
(1,218 )
(513 )
(25,587 )
568
21,338 $
0.19 $
0.19
21,338 $
1,050
306
–
–
516
460
(107 )
23,563
2,547
2,626
5,173
(1,521 )
(3,520 )
(27 )
(9,813 )
(14,881 )
(5,185 )
(17,550 )
(697 )
(1,728 )
—
(25,160 )
(1,493 )
(284 )
(863 )
(1,147 )
(2,640 ) $
(2,776 ) $
136
(2,640 ) $
(136 )
(37 )
617
697
1,728
–
1,015
(1,825 )
(222 )
5,252
17,550
21,999 $
0.20 $
0.20
21,999 $
950
298
–
–
500
467
(448 )
23,766
480
17,126
17,606
(1,247 )
(3,997 )
(30 )
(9,562 )
(14,836 )
41,586
(604 )
(676 )
(2,033 )
—
38,273
74,958
63
(7,503 )
(7,440 )
67,518 $
67,101 $
417
67,518 $
(417 )
254
580
676
2,033
–
14,765
(1,663 )
686
(62,957 )
604
22,079 $
0.20 $
0.20
22,079 $
833
292
–
–
507
462
(676 )
23,497
1,014
10,931
11,945
(1,450 )
(4,049 )
(30 )
(9,834 )
(15,363 )
382
2,494
2,876
(1,067 )
(4,557 )
(45 )
(11,690 )
(17,359 )
7,740
7,688
(542 )
(12,876 )
876
(324 )
976
—
15,862
46,329
(185 )
(2,774 )
(2,959 )
43,370 $
43,234 $
136
43,370 $
(136 )
(56 )
533
542
(976 )
–
2,774
(1,662 )
492
(15,949 )
(7,688 )
21,244 $
0.19 $
0.19
21,244 $
863
287
(30 )
–
449
481
(369 )
22,925
44,332
(510 )
31,498
58,732
110
1,455
1,565
60,297 $
59,388 $
909
60,297 $
(909 )
634
554
324
(44,332 )
(159 )
(1,455 )
(1,695 )
(128 )
11,173
(876 )
23,428 $
0.21 $
0.21
23,428 $
859
281
(96 )
510
377
616
(129 )
25,846
8
7
15
(1,019 )
(4,295 )
(30 )
(12,221 )
(17,565 )
49,335
6,914
(577 )
(1,172 )
—
54,500
80,466
(857 )
(8,223 )
(9,080 )
71,386 $
71,386 $
–
71,386 $
–
(29 )
110
577
1,172
337
8,223
(1,628 )
(666 )
(49,335 )
(6,914 )
23,233 $
0.21 $
0.21
23,233 $
904
276
(96 )
–
394
638
(182 )
25,167
(28 )
9
(19 )
(1,207 )
(4,350 )
(38 )
(12,273 )
(17,868 )
42,011
3,434
(541 )
(811 )
—
44,093
73,285
(383 )
(8,140 )
(8,523 )
64,762 $
64,762 $
–
64,762 $
–
(34 )
424
541
811
98
8,140
(1,567 )
(1,651 )
(42,011 )
(3,434 )
26,079 $
0.24 $
0.23
26,079 $
909
270
(97 )
–
538
645
(378 )
27,966
56
3
59
(1,278 )
(3,650 )
(25 )
(12,014 )
(16,967 )
(6,223 )
(8,168 )
(512 )
(476 )
—
(15,379 )
13,513
(195 )
(826 )
(1,021 )
12,492
12,492
–
12,492
–
(36 )
379
512
476
66
826
(1,603 )
(2,747 )
6,223
8,168
24,756
0.23
0.22
24,756
812
265
(98 )
–
339
642
32
26,748
$
$
$
$
$
$
(1,696 )
(1,715 )
(1,744 )
(1,723 )
(1,938 )
(1,958 )
(2,119 )
(2,061 )
(1,319 )
20,548 $
0.18 $
(1,334 )
20,717 $
0.18 $
(1,356 )
20,397 $
0.18 $
(1,340 )
19,862 $
0.18 $
(1,507 )
22,401 $
0.20 $
(1,523 )
21,686 $
0.20 $
(1,648 )
24,199 $
0.22 $
(1,603 )
23,084
0.21
$
$
112,939,520
127,561,321
1.461
112,541,940 112,174,846
127,047,118 126,540,665
1.360
1.457
111,760,819
125,953,069
111,301,061 110,878,351
125,355,097 124,824,789
110,469,257
124,295,625
1.397
1.419
1.442
1.496
109,987,243
123,638,848
1.512
Dream Global REIT 2015 Annual Report | 31
NON-GAAP MEASURES AND OTHER DISCLOSURES
The following additional non-GAAP measures are important measures used by management in evaluating the Trust’s underlying
operating performance and debt management. These non-GAAP measures are not defined by IFRS, do not have a standardized
meaning and may not be comparable with similar measures presented by other income trusts.
Funds from operations (“FFO”)
Management believes FFO is an important measure of our operating performance. This non-IFRS measurement is a commonly
used measure of performance of real estate operations; however, it does not represent net income or cash flow from operating
activities as defined by IFRS and is not necessarily indicative of cash available to fund Dream Global REIT’s needs.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, FFO has been reconciled to net income in the section “Our results of operations” under the
heading “Funds from operations and adjusted funds from operations”.
Adjusted funds from operations (“AFFO”)
Management believes AFFO is an important measure of our economic performance and is indicative of our ability to pay
distributions. This non-IFRS measurement is commonly used for assessing real estate performance; however, it does not
represent cash generated from (utilized in) operating activities as defined by IFRS and is not necessarily indicative of cash
available to fund Dream Global REIT’s needs.
Our calculation of AFFO includes an estimated amount (8% of net rental income) of normalized non-recoverable recurring
capital expenditures, as well as initial direct leasing costs and lease incentives that we expect to incur based on our current
property portfolio and expected average leasing activity over the next two to three years. This estimate may differ from actual
amounts incurred due to the timing of expenditures and the related leasing activities.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, AFFO has been reconciled to cash generated from operating activities in this section under the
heading “Cash generated from operating activities to AFFO reconciliation”.
Net operating income (“NOI”)
NOI is defined by the Trust as the total investment properties revenue less investment properties operating expenses, including
the share of net rental income from investment in joint ventures. This non-GAAP measurement is an important measure used
by the Trust in evaluating property operating performance; however, it is not defined by IFRS, does not have a standard
meaning and may not be comparable with similar measures presented by other income trusts. In compliance with Canadian
Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and Additional GAAP Measures”, NOI
has been reconciled to net rental income in the table below:
Net rental income (per consolidated financial statements)
Add: Share of net rental income from investments
in joint ventures
NOI
$
$
Three months ended December 31,
2014
41,717 $
2015
32,839 $
Year ended December 31,
2015
134,014 $
2014
178,112
4,853
37,692 $
1,352
43,069 $
18,841
152,855 $
1,352
179,464
Dream Global REIT 2015 Annual Report | 32
Weighted average number of units
The basic weighted average number of Units outstanding used in the FFO and AFFO calculations includes all Units. The diluted
weighted average number of Units assumes the conversion of the Debentures and incremental unvested deferred trust units
related to the Deferred Unit Incentive Plan represented by the potential Units that would have to be purchased in the open
market to fund the unvested obligation. The weighted average number of Units outstanding for basic FFO and AFFO and diluted
FFO calculations for the three months and year ended December 31, 2015 is noted in the table below. Diluted FFO includes
interest and amortization adjustments related to the Debentures of $2.8 million and $11.1 million for the three months and
year ended December 31, 2015, respectively.
Three months ended December 31,
2014
111,301,061
125,355,097
2015
112,939,520
127,561,321
Year ended December 31,
2015
112,358,025
126,781,027
2014
110,663,178
124,534,099
Weighted average Units outstanding for basic per unit amounts
Weighted average Units outstanding for diluted per unit
amounts
Investment in joint ventures
The Trust’s proportionate share of the financial position and results of operation of its investment in joint ventures, which are
accounted for using the equity method under IFRS in the consolidated financial statements, are presented and discussed
throughout the MD&A using the proportionate consolidation method, which is not in accordance with GAAP. These non-GAAP
measures are referred to as the REIT’s owned share throughout this MD&A. A reconciliation of the financial position and results
of operations to the consolidated balance sheets and consolidated statements of net income and comprehensive income is
included in the following tables.
Dream Global REIT 2015 Annual Report | 33
Balance sheet reconciliation to consolidated financial statements
December 31, 2015
December 31, 2014
Amounts per
consolidated
financial
statements
Share from
investment
in joint
ventures
Amounts per
consolidated
financial
statements
Share from
investment
in POBA joint
ventures
Total
Total
$ 2,392,281 $
272,720
6,621
4,377
2,723
2,678,722
517,087 $ 2,909,368 $ 2,079,671 $
159,967
29,738
(242,982 )
4,930
6,621
–
–
4,377
–
1,698
1,262
3,985
2,246,266
2,954,089
275,367
284,417 $ 2,364,088
25,730
(134,237 )
4,930
–
–
–
2,182
484
2,396,930
150,664
15,706
4,430
28,700
48,836
32,855
$ 2,760,413 $
1,561
48
4,603
6,212
–
17,455
17,267
2,360
4,478
121,939
33,303
141,754
55,048
44,363
32,855
281,579 $ 3,041,992 $ 2,432,383 $
2,228
28
3,122
5,378
–
19,683
2,388
125,061
147,132
44,363
156,042 $ 2,588,425
$ 1,324,889 $
2,395
6,295
14,150
16,856
1,364,585
263,732 $ 1,588,621 $ 1,157,882 $
1,802
2,591
3,420
6,295
9,365
14,150
719
23,733
1,173,188
1,635,390
196
–
–
6,877
270,805
149,747 $ 1,307,629
1,948
3,420
9,365
719
1,323,081
146
–
–
–
149,893
56,003
3,343
59,346
70,514
2,989
73,503
35,613
1,976
5,022
7,535
106,149
7,442
(11 )
–
–
10,774
43,055
1,965
5,022
7,535
116,923
49,485
1,268
8,853
7,431
137,551
3,111
49
–
–
6,149
52,596
1,317
8,853
7,431
143,700
521
$ 1,471,255 $
–
1,424
281,579 $ 1,752,834 $ 1,312,163 $
521
–
1,424
156,042 $ 1,468,205
Assets
NON-CURRENT ASSETS
Investment properties
Investment in joint ventures
Notes receivable
Derivative financial instruments
Other non-current assets
CURRENT ASSETS
Amounts receivable
Prepaid expenses
Cash
Assets held for sale
Total assets
Liabilities
NON-CURRENT LIABILITIES
Debt
Deposits
Derivative financial instruments
Deferred Unit Incentive Plan
Deferred income tax liabilities
CURRENT LIABILITIES
Debt
Amounts payable and accrued
liabilities
Income tax payable (receivable)
Derivative financial instruments
Distributions payable
Liabilities related to assets
held for sale
Total liabilities
Dream Global REIT 2015 Annual Report | 34
Statement of net income and comprehensive income reconciliation to consolidated financial statements
Three months ended December 31,
2015
Three months ended December 31,
2014
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and other income
Share of net income from investment in
joint ventures
Share of net income from investment in other
joint ventures
Other expenses
Portfolio management
General and administrative
Depreciation and amortization
Interest expense
Fair value gain (loss) on sale of
investment properties and other activities
Fair value gain (loss) to investment
properties
Fair value gain (loss) to financial instruments
Internal direct leasing costs
Debt settlement costs
Gain (loss) on sale of investment properties
Contract termination fees incurred on sale
to the POBA joint venture
Income before income taxes
Current income taxes recovery (expense)
Deferred income taxes recovery (expense)
Provision for income taxes
Net income
Total net income for the period
attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Net income
Foreign currency translation adjustments for
the period attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
$
$
Amounts per
consolidated
financial
statements
Share of
income from
investments
in joint
ventures
$
49,025 $
(16,186 )
32,839
6,056 $
(1,203 )
4,853
Amounts per
consolidated
financial
statements
Share of
income from
investments
in POBA joint
ventures
60,042 $
(18,325 )
41,717
1,648 $
(296 )
1,352
Total
55,081 $
(17,389 )
37,692
3,211
289
3,500
382
14
4,988
(4,988 )
–
2,487
(2,487 )
4
8,203
(1,412 )
(4,335 )
(31 )
(10,148 )
(15,926 )
24,295
(568 )
(556 )
(5,541 )
(108 )
–
17,522
42,638
(586 )
(4,474 )
(5,060 )
37,578 $
–
(4,699 )
–
(728 )
–
(1,286 )
(2,014 )
1,292
–
–
(533 )
–
–
759
(1,101 )
(41 )
1,142
1,101
– $
4
3,504
7
2,876
–
(2,473 )
(1,412 )
(5,063 )
(31 )
(11,434 )
(17,940 )
(1,067 )
(4,557 )
(45 )
(11,690 )
(17,359 )
25,587
(568 )
(556 )
(6,074 )
(108 )
–
18,281
41,537
(627 )
(3,332 )
(3,959 )
37,578 $
(12,876 )
876
(324 )
–
44,332
(510 )
31,498
58,732
110
1,455
1,565
60,297 $
–
(206 )
–
(373 )
(579 )
1,703
–
–
–
–
–
1,703
3
(3 )
–
(3 )
– $
Total
61,690
(18,621 )
43,069
396
–
7
403
(1,067 )
(4,763 )
(45 )
(12,063 )
(17,938 )
(11,173 )
876
(324 )
–
44,332
(510 )
33,201
58,735
107
1,455
1,562
60,297
37,188 $
390
37,578
– $
–
–
37,188 $
390
37,578
59,388 $
909
60,297
– $
–
–
59,388
909
60,297
9,207
115
9,322
–
–
–
9,207
115
9,322
(10,068 )
(98 )
(10,166 )
–
–
–
(10,068 )
(98 )
(10,166 )
Comprehensive income for the period
attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
46,395
505
46,900 $
$
–
–
– $
46,395
505
46,900 $
49,320
811
50,131 $
–
–
– $
49,320
811
50,131
Dream Global REIT 2015 Annual Report | 35
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and other income
Share of net income from investment in
joint ventures
Share of net income from investment in other
joint ventures
Other expenses
Portfolio management
General and administrative
Depreciation and amortization
Interest expense
Fair value loss on sale of investment
properties and other activities
Fair value gain to investment properties
Fair value gain (loss) to financial instruments
Internal direct leasing costs
Debt settlement costs
Gain (loss) on sale of investment properties
Contract termination fees incurred on sale to
the POBA joint venture
Income before income taxes
Current income taxes expense
Deferred income taxes expense
Provision for income taxes
Net income
Total net income for the year attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Net income
Foreign currency translation adjustments for
for the year attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Comprehensive income for the year
attributable to:
attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Year ended December 31,
2015
Year ended December 31,
2014
Amounts per
consolidated
financial
statements
200,042 $
(66,028 )
134,014
$
Share of
income from
investments
in joint
ventures
23,127 $
(4,286 )
18,841
Amounts per
consolidated
financial
statements
Share of
income from
investments
in POBA joint
ventures
256,077 $
(77,965 )
178,112
1,648 $
(296 )
1,352
Total
223,169 $
(70,314 )
152,855
7,252
433
7,685
418
14
35,655
(35,655 )
–
2,487
(2,487 )
20
42,927
–
(35,222 )
20
7,705
26
2,931
–
(2,473 )
(5,630 )
(15,901 )
(118 )
(39,357 )
(61,006 )
–
(2,715 )
–
(4,898 )
(7,613 )
(5,630 )
(18,616 )
(118 )
(44,255 )
(68,619 )
30,805
–
—
(533 )
–
–
30,272
6,278
(7 )
(6,271 )
(6,278 )
– $
99,241
(11,034 )
(2,471 )
(6,074 )
(2,893 )
–
76,769
168,710
(999 )
(21,885 )
(22,884 )
145,826 $
68,436
(11,034 )
(2,471 )
(5,541 )
(2,893 )
–
46,497
162,432
(992 )
(15,614 )
(16,606 )
145,826 $
144,747 $
1,079
145,826
$
$
(4,571 )
(16,852 )
(138 )
(48,198 )
(69,759 )
72,247
3,056
(1,954 )
–
41,873
(510 )
114,712
225,996
(1,325 )
(15,734 )
(17,059 )
208,937 $
– $
–
–
144,747 $
1,079
145,826
208,028
909
208,937
97,294
670
97,964
–
–
–
97,294
670
97,964
(54,671 )
(98 )
(54,769 )
242,041
1,749
243,790 $
$
–
–
– $
242,041
1,749
243,790 $
153,357
811
154,168
Dream Global REIT 2015 Annual Report | 36
–
(206 )
–
(373 )
(579 )
1,703
–
–
–
—
–
1,703
3
(3 )
–
(3 )
– $
–
–
–
–
–
–
–
–
–
Total
257,725
(78,261 )
179,464
432
–
26
458
(4,571 )
(17,058 )
(138 )
(48,571 )
(70,338 )
73,950
3,056
(1,954 )
–
41,873
(510 )
116,415
225,999
(1,328 )
(15,734 )
(17,062 )
208,937
208,028
909
208,937
(54,671 )
(98 )
(54,769 )
153,357
811
154,168
Cash generated from operating activities to AFFO reconciliation
AFFO is not defined by IFRS and, therefore, may not be comparable to similar measures presented by other real estate
investment trusts. In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial
Measures and Additional GAAP Measures”, the table below reconciles AFFO to cash generated from operating activities.
Three months ended December 31,
2014
29,366 $
2015
23,050 $
$
Cash generated from operating activities
Add (deduct):
Change in non-cash working capital
Share of net income from investment in joint ventures
Internal direct leasing costs
Non-cash impact of income attributable to non-controlling
interest
Depreciation and amortization
Unrealized loss on settlement of foreign exchange contracts
Tax on gains on sale of investment properties
Investment in lease incentives and initial direct leasing costs
Contract termination fees
Debt settlement costs
Adjustments for investment in joint ventures:
Fair value adjustments to investment properties
Amortization of lease incentives
Debt settlement costs
Deferred income tax expense attributable to joint ventures
Normalized initial direct leasing costs and lease incentives
Normalized non-recoverable recurring capital expenditures
AFFO
$
(11,328 )
4,988
556
(10,507 )
2,487
324
(183 )
(31 )
964
–
1,872
–
5,541
(1,292 )
35
533
(1,142 )
(1,696 )
(1,319 )
20,548 $
(271 )
(45 )
975
(159 )
4,859
510
–
(1,703 )
10
–
(1,938 )
(1,507 )
22,401 $
Year ended December 31,
2015
53,024 $
9,643
35,655
2,471
(980 )
(118 )
4,068
–
8,332
–
5,541
(30,805 )
116
533
6,271
(6,878 )
(5,349 )
81,524 $
2014
96,065
(11,092 )
2,487
1,954
(351 )
(138 )
2,866
342
14,777
510
–
(1,703 )
10
–
(8,076 )
(6,281 )
91,370
Net income, cash generated from (utilized in) operating activities and distributions declared
In any given period, actual distributions declared may differ from cash generated from (utilized in) operating activities, primarily
due to seasonal fluctuations in non-cash working capital and the impact of leasing costs, which fluctuate with lease maturities,
renewal terms and the type of asset being leased. The Trust determines the distribution rate by, among other considerations,
its assessment of cash flow as determined using adjusted cash generated from (utilized in) operating activities (a non-GAAP
measure), which includes cash generated from (utilized in) operating activities of our investments in joint ventures that are
equity accounted and excludes the fluctuations in non-cash working capital, and transaction costs on acquisitions and
dispositions as well as investment in lease incentives and initial direct leasing costs. As such, the Trust believes the cash
distributions are not an economic return of capital, but a distribution of sustainable adjusted cash flow from operating
activities.
The Trust funds its working capital needs and investments in lease incentives and initial direct leasing costs with cash and cash
equivalents on hand and its credit facilities. Accordingly, management believes adjusted cash generated from (utilized in)
operating activities is an important measure that reflects our ability to pay cash distributions. This non-GAAP measurement
does not represent cash generated from (utilized in) operating activities, as defined by IFRS.
In any given period, the Trust anticipates that actual distributions declared will, in the foreseeable future, continue to vary from
net income as net income includes non-cash items such as fair value adjustments to investment properties and fair value
adjustments to financial instruments. Accordingly, the Trust does not use net income as a proxy for distributions.
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the tables below outline the differences
between cash generated from (utilized in) operating activities (per consolidated financial statements) and total distributions
declared, as well as the differences between net income and total distributions declared, in accordance with the guidelines.
Dream Global REIT 2015 Annual Report | 37
As a general rule, we do not take fluctuations in working capital into consideration and we use a normalized amount as a proxy
for leasing and building improvement costs in establishing our distribution policy. The surplus or shortfall in net income for each
period reflects mainly fair value adjustments to financial instruments and investment properties. These non-cash items do not
impact cash flows and are not considered when we establish our distribution policy. To the extent that there are shortfalls in
cash flow, the Trust uses existing credit facilities as a source of funding.
Adjusted cash generated from operating activities
(including investment in joint ventures)
Declared distributions paid in cash
Surplus (shortfall) of adjusted cash generated from (utilized in)
operating activities over distributions paid in cash
$
$
16,296 $
19,363
24,542 $
18,812
82,628 $
76,775
100,574
74,051
(3,067 ) $
5,730 $
5,853 $
26,523
Three months ended December 31,
2014
2015
Year ended December 31,
2015
2014
Cash distributions, after factoring in our DRIP program, for the three months and year ended December 31, 2015 amounted to
$19.4 million and $76.8 million, respectively (representing a shortfall of $3.1 million and a surplus of $5.9 million of cash
generated from operating activities over cash distributions paid). Over time, reinvestments pursuant to the DRIP will increase
the number of units outstanding, which may result in upward pressure on the total amount of cash distributions. Our
Declaration of Trust provides our trustees with the discretion to determine the percentage payout of income that would be in
the best interest of the Trust, which allows for any unforeseen expenditures and the variability in cash distributions as a result
of additional units issued pursuant to the Trust’s DRIP.
Cash generated from operating activities
(per consolidated financial statements)
Add:
Investment in joint ventures’ cash flows from operating
activities
Cash generated from operating activities
(including investment in joint ventures)
Add (deduct):
Lease incentives and initial direct leasing costs
Change in non-cash working capital
Adjusted cash generated from operating activities
(including investment in joint ventures)
Total declared distributions
Surplus (shortfall) of adjusted cash generated from (utilized
in) operating activities over total distributions
Three months ended December 31,
2014
2015
Year ended December 31,
2015
2014
$
23,050 $
29,366 $
53,024 $
96,065
5,898
518
10,478
518
28,948
29,884
63,502
96,583
2,046
(14,698 )
16,296
22,666
5,088
(10,430 )
24,542
22,356
8,612
10,514
82,628
90,341
15,006
(11,015 )
100,574
89,082
$
(6,370 ) $
2,186 $
(7,713 ) $
11,492
Once the fluctuations in leasing costs and changes in our non-cash working capital have been removed, and the cash generated
from operating activities of our equity accounted investments in joint ventures have been included, total distributions, before
taking into consideration the DRIP, exceeded adjusted cash generated from operating activities for the three months and year
ended December 31, 2015 by $6.4 million and $7.7 million, respectively (surplus of $2.2 million and $11.5 million for the same
periods in 2014). The shortfall for the three months ended December 31, 2015 was largely a result of the impact of the active
disposition program and the timing between the sale and subsequent redeployment of proceeds into acquisitions, compared to
a surplus in the same quarter last year. The Deutsche Post terminations and the expiry of the Lonestar head lease payments
were the additional reasons for the shortfall for the year ended December 31, 2015, compared to a surplus in the prior year.
