Should You Get an 8.5% Yield from this REIT?

Dream Global operates primarily in the core office markets in Germany. Are Germany’s economy and related markets growing or shrinking? How sustainable is its 8.5% yield? Does it have any price-appreciation potential at the current price?

If you are an income investor, you may be attracted by Dream Global REIT’s (TSX:DRG.UN) compelling yield of 8.5%.

But not so fast. There must be a catch…right? Let’s study its business before deciding if we’re a buyer or not.

What’s Dream Global about?

Dream Global owns and operates office and mixed-use properties in Europe. The REIT has interests in 197 properties across 13.2 million square feet.

Primarily, it focuses on the seven major office markets in Germany in the cities of Hamburg, Dusseldorf, Cologne, Frankfurt, Stuttgart, Munich, and Berlin. It has 75% of its gross asset value in these markets. And it has 17% of its assets in Hannover, Nuremberg, and Vienna, Austria.

Improving fundamentals

Since Q2 2015, the REIT has reduced its property count from 221 to 197 while incrementally improving its funds from operations, occupancy rate, and average in-place net rent per square feet.

Specifically, its occupancy rate increased 2.2% to 88.3%, and its average in-place net rent per square feet rose nearly 6% to EUR$9.95. Yet, that’s still below the average market rents per square feet of EUR$10.39, which elevated almost 6.7% in the same period.

Operates in a strong market

Other than growing rents, the economy that Dream Global operates in has also been rock solid.

Germany’s unemployment…

This is primarily an excerpt from my article on Seeking Alpha. Read the full article here: Dream Global REIT: Is Its 8.5% Yield Sustainable?

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Disclosure: At the time of writing, I don’t own TSX:DRG.UN

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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