We expect the negative impact of the Deutsche Post expiries on cash generated from operating activities to be short-term, as
we lease up the resulting vacant space.
Dream Global REIT 2015 Annual Report | 38
As the Trust uses adjusted cash generated from (utilized in) operating activities (a non-GAAP measure) in determining its cash
available for distribution, the following table also outlines the differences between adjusted cash generated from (utilized in)
operating activities and distributions declared.
Cash generated from operating activities
(per consolidated financial statements)
Total declared distributions
Surplus (shortfall) of cash flow from operating activities
(per consolidated financial statements) over total
distributions
distributions
$
$
Three months ended December 31,
Year ended December 31,
2015
2014
2015
2014
23,050 $
22,666
29,366 $
22,356
53,024 $
90,341
$
96,065
89,082
384 $
7,010 $
(37,317) $
6,983
For the three months ended December 31, 2015, the Trust recorded a surplus of cash generated from operating activities over
total distributions of $0.4 million, compared to a shortfall of $37.3 million for the year ended December 31, 2015. In
comparison, in 2014 a surplus of $7.0 million was recorded for both the three months and the year ended December 31, 2014.
The shortfall of cash generated from operating activities over total distributions for the year is mainly driven by short-term
fluctuations in our non-cash working capital and the impact of investments in lease incentives and initial direct leasing costs, as
well as the fact that cash flows generated from operating activities of our investments in joint ventures, which are equity
accounted, are excluded from this calculation, despite the fact that they form part of the Trust’s determination of its cash
available for distribution.
For the three months and year ended December 31, 2015, net income exceeded total distributions by $14.9 million and
$55.5 million, respectively (surplus of $37.9 million and $119.9 million, respectively, for the same periods in 2014).
Net income for the period
Total declared distributions
Surplus of net income over total distributions
Three months ended December 31,
2014
60,297 $
22,356
37,941 $
2015
37,578 $
22,666
14,912 $
$
$
Year ended December 31,
2015
145,826 $
90,341
55,485 $
2014
208,937
89,082
119,855
Level of debt (debt-to-gross book value)
Management believes this non-GAAP measurement is an important measure in the management of our debt levels. Level of
debt as shown below is determined as total debt, divided by total assets.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, the table below calculates the level of debt.
December 31, 2015
Non-current debt(1)
Current debt
Total debt
Less cash
Total adjusted debt, net of cash
Total assets
Adjustments: Investment in joint ventures
Less cash
Total assets, net of cash
Debt-to-gross book value
Debt-to-gross book value, net of cash
Average level of debt, net of cash
Debt-to-gross book value, net of cash, net of convertible debentures
$
(1) Non-current debt includes convertible debentures valued at $154,558 at December 31, 2015.
Amounts per
consolidated
financial statements
$
Share of amounts
from investment
in joint ventures
1,324,889 $
56,003
1,380,892
28,700
1,352,192
2,760,413
(272,720 )
2,487,693
28,700
2,458,993 $
263,732 $
3,343
267,075
4,603
262,472
281,579
272,720
554,299
4,603
549,696 $
Total
1,588,621
59,346
1,647,967
33,303
1,614,664
3,041,992
–
3,041,992
33,303
3,008,689
54 %
54 %
52 %
49 %
Dream Global REIT 2015 Annual Report | 39
Non-current debt(1)
Current debt
Total debt
Less cash
Total adjusted debt, net of cash
Total assets
Adjustments: Investment in joint ventures
Less cash
Total assets, net of cash
Debt-to-gross book value
Debt-to-gross book value, net of cash
Average level of debt, net of cash
Debt-to-gross book value, net of cash, net of convertible debentures
$
(1) Non-current debt includes convertible debentures valued at $152,365 at December 31, 2014.
Amounts per
consolidated
financial statements
$
Share of amounts
from investment
in joint ventures
1,157,882 $
70,514
1,228,396
121,939
1,106,457
2,432,383
(159,967 )
2,272,416
121,939
2,150,477 $
149,747 $
2,989
152,736
3,122
149,614
156,042
159,967
316,009
3,122
312,887 $
December 31, 2014
Total
1,307,629
73,503
1,381,132
125,061
1,256,071
2,588,425
–
2,588,425
125,061
2,463,364
53 %
51 %
55 %
45 %
Interest coverage ratio
Management believes this non-GAAP measurement is an important measure in determining our ability to cover interest
expense based on our operating performance. Interest coverage ratio as shown below is calculated as net rental income plus
interest and other income, less general and administrative expenses and portfolio management expenses, all divided by
interest expense on total debt.
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), “Non-GAAP Financial Measures and
Additional GAAP Measures”, the table below calculates the interest coverage ratio.
Net rental income
Add: Interest and other income(1)
Less: General and administrative expenses
Less: Portfolio management expenses
Interest expense
Interest coverage ratio
(1) Includes one-time income items totalling $3.5 million.
For the year ended December 31, 2015
Share of amounts
from investment
in joint ventures
Amounts per
consolidated
financial statements
$
134,014 $
7,252
15,901
5,630
119,735
39,357 $
18,841 $
433
2,715
–
16,559
4,898 $
$
Total
152,855
7,685
18,616
5,630
136,294
44,255
3.08
Net rental income
Add: Interest and other income
Less: General and administrative expenses
Less: Portfolio management expenses
Interest expense
Interest coverage ratio
Amounts per
consolidated
financial statements
$
For the year ended December 31, 2014
Share of amounts
from investment
in joint ventures
178,112 $
418
16,852
4,571
157,107
48,198 $
1,352 $
14
206
–
1,160
373 $
Total
179,464
432
17,058
4,571
158,267
48,571
3.26
$
Dream Global REIT 2015 Annual Report | 40
SECTION III – DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS
OVER FINANCIAL REPORTING
For the December 31, 2015 financial year-end, the Chief Executive Officer and the Chief Financial Officer (the “Certifying
Officers”), together with other members of management, have evaluated the design and operational effectiveness of Dream
Global REIT’s disclosure controls and procedures, as defined in National Instrument 52-109, “Certification of Disclosure in
Issuers’ Annual and Interim Filings” (“NI 52-109”). The Certifying Officers have concluded that the disclosure controls and
procedures are adequate and effective in order to provide reasonable assurance that material information has been
accumulated and communicated to management, to allow timely decisions of required disclosures by Dream Global REIT and
its consolidated subsidiary entities, within the required time periods.
Dream Global REIT’s internal control over financial reporting (as defined in NI 52-109) is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles (“GAAP”). Using the framework established in “Risk Management
and Governance: Guidance on Control (COCO Framework)”, published by The Canadian Institute of Chartered Accountants, the
Certifying Officers, together with other members of management, have evaluated the design and operation of Dream Global
REIT’s internal control over financial reporting. Based on that evaluation, the Certifying Officers have concluded that Dream
Global REIT’s internal control over financial reporting was effective as at December 31, 2015.
There were no changes in Dream Global REIT’s internal control over financial reporting during the financial year ended
December 31, 2015 that have materially affected, or are reasonably likely to materially affect, Dream Global REIT’s internal
control over financial reporting.
SECTION IV – RISKS AND OUR STRATEGY TO MANAGE
We are exposed to various risks and uncertainties, many of which are beyond our control. The following is a review of the
material risks and uncertainties that could materially affect our operations and future performance. A more detailed
description of our business environment and risks is contained in our Annual Information Form, which is posted on our website
at www.dreamglobalreit.ca or at www.sedar.com.
REAL ESTATE OWNERSHIP
Real estate ownership is generally subject to numerous factors and risks, including changes in general economic conditions
(such as the availability, terms and cost of mortgage financings and other types of credit), local economic conditions (such as an
oversupply of office and other commercial properties or a reduction in demand for real estate in the area), the attractiveness of
properties to potential tenants or purchasers, competition with other landlords with similar available space, and the ability of
the owner to provide adequate maintenance at competitive costs.
An investment in real estate is relatively illiquid. Such illiquidity will tend to limit our ability to vary our portfolio promptly in
response to changing economic or investment conditions. In recessionary times, it may be difficult to dispose of certain types
of real estate. The costs of holding real estate are considerable, and during an economic recession we may be faced with
ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary for us to
dispose of properties at lower prices in order to generate sufficient cash for operations and for making distributions and
interest payments.
Certain significant expenditures (e.g., property taxes, maintenance costs, mortgage payments, insurance costs and related
charges) must be made throughout the period of ownership of real property, regardless of whether the property is producing
sufficient income to pay such expenses. In order to retain desirable rentable space and to generate adequate revenue over the
long term, we must maintain or, in some cases, improve each property’s condition to meet market demand. Maintaining a
rental property in accordance with market standards can entail significant costs, which we may not be able to pass on to our
tenants. Numerous factors, including the age of the relevant building structure, the material and substances used at the time of
construction, or currently unknown building code violations, could result in substantial unbudgeted costs for refurbishment or
modernization. In the course of acquiring a property, undisclosed defects in design or construction or other risks might not
have been recognized or correctly evaluated during the pre-acquisition due diligence process. These circumstances could lead
to additional costs and could have an adverse effect on our proceeds from sales and rental income of the relevant properties.
Dream Global REIT 2015 Annual Report | 41
ROLLOVER OF LEASES
Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. Furthermore,
the terms of any subsequent lease may be less favourable than those of the existing lease. Our cash flows and financial position
would be adversely affected if our tenants were to become unable to meet their obligations under their leases or if a significant
amount of available space in our properties could not be leased on economically favourable lease terms. In the event of default
by a tenant, we may experience delays or limitations in enforcing our rights as lessor and incur substantial costs in protecting
our investment. Furthermore, at any time, a tenant may seek the protection of bankruptcy, insolvency or similar laws, which
could result in the rejection and termination of the lease of the tenant and thereby cause a reduction in the cash flows
available to us.
The majority of the Deutsche Post leases expire in 2018. As at December 31, 2015, Deutsche Post's GRI was approximately
22.4% of the Trust’s overall occupied and committed GRI.
CONCENTRATION OF PROPERTIES AND TENANTS
Currently, all but one of our properties are located in Germany and, as a result, are impacted by economic and other factors
specifically affecting the real estate markets in Germany. These factors may differ from those affecting the real estate markets
in other regions. Due to the concentrated nature of our properties, a number of our properties could experience any of the
same conditions at the same time. If real estate conditions in Germany decline relative to real estate conditions in other
regions, our cash flows and financial condition may be more adversely affected than those of companies that have more
geographically diversified portfolios of properties.
We derive a significant portion of our rental income from Deutsche Post. Consequently, these revenues are dependent on the
ability of Deutsche Post to meet its rent obligations and our ability to collect rent from Deutsche Post.
CHANGE IN INDEXATION FOR INFLATION
The rents payable under the Deutsche Post leases are automatically adjusted if the consumer price index for Germany changes
by more than 4.3 index points. This means that our rental income will increase if the consumer price index for Germany
increases by more than 4.3 index points. However, it also means that our rental income will decrease if the consumer price
index for Germany decreases by more than 4.3 index points. As a result, a significant decrease in the consumer price index for
Germany could have a material and adverse effect on our cash flows, operating results and financial condition. The fixed rents
payable under other lease agreements in respect of the Initial Properties and other properties we may acquire will not
normally provide for adjustments following a general change in prices. As a result, our revenues adjusted for inflation could be
materially and adversely affected from an unexpected rise in inflation, which could have a materially adverse effect on our cash
flows, operating results or financial condition.
FINANCING
We require access to capital to maintain our properties as well as to fund our growth strategy and significant capital
expenditures. There is no assurance that capital will be available when needed or on favourable terms. Our access to third-
party financing will be subject to a number of factors, including general market conditions, the market’s perception of our
growth potential, our current and expected future earnings, our cash flow and cash distributions, cash interest payments and
the market price of our Units.
A significant portion of our financing is debt. Accordingly, we are subject to the risks associated with debt financing, including
the risk that our cash flows will be insufficient to meet required payments of principal and interest, and that on maturities of
such debt we may not be able to refinance the outstanding principal under such debt or that the terms of such refinancing will
be more onerous than those of the existing debt. If we are unable to refinance debt at maturity on terms acceptable to us or at
all, we may be forced to dispose of one or more of our properties on disadvantageous terms, which may result in losses and
could alter our debt-to-equity ratio or be dilutive to unitholders. Such losses could have a material adverse effect on our
financial position or cash flows.
The degree to which we are leveraged could have important consequences for our operations. A high level of debt will: reduce
the amount of funds available for the payment of distributions to unitholders and interest payments on our Debentures; limit
our flexibility in planning for, and reacting to, changes in the economy and in the industry and increase our vulnerability to
general adverse economic and industry conditions; limit our ability to borrow additional funds, dispose of assets, encumber our
assets and make potential investments; place us at a competitive disadvantage compared to other owners of similar real estate
assets that are less leveraged and therefore may be able to take advantage of opportunities that our indebtedness would
prevent us from pursuing; make it more likely that a reduction in our borrowing base following a periodic valuation (or
redetermination) could require us to repay a portion of the then outstanding borrowings; and impair our ability to obtain
additional financing in the future for working capital, capital expenditures, acquisitions, general trust or other purposes.
Dream Global REIT 2015 Annual Report | 42
TAX MATTERS
Although we have been structured with the objective of maximizing after-tax distributions, tax charges and withholding taxes in
various jurisdictions in which we invest will affect the level of distributions made to us by our subsidiaries. No assurance can be
given as to the level of taxation suffered by us or our subsidiaries. Currently, our revenues are derived from our investments
located in Germany and Austria. Although we have previously structured our tax affairs on the assumption that those
subsidiaries will be subject to German corporate income tax (with a view to minimizing, to the extent possible, the amount of
taxable income from operations in Germany), there is a corporate income tax leakage on the rental income and capital gains.
The Trust has accrued German taxes under the FCP structure for financial statement purposes (2011 to 2015). The Trust has
also prepared the 2015 tax provision assuming that the FCP Unitholders will be subject to corporate income tax in Germany on
their net rental income and capital gains from the sale of properties. The tax authorities have requested the tax returns for FCPs
for the financial years 2011 to 2013 to be filed, which have been filed in January 2016. The 2014 returns have been requested
in February 2016. The tax returns for 2011 and 2012 have been assessed by the German tax authorities. Objections have been
filed against these tax assessments, arguing that the FCPs are not subject to German taxation. The tax office has granted
suspension of the tax payment.
In addition, German real estate transfer tax (“RETT”) is triggered when, among other things, there is a transfer of legal title of
properties from one legal person to another. In the case of the initial reallocation of our properties, legal title was not
transferred and, consequently, no RETT should be payable in connection therewith. However, if, unexpectedly, RETT does
become payable as a result of the reallocation of our properties, we will be required to pay 50% of such RETT.
Our debt financing agreements with third parties and affiliates require us to pay principal and interest. Several rules in German
tax laws restrict the tax deductibility of interest expenses for corporate income and municipal trade tax purposes. Such rules
have been changed considerably on several occasions in the recent past. As a result, major uncertainties exist as to the
interpretation and application of such rules, which are not yet clarified by the tax authorities and the tax courts. Accordingly,
there is a risk of additional taxes being triggered on the rental income and capital gains in the event the tax authorities or the
tax courts adopt deviating views on such rules.
We have structured our affairs to ensure that none of the Luxembourg entities through which we hold our real property
investment in Germany (our fonds communs de placement – “FCPs”) has a permanent establishment in Germany, which is
relevant for determining whether they would also be liable to municipal trade tax. If it is determined that any of our
subsidiaries does have a permanent establishment in one or more German municipalities, the overall rate of German income
tax applicable to taxable income could materially increase.
CHANGES IN LAW
We are subject to applicable federal, state, municipal, local and common laws and regulations governing the ownership and
leasing of real property, employment standards, environmental matters, taxes and other matters. It is possible that future
changes in such laws or regulations or changes in their application, enforcement or regulatory interpretation could result in
changes in the legal requirements affecting us (including with retroactive effect). In addition, the political conditions in the
jurisdictions in which we operate are also subject to change. Any changes in investment policies or shifts in political attitudes
may adversely affect our investments. Any changes in the laws to which we are subject in the jurisdictions in which we operate
could materially affect our rights to and title in the properties and the revenues we are able to generate from our investments.
FOREIGN EXCHANGE RATE FLUCTUATIONS
Substantially all of our investments and operations will be conducted in currencies other than Canadian dollars; however, we
pay distributions to unitholders and interest payments on our Debentures in Canadian dollars. We also raise funds primarily in
Canada from the sale of securities in Canadian dollars and invest such funds indirectly through our subsidiaries in currencies
other than Canadian dollars. As a result, fluctuations in such foreign currencies against the Canadian dollar could have a
material adverse effect on our financial results, which will be denominated and reported in Canadian dollars, and on our ability
to pay cash distributions to unitholders and cash interest payments on our Debentures. We have implemented active hedging
programs in order to offset the risk of revenue losses and to provide more certainty regarding the payment of distributions to
unitholders and interest payments on our Debentures if the Canadian dollar increases in value compared to foreign currencies.
However, to the extent that we fail to adequately manage these risks, including if any such hedging arrangements do not
effectively or completely hedge changes in foreign currency rates, our financial results, and our ability to pay distributions to
unitholders and cash interest payments on our Debentures, may be negatively impacted. Hedging transactions involve the risk
that counterparties, which are generally financial institutions, may be unable to satisfy their obligations. If any counterparties
default on their obligations under the hedging contracts or seek bankruptcy protection, it could have an adverse effect on our
ability to fund planned activities and could result in a larger percentage of future revenue being subject to currency changes.
Dream Global REIT 2015 Annual Report | 43
INTEREST RATES
When entering into financing agreements or extending such agreements, we depend on our ability to obtain terms for interest
payments that will not impair our desired profit and on amortization schedules that do not restrict our ability to pay
distributions on our Units and interest payments on our Debentures. In addition to existing variable rate portions of our
financing agreements, we may enter into future financing agreements with variable interest rates. An increase in interest rates
could result in a significant increase in the amount paid by us to service debt, which could limit our ability to pay distributions
to unitholders and could impact the market price of the Units and/or the Debentures. We have implemented an active hedging
program in order to offset the risk of revenue losses and to provide more certainty regarding the payment of distributions to
unitholders and cash interest payments under the Debentures should current variable interest rates increase. However, to the
extent that we fail to adequately manage these risks, including if any such hedging arrangements do not effectively or
completely hedge increases in variable interest rates, our financial results, and our ability to pay distributions to unitholders
and cash interest payments under our financing arrangements, the Debentures and future financings may be negatively
affected. Hedging transactions involve inherent risks. Increases in interest rates generally cause a decrease in demand for
properties. Higher interest rates and more stringent borrowing requirements, whether mandated by law or required by
banks, could have a significant negative effect on our ability to sell any of our properties. See “Foreign exchange rate
fluctuations” above.
ENVIRONMENTAL RISK
We are subject to various laws relating to environmental matters. Our properties may contain ground contamination,
hazardous substances, wartime relics or other residual pollution and environmental risks. Buildings and their fixtures might
contain asbestos or other hazardous substances above the allowable or recommended thresholds, or the buildings could bear
other environmental risks. Actual and contingent liabilities may be imposed on us under applicable environmental laws to
assess and, if required, undertake remedial action on contaminated sites and in contaminated buildings. These obligations may
relate to sites we currently own or operate, sites we formerly owned or operated, or sites where waste from our operations has
been deposited. Furthermore, actions for damages or remediation measures may be brought against us, including under the
German Federal Soil Protection Act (Bundesbodenschutzgesetz). According to this Act, not only the polluter but also its legal
successor, the owner of the contaminated site and certain previous owners may be held liable for soil contamination. The costs
of any removal, investigation or remediation of any residual pollution on such sites or in such buildings, as well as costs related
to legal proceedings, including potential damages, regarding such matters, may be substantial, and it may be impossible, for a
number of reasons, for us to have recourse against a polluter and/or former seller of a contaminated site or building or the
party that may otherwise be responsible for the contamination. Furthermore, the discovery of any residual pollution on the
sites and/or in the buildings, particularly in connection with the lease or sale of properties or borrowing using the real estate as
security, could trigger claims for rent reductions or termination of leases for cause or for damages or other breach of warranty
claims against us. Environmental laws may also impose liability on us for the release of certain materials into the air or water
from a property, including asbestos, and such release could form the basis for liability to third persons for personal injury or
other damages.
JOINT ARRANGEMENTS
We are a participant in jointly controlled entities and co-ownerships, combined (“joint arrangements”) with third parties.
A joint arrangement involves certain additional risks, including:
(i)
(ii)
(iii)
(iv)
the possibility that such third parties may at any time have economic or business interests or goals that will be
inconsistent with ours, or take actions contrary to our instructions or requests or to our policies or objectives with respect
to our real estate investments;
the risk that such third parties could experience financial difficulties or seek the protection of bankruptcy, insolvency or
other laws, which could result in additional financial demands on us to maintain and operate such properties or repay the
third parties’ share of property debt guaranteed by us or for which we will be liable, and/or result in our suffering or
incurring delays, expenses and other problems associated with obtaining court approval of the joint arrangement;
the risk that such third parties may, through their activities on behalf of or in the name of the joint arrangements, expose
or subject us to liability; and
the need to obtain third parties’ consents with respect to certain major decisions, including the decision to distribute
cash generated from such properties or to refinance or sell a property. In addition, the sale or transfer of interests in
certain of the joint arrangements may be subject to rights of first refusal or first offer, and certain of the joint venture and
partnership agreements may provide for buy-sell or similar arrangements. Such rights may be triggered at a time when
we may not desire to sell but may be forced to do so because we do not have the cash to purchase the other party’s
interests. Such rights may also inhibit our ability to sell an interest in a property or a joint arrangement within the time
frame or otherwise on the basis we desire.
Dream Global REIT 2015 Annual Report | 44
Our investment in properties through joint arrangements is subject to the investment guidelines set out in our Declaration
of Trust.
ORGANIZATIONAL STRUCTURE
We hold a 50% equity interest in Lorac, which is the manager of our FCPs and the registered owner on title to our Initial
Properties. Lorac is also the manager of another fund and the registered owner on title to a portfolio of properties on behalf of
that other fund. We and the owner of the remaining Lorac shares have entered into a shareholders’ agreement, which provides
us with the right to appoint three of the six directors of Lorac. In addition, the directors of Lorac have adopted governance rules
pursuant to which, subject to applicable law, our appointed directors generally have responsibility for matters relating to our
properties, and the other three directors, who are nominated by the other owner of the Lorac shares, generally have
responsibility for matters affecting other properties of which Lorac is the registered owner on title. Pursuant to such
shareholders’ agreement and the governance rules, certain matters such as filing tax returns and shared employee matters will
require the approval of a majority of the directors. Each of the directors has a fiduciary duty to act in the best interests of Lorac
and Lorac has a duty to manage our FCPs and the other fund in the best interests of the respective unitholders. However, it is
possible that we will need the approval of a majority of the directors of Lorac with respect to certain matters involving our
properties and there can be no assurance that such matters will be approved at all or on the terms requested. Any matter with
respect to which our appointed directors and those appointed by the other owner of the Lorac shares cannot agree will be
submitted to the Lorac shareholders. However, since we have only 50% of the voting shares of Lorac, there can be no assurance
that any such matter will be approved in the manner in which we would hope. Such dispute could have a material and adverse
effect on our cash flows, financial condition and results of operations, and on our ability to make distributions on the Units or
cash interest payments on the Debentures.
As manager of the other fund since 2008, Lorac has incurred and will continue to incur liabilities as a result of managing that
other fund and its assets. To the extent that the other fund is unable to satisfy such liabilities, a third party could seek recourse
against Lorac. If Lorac is unable to satisfy such liabilities, Lorac could be required to seek protection from creditors under
applicable bankruptcy or insolvency legislation. Taking such steps could result in Lorac being replaced as the manager of our
FCPs, with the result that legal title to our properties would be required to be transferred to a new manager. This would result
in the payment of RETT in Germany. The amount of such taxes could have a material and adverse effect on our cash flows,
financial condition and results of operations. We have negotiated certain limited indemnities from the other fund in connection
with any prior existing liabilities of the other fund and with those that may arise as a result of actions or omissions of the other
fund. In addition to the foregoing, we have been advised by our Luxembourg counsel that creditors of the other fund could only
seek recourse against the assets of the other fund and could not seek recourse against the assets of our FCPs regardless of the
fact that Lorac may have entered into the contract on behalf of the other fund or our FCPs creating such right to a claim.
New properties acquired by the Trust are held through Luxembourg limited liability entities outside of the Lorac arrangement.
COMPETITION
The real estate market in Germany is highly competitive and fragmented and we compete for real property acquisitions with
individuals, corporations, institutions and other entities that may seek real property investments similar to those we desire. An
increase in the availability of investment funds or an increase in interest in real property investments may increase competition
for real property investments, thereby increasing purchase prices and reducing the yield on them. If competing properties of a
similar type are built in the area where one of our properties is located or if similar properties located in the vicinity of one of
our properties are substantially refurbished, the net operating income derived from and the value of such property could
be reduced.
Numerous other developers, managers and owners of properties will compete with us in seeking tenants. To the extent that
our competitors own properties that are better located, of better quality or less leveraged than the properties owned by us,
they may be in a better position to attract tenants who might otherwise lease space in our properties. To the extent that our
competitors are better capitalized or stronger financially, they will be better able to withstand an economic downturn.
The existence of competition for tenants could have an adverse effect on our ability to lease space in our properties and on the
rents charged or concessions granted, and could materially and adversely affect our cash flows, operating results and
financial condition.
Dream Global REIT 2015 Annual Report | 45
INSURANCE
We carry general liability, umbrella liability and excess liability insurance with limits that are typically obtained for similar real
estate portfolios in Germany and otherwise acceptable to our trustees. For the property risks, we carry “All Risks” property
insurance including, but not limited to, flood, earthquake and loss of rental income insurance (with at least a 24-month
indemnity period). We also carry boiler and machinery insurance covering all boilers, pressure vessels, HVAC systems and
equipment breakdown. However, certain types of risks (generally of a catastrophic nature such as from war or nuclear accident)
are uninsurable under any insurance policy. Furthermore, there are other risks that are not economically viable to insure at this
time. We partially self-insure against terrorism risk for our entire portfolio. We have insurance for earthquake risks, subject to
certain policy limits, deductibles and self-insurance arrangements. Should an uninsured or underinsured loss occur, we could
lose our investment in, and anticipated profits and cash flows from, one or more of our properties, but we would continue to
be obligated to repay any recourse mortgage indebtedness on such properties. We do not carry title insurance on our
properties. If a loss occurs resulting from a title defect with respect to a property where there is no title insurance or the loss is
in excess of insured limits, we could lose all or part of our investment in, and anticipated profits and cash flows from, such
property.
SECTION V – CRITICAL ACCOUNTING POLICIES
CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES
Preparing the consolidated financial statements requires management to make judgments, estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosures of contingent liabilities.
Management bases its judgments and estimates on historical experience and other factors it believes to be reasonable under
the circumstances, but that are inherently uncertain and unpredictable, the result of which forms the basis of the carrying
amounts of assets and liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that
could require a material adjustment in the future to the carrying amounts of the asset or liability affected. Dream Global REIT’s
critical accounting judgments, estimates and assumptions in applying accounting policies are described in Note 4 to the
consolidated financial statements.
CHANGES IN ACCOUNTING ESTIMATES AND CHANGES IN ACCOUNTING POLICIES
Accounting policy changes
Dream Global REIT’s future accounting policy changes are described in Note 5 to the audited consolidated financial statements.
Additional information relating to Dream Global REIT, including our Annual Information Form dated March 30, 2015, is available
on SEDAR at www.sedar.com.
Dream Global REIT 2015 Annual Report | 46
Management’s responsibility for financial statements
The accompanying consolidated financial statements, the notes thereto and other financial information contained in this
Annual Report have been prepared by, and are the responsibility of, the management of Dream Global Real Estate Investment
Trust. These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards, using management’s best estimates and judgments as appropriate.
The Board of Trustees is responsible for ensuring that management fulfills its responsibility for financial reporting and internal
controls. The audit committee, which comprises trustees, meets with management as well as the external auditors to satisfy
itself that management is properly discharging its financial responsibilities and to review its consolidated financial statements
and the report of the auditors. The audit committee reports its findings to the Board of Trustees, which approves the
consolidated financial statements.
PricewaterhouseCoopers LLP, the independent auditors, have audited the consolidated financial statements in accordance with
Canadian generally accepted auditing standards. The auditors have full and unrestricted access to the audit committee, with or
without management present.
P. Jane Gavan
President and Chief Executive Officer
Toronto, Ontario, February 17, 2016
Rene D. Gulliver
Chief Financial Officer
Dream Global REIT 2015 Annual Report | 47
Independent auditor’s report
To the Unitholders of Dream Global Real Estate Investment Trust
We have audited the accompanying consolidated financial statements of Dream Global Real Estate Investment Trust and its
subsidiaries, which comprise the consolidated balance sheets as at December 31, 2015 and December 31, 2014 and the
consolidated statements of net income and comprehensive income, changes in equity and cash flows for the years ended
December 31, 2015 and December 31, 2014 and the related notes, which comprise a summary of significant accounting
policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Dream
Global Real Estate Investment Trust and its subsidiaries as at December 31, 2015 and December 31, 2014 and their financial
performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario, February 17, 2016
Dream Global REIT 2015 Annual Report | 48
Note
December 31,
2015
December 31,
2014
$
7
8
21
12
9
10, 21
17
$
11
$
12
13
20
11
14, 21
12
15
17
21
16
$
2,392,281 $
272,720
6,621
4,377
2,723
2,678,722
15,706
4,430
28,700
48,836
32,855
2,760,413 $
1,324,889 $
2,395
6,295
14,150
16,856
1,364,585
56,003
35,613
1,976
5,022
7,535
106,149
521
1,471,255
1,105,485
45,555
128,810
1,279,850
9,308
1,289,158
2,760,413 $
2,079,671
159,967
4,930
–
1,698
2,246,266
17,455
2,360
121,939
141,754
44,363
2,432,383
1,157,882
1,802
3,420
9,365
719
1,173,188
70,514
49,485
1,268
8,853
7,431
137,551
1,424
1,312,163
1,091,317
(8,808 )
31,516
1,114,025
6,195
1,120,220
2,432,383
Consolidated balance sheets
(in thousands of Canadian dollars)
Assets
NON-CURRENT ASSETS
Investment properties
Investment in joint ventures
Notes receivable
Derivative financial instruments
Other non-current assets
CURRENT ASSETS
Amounts receivable
Prepaid expenses
Cash
Assets held for sale
Total assets
Liabilities
NON-CURRENT LIABILITIES
Debt
Deposits
Derivative financial instruments
Deferred Unit Incentive Plan
Deferred income tax
CURRENT LIABILITIES
Debt
Amounts payable and accrued liabilities
Income tax payable
Derivative financial instruments
Distributions payable
Liabilities related to assets held for sale
Total liabilities
Equity
Unitholders’ equity
Retained earnings (deficit)
Accumulated other comprehensive income
Total unitholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
Commitments and contingencies (Note 23).
See accompanying notes to the consolidated financial statements.
On Behalf of the Board of Trustees of Dream Global Real Estate Investment Trust:
MICHAEL J. COOPER
Trustee
P. JANE GAVAN
Trustee
Dream Global REIT 2015 Annual Report | 49
Consolidated statements of net income and comprehensive income
(in thousands of Canadian dollars)
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest and other income
Share of net income from investment in joint ventures
Other expenses
Portfolio management
General and administrative
Depreciation and amortization
Interest expense
Fair value adjustments, loss on sale of
investment properties and other activities
Fair value adjustments to investment properties
Fair value adjustments to financial instruments
Internal direct leasing costs
Debt settlement costs
Gain (loss) on sale of investment properties
Contract termination fees incurred on sale to the joint venture
Income before income taxes
Current income tax expense
Deferred income tax expense
Provision for income taxes
Net income
Total net income for the year
attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Net income
Foreign currency translation adjustments for the
year attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
Comprehensive income for the year
attributable to:
Unitholders of the Trust
Shareholders of subsidiaries
See accompanying notes to the consolidated financial statements.
Note
$
Year ended December 31,
2015
200,042 $
(66,028 )
134,014
2014
256,077
(77,965 )
178,112
8
21
18
7, 17
19
11
7, 8
20
$
7,252
35,675
42,927
(5,630 )
(15,901 )
(118 )
(39,357 )
(61,006 )
68,436
(11,034 )
(2,471 )
(5,541 )
(2,893 )
–
46,497
162,432
(992 )
(15,614 )
(16,606 )
145,826 $
418
2,513
2,931
(4,571 )
(16,852 )
(138 )
(48,198 )
(69,759 )
72,247
3,056
(1,954 )
–
41,873
(510 )
114,712
225,996
(1,325 )
(15,734 )
(17,059 )
208,937
$
21
144,747 $
1,079
145,826
208,028
909
208,937
97,294
670
97,964
(54,671 )
(98 )
(54,769 )
242,041
1,749
243,790 $
153,357
811
154,168
$
Dream Global REIT 2015 Annual Report | 50
Consolidated statements of changes in equity
Attributable to unitholders of the Trust
(in thousands of Canadian dollars,
except number of Units)
Note
Balance at January 1, 2015
Net income for the year
Distributions paid
Distributions payable
Contribution from non-
controlling interest
Distribution Reinvestment Plan
Unit Purchase Plan
Deferred Unit Incentive Plan
Issue costs
Foreign currency translation
adjustment
Balance at December 31, 2015
15
15
16
16
16
Number Unitholders’
equity
of Units
1,091,317 $
111,466,697 $
–
–
–
–
–
–
–
1,493,617
2,231
61,920
–
–
13,745
20
576
(173 )
(deficit)
Accumulated
Retained
other
earnings comprehensive
income
31,516 $
–
–
–
(8,808 ) $
144,747
(82,849 )
(7,535 )
Total
unitholders’
equity
1,114,025 $
144,747
(82,849 )
(7,535 )
Non-
controlling
interest
6,195 $
1,079
–
–
–
–
–
–
–
–
–
–
–
–
–
13,745
20
576
(173 )
1,364
–
–
–
–
Total
1,120,220
145,826
(82,849 )
(7,535 )
1,364
13,745
20
576
(173 )
–
113,024,465 $
–
1,105,485 $
–
45,555 $
97,294
128,810 $
97,294
1,279,850 $
670
9,308 $
97,964
1,289,158
Attributable to unitholders of the Trust
(in thousands of Canadian dollars,
except number of Units)
Note
Balance at January 1, 2014
Net income for the year
Distributions paid
Distributions payable
Contribution from non-
controlling interest
Distribution Reinvestment Plan
Unit Purchase Plan
Deferred Unit Incentive Plan
Issue costs
Reclassification from amounts
payable and accrued liabilities
Foreign currency translation
15
15
16
16
16
Number
of Units
109,698,977 $
–
–
–
Unitholders’
equity
1,075,520 $
–
–
–
–
1,677,622
3,683
86,415
–
–
15,222
34
793
(252 )
–
–
adjustment
–
1,091,317 $
See accompanying notes to the consolidated financial statements.
–
111,466,697 $
Balance at December 31, 2014
Accumulated
other
comprehensive
income (loss)
86,187 $
–
–
–
Deficit
(127,702 ) $
208,028
(81,703 )
(7,431 )
Total
unitholders’
equity
1,034,005
208,028
(81,703 )
(7,431 )
Non-
controlling
interest
–
909
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,222
34
793
(252 )
–
–
(8,808 ) $
(54,671 )
31,516 $
(54,671 )
1,114,025
4,599
–
–
–
–
785
(98 )
6,195
Total
1,034,005
208,937
(81,703 )
(7,431 )
4,599
15,222
34
793
(252 )
785
(54,769 )
1,120,220
Dream Global REIT 2015 Annual Report | 51
Consolidated statements of cash flows
(in thousands of Canadian dollars)
Generated from (utilized in) operating activities
Net income
Non-cash items:
Share of net income from investment in joint ventures
Deferred income taxes expense
Amortization of lease incentives
Amortization of financing costs
Amortization of fair value adjustment on acquired debt
Amortization of initial discount on convertible debentures
Gain (loss) on sale of investment properties
Depreciation and amortization
Deferred unit compensation expense and asset management fees
Straight-line rent adjustment
Fair value adjustments to financial instruments
Fair value adjustments to investment properties
Cash settlement on foreign exchange contracts
Cash settlement on interest rate swap
Lease incentives and initial direct leasing costs
Change in non-cash working capital
Generated from (utilized in) investing activities
Investment in building improvements
Acquisition of investment properties
Net proceeds from sale of interest to POBA
Cash assumed on property entity acquisition
Investment in Rivergate joint venture
Notes receivable
Cash sold to the POBA joint venture
Net proceeds from disposal of investment properties
Distributions from investment in joint ventures
Generated from (utilized in) financing activities
Purchase of interest rate caps
Mortgage proceeds
Financing costs on debts placed
Mortgage principal repayments
Term loan repayment on property dispositions and amortization
Lump sum repayment on term loan discharge
Drawdown on revolving credit facility
Revolving credit facility repayments
Proceeds of term debt
Units issued for cash
Unit issue costs
Distributions paid on Units
Increase (decrease) in cash
Effect of exchange rate changes on cash
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements.
Note
Year ended December 31,
2015
2014
$
145,826 $
208,937
(35,675 )
15,614
2,245
3,305
(30 )
1,184
2,893
118
3,842
(928 )
11,034
(68,436 )
(3,625 )
(6,368 )
(8,332 )
(9,643 )
53,024
(14,425 )
(236,401 )
16,006
872
(67,078 )
(1,274 )
(5,186 )
104,838
17,326
(185,322 )
(5,228 )
161,558
(15,268 )
(33,380 )
(83,009 )
(316,352 )
101,587
(72,132 )
369,543
20
(173 )
(76,535 )
30,631
(101,667 )
8,428
121,939
28,700 $
(2,513 )
15,734
1,458
3,453
(387 )
1,092
(41,873 )
138
4,189
(624 )
(3,056 )
(72,247 )
(8,058 )
(6,493 )
(14,777 )
11,092
96,065
(12,741 )
(411,077 )
151,889
–
–
(4,930 )
(7,604 )
126,425
682
(157,356 )
–
243,374
(4,459 )
(16,467 )
–
(67,036 )
164,223
(164,209 )
–
34
(252 )
(73,795 )
81,413
20,122
(4,475 )
106,292
121,939
13
19
12
12
7
22
7, 17
6
8
7
8
11
11
16
15
$
Dream Global REIT 2015 Annual Report | 52
Notes to the consolidated financial statements
(All dollar amounts in thousands of Canadian dollars, except unit amounts)
Note 1
ORGANIZATION
Dream Global Real Estate Investment Trust (the “REIT” or the “Trust”), formerly called Dundee International REIT, is an open-
ended investment trust created pursuant to a Declaration of Trust dated April 21, 2011, under the laws of the Province of
Ontario, and is domiciled in Ontario. The consolidated financial statements of the REIT include the accounts of the REIT and its
consolidated subsidiaries. The REIT’s portfolio comprises office, industrial and mixed use properties located in Germany.
The principal office and centre of administration of the Trust is 30 Adelaide Street East, Suite 301, State Street Financial Centre,
Toronto, Ontario, Canada M5C 3H1. The Trust is listed on the Toronto Stock Exchange under the symbol DRG.UN. The Trust’s
consolidated financial statements for the year ended December 31, 2015 were authorized for issue by the Board of Trustees on
February 17, 2016, after which date the consolidated financial statements may only be amended with Board approval.
Note 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Basis of presentation
The consolidated financial statements are prepared on a going concern basis and have been presented in Canadian dollars,
which is also the Trust’s functional currency. All financial information has been rounded to the nearest thousand except when
otherwise indicated. The accounting policies set out below have been applied consistently in all material respects. Certain
future accounting standards and guidelines relevant to the Trust that were issued at the date of approval of the consolidated
financial statements, but not yet effective for the current accounting period, are described in Note 5.
The consolidated financial statements have been prepared on the historical cost basis except for investment properties, the
conversion feature of the convertible debentures, and financial derivatives, which are measured at fair value, and the Deferred
Unit Incentive Plan, which is measured at amortized cost impacted by the fair value of the Trust’s units.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the REIT and its subsidiaries. Subsidiaries are fully
consolidated from the date of acquisition, which is the date on which the Trust obtains control, and continue to be consolidated
until the date that such control ceases. Control exists when the Trust has the power over the entity, has exposure to variable
returns from its involvement with the entity and has the ability to use its power over the investee to affect its returns. All
intercompany balances, income and expenses, and unrealized gains and losses resulting from intercompany transactions are
eliminated in full.
Where the REIT consolidates a subsidiary in which it does not have 100% ownership, the non-controlling interest is classified as
a component of equity.
Equity accounted investments
Equity accounted investments are investments over which the Trust has significant influence, but not control. Generally, the
Trust is considered to exert significant influence when it holds more than a 20% interest in an entity. However, determining
significant influence is a matter of judgment and specific circumstances and, from time to time, the Trust may hold an interest
of more than 20% in an entity without exerting significant influence. Conversely, the Trust may hold an interest of less than
20% and exert significant influence through representation on the Board of Trustees, direction of management or
contractual agreements.
The financial results of the Trust’s equity accounted investments are included in the Trust’s consolidated financial statements
using the equity method, whereby the investment is carried on the consolidated balance sheets at cost, adjusted for the Trust ’s
proportionate share of post-acquisition profits and losses and for post-acquisition changes in excess of the Trust’s carrying
amount of its investment over the net assets of the equity accounted investments, less any identified impairment loss. The
Trust’s share of profits and losses is recognized in the share of net income from investments in joint venture in the consolidated
statements of net income.
Dream Global REIT 2015 Annual Report | 53
At each reporting date, the Trust evaluates whether there is objective evidence that its interest in an equity accounted
investment is impaired. The entire carrying amount of the equity accounted investment is compared to the recoverable
amount, which is the higher of the value in use or fair value less costs to sell. The recoverable amount of each investment is
considered separately.
Where the Trust transacts with its equity accounted investments, unrealized profits and losses are eliminated to the extent of
the Trust’s interest in the investment. Balances outstanding between the Trust and equity accounted investments in which it
has an interest are not eliminated in the consolidated balance sheets.
Joint arrangements
The Trust enters into joint arrangements via joint operations and joint ventures. A joint arrangement with a contractual
arrangement pursuant to which the Trust and other parties undertake an economic activity that is subject to joint control
whereby the strategic financial and operating policy decisions relating to the activities of the joint arrangement require the
unanimous consent of the parties sharing control is referred to as a joint operation. Joint arrangements that involve the
establishment of a separate entity in which each venture has rights to the net assets of the arrangements are referred to as
joint ventures. In a co-ownership arrangement, the Trust owns jointly one or more investment properties with another party
and has direct rights to the investment property, and obligations for the liabilities relating to the co-ownership.
The Trust reports its interests in joint ventures using the equity method of accounting as described under “Equity accounted
investments” above. Under this method, the Trust’s consolidated financial statements reflect only the Trust’s proportionate
share of the assets, its share of any liabilities incurred jointly with the other ventures as well as any liabilities incurred directly,
its share of any revenues earned or expenses incurred by the joint venture and any expenses incurred directly.
Note 3
ACCOUNTING POLICIES SELECTED AND APPLIED FOR SIGNIFICANT TRANSACTIONS AND EVENTS
The significant accounting policies used in the preparation of these consolidated financial statements are described below:
Investment properties
Investment properties are initially recorded at cost including related transaction costs in connection with asset acquisitions,
except if acquired in a business combination, in which case they are initially recorded at fair value, and include primarily office
properties held to earn rental income and/or for capital appreciation. Investment properties are subsequently measured at fair
value, determined based on available market evidence, at the consolidated balance sheet dates. Related fair value gains and
losses are recorded in net income in the period in which they arise. The fair value of each investment property is based on,
among other things, rental income from current leases and assumptions about rental income from future leases reflecting
market conditions at the consolidated balance sheet dates, less future estimated cash outflows in respect of such properties. To
determine fair value, the Trust first considers whether it can use current prices in an active market for a similar property in the
same location and condition, and subject to similar leases and other contracts. The Trust has concluded there is insufficient
market evidence on which to base investment property valuation using this approach and has therefore determined to use the
income approach. The income approach is one in which the fair value is estimated by capitalizing the net operating income that
the property can reasonably be expected to produce over its remaining economic life. The income approach is derived from
two methods: the overall capitalization rate method whereby the net operating income is capitalized at the requisite overall
capitalization rate; and/or the discounted cash flow method in which the income and expenses are projected over the
anticipated term of the investment plus a terminal value discounted using an appropriate discount rate. Valuations of
investment properties are most sensitive to changes in discount rates and capitalization rates.
Third-party initial direct leasing costs incurred in negotiating and arranging tenant leases are added to the carrying amount of
investment properties. Internal direct leasing costs are expensed as incurred in the consolidated statement of net income.
Lease incentives, which include costs incurred to make leasehold improvements to tenants’ space and cash allowances
provided to tenants, are added to the carrying amount of investment properties and are amortized on a straight-line basis over
the term of the lease as a reduction of investment properties revenue.
Dream Global REIT 2015 Annual Report | 54
Fair value hierarchy
Fair value measurements recognized in the consolidated balance sheets or disclosed in the Trust’s consolidated financial
statements for financial or non-financial assets and liabilities are categorized by level in accordance with the significance of the
observable market inputs used in making the measurements, as follows:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
• Level 2 – use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable
market data; and
• Level 3 – use of a model with inputs that are not based on observable market data.
Non-controlling interest
Non-controlling interest represents equity interests in subsidiaries owned by outside parties. The share of net assets, net
earnings and other comprehensive income of subsidiaries attributable to non-controlling interest is reported in equity.
Assets held for sale
Assets and liabilities are classified as held for sale when their carrying amount is to be recovered principally through a sale
transaction and a sale is considered highly probable. Investment properties and assets held for sale continue to be measured at
fair value.
Segment reporting
The Trust owns and operates investment properties located in Germany. In measuring performance, the Trust does not
distinguish or group its operations on a geographic or any other basis and, accordingly, has a single reportable segment for
disclosure purposes.
The Trust’s major tenant is Deutsche Post, accounting for approximately 22% of the gross rental income generated by the
Trust’s properties as at the year ended December 31, 2015 (December 31, 2014 – 30%).
Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the group’s entities are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The functional currency of the REIT’s operating
subsidiaries and joint ventures is the euro. The consolidated financial statements are presented in Canadian dollars, which is
the group’s presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such
transactions, and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies, are recognized in the consolidated statements of net income except when deferred in other comprehensive income
as qualifying cash flow hedges and qualifying net investment hedges.
Foreign exchange gains and losses are presented in the consolidated statements of net income.
Group companies
The results and financial position of all the group entities that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
(i)
(ii)
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the rate on the dates of the transactions); and
(iii) all resulting exchange differences are recognized in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of
borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive
income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are
recognized in the consolidated statements of net income as part of the gain or loss on sale.
Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Dream Global REIT 2015 Annual Report | 55
Other non-current assets
Other non-current assets include equity accounted investments, office furniture and computer equipment, and straight-line
rent receivables. Office furniture and computer equipment are stated at cost less accumulated depreciation and impairment
losses. Depreciation of office furniture and computer equipment is calculated using the straight-line method to allocate their
cost, net of their residual values, over their expected useful lives of three to ten years. The residual values and useful lives of all
assets are reviewed and adjusted, if appropriate, at least at each financial year-end. Cost includes expenditures that are directly
attributable to the acquisition and expenditures for replacing part of the office furniture and computer equipment when that
cost is incurred, if the recognition criteria are met. Subsequent costs are included in the asset’s carrying amount or recognized
as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Trust and the cost of the item can be measured reliably. All other repairs and maintenance are charged to net income
during the financial period in which they are incurred.
Other non-current assets are derecognized on disposal or when no future economic benefits are expected from their use or
disposal. Any gain or loss arising on derecognition of an asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in net income in the year the asset is derecognized.
Provisions
Provisions for legal claims are recognized when the Trust has a present legal or constructive obligation as a result of past events,
it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.
Provisions are not recognized for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a rate
that reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in the
provision due to passage of time is recognized as interest expense.
Revenue recognition
The Trust accounts for leases with tenants as operating leases, as it has retained substantially all of the risks and benefits of
ownership of its investment properties. Revenues from investment properties include base rents, recoveries of operating
expenses including property taxes, lease termination fees, parking income and incidental income. Revenue recognition under a
lease commences when the tenant has a right to use the leased asset. The total amount of contractual rent to be received from
operating leases is recognized on a straight-line basis over the term of the lease; a straight-line rent receivable, which is
included in other non-current assets, is recorded for the difference between the rental revenue recognized and the contractual
amount received. Recoveries from tenants are recognized as revenues in the period in which the corresponding costs are
incurred and collectability is reasonably assured. Other revenues are recorded as earned.
Business combinations
The purchase method of accounting is used for acquisitions meeting the definition of a business. The cost of an acquisition is
measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed at the date of
exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their acquisition date fair values irrespective of the extent of any minority interest. The excess of the cost of
acquisition over the fair value of the Trust’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the Trust’s share of the net assets acquired, the difference is recognized directly in net
income for the year as an acquisition gain. Any transaction costs incurred with respect to the business combination are
expensed in the period incurred.
Distributions
Distributions to unitholders are recognized as a liability in the period in which the distributions are approved by the Board of
Trustees and are recorded as an increase to the deficit.
Income taxes
The REIT is taxed as a mutual fund trust under the Income Tax Act (Canada). The REIT is not a specified investment flow-through
trust (“SIFT”), and will not be, provided the REIT complies at all times with its investment restrictions, which preclude the REIT
from investing in any entity other than a portfolio investment entity or from holding any non-portfolio property. The Trust
intends to distribute all taxable income directly earned by the REIT to unitholders and to deduct such distributions for income
tax purposes. The tax deductibility of the REIT’s distributions to unitholders represents, in substance, an exception from current
Canadian tax, and from deferred tax relating to temporary differences in the REIT, so long as the REIT continues to expect to
distribute all of its taxable income and taxable capital gains to its unitholders. Accordingly, no net current Canadian income tax
expense or deferred income tax assets or liabilities have been recorded in these consolidated financial statements.
Dream Global REIT 2015 Annual Report | 56
The tax expense for the year related to non-Canadian taxable subsidiaries comprises current and deferred taxes. The current
income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the consolidated balance sheet
date where the subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized, using the asset and liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantively enacted by the consolidated balance sheet date, and are
expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred
income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilized.
Unit-based compensation plan
The Trust has a Deferred Unit Incentive Plan (“DUIP”), as described in Note 16, that provides for the grant of deferred trust
units and income deferred trust units to trustees, officers, employees, affiliates and their service providers (including the asset
manager). Unvested deferred trust units are recorded as a liability and compensation expense and, where applicable, asset
management expense. Grants to trustees, officers and employees are recognized as compensation expense and included in
general and administrative expense. The grants are recognized over the vesting period at the amortized cost based on the fair
value of the units. Once vested, the liability is remeasured at each reporting date at amortized cost based on the fair value of
the corresponding units, with changes in fair value recognized in net income, as a fair value adjustment to the financial
instruments. Deferred units granted to Dream Asset Management Corporation (“DAM”), formerly called Dundee Realty
Corporation or “DRC”, for payment of asset management fees are included in general and administrative expense during the
year for accounting purposes as they relate to services provided during the year, and the units and fees are initially measured
by applying a discount to the fair value of the corresponding units. The discount is estimated by applying the Black Scholes
option pricing model, taking into consideration the volatility of the Canadian REIT equity market and the German real estate
industry. Once recognized, the liability is remeasured at each reporting date at a discount to the fair values of the
corresponding units, with the change recognized in net income as a fair value adjustment to financial instruments.
Cash
Cash excludes cash subject to restrictions that prevent its use for current purposes. Excluded from cash are amounts held for
repayment of tenant security deposits as required by various lending agreements.
Financial instruments
Designation of financial instruments
The following summarizes the Trust’s classification and measurement of financial assets, liabilities and financial derivatives:
Financial assets
Notes receivable
Amounts receivable
Cash
Financial liabilities
Mortgage debt
Term loan credit facility
Convertible debentures – host instrument
Deposits
Deferred Unit Incentive Plan
Amounts payable and accrued liabilities
Distributions payable
Income tax payable
Classification
Loans and receivables
Loans and receivables
Loans and receivables
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Financial derivatives
Derivative assets
Derivative liabilities
Conversion feature of the convertible debentures
Fair value through profit or loss
Fair value through profit or loss
Fair value through profit or loss
Fair value
Fair value
Fair value
Dream Global REIT 2015 Annual Report | 57
Financial assets
The Trust classifies its financial assets on initial recognition as loans and receivables. All financial assets are initially measured at
fair value, less any related transaction costs. Subsequently, financial assets are measured at amortized cost.
Amounts receivable are initially measured at fair value and are subsequently measured at amortized cost less provision for
impairment. A provision for impairment is established when there is objective evidence that collection of all principal and
interest due under the original terms of the contract is unlikely. Indicators of impairment include delinquency of payment and
significant financial difficulty of the tenant. The carrying amount of the asset is reduced through an allowance account, and the
amount of the loss is recognized in the consolidated statement of net income within investment property operating expenses.
Bad debt write-offs occur when the Trust determines collection is not possible. Any subsequent recoveries of amounts
previously written off are credited against investment property operating expenses in the consolidated statement of net
income. Trade receivables that are less than three months past due are not considered impaired unless there is evidence
collection of all of the amount due is unlikely. If in a subsequent period the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized
impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal
date. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of net income.
Financial assets are derecognized only when the contractual rights to the cash flows from the financial asset expire or the Trust
transfers substantially all risks and rewards of ownership.
Financial liabilities
The Trust classifies its financial liabilities on initial recognition as either fair value through profit or loss or other liabilities
measured at amortized cost. Financial liabilities classified as other liabilities are initially recognized at fair value (net of
transaction costs) and are subsequently measured at amortized cost using the effective interest rate method. Under the
effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the financial liabilities are
recognized in net income over the expected life of the debt.
Term loans are initially recognized at fair value less attributable transaction costs, or at fair value when assumed in a business
or asset acquisition. Subsequent to initial recognition, term loans are recognized at amortized cost.
On issuance, convertible debentures are separated into two financial liability components: the host instrument and the
conversion feature. This presentation is required because the conversion feature permits the holder to convert the debenture
into Units that, except for the available exemption under IAS 32, “Financial Instruments: Presentation” (“IAS 32”), would
normally be presented as a liability because of the redemption feature attached to the Units. Both components are measured
based on their respective estimated fair values at the date of issuance. The fair value of the host instrument is net of any
related transaction costs. The fair value of the host instrument is estimated based on the present value of future interest and
principal payments due under the terms of the debenture using a discount rate for similar debt instruments without a
conversion feature. Subsequent to initial recognition, the host instrument is accounted for at amortized cost. The conversion
feature is accounted for at fair value with changes in fair value recognized in net income each year. When the holder of a
convertible debenture converts its interest into Units, the host instrument and conversion feature are reclassified to
unitholders’ equity in proportion to the units converted over the total equivalent units outstanding.
The DUIP is measured at amortized cost because it is settled in Units, which in accordance with IAS 32 are liabilities.
Consequently, the DUIP is remeasured each year based on the fair value of Units, with changes in the liabilities recorded in
net income.
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired.
Financial derivatives
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument and, if so, the nature of the item being hedged.
Derivative instruments are recorded in the consolidated balance sheets at fair value. Changes in fair value of derivative
instruments that are not designated as hedges for accounting purposes are recognized in fair value adjustments to financial
instruments.
The Trust has not designated any derivatives as hedges for accounting purposes.
Dream Global REIT 2015 Annual Report | 58
Interest
Interest on debt includes coupon interest on term loans, mortgage debt, revolving credit facilities and debentures, amortization
of premiums allocated to the conversion features of the convertible debentures, amortization of ancillary costs incurred in
connection with the arrangement of borrowings, and net settlement of financial interest rate derivatives. Finance costs are
amortized to interest expense unless they relate to a qualifying asset.
Internal direct leasing costs
The Trust expenses all salary costs of permanent staff involved in negotiating and arranging new leases as internal direct leasing
costs in the statement of net income as incurred.
Equity
The Trust classifies the Units as equity, notwithstanding the fact that the Trust’s Units meet the definition of a financial liability.
Under IAS 32, the Units are considered a puttable financial instrument because of the holder’s option to redeem Units,
generally at any time, subject to certain restrictions, at a redemption price per unit equal to the lesser of 90% of a 20-day
weighted average closing price prior to the redemption date or 100% of the closing market price on the redemption date. The
total amount payable by the REIT in any calendar month shall not exceed $50 unless waived by the REIT’s trustees at their sole
discretion. The Trust has determined that the Units can be presented as equity and not financial liabilities because the Units
have the following features, as defined in IAS 32 (hereinafter referred to as the “puttable exemption”):
• Units entitle the holder to a pro rata share of the Trust’s net assets in the event of the Trust’s liquidation. The Trust’s net
assets are those assets that remain after deducting all other claims on its assets.
• Units are the class of instruments that are subordinate to all other classes of instruments because they have no priority
over other claims to the assets of the Trust on liquidation, and do not need to be converted into another instrument before
they are in the class of instruments that is subordinate to all other classes of instruments.
• All instruments in the class of instruments that are subordinate to all other classes of instruments have identical features.
• Apart from the contractual obligation for the Trust to redeem the Units for cash or another financial asset, the Units do not
include any contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial
assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Trust, and it is
not a contract that will or may be settled in the Trust’s own instruments.
• The total expected cash flows attributable to the Units over their life are based substantially on the profit or loss, the
change in the recognized net assets and unrecognized net assets of the Trust over the life of the Units.
In addition to the Units meeting all of the above criteria, the REIT has determined it has no other financial instrument or
contract that has total cash flows based substantially on the profit or loss, the change in the recognized assets, or the change in
the fair value of the recognized and unrecognized net assets of the REIT. The REIT also has no other financial instrument or
contract that has the effect of substantially restricting or fixing the residual return to unitholders.
Units are initially recognized at the fair value of the consideration received by the Trust. Any transaction costs arising on the
issue of Units are recognized directly in unitholders’ equity as a reduction of the proceeds received.
Note 4
CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING POLICIES
The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions
that affect the amounts reported. Management bases its judgments and estimates on experience in the industry and other
various factors it believes to be reasonable under the circumstances, but which are inherently uncertain and unpredictable, the
result of which forms the basis of the carrying values of assets and liabilities. However, uncertainty about these assumptions
and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability
affected in the future.
Critical accounting judgments
The following are the critical judgments made in applying the Trust’s accounting policies that have the most significant effect on
the amounts in the consolidated financial statements:
Valuation of investment properties
Critical judgments are made by the Trust in respect of the fair values of investment properties. The fair value of these
investments is reviewed regularly by management with reference to independent property valuations and market conditions
existing at the reporting date, using generally accepted market practices. Judgment is also applied in determining the extent
and frequency of independent appraisals.
Dream Global REIT 2015 Annual Report | 59
The determination of fair values requires management to make estimates and assumptions that affect the values presented,
such that actual values in sales transactions may differ from those presented. The Trust’s critical assumptions relating to the
estimates of fair values of investment properties include the receipt of contractual rents, expected future market rents, renewal
rates, non-recoverable capital expenditures, discount rates that reflect current market uncertainties, capitalization rates, and
current and recent property investment prices. If there is any change in these assumptions or regional, national or international
economic conditions, the fair value of investment properties may change materially.
The REIT determines the fair value of an investment property at the end of each reporting period using the following methods:
• External appraisals – by an independent appraisal firm, according to professional appraisal standards and IFRS.
•
Internal valuation – performed by management using the income approach and primarily consisting of reviewing the key
assumptions from previous appraisals and updating the value for changes in the property cash flow, physical condition and
changes in market conditions. In applying the income approach to valuation, management may use the direct income
capitalization method or the discounted cash flow method, both of which are consistent with professional appraisal
standards and IFRS.
The selection of the method for each property is made based on the following criteria:
• Regulatory requirements – the Initial Properties are held indirectly through regulated entities that require an external
appraisal annually.
• Property type – this includes an evaluation of a property’s complexity, time since acquisition, and other specific
opportunities or risks with properties. Recently acquired properties will generally receive a value update.
• Market risks – specific risks in a region may warrant a full external appraisal for certain properties.
• Changes in overall economic conditions – significant changes in overall economic conditions may increase the number of
external appraisals performed.
• Business needs – financings or acquisitions and dispositions may require an external appraisal.
The REIT makes no adjustments for portfolio premiums and discounts, nor for any value attributable to the REIT’s management
platform.
Investment properties are appraised at highest and best use, primarily based on stabilized cash flows from tenancies, since
purchasers typically focus on expected income.
Judgment is also applied in determining whether certain costs are additions to the carrying amount of the investment property
or are of a repair and maintenance nature.
Income tax treatment
The REIT indirectly owns its remaining initial properties through 15 FCPs (fonds communs de placement). The income tax
treatment of non-German residents, such as the FCP unitholders indirectly owned by the REIT, is not entirely clear and is
subject to significant judgment, and accordingly it is not currently possible to determine with certainty whether the FCP
unitholders will or will not be taxable in Germany on their net rental income and capital gains. In light of this uncertainty, the
REIT has structured its affairs assuming that the FCP unitholders would be subject to corporate income tax in Germany, and has
prepared these consolidated financial statements on that basis.
The German federal government has indicated it intends to reform the Investment Tax Act in the future. It is unclear what
exactly the consequences of the reform would be and how it would impact the FCPs or the FCP unitholders. From the latest
draft bill issued at the beginning of 2016, foreign funds investing in German assets through FCPs shall be treated as quasi-
corporate taxpayers. Currently, the German fiscal authorities view foreign investment funds such as the FCPs or the FCP
unitholders as potentially subject to corporate income tax in Germany. However, the REIT believes that the consequences of
the uncertainty of the tax status of the FCPs would be the same from a German corporate tax perspective irrespective
of whether it is the FCPs or the FCP unitholders that are determined to be the taxpayer.
Dream Global REIT 2015 Annual Report | 60
The Trust computes current and deferred income taxes included in the consolidated financial statements based on
the following:
• The rate of corporate tax payable on German taxable income is 15.825%, including a 5.5% solidarity surcharge;
• Taxable income for German corporate income tax purposes is determined by deducting certain expenses incurred in
connection with the acquisition and ownership of real property as well as certain operating expenses, provided that the
costs are incurred under arm’s length terms;
• Buildings can generally be amortized on a straight-line basis at a rate of 2% to 3% depending on the age and the use of the
property; and
• The deduction of interest expense, which must reflect arm’s length terms, is generally restricted by the so-called “interest
capping rules”. These rules apply to limit the deduction of all interest expense incurred up to a maximum of 30% of the
taxable earnings before interest, tax, depreciation and amortization. However, an exception is available when annual
interest expense is less than €3,000 for each taxpayer.
Business combinations
Accounting for business combinations under IFRS 3, “Business Combinations” (“IFRS 3”), only applies if it is considered that a
business has been acquired. Under IFRS 3, a business is defined as an integrated set of activities and assets conducted and
managed for the purpose of providing a return to investors or lower costs or other economic benefits directly and
proportionately to the Trust. A business generally consists of inputs, processes applied to those inputs, and resulting outputs
that are, or will be, used to generate revenues. In the absence of such criteria, a group of assets is deemed to have been
acquired. If goodwill is present in a transferred set of activities and assets, the transferred set is presumed to be a business.
The Trust applies judgment in determining whether property acquisitions qualify as a business combination in accordance with
IFRS 3 or as an asset acquisition.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a business
combination or an asset acquisition, the Trust applies judgment when considering the following:
• whether the investment property or properties are capable of producing outputs
• whether the market participant could produce outputs if missing elements exist
• whether employees were assumed in the acquisition
• whether an operating platform has been acquired
Currently, when the Trust acquires properties or a portfolio of properties and does not take on or assume employees or does
not acquire an operating platform, it classifies the acquisition as an asset acquisition.
Impairment
The Trust uses judgments, estimates and assumptions when it assesses the possibility and amount of any impairment loss or
write-down as it relates to amounts receivable and other assets.
Estimates and assumptions
The Trust makes estimates and assumptions that affect the carrying amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported amount of other comprehensive income for the year. Actual results could
differ from those estimates. The estimates and assumptions critical to the determination of the amounts reported in the
consolidated financial statements relate to the following:
Valuation of financial instruments
The Trust makes estimates and assumptions relating to the fair value measurement of the DUIP, the convertible debenture
conversion feature, derivative instruments, and the fair value disclosure of the convertible debentures, mortgages and term
loans. The critical assumptions underlying the fair value measurements and disclosures include the market price of Units,
market interest rates for debt and interest rate derivatives, unsecured debentures and foreign currency derivatives.
Dream Global REIT 2015 Annual Report | 61
Note 5
FUTURE ACCOUNTING POLICY CHANGES
The following are future accounting policy changes to be implemented by the Trust in future years:
Revenue recognition
IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), provides a comprehensive five-step revenue recognition model
for all contracts with customers. The IFRS 15 revenue recognition model requires management to exercise significant judgment
and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1,
2018, with earlier application permitted. The Trust is currently evaluating the impact of adopting this standard on the
consolidated financial statements.
Financial instruments
The final version of IFRS 9, “Financial Instruments” (“IFRS 9”), was issued by the IASB in July 2014 and will replace IAS 39,
“Financial Instruments: Recognition and Measurement”. IFRS 9 introduces a model for classification and measurement, a single,
forward-looking “expected loss” impairment model and a substantially reformed approach to hedge accounting. The new
single, principle-based approach for determining the classification of financial assets is driven by cash flow characteristics and
the business model in which an asset is held. The new model also results in a single impairment model being applied to all
financial instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect
of an entity’s own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the
deterioration of an entity’s own credit risk on such liabilities are no longer recognized in profit or loss. The entity’s own credit
changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. Lastly, a third
measurement category for financial assets – “fair value through other comprehensive income” – will exist. IFRS 9 is effective for
annual periods beginning on or after January 1, 2018; however, it is available for early adoption. The Trust is currently
evaluating the impact of adopting this standard on the consolidated financial statements.
Financial instruments – disclosures
IFRS 7, “Financial Instruments: Disclosures” (“IFRS 7”), has been amended by the IASB to require additional disclosures on
transition from IAS 39 to IFRS 9. The amendment to IFRS 7 is effective for periods beginning on or after January 1, 2018. The
Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements.
Presentation of financial statements
IAS 1, “Presentation of Financial Statements” (“IAS 1”), was amended by the IASB to clarify guidance on materiality and
aggregation, the presentation of subtotals, the structure of financial statements and disclosure of accounting policies. The
amendment gives guidance that information within the consolidated balance sheets and statements of comprehensive income
should not be aggregated or disaggregated in a manner that obscures useful information, and that disaggregation may be
required in the statement of comprehensive income in the form of additional subtotals as they are relevant to understanding
the entity’s financial position or performance. The amendments to IAS 1 are effective for periods beginning on or after
January 1, 2016. The Trust is currently evaluating the impact of adopting this standard on the consolidated financial statements.
Acquisitions of interests in joint operations
IFRS 11, “Joint Arrangements” (“IFRS 11”), has been amended to require the application of IFRS 3 to transactions where an
investor obtains an interest in a joint operation that constitutes a business. The amendment to IFRS 11 is effective for periods
beginning on or after January 1, 2016. The Trust is currently evaluating the impact of adopting this standard on the
consolidated financial statements.
Leases
IFRS 16, “Leases” (“IFRS 16”), sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16
provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16
introduces a single accounting model for all lessees and requires a lessee to recognize right-of-use assets and lease liabilities for
leases with terms of more than 12 months, unless the underlying asset is of low value. Under IFRS 16 lessor accounting for
operating and finance leases will remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after
January 1, 2019, with earlier application permitted for entities that apply IFRS 15. The Trust is currently evaluating the impact of
adopting this standard on the consolidated financial statements.
Dream Global REIT 2015 Annual Report | 62
Note 6
PROPERTY ACQUISITIONS
Detailed below are the acquisitions completed during the year ended December 31, 2015:
Millerntorplatz 1, Hamburg
Anger Entrée, Krämpferstrasse 2,4,6, Erfurt
Zimmerstraße 56 / Schützenstraße 15-17
Prior year acquisition cost adjustments
Total
(1) Includes transaction costs.
Property type
Office
Office
Office
Interest
acquired
100 % $
100 %
94.9 %
$
Purchase
price(1)
140,856
30,000
66,015
236,871
148
237,019
Date acquired
February 6, 2015
September 4, 2015
October 27, 2015
On February 6, 2015, the REIT acquired Millerntorplatz 1, an office property located in Hamburg, Germany, for $140,856
(€99,359). The acquisition was partially financed by a new mortgage of $84,283 (€59,400).
On September 4, 2015, the REIT acquired Anger Entrée, an office property located in Thuringia, Germany, for $30,000
(€20,332). The acquisition was partially financed by a new mortgage of $15,358 (€10,300).
On October 27, 2015, the REIT acquired Zimmerstraße 56, an office property located in Berlin, Germany, for $66,015 (€45,086).
The acquisition was partially financed by a new mortgage of $38,807 (€26,520).
Detailed below are the acquisitions completed during the year ended December 31, 2014:
Werner-Eckert-Straße 8, 10, 12, Munich
My Falkenried, Hamburg
Liebknechtstr. 33/35, Heßbrühlstr. 7 (Officium), Stuttgart
Robert-Bosch-Str. 9-11 (Europahaus), Darmstadt
Im Mediapark 8 (Cologne Tower), Cologne
Greifswalder Str. 154-156 and Erich-Weinert-Str. 145 (Goldpunkt-Haus),
Berlin – earnout amount
Prior year acquisition cost adjustments
Total
(1) Includes transaction costs.
Property type
Office
Office
Office
Office
Office
Interest
acquired
100 % $
100 %
100 %
100 %
94.8 %
Date acquired
Purchase
price(1)
23,431
February 14, 2014
97,578
March 31, 2014
72,893
July 31, 2014
61,204 September 30, 2014
164,748 November 14, 2014
419,854
933
1,379
422,166
$
The assets acquired and liabilities assumed in the transaction were allocated as follows:
For the year
ended
December 31,
2015
237,019 $
237,019 $
For the year
ended
December 31,
2014
422,166
422,166
236,401 $
(246 )
(468 )
1,332
237,019 $
411,077
2,641
3,849
4,599
422,166
$
$
$
$
Investment properties(1)
Total purchase price
The consideration paid consists of:
Cash
Net working capital assumed
Transaction costs
Contributions from non-controlling interest
Total consideration
(1) Includes transaction costs.
Dream Global REIT 2015 Annual Report | 63
Note 7
INVESTMENT PROPERTIES
The REIT has determined that it has two asset classes of investment properties reflecting their distinct nature, characteristics
and risks.
Initial properties
The Initial Properties consist of the properties that were acquired on August 3, 2011. These properties consist of national and
regional administration offices, mixed use retail and distribution properties and regional logistics headquarters of Deutsche
Post. The properties, which are dispersed throughout Germany, are generally strategically located near central train stations
and main retail areas and are easily accessible by public transportation.
Acquisition properties
The Acquisition Properties, which were acquired since the Trust’s Initial Public Offering in 2011, consist of high-quality office
buildings located in Germany’s largest office markets. The assets are generally larger, newer or recently refurbished buildings in
comparison to the Initial Properties. A 50% interest in eight Acquisition Properties was sold in Q4 2014 and Q1 2015. These
assets are jointly owned with the Public Officials Benefit Association (“POBA”), a South Korean pension fund. A 50% interest in
an Acquisition Property in Austria was acquired with a joint venture partner in Q4 2015. Refer to Note 8 for the details
regarding the jointly owned properties.
Balance as at January 1, 2015
Purchase of investment properties:
Acquisition of properties
Building improvements
Lease incentives and initial direct leasing costs
Total additions to investment properties
Disposal of investment properties:
Sales of investment properties
Transfers to disposal groups classified as assets held for sale – POBA
joint venture assets(1)
Transfers to disposal groups classified as assets held for sale
Total disposal of investment properties
Gains (losses) and amortization included in net income:
Change in fair value of investment properties
Amortization of lease incentives
Total gains (losses) and amortization included in net income
Gains and losses included in other comprehensive income:
Foreign currency translation gain
Total gains included in other comprehensive income
Balance as at December 31, 2015
Changes in unrealized gains (losses) included in net income for the year
ended December 31, 2015:
Change in fair value of investment properties
(1) POBA joint venture refers to the Public Officials Benefit Association joint venture.
Note
Total
2,079,671 $
$
Initial
properties
795,362 $
Acquisition
properties
1,284,309
6
17
17
237,019
14,375
8,332
259,726
–
9,130
6,119
15,249
237,019
5,245
2,213
244,477
(252 )
(252 )
–
(69,368 )
(97,472 )
(167,092 )
69,497
(2,245 )
67,252
–
(97,472 )
(97,724 )
(162 )
(1,931 )
(2,093 )
(69,368 )
–
(69,368 )
69,659
(314 )
69,345
152,724
152,724
2,392,281 $
49,962
49,962
760,756
$
102,762
102,762
1,631,525
$
$
69,497 $
(162 ) $
69,659
Dream Global REIT 2015 Annual Report | 64
Balance as at January 1, 2014
Purchase of investment properties:
Acquisition of properties
Building improvements
Lease incentives and initial direct leasing costs
Total additions to investment properties
Disposal of investment properties:
Sales of investment properties
Transfers to disposal groups classified as assets held for sale – POBA
joint venture assets(1)
Transfers to disposal groups classified as assets held for sale
Total disposal of investment properties
Gains (losses) and amortization included in net income:
Change in fair value of investment properties
Amortization of lease incentives
Total gains (losses) and amortization included in net income
Gains and losses included in other comprehensive income:
Foreign currency translation loss
Total losses included in other comprehensive income
Balance as at December 31, 2014
Changes in unrealized gains (losses) included in net income for the year
ended December 31, 2014:
Change in fair value of investment properties
(1) POBA joint venture refers to the Public Officials Benefit Association joint venture.
Note
Total
2,390,244 $
$
Initial
properties
985,212
$
Acquisition
properties
1,405,032
17
17
422,166
12,730
14,908
449,804
–
9,949
11,085
21,034
422,166
2,781
3,823
428,770
(144 )
(144 )
–
(573,521 )
(161,174 )
(734,839 )
76,639
(1,458 )
75,181
–
(161,174 )
(161,318 )
(13,186 )
(1,247 )
(14,433 )
(573,521 )
–
(573,521 )
89,825
(211 )
89,614
(100,719 )
(100,719 )
2,079,671 $
(35,133 )
(35,133 )
795,362 $
(65,586 )
(65,586 )
1,284,309
$
$
36,405 $
(11,541 ) $
47,946
Straight-line rent receivable, composed of free rent and contractual rent increases accrued to rental revenue, of $2,458
(December 31, 2014 – $1,429) has been included in other non-current assets.
During the year ended December 31, 2015, the balance of the investment properties increased by $312,610, mainly due to
acquisitions during the year totalling $237,019 (refer to Note 6 for details of the acquisitions), an increase in fair value of
$69,497 and an unrealized foreign exchange gain of $152,724 due to the appreciation of the euro against the Canadian dollar
since December 31, 2014. The increase was partially offset by the reclassification to assets held for sale of $97,472, and the
sale of an Acquisition Property to the POBA joint venture for a fair value of $69,368, where the REIT retained a 50% interest in
the asset, which is classified as an investment in joint ventures. (Refer to Note 8 for details on joint arrangements.)
During the year ended December 31, 2015, $18,192 (December 31, 2014 – $20,866) of building improvements, tenant
improvements and acquisition transaction costs were capitalized to the carrying amount of the Acquisition Properties. The fair
value of the Acquisition Properties increased by a further $51,467 to $69,659 (December 31, 2014 – $89,825) in the year.
During the year ended December 31, 2015, the REIT disposed of 52 investment properties that were acquired in 2011 as part of
the Initial Properties, nine of which were reclassified as assets held for sale as at December 31, 2014. Net proceeds of $104,838
(December 31, 2014 – $126,425) were received on these sales and a loss on sale of $6,079 (December 31, 2014 – $4,464)
related to the transaction costs incurred was recorded. As at December 31, 2015, the REIT had entered into binding purchase
and sale agreements to sell 11 properties and committed to sell one additional property, totalling $32,543. These properties
have been reclassified as assets held for sale. In total, the REIT also recorded a fair value loss of $1,061 on these properties.
(Refer to Note 17 for details on the assets held for sale.)
Future minimum contractual rent (excluding service charges) under current operating leases is as follows:
Less than 1 year
1–5 years
Longer than 5 years
Total
(1) Includes income from head lease.
Dream Global REIT 2015 Annual Report | 65
$
December 31,
2015
162,411
435,211
220,683
818,305
$
Fair value hierarchy
Investment properties measured at fair value in the consolidated balance sheets are categorized by level according to the
significance of the inputs used in making the measurements.
Recurring measurements
Investment properties
Initial Properties
Acquisition Properties
Total
Non-recurring measurements
Properties reclassified to assets held for sale
Quoted prices in
active markets for
identical
instruments
(Level 1)
December 31,
2015
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$
$
$
760,756 $
1,631,525
2,392,281 $
– $
–
– $
– $
–
– $
760,756
1,631,525
2,392,281
32,543 $
– $
32,543 $
–
The REIT’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or
change in circumstances that caused the transfer. For the year ended December 31, 2015, investment properties valued at
$32,543 were transferred out of Level 3 fair value measurements to Level 2 fair value measurements as these properties were
under contract for sales during the year.
Valuation techniques underlying management’s estimates of fair value
Fair values for investment properties are calculated using both the direct income capitalization and discounted cash flow
methods, which results in these measurements being classified as Level 3 in the fair value hierarchy. The REIT’s management is
responsible for determining fair value measurements included in the consolidated financial statements, including Level 3 fair
value of investment properties. Investment properties are valued on a highest-and-best-use basis. For all of the REIT’s
investment properties, the current use is considered to be the highest and best use.
Investment properties with a fair value of $1,631,525 (Acquisition Properties) have been valued using the direct income
capitalization method. In applying this method, the stabilized net operating income (“NOI”) of each property is divided by an
appropriate capitalization rate. The following are the significant assumptions used in determining the value:
Capitalization rate
based on actual location, size and quality of the property and taking into account any available
market data at the valuation date.
Stabilized NOI
revenue less property operating expenses adjusted for items such as expected future market rents,
renewal rates, new leasing, average lease up costs, long-term vacancy rates, non-recoverable capital
expenditures, management fees, straight-line rents and other non-recurring items.
Generally, an increase in stabilized NOI will result in an increase in the fair value of an investment property. An increase in the
capitalization rate will result in a decrease in the fair value of an investment property. The capitalization rate magnifies the
effect of a change in stabilized NOI, with a lower capitalization rate resulting in a greater impact of a change in stabilized NOI
than a higher capitalization rate.
Investment properties with a value of $760,756 (Initial Properties) were valued using the discounted cash flow (“DCF”) method.
In applying this method, the income and expenditures of a specific property are projected assuming a 10-year hold period plus
the forecasted net proceeds from the re-sale of the property at the end of the hold period using a discount rate reflecting the
risks of the property being valued. The most significant assumptions incorporated into the DCF analysis include growth rates,
exit capitalization rates and discount rates:
Discount rate
reflects the internal rate of return of a specific property. The discount rate is determined by
analyzing sales of similar properties and yields of alternative investments. Consideration is given to
10-year bond yields and yields of high-quality corporate bonds to which an upward adjustment is
made to reflect the increased risk associated with real estate investments and the specific risk
associated with each asset.
Dream Global REIT 2015 Annual Report | 66
Exit capitalization rate
based on the initial rate of return applicable to a property adjusted slightly upward to reflect the risk
in negotiating new leases, older building age and the risk associated with a future sale.
Growth rate
based on the average increase in the consumer price index for Germany over the past three years
and ranges from 1.2% to 1.9%. The weighted average growth rate used for the Initial Properties
is 1.7%.
Valuation processes
Initial properties
At December 31, 2015 and 2014, the REIT obtained external valuations for the Initial Properties including assets held for sale,
representing approximately 33% of the investment property portfolio. In 2015, properties with a value of $793,298 (€527,845)
were valued externally (2014 – $838,259 [€597,136]). The external valuations are prepared by independent, professionally
qualified appraisers who hold a recognized, relevant professional qualification and have recent experience in the location and
category of the respective property. For properties subject to an independent valuation report, the management team verifies
all major inputs to the valuation and reviews the results with the independent appraisers.
Significant unobservable inputs in Level 3 valuations related to the Initial Properties including assets held for sale are as follows:
Valuation method
Discounted cash flow
Valuation method
Discounted cash flow
Input
Discount rate
Exit capitalization
rate
Input
Discount rate
Exit capitalization
rate
Range
5.0%–20.5%
4.0%–19.5%
Range
5.0%–25.7%
4.0%–20.0%
December 31, 2015
Weighted average
8.4 %
9.3 %
December 31, 2014
Weighted average
8.4 %
7.3 %
If both the discount rate and exit capitalization rate were to increase by 25 bps, the value of Initial Properties would decrease
by $33,545. If both the discount rate and exit capitalization rate were to decrease by 25 bps, the value of the Initial Properties
would increase by $35,850.
Acquisition properties
At December 31, 2015, the REIT obtained external valuations for eight of the Acquisition Properties with a value of $657,143
(€437,250). For the balance of properties in 2015, and for 2014, the REIT performed internal valuations. In 2015, properties
with a value of $881,751 (€586,700) were subject to internal valuations (2014 – $1,284,309 [€914,880]). The valuations are
prepared by management with inputs based on market observations and corroborated, in specific cases, through discussions
with professionally qualified appraisers.
Significant unobservable inputs in Level 3 valuations related to the Acquisition Properties are as follows:
Valuation method
Direct income capitalization
Valuation method
Direct income capitalization
Input
Capitalization rate
Range
4.2%–7.0%
Input
Capitalization rate
Range
4.7%–7.7%
December 31, 2015
Weighted average
5.6 %
December 31, 2014
Weighted average
6.2 %
If the capitalization rate were to increase by 25 bps, the value of Acquisition Properties would decrease by $70,922. If the
capitalization rate were to decrease by 25 bps, the value of Acquisition Properties would increase by $77,728.
Dream Global REIT 2015 Annual Report | 67
Note 8
JOINT ARRANGEMENTS
The Trust participates in partnerships (“joint ventures”) with other parties that own investment properties and accounts for its
interests using the equity method.
Joint venture with POBA
During Q1 2015, the REIT entered into an additional joint venture agreement with POBA to sell a 50% interest in an Acquisition
Property, which was held in a separate subsidiary. As a result, an Acquisition Property valued at $69,368 and the related
mortgage valued at $40,698 were derecognized as at January 30, 2015. The total consideration to the REIT for the 50% interest
in the investment property was $36,782. The consideration consisted of the assumption of working capital of $102, and POBA
assuming 50% of the outstanding mortgage, which totalled $20,349, with the balance of $16,331 paid to the REIT in cash. The
REIT incurred transaction costs of $325 relating to the sale resulting in net proceeds to the REIT of $16,006.
In selling a 50% interest in the Acquisition property, the REIT and POBA entered into a co-ownership arrangement regarding the
asset. Under these circumstances, IFRS requires the REIT to derecognize the asset and record the gain that accrued prior to
selling control on 100% of the asset sold. The purchase price consideration paid by POBA and the fair value of the REIT’s
retained interest in the joint venture exceeded the carrying value of the net assets held within the entity. As such, the REIT
recorded a gain on the sale of $3,186, including $397 of deferred tax loss. Of the total gain, $2,098 relates to remeasuring the
retained interest in the POBA joint venture at fair value. As at December 31, 2015, the carrying value of the investment in the
POBA joint ventures which include the eight Acquisition properties is $205,915, which includes the fair value remeasurement of
the retained interests in the joint ventures totalling $27,668.
As at December 31, 2015, the REIT has a total of eight Acquisition Properties under this arrangement with POBA. Pursuant to
this arrangement, the REIT no longer has control of these property subsidiaries and as such, has classified its 50% interest in the
entities as investment in joint venture and accounted for the investment using the equity method.
Rivergate joint venture
On December 16, 2015, the REIT acquired 50% interest in a joint venture with an Asian sovereign wealth fund to jointly acquire
Rivergate, an office property located at Vienna, Austria. The total consideration (100%) paid on the date of closing for the
equity interest was $157,574 (€104,368), which was subsequently financed by an additional mortgage (100%) of $29,366
(€19,450) held within the joint venture. The property (100%) was valued at $285,352 (€189,000) on the date of acquisition,
with a mortgage (100%) totalled $156,944 (€103,950). The mortgage carries a fixed rate of 1.60% per annum, maturing on
December 16, 2020. The REIT also incurred $1,878 transaction costs for the acquisition. The transaction costs were capitalized
as carrying costs in the joint venture.
As at December 31, 2015, the REIT has one Acquisition Property under this arrangement with the Asian sovereign wealth fund.
Pursuant to this arrangement, the REIT has joint control of the separate entity that holds the property and as such, has
classified its 50% interest as investment in joint venture and accounted for the investment using the equity method.
The investment properties that the joint ventures hold are consistent in terms of the class and type of properties held in the
Trust’s portfolio.
Name
POBA joint venture
Löwenkontor
Vordernbergstrasse 6/Heilbronner Strasse 35 (Z-UP)
Speicherstrasse 55 (Werfthaus)
Derendorfer Allee 4–4a (doubleU)
Neue Mainzer Strasse 28 (K26)
ABC-Strasse 19 (ABC Bogen)
Marsstrasse 20–22
Liebknechtstr. 33/35, Heßbrühlstr. 7 (Officium)
Rivergate joint venture
Lorac Investment Management S.à r.l.
Location
Berlin, Germany
Stuttgart, Germany
Frankfurt, Germany
Düsseldorf, Germany
Frankfurt, Germany
Hamburg, Germany
Munich, Germany
Stuttgart, Germany
Vienna, Austria
Luxembourg, Luxembourg
Ownership interest (%)
December 31,
2015
December 31,
2014
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
100
n/a
50
Dream Global REIT 2015 Annual Report | 68
Name
Löwenkontor
Vordernbergstrasse 6/Heilbronner Strasse 35 (Z-UP)
Speicherstrasse 55 (Werfthaus)
Derendorfer Allee 4–4a (doubleU)
Neue Mainzer Strasse 28 (K26)
ABC-Strasse 19 (ABC Bogen)
Marsstrasse 20–22
Liebknechtstr. 33/35, Heßbrühlstr. 7 (Officium)
Investment in POBA joint venture
Rivergate joint venture
Lorac Investment Management S.à r.l.
Total investment in joint ventures
Name
Löwenkontor
Vordernbergstrasse 6/Heilbronner Strasse 35 (Z-UP)
Speicherstrasse 55 (Werfthaus)
Derendorfer Allee 4–4a (doubleU)
Neue Mainzer Strasse 28 (K26)
ABC-Strasse 19 (ABC Bogen)
Marsstrasse 20–22
Liebknechtstr. 33/35, Heßbrühlstr. 7 (Officium)
Share of net income from POBA joint venture
Rivergate joint venture
Lorac Investment Management S.à r.l.
Share of net income from investment in joint ventures
Net assets at % ownership interest
December 31,
December 31,
2015
2014
21,038
23,343 $
11,553
13,973
21,064
26,106
20,162
19,104
28,170
30,171
33,830
39,707
23,990
30,405
23,106
–
159,807
205,915
66,613
–
160
192
159,967
272,720 $
Share of net income at
% ownership interest for
year ended December 31,
2015
6,139 $
2,233
5,661
3,395
350
5,975
5,688
6,383
35,824
(169 )
20
35,675 $
2014
1,713
(36 )
704
202
(217 )
(40 )
161
–
2,487
–
26
2,513
$
$
$
$
On September 24, 2015, the REIT refinanced a mortgage totalling $37,093 (€24,809) on a property in Dusseldorf. The property
is 50% owned by POBA as part of the joint venture and the REIT’s share of the mortgage is $18,547 (€12,405). The original
mortgage had an interest rate of 2.09% per annum, with a maturity date of July 31, 2017. The refinanced mortgage has an
interest rate of 1.40% per annum, with a maturity date of December 31, 2021. Upon refinancing, the mortgage was increased
by $7,760 (€5,191). The REIT received a 50% share of the proceeds from the increase, $3,880 (€2,595), which was used for
general corporate purposes. The refinanced loan has amortization of 2% per annum, an increase from 1.4% per annum under
the previous mortgage. Deferred financing costs and breakage costs incurred for the refinancing amounted to $135 (€90) and
$830 (€555), respectively. The REIT’s 50% share of the costs amounted to $68 (€45) and $415 (€278), respectively. These costs
are capitalized, amortized over the term of the new mortgage and charged to the net income of the joint venture.
On October 14, 2015, the REIT refinanced a mortgage totalling $48,616 (€33,000) on a property in Berlin. The property is 50%
owned by POBA as part of the joint venture and the REIT’s share of the mortgage is $24,308 (€16,500). The original mortgage
had an interest rate of 2.37% per annum, with a maturity date of March 29, 2018. The refinanced mortgage has an interest rate
of 1.59% per annum, with a maturity date of September 30, 2022. Upon refinancing, the mortgage was increased by $9,988
(€6,780). The REIT received a 50% share of the proceeds from the increase, $4,994 (€3,390), which was used for general
corporate purposes. The refinanced loan requires no principal amortization until June 2019, when a 2% amortization per
annum on the initial loan amount will be required. This compared to the 2% per annum under the previous mortgage. On
refinancing, unamortized deferred financing costs of $390 (€266) of the existing mortgage and breakage costs of $677 (€461)
were charged to net income of the joint venture as Debt settlement costs. The REIT’s 50% share of the Debt settlement costs
amounted to $533 (€363).
As part of the arrangement with POBA, the REIT has extended a loan facility to POBA to fund POBA’s share of the loan
amortization payments over the term of the outstanding mortgages assumed on the seven properties. On refinancing of these
two joint venture properties, POBA repaid the loan balance of $2,632 (€1,773), pursuant to the terms of arrangement. During
the year ended December 31, 2015, the REIT recorded fee income relating to the POBA joint venture of $3,150 (year ended
December 31, 2014 – $nil), which is included in interest and other income.
Dream Global REIT 2015 Annual Report | 69
The following amounts represent 100% and the Trust’s ownership interest in the assets, liabilities, revenues, expenses and cash
flows in the equity accounted investments in which the Trust participates.
POBA joint venture at 100%
December 31,
2014
December 31,
2015
POBA joint venture at 50%
December 31,
2015
December 31,
2014
Non-current assets
Investment properties
Other non-current assets
Current assets
Amounts receivable
Prepaid expenses
Cash
Total assets
Non-current liabilities
Debt
Deposits
Deferred income tax payable
Current liabilities
Debt
Amounts payable and accrued liabilities
Income tax (receivable) payable
Total liabilities
Net assets
Fair value remeasurement on the retained interest
Investment in POBA joint venture
Investment properties revenue
Investment properties operating expenses
Net rental income
Other income
Interest income and other income
Other expenses
General and administrative
Interest expense
Fair value adjustments to investment properties and other
activities
Fair value adjustments to investment properties
Debt settlement costs
Income before income taxes
Current income tax expense
Deferred income tax expense
Net income for the year
Foreign currency translation adjustments for the year
Comprehensive income for the year
$
$
$
$
750,126 $
2,524
752,650
568,834 $
968
569,802
375,063 $
1,262
376,325
1,830
96
5,514
7,440
760,090
373,494
392
13,716
387,602
6,686
9,330
(22 )
15,994
403,596
356,494 $
4,456
56
6,244
10,756
580,558
299,494
292
–
299,786
915
48
2,757
3,720
380,045
186,747
196
6,858
193,801
5,978
6,222
98
12,298
312,084
268,474 $
$
3,343
4,665
(11 )
7,997
201,798
178,247 $
27,668
205,915 $
284,417
484
284,901
2,228
28
3,122
5,378
290,279
149,747
146
–
149,893
2,989
3,111
49
6,149
156,042
134,237
25,570
159,807
POBA joint venture at 100%
Year ended December 31,
2014
2015
3,296 $
45,568 $
(592 )
(8,470 )
2,704
37,098
POBA joint venture at 50%
Year ended December 31,
2015
2014
1,648
22,784
(4,235 )
(296 )
1,352
18,549
$
866
866
(5,374 )
(9,662 )
(15,036 )
62,304
(1,066 )
61,238
84,166
(14 )
(12,504 )
71,648 $
26,122
97,770
28
28
(412 )
(746 )
(1,158 )
3,406
–
3,406
4,980
(6 )
–
4,974 $
(2,958 )
2,016
433
433
(2,687 )
(4,831 )
(7,518 )
31,152
(533 )
30,619
42,083
(7 )
(6,252 )
35,824
13,061
48,885
$
14
14
(206 )
(373 )
(579 )
1,703
–
1,703
2,490
(3 )
–
2,487
(1,479 )
1,008
Dream Global REIT 2015 Annual Report | 70
Cash flow generated from (utilized in):
Operating activities
Investing activities
Financing activities (excluding owners’ distributions)
Cash flow before owners’ distributions
Joint ventures’ distributions to owners
Decrease in cash
POBA joint venture at 100%
Year ended December 31,
2014
2015
POBA joint venture at 50%
Year ended December 31,
2015
2014
$
$
19,282 $
4,566
10,074
33,922
(34,652 )
(730 ) $
1,036 $
(500 )
(532 )
4
(1,364 )
(1,360 ) $
9,641 $
2,283
5,037
16,961
(17,326 )
(365 ) $
518
(250 )
(266 )
2
(682 )
(680 )
Non-current assets
Investment properties
Current assets
Amounts receivable
Cash
Total assets
Non-current liabilities
Debt
Deferred income tax payable
Current liabilities
Amounts payable and accrued liabilities
Total liabilities
Net assets
Carrying costs attributable to joint venture
Investment in Rivergate joint venture
Investment properties revenue
Investment properties operating expenses
Net rental income
Other expenses
General and administrative
Interest expense
Fair value adjustments to investment properties
Fair value adjustments to investment properties
Loss before income taxes
Deferred income taxes expense
Net loss for the period
Foreign currency translation adjustments for the period
Comprehensive income for the period
Rivergate joint venture December 31, 2015
At 100%
At 50%
$
$
284,048
284,048
1,292
3,692
4,984
289,032
153,970
38
154,008
5,554
5,554
159,562
129,470 $
$
$
142,024
142,024
646
1,846
2,492
144,516
76,985
19
77,004
2,777
2,777
79,781
64,735
1,878
66,613
Rivergate joint venture December 31, 2015
$
$
At 100%
686 $
(102 )
584
At 50%
343
(51 )
292
(56 )
(134 )
(190 )
(694 )
(694 )
(300 )
(38 )
(338 ) $
(598 )
(936 )
(28 )
(67 )
(95 )
(347 )
(347 )
(150 )
(19 )
(169 )
(299 )
(468 )
Dream Global REIT 2015 Annual Report | 71
Cash flow generated from:
Operating activities
Investing activities
Financing activities (excluding owners’ distributions)
Cash flow before owners’ distributions
Joint ventures’ distributions directed to pay vendor
Increase in cash
Note 9
OTHER NON-CURRENT ASSETS
Other assets
Fixtures and computer equipment
Straight-line rent receivable
Total
Note 10
AMOUNTS RECEIVABLE
Trade receivables
Less: Provision for impairment of trade receivables
Trade receivables, net
Other amounts receivable
Total
Rivergate joint venture December 31, 2015
At 50%
At 100%
$
$
$
$
1,674 $
2,018
27,168
30,860
(27,168 )
3,692 $
837
1,009
13,584
15,430
(13,584 )
1,846
December 31,
2015
December 31,
2014
37
232
1,429
1,698
37 $
228
2,458
2,723 $
December 31,
2015
9,966 $
(2,127 )
7,839
7,867
15,706 $
December 31,
2014
12,509
(1,165 )
11,344
6,111
17,455
$
$
The movement in the provision for impairment of trade receivables during the year ended December 31, 2015 was as follows:
As at January 1
Provision for impairment of trade receivables
Receivables written off during the year as uncollectible
Total
Year ended December 31,
2015
1,165 $
1,001
2,166
(39 )
2,127 $
2014
655
1,042
1,697
(532 )
1,165
$
$
As at December 31, 2015, other amounts receivable include unbilled amounts from tenants in relation to operating cost
recoveries of $3,623 (December 31, 2014 – $2,244).
The carrying amount of amounts receivable approximates fair value due to their current nature. As at December 31, 2015,
trade receivables relates primarily to billed amounts to tenants for operating cost recoveries of approximately $7,839, of which
$4,419 (December 31, 2014 – $3,599) were past due. Subsequent to year-end, $1,803 of the past due amount was received as
settlement for 2013 and prior year operating cost recoveries. These amounts are not considered impaired as the Trust has
ongoing relationships with these tenants and the aging of these trade receivables is not indicative of default.
Dream Global REIT 2015 Annual Report | 72
Note 11
DEBT
Mortgage debt
Convertible debentures
Revolving credit facility
Term loan credit facility(1)
Total
Less: Current portion(1)
Non-current debt
December 31,
2015
841,101 $
154,558
29,908
355,325
1,380,892
56,003
1,324,889 $
December 31,
2014
701,325
152,365
–
374,706
1,228,396
70,514
1,157,882
$
$
(1) The current portion of debt includes $11,209 of the term loan credit facility associated with the assets held for sale. This balance will be paid from the
proceeds from disposition when the respective asset sales close.
First-ranking mortgages on all of the investment properties have been provided as security for either the mortgage debt or the
term loan credit facility.
Mortgage debt
Effective January 1, 2015, the Trust completed refinancings of two mortgages in the amounts of $61,455 (€43,619) and $38,990
(€27,674) related to two Acquisition Properties. The face rates of those mortgages were reduced from 2.07% and 2.09% to
1.92% and 1.88%, respectively, and the terms of the mortgages have been extended for an additional two years. On
February 27, 2015, the Trust also completed the refinancing of an additional property for $23,110 (€16,500), at a face rate of
1.75% for eight years, while discharging the assumed mortgage with a face rate of 4.17%. Concurrently, the REIT extended term
of another mortgage on a cross-collateralized property for an additional two years on the same existing terms, except that
interest rate on the mortgage will drop by 8 bps after 2021.
On February 6, 2015, the Trust drew on a mortgage with a principal balance of $84,283 (€59,400) at a fixed rate of 1.71% per
annum, maturing on February 6, 2025, in connection with the acquisition of Millerntorplatz 1, in Hamburg. The mortgage
requires quarterly repayments with a principal amortization of 1.25% per annum of the initial loan amount.
During the first quarter of 2015, the Trust sold a 50% interest in an additional Acquisition Property as part of the joint venture
agreement with POBA. In conjunction with this sale, 50% of the mortgage debt relating to the asset was assumed by POBA.
Since the investment in the joint venture is equity accounted, 100% of the debt, which totalled $40,698, on the property has
been removed from mortgage debt in the Trust’s consolidated financial statements.
On September 25, 2015, the Trust drew on a mortgage with a principal balance of $15,358 (€10,300) at a fixed rate of 1.42%
per annum, maturing on September 30, 2022, in connection with the acquisition of Erfurt Anger 81, in Thuringia. The mortgage
requires quarterly repayments with no principal amortization until December 31, 2020, when principal amortization of 2% per
annum of the initial loan amount will be required.
On October 27, 2015, the Trust drew on a mortgage with a principal balance of $38,807 (€26,520) at a variable rate of three-
month EURIBOR plus 0.95% per annum, maturing on October 31, 2022, in connection with the acquisition of Zimmerstrasse, in
Berlin. Concurrent with the closing of the mortgage, the REIT purchased an interest rate cap with a 1% strike price, which
effectively limits the mortgage interest rate to a maximum of 1.95%. The mortgage requires quarterly repayments with a
principal amortization of 1.25% per annum of the initial loan amount.
Convertible debentures
On August 3, 2011, the Trust issued a $140,000 principal amount of convertible unsecured subordinated debentures (the
“Debentures”). On August 29, 2011, the Trust issued an additional $21,000 principal amount of Debentures. The Debentures
bear interest at 5.5% per annum, payable semi-annually on July 31 and January 31 each year, and mature on July 31, 2018. Each
Debenture is convertible at any time by the debenture holder into 76.9231 Units per one thousand dollars of face value,
representing a conversion price of $13.00 per REIT Unit. On or after August 31, 2014, and prior to August 31, 2016, the
Debentures may be redeemed by the Trust, in whole or in part, at a price equal to the principal amount plus accrued and
unpaid interest on not more than 60 days’ and not less than 30 days’ prior written notice, provided the weighted average
trading price for the Trust’s Units for the 20 consecutive trading days, ending on the fifth trading day immediately preceding the
date on which notice of redemption is given, is not less than 125% of the conversion price. On or after August 31, 2016, and
prior to July 31, 2018, the maturity date, the Debentures may be redeemed by the Trust at a price equal to the principal
amount plus accrued and unpaid interest. The Debentures were initially recorded on the consolidated balance sheets as debt of
$152,894 less costs of $6,931. In addition, the Trust allocated $8,106 to the conversion feature on initial recognition, which was
Dream Global REIT 2015 Annual Report | 73
deducted from the principal balance and will be accreted to the principal amount of the Debenture over its term. As at
December 31, 2015, the outstanding principal amount is $161,000 (December 31, 2014 – $161,000).
Term loan credit facility
On August 3, 2011, the Trust obtained a term loan credit facility (the “Facility”) for gross proceeds of €328,500 ($448,395).
Variable rate interest was calculated and payable quarterly under the Facility at a rate equal to the aggregate of the three-
month EURIBOR plus a margin of 200 basis points (the ‘margin”) and an agency fee of 10 basis points. Pursuant to the
requirements of the Facility, the Trust entered into an interest swap to fix 80% of the interest payments at 1.89% plus margin
and agency fees, and purchased an instrument to cap 10% of the Facility, such that the interest rate did not exceed 5% on that
portion. No amortization of principal under the Facility was required during the first three years of the Facility term. Thereafter,
amortization of principal equal to 2% per annum of the initial loan amount was payable on a quarterly basis. Effective August 3,
2013, the Trust was required to pay additional interest of 1% on the portion of the €100,000 plus a 15% prepayment amount,
less any amounts repaid. During the period to December 14, 2015, the Trust repaid €58,194 ($83,009) in connection with the
disposition of 51 properties including prepayment amounts, and mandatory repayments, in accordance with the terms of the
Facility (year ended December 31, 2014 – €46,561 ($67,036)).
On December 14, 2015, the Trust fully repaid and discharged the remaining outstanding loan amount of €208,965 ($316,352),
financed by a new term loan facility (the “New Facility”) for gross proceeds of €244,100 ($369,543). The New Facility has a term
of five years and there are no principal amortization payments required during the term. Variable rate interest is calculated and
payable quarterly under the New Facility at a rate equal to the aggregate of the three-month EURIBOR plus a margin of 225
basis points (the “margin”). Pursuant to the requirements of the New Facility, the Trust purchased interest rate caps with a
weighted average strike rate of 1.03% (excluding the margin) to cover 95% of the New Facility loan amount. Transaction costs
relating to the New Facility were €7,674 ($11,618). In connection with the refinancing, the Trust incurred an interest rate swap
breakage costs of €3,626 ($5,409) relating to the Facility. This amount was charged to net income as Debt settlement cost. The
unamortized deferred financing costs of $132 were also written off, resulting in a total Debt settlement costs of $5,541.
The New Facility includes covenants requiring the Trust to maintain certain loan-to-value and debt service coverage ratios, each
of which are calculated on a quarterly basis. The New Facility agreement requires the debt service coverage ratio to be equal to
or above 235% at each interest payment date and the loan-to-value ratio not to exceed 60%. As at December 31, 2015, the
Trust was in compliance with its loan covenants.
There are no prepayment fees on property disposals for up to 25% of the portfolio value within the first two years of the loan
and up to 40% of the portfolio value during the term of the loan. On property disposals, 110% of the loan amount allocated to
the disposed property has to be repaid. Prepayment amounts exceeding the established thresholds for property disposals
within the first two years of the loan are subject to a prepayment fee equal to a yield maintenance fee. Commencing in year 3,
a prepayment fee of 2.0% is payable, which subsequently drops to 1.5% in year 4, and no prepayment fee is payable in the final
year of the New Facility. As of December 31, 2015, the Trust is in compliance with the terms of the New Facility.
Revolving credit facility
On October 10, 2013, the REIT entered into an agreement with a Canadian bank to provide a revolving credit facility not to
exceed €25,000. The REIT increased the revolving credit facility to €50,000 on August 14, 2014, and increased it to €75,000
subsequently on April 1, 2015, and further increased it to €100,000 on November 20, 2015, with no change to the covenants or
interest rate spreads, and the term has been extended to September 25, 2017. The REIT has provided a general security
agreement as collateral for the revolving credit facility. The interest rate on any Canadian dollar advances is prime plus 200
basis points and/or bankers’ acceptance rates plus 300 basis points. For euro advances, the rate is 300 basis points over the
three-month EURIBOR rate. Total financing costs incurred amounted to $1,276 as at December 31, 2015. The revolving credit
facility agreement requires the Trust to maintain: a debt-to-book value rating not to exceed 0.6:1; a minimum interest coverage
ratio of 2:1; and a minimum net worth of $700,000. As at December 31, 2015, the outstanding balance of the credit facility was
€19,900 ($29,908) and the Trust was in compliance with the covenants of the revolving credit facility. As at December 31, 2015,
the Trust had an undrawn letter of credit in the amount of $1,803 committed against the revolving credit facility.
Dream Global REIT 2015 Annual Report | 74
The weighted average interest rates for the fixed and floating components of debt are as follows:
Face interest rates
December 31, December 31,
2014
2015
Weighted average
effective interest rate
December 31, December 31,
2014
2015
Maturity
dates
December 31,
2015
Debt amount
December 31,
2014
2.17 %
–
5.50 %
2.71 %
0.95 %
3.00 %
2.25 %
2.18 %
2.55 %
2.33 %
4.23 %
5.50 %
3.30 %
–
–
3.23 %
3.23 %
3.30 %
2.47 %
–
7.31 %
3.25 %
1.17 %
3.00 %
3.01 %
2.84 %
3.13 %
2.49 %
4.23 %
7.31 %
3.61 %
–
–
3.22 %
3.22 %
3.61 %
2017–2025 $
2020
2018
2022
2016
2020
$
801,834 $
–
154,558
956,392
39,267
29,908
355,325
424,500
1,380,892 $
701,325
366,749
152,365
1,220,439
–
–
7,957
7,957
1,228,396
Fixed rate
Mortgage debt
Term loan credit facility
Convertible debentures
Total fixed rate debt
Variable rate
Mortgage debt(1)
Revolving credit facility
Term loan credit facility(1)
Total variable rate debt
Total debt
(1) Subject to interest rate cap.
The scheduled principal repayments and debt maturities are as follows:
Mortgages
14,886
71,122
158,623
42,971
117,274
446,397
851,273
$
$
$
$
Term loan
11,209 $
–
–
–
355,649
–
366,858 $
Convertible
debentures
–
–
161,000
–
–
–
161,000
Revolving
credit facility
29,908 $
–
–
–
–
–
29,908
Total
56,003
71,122
319,623
42,971
472,923
446,397
1,409,039
2016
2017
2018
2019
2020
2021 and thereafter
Acquisition date fair value adjustments
Transaction costs
(3,527 )
(24,620 )
1,380,892
$
December 31,
2015
– $
(4,377)
11,284
33
6,940 $
December 31,
2014
10,623
–
1,492
158
12,273
$
$
Note 12
DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swaps (Note 25)
Interest rate caps (Note 25)
Foreign exchange forward contracts (Note 25)
Conversion feature on the convertible debentures (Notes 11 and 25)
Total
Dream Global REIT 2015 Annual Report | 75
Non-current assets
Interest rate cap
Foreign exchange forward contracts
Total derivative assets
Current liabilities
Interest rate swaps
Foreign exchange forward contracts
Non-current liabilities
Interest rate swaps
Foreign exchange forward contracts
Conversion feature on the convertible debentures
Total derivative liabilities
Total derivative financial instruments
The movement in the conversion feature on the convertible debentures was as follows:
Balance at beginning of year
Remeasurement of conversion feature
Balance at end of year
The movement in the interest rate swaps was as follows:
Balance at beginning of year
Fair value change
Swap settlement
Foreign currency translation
Balance at end of year
The movement in the interest rate caps was as follows:
Balance at beginning of year
Purchase of financial instrument
Fair value change
Foreign currency translation
Balance at end of year
December 31,
2015
December 31,
2014
$
(4,377 ) $
–
(4,377 )
–
5,022
5,022
–
6,262
33
6,295
11,317
6,940 $
$
–
(655 )
(655 )
6,706
2,147
8,853
3,917
–
158
4,075
12,928
12,273
For the year
ended
December 31,
2015
158
(125 )
33
$
$
For the year
ended
December 31,
2015
10,623
(4,662 )
(6,368 )
407
–
$
$
For the year
ended
December 31,
2015
–
(5,228 )
884
(33 )
(4,377 )
Dream Global REIT 2015 Annual Report | 76
Foreign exchange forward contracts
The Trust has various currency forward contracts in place to sell euros for Canadian dollars for the next 36 months. The Trust
currently has foreign exchange forward contracts to sell €163,893 from January 2016 to December 2018 at an average
exchange rate of $1.450 per euro.
The movement in the foreign exchange forward contracts was as follows:
Balance at beginning of year
Loss on settlement
Fair value change
Balance at end of year
Note 13
DEFERRED UNIT INCENTIVE PLAN
The movement in the Deferred Unit Incentive Plan balance was as follows:
As at January 1, 2014
Compensation during the year
Asset management fees during the year
Issue of deferred units
Remeasurements of carrying value
As at December 31, 2014
Compensation during the year
Asset management fees during the year
Issue of deferred units
Remeasurements of carrying value
As at December 31, 2015
For the year
ended
December 31,
2015
1,492
(3,625 )
13,417
11,284
$
$
$
$
6,306
1,648
2,541
(793 )
(337 )
9,365
1,972
1,870
(577 )
1,520
14,150
DAM elected to receive the first $3,500 of the base asset management fees payable on the Initial Properties acquired on
August 3, 2011 by way of deferred trust units under the Asset Management Agreement in each year for the first five years. The
deferred trust units granted to DAM vest annually over five years, commencing on the sixth anniversary date of the units
being granted.
On termination of the Asset Management Agreement, unvested trust units granted to DAM vest immediately.
Deferred units granted to DAM for payment of asset management fees are initially measured, and subsequently remeasured at
each reporting date, at fair value. The deferred units are considered to be restricted stock, and the fair value is estimated by
applying a discount to the market price of the corresponding Units. The discount is estimated based on a hypothetical put-call
option, valued using a Black Scholes option pricing model, which takes into consideration the volatility of the Canadian REIT and
the German real estate equity markets, the respective holding period of the deferred units, and the risk-free interest rate. The
fair value of the deferred units granted to DAM is most sensitive to changes in volatility and the relative weighting of the put
option and call option values.
The fair value of the deferred trust units is based on the market price of Dream Global REIT units and the application of an
appropriate discount rate to reflect the vesting period. The significant unobservable inputs used in determining the discount
include the following:
Risk-free rate
Expected volatility
Dream Global REIT 2015 Annual Report | 77
For the year
ended
December 31,
2015
0.56%–1.10%
17%–36%
For the year
ended
December 31,
2014
1.3%–1.5%
20.0%–34.0%
The volatility of the units is estimated based on comparable companies in both the German and Canadian real estate markets.
The discount rate used to value the deferred trust units is determined by weighting a put-and-call model calculated using the
Black Scholes option pricing model. A higher volatility or risk-free rate will decrease the value of the deferred trust units and
vice versa.
Units at December 31, 2015, closing price of $8.66 per unit
Discount rate of 19% per unit for units issued in 2011
Discount rate of 21% per unit for units issued in 2012
Discount rate of 25% per unit for units issued in 2013
Discount rate of 30% per unit for units issued in 2014
Discount rate of 53% per unit for units issued in 2015
Units at December 31, 2014, closing price of $8.57 per unit
Discount rate of 24% per unit for units issued in 2011
Discount rate of 25% per unit for units issued in 2012
Discount rate of 46% per unit for units issued in 2013
Discount rate of 49% per unit for units issued in 2014
Fair value as at December 31, 2015
15,522
$
(195 )
(654 )
(866 )
(1,186 )
(2,103 )
10,518
$
Fair value as at December 31, 2014
11,695
$
(244 )
(771 )
(1,576 )
(2,043 )
7,061
$
During the year ended December 31, 2015, $1,870 of asset management fees were recorded (December 31, 2014 – $2,541)
based on the fair value of the deferred units issued, with an appropriate discount to reflect the restricted period of exercise,
and are included in general and administrative expenses. The fees were settled by the grant of 403,819 deferred trust
units during the year (December 31, 2014 – 422,171) and 23,866 deferred trust units granted on January 1, 2016 (January 1,
2015 – 30,410). As at January 1, 2016, 1,792,344 unvested deferred trust units and income deferred units (January 1, 2015 –
1,364,659) were outstanding with respect to the asset management fee. Compensation expense of $1,972 for the year
(December 31, 2014 – $1,648) was also included in general and administrative expenses.
On February 18, 2015, 132,200 deferred trust units were granted to senior management and trustees. Of the 132,200 units
granted, 105,000 relate to trustees and key management personnel. The grant date value for the deferred trust units
was $9.21.
On May 6, 2015, 73,000 deferred trust units were granted to key management personnel and trustees. The grant date value for
the deferred trust units was $9.89.
On June 30, 2015, 5,650 deferred trust units were granted to trustees who elected to receive their 2015 annual retainer in the
form of deferred units rather than cash. The grant date value for the deferred trust units was $10.00.
On September 30, 2015, 6,366 deferred trust units were granted to trustees who elected to receive their 2015 annual retainer
in the form of deferred units rather than cash. The grant date value for the deferred trust units was $8.88.
On December 31, 2015, 6,893 deferred trust units were granted to trustees who elected to receive their 2015 annual retainer
in the form of deferred units rather than cash. The grant date value for the deferred trust units was $8.69.
On February 26, 2014, 110,300 deferred trust units were granted to senior management and trustees. Of the 110,300 units
granted, 67,000 relate to trustees and key management personnel. The grant date value for the deferred trust units was $8.88.
On May 7, 2014, 26,000 deferred trust units were granted to trustees and an additional 23,723 deferred trust units were
granted to trustees who elected to receive their 2014 annual retainer in the form of deferred units rather than cash.
Note 14
AMOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables
Accrued liabilities and other payables
Accrued interest
Total
Dream Global REIT 2015 Annual Report | 78
December 31,
2015
4,199 $
26,568
4,846
35,613 $
December 31,
2014
11,473
34,253
3,759
49,485
$
$
Note 15
DISTRIBUTIONS
The following table breaks down distribution payments for the year ended December 31:
Paid in cash
Paid by way of reinvestment in Units
Less: Payable at January 1
Plus: Payable at December 31
Total
2015
76,535 $
13,745
(7,431 )
7,535
90,384 $
2014
73,795
15,222
(7,314 )
7,431
89,134
$
$
The distribution for the month of December 2015 in the amount of $0.0667 per unit, declared on December 17, 2015 and
payable on January 15, 2016, amounted to $7,535. The amount payable as at December 31, 2015 was satisfied on January 15,
2016 by $6,537 cash and $998 through the issuance of 123,142 Units. The distribution for the month of January 2016 was
declared in the amount of $0.0667 per unit, payable on February 15, 2016.
The Trust declared distributions of $0.0667 per unit per month for the months of January 2015 to December 2015.
Note 16
EQUITY
Total
December 31, 2015
December 31, 2014
Number of Units
113,024,465 $
Amount
1,289,158
Number of Units
111,466,697 $
Amount
1,120,220
REIT Units
The REIT is authorized to issue an unlimited number of Units and an unlimited number of Special Trust Units. The Special Trust
Units may only be issued to holders of Exchangeable Notes.
Distribution Reinvestment and Unit Purchase Plan
The Distribution Reinvestment Plan (“DRIP”) allows holders of Units, other than unitholders who are resident of or present in
the United States of America, to elect to have all cash distributions from the REIT reinvested in additional Units. Unitholders
who participate in the DRIP receive an additional distribution of Units equal to 4% of each cash distribution that was
reinvested. The price per unit is calculated by reference to a five-day weighted average closing price of the Units on the Toronto
Stock Exchange preceding the relevant distribution date, which is typically on or about the 15th day of the month following the
declaration. For the year ended December 31, 2015, 1,493,617 Units were issued pursuant to the DRIP for $13,745
(December 31, 2014 – 1,677,622 Units for $15,222).
The Unit Purchase Plan feature of the DRIP facilitates the purchase of additional Units by existing unitholders. Participation in
the Unit Purchase Plan is optional and subject to certain limitations on the maximum number of additional Units that may be
acquired. The price per unit is calculated in a similar manner to the DRIP. No commission, service charges or brokerage fees are
payable by participants in connection with either the reinvestment or purchase features of the DRIP. For the year ended
December 31, 2015, 2,231 Units were issued under the Unit Purchase Plan for $20 (December 31, 2014 – 3,683 Units for $34).
Deferred Unit Incentive Plan
The Deferred Unit Incentive Plan (“DUIP”) provides for the grant of deferred trust units to trustees, officers and employees as
well as affiliates and their service providers, including the asset manager. Deferred trust units are granted at the discretion of
the trustees and earn income deferred trust units based on the payment of distributions. Once issued, each deferred trust unit
and the related distribution of income deferred trust units vests evenly over a three- or five-year period on the anniversary
date of the grant except for certain deferred trust units granted to DAM under the Asset Management Agreement. Subject to
an election option available for certain participants to postpone receipt of Units, such Units will be issued immediately on
vesting. On May 6, 2015, the unitholders of the Trust approved the increase of the number of deferred units that may be
granted or credited under the plan by a further 1,626,000 units, increasing the maximum issuable under the DUIP to 3,700,000
deferred trust units. As at December 31, 2015, 2,578,775 deferred trust units were granted.
For the year ended December 31, 2015, 61,920 Units were issued to trustees, officers and employees pursuant to the DUIP for
$576 (December 31, 2014 – 86,415 Units for $793).
Dream Global REIT 2015 Annual Report | 79
Note 17
ASSETS HELD FOR SALE
As at December 31, 2015, the Trust classified 12 properties as held for sale. Management has committed to a plan of sale, and
therefore the properties have been reclassified as current assets held for sale.
Investment properties
Other non-current assets
Prepaid expenses and other assets
Assets held for sale
Amounts payable and accrued liabilities
Liabilities related to assets held for sale
Net assets
Investment properties held for sale
Balance at beginning of year
Building improvements
Lease incentives and initial direct leasing costs
Investment properties reclassified as held for sale
Investment properties reclassified as held for sale – POBA joint venture assets
Fair value adjustments
Dispositions
Dispositions – POBA joint venture assets
Foreign currency translation
Balance at end of year
Note 18
INTEREST EXPENSE
Interest on debt
Interest on debt incurred and charged to comprehensive income is recorded as follows:
Interest on term loan credit facility
Interest on convertible debentures
Interest on mortgage debt
Interest and stand-by fees on revolving credit facility
Amortization of financing costs, discounts and fair value
adjustments on acquired debt
Interest other
Interest expense
December 31,
2015
32,543 $
6
306
32,855
(521 )
(521 )
32,334 $
December 31,
2014
42,897
1
1,465
44,363
(1,424 )
(1,424 )
42,939
$
$
For the year
ended
December 31,
$
$
2015
42,897 $
50
–
97,472
69,368
(1,061 )
(110,665 )
(69,368 )
3,850
32,543 $
For the year
ended
December 31,
2014
21,147
11
(131 )
161,174
573,521
(4,392 )
(130,746 )
(573,521 )
(4,166 )
42,897
Year ended December 31,
2015
8,259 $
8,862
16,773
898
2014
11,972
8,862
22,371
835
4,459
106
39,357 $
4,158
–
48,198
$
$
Dream Global REIT 2015 Annual Report | 80
Note 19
FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS
Fair value gain (loss) on interest rate swaps and caps
Fair value gain on conversion feature of convertible
debentures
Fair value gain (loss) on Deferred Unit Incentive Plan
Fair value gain (loss) on foreign exchange forward contracts
Fair value gain (loss) adjustment to financial instruments
Note 20
INCOME TAXES
Reconciliation of tax expense
Income before income taxes
Income attributable to shareholders of subsidiaries
Income before income taxes attributable to Unitholders of
the Trust
Tax calculated at the German corporate tax rate of 15.825%
Increase (decrease) resulting from:
Income related to equity accounted investments
Expenses not deductible for tax
Effect of different tax rates in countries in which the
group operates
Income distributed and taxable to unitholders
Tax benefits (costs) not previously recognized
Impact from sale of assets
Taxes not based on profit – Minimum Taxes
Foreign exchange adjustment and other items
Provision for income taxes
Note
12
12
13
12
Year ended December 31,
2015
3,778 $
2014
(3,898 )
125
(1,520 )
(13,417 )
(11,034 ) $
226
337
6,391
3,056
$
$
$
Year ended December 31,
2015
162,432 $
(1,079 )
2014
225,996
(909 )
161,353
25,534
(5,099 )
0
(487 )
(4,750 )
396
(348 )
256
1,104
16,606 $
225,087
35,620
–
436
(526 )
(9,710 )
(110 )
(8,488 )
–
(163 )
17,059
$
December 31,
2015
(42,158 ) $
(45 )
26,501
(1,108 )
(46 )
(16,856 ) $
December 31,
2014
(14,619 )
2,110
11,443
390
(43 )
(719 )
$
$
Deferred income tax assets (liabilities) consist of the following:
Deferred tax liability related to difference in tax and book basis of investment properties
Deferred tax asset (liability) related to difference in tax and book basis of financial instruments
Deferred tax asset related to tax loss carry-forwards
Deferred tax asset (liability) related to differences in tax and book basis of financing costs
Deferred tax liability related to investment in joint venture
Total deferred income tax liabilities
The deferred tax asset related to tax loss carry-forwards includes $3,727 related to Luxembourg tax losses. The remaining
balance relates to German tax losses.
Dream Global REIT 2015 Annual Report | 81
Note 21
RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
The REIT entered into an asset management agreement with DAM (“Asset Management Agreement”) pursuant to which DAM
provides certain asset management services to the REIT and its subsidiaries. The Asset Management Agreement provides for a
broad range of asset management services for the following fees:
• base annual management fee calculated and payable on a monthly basis, equal to 0.35% of the historical purchase price of
the properties;
•
incentive fee equal to 15% of the REIT’s adjusted funds from operations per unit in excess of $0.93 per unit; increasing
annually by 50% of the increase in the weighted average consumer price index (or other similar metric as determined by
the trustees) of the jurisdictions in which the properties are located;
• capital expenditures fee equal to 5% of all hard construction costs incurred on each capital project with costs in excess of
$1,000, excluding work done on behalf of tenants or any maintenance capital expenditures;
• acquisition fee equal to: (a) 1.0% of the purchase price of a property, on the first $100,000 of properties in each fiscal year;
(b) 0.75% of the purchase price of a property on the next $100,000 of properties acquired in each fiscal year; and (c) 0.50%
of the purchase price on properties in excess of $200,000 in each fiscal year. DAM did not receive an acquisition fee in
respect of the acquisition of the Initial Properties; and
•
financing fee equal to 0.25% of the debt and equity of all financing transactions completed on behalf of the REIT to a
maximum of actual expenses incurred by DAM in supplying services relating to financing transactions. DAM did not receive
a financing fee in respect of the acquisition of the Initial Properties.
Pursuant to the Asset Management Agreement, DAM may elect to receive all or part of the fees payable to it for its asset
management services in deferred trust units under the Deferred Unit Incentive Plan. The number of deferred trust units issued
to DAM will be calculated by dividing the fees payable to DAM by the fair value for this purpose on the relevant payment date
of the Units. Fair value for this purpose is the weighted average closing price of the Units on the principal market on which the
Units are quoted for trading for the five trading days immediately preceding the relevant payment date. The deferred trust
units will vest on a five-year schedule, pursuant to which one-fifth of the deferred trust units will vest, starting on the sixth
anniversary date of the grant date for deferred trust units granted during the first five years of the Asset Management
Agreement and starting on the first anniversary date of the grant date thereafter. Income deferred trust units will be credited to
DAM based on distributions paid by the Trust on the Units and such income deferred trust units will vest on the same five-year
schedule as their corresponding deferred trust units. For accounting purposes, the deferred units relate to services provided
during the year and the corresponding expense is recognized during the year. DAM has irrevocably elected to receive the first
$3,500 of the fees payable to it in each year for the first five years for its asset management services in deferred trust units.
Deferred units granted to DAM for payment of asset management fees are included in general and administrative expenses
during the year as they relate to services provided during the year, and the units and fees are initially measured by applying a
discount to the fair value of the corresponding Units. The discount is estimated by applying the Black Scholes option pricing
model, taking into consideration the volatility of the Canadian REIT equity market and the German real estate industry. Once
recognized, the liability is remeasured at each reporting date at a discount to the fair values of the corresponding Units, with
the change being recognized in comprehensive income as a fair value adjustment to financial instruments.
Incurred under the Asset Management Agreement:
Asset management fees in Deferred units (included in general and administrative expenses)
Asset management fees in cash (included in general and administrative expenses)
Asset acquisition fees (capitalized as acquisition costs, and
then written off on remeasurement of investment properties)
Financing fees (included in debt/unitholders’ equity)
Reimbursement for out-of-pocket and incidental costs
(included in general and administrative expenses)
Total incurred under the Asset Management Agreement
Year ended December 31,
2015
$
1,870 $
6,385
2,588
553
2014
2,541
4,969
2,845
421
$
918
12,314 $
585
11,361
As at December 31, 2015, the Trust has recorded $3,794 (December 31, 2014 – $3,871) in amounts payable and $117
(December 31, 2014 – $1,185) in amounts receivable related to the Asset Management Agreement with DAM.
Dream Global REIT 2015 Annual Report | 82
Shared services and cost sharing agreement
The Trust entered into a shared services and cost sharing agreement with DAM on December 1, 2013. The agreement was for a
one-year term and will be automatically renewed for further one-year terms unless and until the agreement is terminated in
accordance with its terms or by mutual agreement of the parties. Pursuant to the agreement, DAM will be providing additional
administrative and support services in order to expand and improve DAM’s service capability in connection with the provision
of its asset management services. DAM will receive an annual fee sufficient to reimburse it for all the expenses incurred in
providing these additional administrative and support services. Additionally, the Trust will also reimburse DAM in each calendar
year for its share of costs incurred in connection with certain business transformation services provided by DAM.
Incurred under the Shared Services and Cost Sharing Agreement:
Branding, process improvements and technology
transformations (included in general and administrative)
Total incurred under the Shared Services and Cost Sharing Agreement
Year ended December 31,
2015
2014
$
$
347 $
347 $
240
240
The Trust’s future commitment under the Shared Services and Cost Sharing Agreement over the remaining term to 2020
is $820.
Non-controlling interest and notes receivable
DAM has co-invested with the Trust in properties with their share of interest ranging from 0.26% to 5.2%. For the year
ended December 31, 2015, the non-controlling interest and net
income attributable to DAM amounted to $9,308
(December 31, 2014 – $6,195) and $1,079 (December 31, 2014 – $909), respectively. As part of the co-investing transactions,
the Trust provided interest-bearing loans to DAM for financing its equity interests, bearing interest at 8.5% per annum for a
10-year term. As at December 31, 2015, the notes receivable outstanding and interest accrued amounted to $6,621
(December 31, 2014 – $4,930) and $636 (December 31, 2014 – $111), respectively.
Note 22
SUPPLEMENTARY CASH FLOW INFORMATION
Decrease in amounts receivable
Increase in prepaid expenses and other assets
Increase (decrease) in amounts payable and accrued liabilities
Increase in tenant deposits
Change in non-cash working capital
The following amounts were paid on account of interest:
Debt
Year ended December 31,
2015
1,317 $
(889 )
(10,704 )
633
(9,643 ) $
2014
5,640
(1,968 )
7,222
198
11,092
Year ended December 31,
2015
33,871 $
2014
44,175
$
$
$
Note 23
COMMITMENTS AND CONTINGENCIES
The REIT and its operating subsidiaries are contingently liable under guarantees that are issued in the normal course of
business and with respect to litigation and claims that arise from time to time. In the opinion of management, any liability that
may arise from such contingencies would not have a material adverse effect on the consolidated financial statements of
the REIT.
As at December 31, 2015, the REIT’s future minimum commitments under operating leases are as follows:
No longer than 1 year
1–5 years
Longer than 5 years
Total
Dream Global REIT 2015 Annual Report | 83
$
Operating lease payments
985
1,236
–
2,221
$
During the year ended December 31, 2015, the Trust paid $858 in minimum lease payments, respectively, which have been
included in comprehensive income for the year.
The REIT also has commitments for lease incentives and initial direct leasing costs of approximately $11,200.
Note 24
CAPITAL MANAGEMENT
At December 31, 2015, the Trust’s capital consists of debt and unitholders’ equity. The primary objective of the Trust’s capital
management is to ensure it remains within its quantitative banking covenants as well as to ensure the Trust can meet its
obligations and continue to grow. Specifically, the Trust intended to ensure adequate operating funds are available to maintain
consistent and sustainable unitholder distributions, to fund capital expenditure requirements and to meet debt obligations.
Various debt, equity and earnings distribution ratios are used to ensure capital adequacy and monitor capital requirements.
The primary ratios used for assessing capital management are the interest coverage and debt-to-book value ratios. Other
significant indicators include weighted average interest rate, average term to maturity of debt, and variable debt as a portion of
total debt. These indicators assist the Trust in assessing that the debt level maintained is sufficient to provide adequate cash
flows for unitholder distributions and capital expenditures, and for evaluating the need to raise funds for further expansion.
The Trust’s equity consists of Units, in which the carrying value is impacted by earnings and unitholder distributions. The Trust
endeavours to make annual distributions of $0.80 per unit. Amounts retained in excess of the distributions are used to fund
leasing costs, capital expenditures and working capital requirements. Management monitors distributions through various
ratios to ensure adequate resources are available. These ratios include the proportion of distributions paid in cash, DRIP
participation ratio, and total distributions as a percentage of adjusted funds from operations (“AFFO”).
The Trust monitors debt capital primarily using a debt-to-book value ratio, which is calculated as the amount of outstanding
debt divided by total assets. During the year, the Trust did not breach any of its loan covenants, nor did it default on any other
of its obligations under its loan agreements and was in full compliance with all loan facilities.
Note 25
FINANCIAL INSTRUMENTS
Risk management
IFRS 7, “Presentation of Financial Statements” (“IFRS 7”), places emphasis on disclosures about the nature and extent of risks
arising from financial instruments and how the Trust manages those risks, including market, credit and liquidity risk.
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk consists of interest rate risk, currency risk and other market price risk. The Trust has exposure to
interest rate risk primarily as a result of its term loan credit facility, which has a variable rate of interest. In order to manage
exposure to interest rate risk, the Trust endeavours to maintain an appropriate mix of fixed and floating rate debt, manage
maturities of fixed rate debt and match the nature of the debt with the cash flow characteristics of the underlying asset.
Additionally, the Trust has entered into interest rate swaps and caps to economically hedge the variable rate debt. The Trust
entered into foreign exchange forward contracts to manage its currency risk from paying distributions and debt servicing in
Canadian dollars. The Trust is also exposed to interest rate risk on its derivatives.
Dream Global REIT 2015 Annual Report | 84
The following interest rate sensitivity table outlines the potential impact of a 1% change in the interest rate on variable rate
assets and liabilities for a 12-month period. A 1% change is considered a reasonable level of fluctuation on variable rate assets
and debts.
Financial assets
Cash(1)
Financial liabilities
Mortgage debt
Revolving credit facility
Term loan credit facility(2)
Carrying
amount
Income
-1%
Equity
Income
Interest rate risk
+1%
Equity
$
28,700 $
(287 ) $
(287 ) $
287 $
287
39,267
29,908
355,325 $
$
393
299
3,553 $
393
299
3,553
$
(393 )
(299 )
(3,553 ) $
(393 )
(299 )
(3,553 )
(1) Cash excludes cash subject to restrictions that prevent its use for current purposes. These balances generally receive interest income at bank prime less
1.85%. Cash and cash equivalents are short-term in nature and the current balance may not be representative of the balance for the rest of the year.
(2) Subject to interest rate cap.
The Trust is exposed to currency risk. The Trust’s functional and presentation currency is Canadian dollars. The Trust’s operating
subsidiaries’ functional currency is the euro; accordingly, the assets and liabilities are translated at the prevailing rate at year-
end, and comprehensive income is translated at the average rate for the year. In order to manage the exposure to currency risk
of unitholders and holders of Debentures, the Trust has entered into foreign exchange forward contracts. The Trust has various
currency forward contracts in place to sell euros for Canadian dollars for the next 36 months. The Trust currently has foreign
exchange forward contracts to sell €163,893 total from January 2016 to December 2018 at an average exchange rate of
$1.450 per euro.
The Trust is exposed to credit risk from its leasing activities and from its financing activities and derivatives. The Trust manages
credit risk by requiring tenants to pay rents in advance and by monitoring the credit quality of the tenants on a regular basis.
The Trust monitors tenant payment patterns and discusses potential tenant issues with property managers on a regular basis.
Credit risk with respect to financing activities and derivatives is managed by entering into arrangements with highly
reputable institutions.
The Trust does not use derivatives for speculative purposes.
Liquidity risk is the risk that the Trust will encounter difficulty in meeting obligations associated with the maturity of financial
obligations. The Trust manages maturities of its debts, and monitors the repayment dates to ensure sufficient capital will be
available to cover obligations.
Interest rate derivatives
The following table provides details on interest rate derivatives outstanding as at December 31, 2015:
Interest rate caps
Notional
388,372
388,372
$
$
Rate
1.03 %
Maturity
2020–2022 $
$
Carrying value
4,377
4,377
Foreign currency derivatives
The following table provides details on foreign currency forward contracts outstanding as at December 31, 2015 and
December 31, 2014:
Hedging currency
Euro
Hedging currency
Euro
€
€
Notional
163,893
Blended
exchange rate
1.450
Forward contracts
start date
January 15, 2016
For the year ended December 31, 2015
Forward contracts
end date
Carrying value
(11,284 )
December 14, 2018 $
Notional
121,166
Blended
exchange rate
1.417
Forward contracts
start date
January 15, 2015
For the year ended December 31, 2014
Forward contracts
end date
December 15, 2017
Carrying value
(1,492 )
Dream Global REIT 2015 Annual Report | 85
Fair value measurements
The following tables summarize fair value measurements recognized in the consolidated balance sheets or disclosed in the
Trust’s consolidated financial statements by class of asset or liability and categorized by level according to the significance of
the inputs used in making the measurements.
Recurring measurements
Financial assets (liabilities)
Interest rate caps
Foreign exchange forward contracts
Conversion feature on the convertible debentures
Fair values disclosed
Mortgage debt
Convertible debenture excluding conversion feature
Recurring measurements
Financial liabilities
Interest rate swaps
Foreign exchange forward contracts
Conversion feature on the convertible debentures
Fair values disclosed
Mortgage debt
Convertible debenture excluding conversion feature
Carrying value as at
December 31, 2015
Fair value as at December 31, 2015
Level 1
Level 2
Level 3
$
4,377 $
(11,284 )
(33 )
(841,101 )
(154,558 )
– $
–
–
–
–
4,377 $
(11,284 )
–
–
–
(33 )
–
–
(864,129 )
(160,162 )
Carrying value as at
December 31, 2014
Fair value as at December 31, 2014
Level 1
Level 2
Level 3
$
(10,623 ) $
(1,492 )
(158 )
(701,325 )
(152,365 )
– $
–
–
–
–
(10,623 ) $
(1,492 )
–
–
–
(158 )
–
–
(722,208 )
(160,037 )
Amounts receivable, notes receivable, cash, the Deferred Unit Incentive Plan, deposits, amounts payable and accrued liabilities,
income taxes payable and distributions payable are carried at amortized cost, which approximates fair value due to their short-
term nature. The carrying value of the term loan credit facility approximates fair value due to the short-term nature of its rates,
which are reset every three months.
Transfers between levels in the fair value hierarchy are recognized as of the date of the event or change in circumstances that
resulted in the transfer. There were no transfers in or out of Level 3 fair value measurements during the year.
Valuation processes
The REIT’s management is responsible for determining fair value measurements included in the consolidated financial
statements, including Level 3 fair values. The inputs, processes and results for recurring measurements, including those
valuations calculated by an independent consultant, are reviewed each quarter by senior management to ensure conformity
with IFRS.
The Trust uses the following techniques to determine the fair value measurements categorized in Level 2:
Interest rate derivatives
The fair value of the interest rate caps was valued by qualified banks using assumptions regarding market conditions and
established valuation methods and models such as discounted cash flow method or Libor Market Model as well as bank
proprietary models.
A higher volatility will increase the value of the interest rate caps. A higher underlying rate will increase the value of the interest
rate caps.
Dream Global REIT 2015 Annual Report | 86
The following table shows the changes in fair value of the interest rate caps from a 5% increase or 5% decrease in volatility and
a 1% increase or decrease in underlying rates, all other inputs being constant:
Increase (decrease) in fair value as at December 31, 2015
$
Impact of change to volatility
Decrease -5%
Increase +5%
208 $
(195 ) $
Impact of change to underlying rates
Decrease -1%
Increase +1%
(2,602 )
9,781 $
Foreign currency derivatives
The fair value of foreign currency derivatives was determined using forward exchange market rates ranging from $1.503 to
$1.553 to €1 at the measurement date, with the resulting value discounted back to present value using the risk-free Canadian
bond rate of 0.48%, plus a credit spread of 488 basis points.
A higher forward exchange market rate will increase the value of the foreign currency derivatives.
The following table shows the changes in fair value of the foreign currency derivatives from a 5% increase or 5% decrease in
forward exchange market rates, all other inputs being constant:
Increase/(decrease) in fair value as at December 31, 2015
Impact of change to forward exchange market rates
Decrease -5%
(11,669 )
Increase +5%
11,669 $
$
Convertible debentures
The convertible debentures have two components of value – a conventional bond and a call on the equity of the Trust through
conversion. Based on its terms, the conversion feature is an embedded derivative and has been separated from the host
contract and classified as a financial liability through profit or loss.
Effective April 1, 2013, the Trust has utilized a valuation technique based on the paper by K. Tsiveriotis and C. Fernandes to
determine the fair value of the conversion feature. This model uses significant unobservable inputs; therefore the resulting
valuation is classified as Level 3. In this model, a convertible bond consists of two components, an equity component and a
debt component, and these components have different default risks. The equity component is discounted at the risk-free
interest rate. The equity component has no default risk since the Trust can always issue its own units. The debt component is
discounted at the risk-free interest rate plus a credit spread.
The fair value measurement of the conversion feature of the convertible debentures was valued by a qualified independent
valuation consultant.
The significant unobservable inputs used in the fair value measurement of the conversion feature of the convertible debentures
as at December 31, 2015 are the following:
• Volatility: Expected volatility as at December 31, 2015 was derived from the historical prices of the REIT matching term to
maturity of the Debenture. The volatility used was 19.09% (December 31, 2014 – 17.27%).
• Credit spread: The credit spread of the convertible debentures was imputed from the traded price of the convertible
debenture as at December 31, 2015. The credit spread used was 4.8847% (December 31, 2014 – 4.1092%).
A higher volatility will increase the value of the conversion feature. A lower credit spread will decrease the value of the
conversion feature.
The following table shows the changes in fair value of the conversion feature of the convertible debentures from a 5% increase
or decrease in volatility and a 1% increase or decrease in credit spread, all other inputs being constant:
Impact of change to volatility
Impact of change in credit spread
Increase (decrease) in fair value as at December 31, 2015
$
129
$
(31) $
Increase +5%
Decrease -5%
Increase +1%
102
Decrease -1%
(2,251)
$
The Trust also used the following techniques in determining the fair values disclosed for the following financial liabilities
classified as Level 3:
Dream Global REIT 2015 Annual Report | 87
Mortgage debt
The fair value of the mortgage debt as at December 31, 2015 has been calculated by discounting the expected cash flows of
each debt using discount rates ranging from 1.257% to 2.487%. The discount rates are determined using the six-month
EURIBOR rate for instruments of similar maturity adjusted for the REIT’s specific credit risk. In determining the adjustment for
credit risk, the REIT considers market conditions, the value of the properties that the mortgages are secured by and other
indicators of the REIT’s creditworthiness.
Note 26
SUBSEQUENT EVENTS
On February 3, 2016, the REIT completed the acquisition of Europa-Center, an office property located in Essen, Germany for
€27,100, excluding transaction costs. The acquisition was partially financed by a new mortgage of €16,260, with a fixed interest
rate of 1.62% for a term of 10 years.
Dream Global REIT 2015 Annual Report | 88
Appendix
Address
City
State
Ownership
Owned GLA
(sq. ft.)
Occupancy
(%)
Acquisition Properties:
Millerntorplatz 1
Im Mediapark 8 (Cologne Tower)
Handelskai 92 (Rivergate)
Karl-Martell-Straße 60
Feldmuhleplatz 1+15
Greifswalder Str. 154-156
Straßenbahnring 15, 17-19/Hoheluftchausee 18-
20/Lehmweg 8, 8a, 7
Moskauer Str. 25-27
Robert-Bosch-Str. 9–11
Podbielskistraße 158-168
Cäcilienkloster 2, 6, 8, 10
Oasis III
Hammer Str. 30-34
Zimmerstrasse 56/Schützenstrasse 15-17
(Zimmer 56)
Schlossstr. 8
Leopoldstr. 252
Liebknechtstraße 33/35, Heßbrühlstraße 7
(Officium)
Anger 81, Krämpferstraße 2, 4, 6 (Anger Entrée)
Beuthstraße 6-8/Seydelstraße 2-5 (Löwenkontor)
Westendstr. 160-162/Barthstr. 24-26
Bertoldstr. 48/Sedanstr. 7
Marsstraße 20-22
Am Sandtorkai 37 (Humboldthaus)
Reichskanzler-Müller-Str. 21-25
Am Stadtpark 2
Dillwächterstr. 5/Tübinger Str. 11
ABC-Str. 19 (ABC Bogen)
Speicherstr. 55 (Werfthaus)
Derendorfer Allee 4 (doubleU)
Werner-Eckert-Straße 8-12
Neue Mainzer Str. 28 (K26)
Lörracher Str. 16/16a
Vordernbergstr. 6/Heilbronner Str. 35 (Z-Up)
Total Acquisition Properties
(1) GLA reflects 100% share
Hamburg
Köln
Vienna
Nürnberg
Düsseldorf
Berlin
Hamburg
Düsseldorf
Darmstadt
Hannover
Köln
Stuttgart
Hamburg
Berlin
Hamburg
München
Stuttgart
Erfurt
Berlin
München
Freiburg
München
Hamburg
Mannheim
Nürnberg
München
Hamburg
Frankfurt
Düsseldorf
München
Frankfurt
Freiburg
Stuttgart
Initial Properties:
Grüne Str. 6-8/Kurfürstenstr. 2
Am Hauptbahnhof 16-18
Kurfürstenallee 130
Poststr. 4-6, Göbelstr. 30, Bismarckstr
Karlstal 1-21/Werftstr. 201
Franz-Zebisch-Str. 15
E.-Kamieth-Str. 2 b
Überseering 17/Mexikoring 22
Am Neumarkt 40/Luetkensallee 49
Bahnhofstr. 82-86
Czernyring 15
Marienstr. 80
Rüppurrer Str. 81, 87, 89/Ettlinger 67
Gerokstr. 14-20
Hindenburgstr. 9/Heeserstr. 5
Zimmermannstr. 2/Eisenstr.
Friedrich-Karl-Str. 1-7
Blücherstr. 12
Kaiserstr. 24
Bahnhofsplatz 2, 3, 4, Pepperworth 7
Dortmund
Saarbrücken
Bremen
Darmstadt
Kiel
Weiden
Halle
Hamburg
Hamburg
Gießen
Heidelberg
Offenbach am Main
Karlsruhe
Dresden
Siegen
Marburg
Oberhausen
Koblenz
Gütersloh
Hildesheim
Hamburg
Nordrhein-Westfalen
Vienna
Bavaria
Nordrhein-Westfalen
Berlin
Hamburg
Nordrhein-Westfalen
Hessen
Niedersachsen
Nordrhein-Westfalen
Baden-Württemberg
Hamburg
Berlin
Hamburg
Bavaria
Baden-Württemberg
Thüringen
Berlin
Bavaria
Baden-Württemberg
Bavaria
Hamburg
Baden-Württemberg
Bavaria
Bavaria
Hamburg
Hessen
Nordrhein-Westfalen
Bavaria
Hessen
Baden-Württemberg
Baden-Württemberg
Nordrhein-Westfalen
Saarland
Bremen
Hessen
Schleswig-Holstein
Bavaria
Sachsen-Anhalt
Hamburg
Hamburg
Hessen
Baden-Württemberg
Hessen
Baden-Württemberg
Sachsen
Nordrhein-Westfalen
Hessen
Nordrhein-Westfalen
Rheinland-Pfalz
Nordrhein-Westfalen
Niedersachsen
Dream Global REIT 2015 Annual Report | 89
100%
95%
50%
100%
95%
100%
100%
100%
100%
100%
100%
100%
100%
95%
100%
100%
50%
100%
50%
100%
100%
50%
100%
100%
100%
100%
50%
50%
50%
100%
50%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
374,907
295,180(1)
287,144
268,931
246,376(1)
242,771
226,932
217,282
212,864
211,770
200,915
172,692
172,306
169,424(1)
165,900
155,715
134,736
131,056
129,179
123,837
121,553
115,400
113,391
100,613
94,649
81,907
79,244
75,914
71,114
64,772
61,765
57,618
44,266
5,222,126
299,567
293,737
203,949
201,518
180,837
166,601
161,105
160,785
160,397
149,499
133,379
114,114
111,778
110,434
102,410
99,751
97,606
94,569
94,488
87,084
88.9%
98.4%
93.8%
100.0%
100.0%
99.2%
98.9%
91.3%
99.0%
96.3%
99.2%
100.0%
100.0%
99.4%
85.8%
98.9%
91.7%
94.4%
98.5%
82.4%
100.0%
98.1%
99.1%
97.7%
96.5%
95.0%
99.7%
97.2%
100.0%
94.6%
100.0%
98.8%
100.0%
96.4%
100.0%
7.1%
93.0%
76.3%
95.5%
100.0%
55.1%
92.7%
89.4%
57.4%
57.7%
96.1%
97.0%
86.8%
77.5%
97.9%
93.7%
67.6%
61.5%
51.9%
Address
City
State
Ownership
Owned GLA
(sq. ft.)
Occupancy
(%)
Pausaer Str. 1-3
Klubgartenstr. 10
Am Hauptbahnhof 2
Husemannstr. 1
Kapellenstr. 44
Kommandantenstr. 43-51
Stresemannstr. 15
Bahnhofsring 2
Kaiser-Karl-Ring 59-63/Dorotheenstr
Bürgerreuther Str. 1
Bahnhofplatz 10
77er Str. 54
Wiener Str. 43
Bahnhofsplatz 1
Rathausplatz 2
Joachim-Campe-Str. 1.3/5/7, Postho
Bahnhofstr. 40
Heinrich-von-Stephan-Str. 8-10
Am Bahnhof 5
Friedrich-Ebert-Str. 28
Postplatz 3
Poststr. 2 U 3
Poststr. 5-7
Bahnhofsplatz 9
Ostbahnstr. 5
Friedrich-Ebert-Str. 75-79
Baarstr. 5
Rathausplatz 4
Europaplatz 17
Unter den Zwicken 1-3
Schützenstr. 17, 19
Willy-Brandt-Str. 6
Bahnhofstr. 2
Theodor-Heuss-Platz 13
Stembergstr. 27-29
Poststr. 14
Bahnhofplatz 3,5
Poststr. 2
Lippertor 6
Südbrede 1-5
Bahnhofstr. 169
Vegesacker Heerstr. 111
Koblenzer Str. 67
Kardinal-Galen-Ring 84/86
Martinistr. 19
Kalkumer Str. 70
Falkenbergstr. 17-23
Balhornstr. 15, 17/B.Köthenbürger-Str
August-Bebel-Str. 6
Cavaillonstr. 2
Hauptstr. 279/Hommelstr. 2
Bismarckstr. 21-23
Hindenburgstr. 8/Hohenstauf 9, 17, 19
Steinerother Str. 1 U 1a
Heinrich-von-Stephan-Platz 6
Mühlenstr. 5-7
Lönsstr. 20-22
Apostelweg 4-6
Brückenstr. 21
Kurt-Schumacher-Str. 5
Lilienstr. 3
Stadtring 3-5
Plauen
Goslar
Mülheim
Gelsenkirchen
Einbeck
Duisburg
Wuppertal
Leer
Bonn
Bayreuth
Fürth
Celle
Stuttgart
Schweinfurt
Wilhelmshaven
Salzgitter
Flensburg
Leverkusen
Zwickau
Pinneberg
Bautzen
Helmstedt
Heide
Emden
Landau
Bremerhaven
Iserlohn
Lüdenscheid
Bad Kreuznach
Halberstadt
Peine
Auerbach
Cham
Neuss
Arnsberg
Rastatt
Heidenheim
Gummersbach
Lippstadt
Ahlen
Bietigheim-Bissingen
Bremen
Bonn
Rheine
Recklinghausen
Düsseldorf
Norderstedt
Paderborn
Torgau
Weinheim
Idar-Oberstein
Bünde
Bocholt
Betzdorf
Naumburg
Delmenhorst
Castrop-Rauxel
Hamburg
Neunkirchen
Lünen
Leipzig
Nordhorn
Sachsen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Niedersachsen
Nordrhein-Westfalen
Bavaria
Bavaria
Niedersachsen
Baden-Württemberg
Bavaria
Niedersachsen
Niedersachsen
Schleswig-Holstein
Nordrhein-Westfalen
Sachsen
Schleswig-Holstein
Sachsen
Niedersachsen
Schleswig-Holstein
Niedersachsen
Rheinland-Pfalz
Bremen
Nordrhein-Westfalen
Nordrhein-Westfalen
Rheinland-Pfalz
Sachsen-Anhalt
Niedersachsen
Sachsen
Bavaria
Nordrhein-Westfalen
Nordrhein-Westfalen
Baden-Württemberg
Baden-Württemberg
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Baden-Württemberg
Bremen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Schleswig-Holstein
Nordrhein-Westfalen
Sachsen
Baden-Württemberg
Rheinland-Pfalz
Nordrhein-Westfalen
Nordrhein-Westfalen
Rheinland-Pfalz
Sachsen-Anhalt
Niedersachsen
Nordrhein-Westfalen
Hamburg
Saarland
Nordrhein-Westfalen
Sachsen
Niedersachsen
Dream Global REIT 2015 Annual Report | 90
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
87,025
86,572
84,303
80,591
80,500
80,122
79,478
78,627
75,815
75,534
73,818
73,440
72,192
67,503
64,970
62,041
61,826
61,011
60,738
59,218
57,571
53,468
53,363
53,327
52,978
52,165
51,027
49,529
48,549
47,145
46,532
46,512
46,129
46,128
45,820
45,659
45,656
45,558
44,341
44,130
43,620
43,484
43,157
42,191
41,847
41,781
41,249
40,927
40,745
40,648
39,192
38,761
37,925
37,679
37,612
37,266
36,289
36,273
35,971
35,290
35,234
35,189
76.6%
51.4%
81.1%
94.0%
68.3%
100.0%
59.9%
81.6%
99.8%
100.0%
73.4%
64.8%
91.8%
87.0%
97.2%
82.0%
97.5%
78.8%
66.9%
99.7%
67.5%
20.3%
91.9%
97.9%
98.3%
89.4%
92.8%
26.7%
39.3%
14.9%
48.8%
56.3%
61.5%
94.8%
98.8%
92.4%
86.0%
97.6%
93.4%
81.2%
98.3%
84.6%
100.0%
75.7%
97.3%
55.4%
98.1%
92.7%
86.5%
90.8%
48.0%
95.6%
98.8%
94.9%
91.0%
99.3%
93.0%
97.3%
100.0%
100.0%
97.3%
80.5%
Address
City
State
Ownership
Owned GLA
(sq. ft.)
Occupancy
(%)
Goethestr. 2-6
Gerstenstr. 5
Ölmühlweg 12
Worthingtonstr. 15
Palleskestr. 38
Hellersdorfer Str. 78
Zwieseler Str. 27-29
Markendorfer Str. 10
Bahnhofstr. 6/Luisenstr. 4-5
Tunnelweg 1
Bahnhofsplatz 2
Poststr. 24-26
Konrad-Adenauer-Str. 49-51
Feldschlößchenstr./Kunadstr. o. Nr.
Bahnhofstr. 29
Poststr. 12
Dr.-Friedrich-Uhde-Str. 18
Poststr. 1-3
Poststr. 48
Bahnhofstr. 2
Ruthenstr. 19/21
Königswiese 1
Wilhelmstr. 11/Kamperdickstr. 29
Kaiserstr. 140
Ludwigsplatz 1
In der Trift 10/12
Bahnhofstr. 6
Alleestr. 6
Uferstr. 2
Lindenstr. 11
Bahnhofsplatz 8
Poststr. 19-23
Brückenstr. 26
Lindenstr. 15
Lindenstr. 42
Innungsstr. 57-59
Wilhelmstr. 5
Geistmarkt 17
Lyoner Passage 14
Martin-Pöhlmann-Str 5/Friedrich-e
Steinstr. 6
Am Markt 4-5
Am Stadtpark 5
Saarbrücker Str. 292-294
Speckweg 24-26
Lübecker Str./Wedringer Str. o. Nr.
Ooser Karlstr. 21/23/25
Güterstr. 2-4
Bismarckstr. 12/Fr.Hoffmann-Str.
Poststr. 6
Lagerstr. 1
Bahnhofstr. 3
Bahnhofstr. 43
Bahnhofstr. 33 U. 33 A
Friedrichstr. 2
Königstr. 20
Kornmarkt 15
Marktstr. 51
Übacher Weg 4
Niederwall 3
Hochstr. 31/Postgasse 5
Sattigstr. 33
Duisburg
Neubrandenburg
Königstein
Crailsheim
Frankfurt am Main
Berlin
Regen
Frankfurt an der Oder
Villingen-Schwenningen
Husum
Herborn
Ratingen
Tübingen
Dresden
Meppen
Lehrte
Einbeck
Korbach
St Ingbert
Gifhorn
Hameln
Gelsenkirchen
Kamp-Lintfort
Radevormwald
Alsfeld
Olpe
Quakenbrück
Neustadt
Höxter
Bitterfeld
Marktredwitz
Hilden
Miltenberg
Landstuhl
Grevenbroich
Berlin
Ibbenbüren
Emmerich
Köln
Selb
Pulheim
Norden
Papenburg
Saarbrücken
Mannheim
Magdeburg
Baden-Baden
Bitburg
Steinfurt
Beckum
Meschede
Osterburken
Riesa
Stendal
Monheim
Brilon
Osterode
Essen
Alsdorf
Lübbecke
Bochum
Görlitz
Nordrhein-Westfalen
Mecklenburg-Vorpommern
Hessen
Baden-Württemberg
Hessen
Berlin
Bavaria
Brandenburg
Baden-Württemberg
Schleswig-Holstein
Hessen
Nordrhein-Westfalen
Baden-Württemberg
Sachsen
Niedersachsen
Niedersachsen
Niedersachsen
Hessen
Saarland
Niedersachsen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Hessen
Nordrhein-Westfalen
Niedersachsen
Bavaria
Nordrhein-Westfalen
Sachsen-Anhalt
Bavaria
Nordrhein-Westfalen
Bavaria
Rheinland-Pfalz
Nordrhein-Westfalen
Berlin
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Bavaria
Nordrhein-Westfalen
Niedersachsen
Niedersachsen
Saarland
Baden-Württemberg
Sachsen-Anhalt
Baden-Württemberg
Rheinland-Pfalz
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Baden-Württemberg
Sachsen
Sachsen-Anhalt
Nordrhein-Westfalen
Nordrhein-Westfalen
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Sachsen
Dream Global REIT 2015 Annual Report | 91
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
34,839
34,347
33,716
33,136
33,119
32,876
32,676
32,330
32,191
31,116
29,746
29,445
29,341
29,236
29,056
28,764
27,793
27,577
27,051
26,922
26,895
26,468
26,159
25,643
25,477
24,894
24,446
23,495
23,240
23,183
22,710
22,454
22,017
21,726
21,668
21,187
21,031
20,942
20,742
20,681
20,670
20,668
20,578
20,433
20,128
19,454
19,444
19,340
19,159
18,831
18,683
18,498
18,275
18,200
18,156
17,733
17,690
17,661
16,991
16,563
16,359
16,279
85.8%
100.0%
100.0%
100.0%
83.6%
75.9%
89.1%
97.5%
96.5%
88.7%
90.6%
100.0%
98.2%
100.0%
89.7%
97.6%
64.8%
99.8%
91.6%
92.9%
92.9%
100.0%
93.9%
73.8%
32.6%
93.6%
97.1%
100.0%
79.3%
85.8%
95.1%
86.7%
88.9%
99.2%
70.5%
100.0%
100.0%
100.0%
100.0%
74.6%
100.0%
80.9%
16.8%
92.0%
89.8%
100.0%
92.9%
99.3%
87.0%
100.0%
100.0%
100.0%
89.8%
92.6%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Address
City
State
Ownership
Owned GLA
(sq. ft.)
Occupancy
(%)
Robert-Koch-Str. 3
Kaiserstr. 35
Bahnhofstr. 8-10
Poststr. 28
Bahnhofstr. 41
Melanchthonstr. 96
Hauptstr. 141
Herrlichkeit 7
Grenzstr. 24
Mercedesstr. 5
Münchner Str. 50
Schönbornstr. 1
Langener Landstr. 237-239
Löbauer Str. 63
Albert-Steiner-Str. 10
Fritz-Brandt-Str. 25
Dahmestr. 17
Bünder Str. 36
Poststr. 1
Gorsemannstr. 22
Bahnhofstr. 11
Gutachstr. 56
Unterstr. 14
Am Markt 4
Hauptstr. 40
Sandstr. 4
Langfuhren 9
De-Lenoncourt-Str. 2
Rosenstr. 1/Fünfhausenstr. 19/21
Melcherstätte 8
Wetterstr. 20/Poststr. 2
Total Initial Properties
Total Portfolio
Laatzen
Minden
Borken
Hemer
Eberbach
Bretten
Rheda-Wiedenbrück
Syke
Halle
Hannover
Fürstenfeldbruck
Geisenheim
Bremerhaven
Bautzen
Herzogenrath
Zerbst
Mittenwalde
Löhne
Erftstadt
Bremen
Alpirsbach
Titisee-Neustadt
Bochum
St. Georgen
Porta Westfalica
Germersheim
Bad Säckingen
Dillingen
Springe
Stuhr
Herdecke
Niedersachsen
Nordrhein-Westfalen
Nordrhein-Westfalen
Nordrhein-Westfalen
Baden-Württemberg
Baden-Württemberg
Nordrhein-Westfalen
Niedersachsen
Sachsen-Anhalt
Niedersachsen
Bavaria
Hessen
Bremen
Sachsen
Nordrhein-Westfalen
Sachsen-Anhalt
Brandenburg
Nordrhein-Westfalen
Nordrhein-Westfalen
Bremen
Baden-Württemberg
Baden-Württemberg
Nordrhein-Westfalen
Baden-Württemberg
Nordrhein-Westfalen
Rheinland-Pfalz
Baden-Württemberg
Saarland
Niedersachsen
Niedersachsen
Nordrhein-Westfalen
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
16,126
16,043
15,893
15,782
15,634
15,501
15,178
14,560
14,533
14,504
13,326
13,117
12,803
12,686
12,667
12,654
12,631
12,625
12,498
12,379
12,112
10,813
10,732
10,324
10,315
10,132
9,717
8,995
8,881
8,196
7,702
8,206,043
13,428,169
100.0%
98.7%
98.2%
100.0%
100.0%
90.2%
100.0%
94.3%
100.0%
100.0%
100.0%
90.2%
100.0%
100.0%
79.3%
95.8%
100.0%
100.0%
100.0%
100.0%
76.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
81.8%
87.5%
Dream Global REIT 2015 Annual Report | 92
Trustees
Dr. R. Sacha Bhatia
Toronto, Ontario
Director of the Institute for Health System
Solutions and Virtual Care (“WIHV”) at
Women’s College Hospital
Detlef Bierbaum 1,2,3,4
Köln, Germany
Corporate Director
Michael J. Cooper 2
Toronto, Ontario
President and Chief Responsible Officer
Dream Unlimited Corp.
Johann Koss 2,3
Toronto, Ontario
Chief Executive Officer
Right to Play
P. Jane Gavan 2
Toronto, Ontario
President and Chief Executive Officer
Dream Global REIT
John Sullivan 1
Toronto, Ontario
President and Chief Executive Officer
Cadillac Fairview Corporation Limited
Duncan Jackman 1,3
Toronto, Ontario
Chairman, President and CEO
E-L Financial Corporation Limited
1 Member of the Audit Committee
2 Member of the Executive Committee
3 Member of the Governance, Compensation
and Environmental Committee
4 Chairman of the Board of Trustees
Corporate Information
HEAD OFFICE
AUDITORS
Dream Global
Real Estate Investment Trust
30 Adelaide Street East, Suite 301
Toronto, Ontario M5C 3H1
Phone: (416) 365-3535
Fax: (416) 365-6565
INVESTOR RELATIONS
Phone: (416) 365-3538
Toll free: 1 877 365-3535
From Germany: 0 800 189-0344
E-mail: globalinfo@dream.ca
Website: www.dreamglobalreit.ca
TRANSFER AGENT
(for change of address, registration
or other unitholder enquiries)
Computershare Trust
Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Phone: (514) 982-7555 or
1 800 564-6253
Fax: (416) 263-9394 or
1 888 453-0330
E-mail: service@computershare.com
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600
Toronto, Ontario M5J 0B2
CORPORATE COUNSEL
Osler, Hoskin & Harcourt LLP
Box 50, 1 First Canadian Place, Suite 6200
Toronto, Ontario M5X 1B8
TAXATION OF DISTRIBUTIONS
Distributions paid to unitholders in respect
of the tax year ended December 31, 2015
are taxed as follows:
Foreign non-business income: 43.6%
Return of capital: 56.4%
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Listing symbols:
REIT Units: DRG.UN
5.5% Convertible Debentures: DRG.DB
DISTRIBUTION REINVESTMENT AND
UNIT PURCHASE PLAN
The purpose of our Distribution Reinvestment
and Unit Purchase Plan (“DRIP”) is to
provide unitholders with a convenient way of
investing in additional units without incurring
transaction costs such as commissions, service
charges or brokerage fees. By participating in
the Plan, you may invest in additional units in
two ways:
Distribution reinvestment: Unitholders will
have cash distributions from Dream Global
REIT reinvested in additional units as and when
cash distributions are made.
Cash purchase: Unitholders may invest in
additional units by making cash purchases.
If you register in the DRIP, you will also receive
a “bonus” distribution of units equal to 4% of
the amount of your cash distribution reinvested
pursuant to the Plan. In other words, for every
$1.00 of cash distributions reinvested by
you under the Plan, $1.04 worth of units will
be purchased.
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Corporate Offices
30 Adelaide Street East, Suite 301
Toronto, ON M5C 3H1
Phone: 416.365.3535
Fax: 416.365.6565
E-mail: globalinfo@dream.ca
dreamglobalreit.ca