Investing in DRG.UN
A couple of months ago my investment in Tim Hortons came to an end as the company was purchased by Burger King and I realized a profit of over 100% in less than 2 years. In the end I was given some shares of the new holding company, and a handsome payout of $1,700 in cash. If you also bought some Tim Hortons after reading my previous post about why I decided to invest in the world of coffee then congrats on your gains! 😀
So I’ve been itching to invest the new $1,700 in my TFSA. But the problem was TINA. The stock market in general is grossly overvalued relative to historical price to earning ratios. The Canadian real estate market doesn’t look any cheaper, and the capitalization rates (expected return on rent) in most cities here are embarrassingly low at the moment. Furthermore, Canada’s economy just suffered a net loss of 11,300 jobs last month, which pushed up our unemployment rate to 6.7%. 🙁 All major banks in this country have lowered their Prime lending rates to 2.85% in an attempt to encourage more economic growth. In times like these it may be prudent to hold off on investing in Canada.
So does that mean there’s nothing worth investing in right now?
Nein! 😀 By thinking outside the box I have found a solution to still put my extra cash to good use.
Dream Global REIT (TSX: DRG.UN), formerly Dundee International Real Estate Investment Trust, is an investment trust that basically buys office and retail buildings in Germany, and then rents them out to make money. Its portfolio consisted of 279 properties, comprising approximately 15.8 million square feet. Dream Global enables investors like us to diversify our holdings, as major pension plans and other large institutional investors have done, by incorporating international commercial real estate into our portfolios. 🙂
To be candid I don’t have a lot of confidence in Europe’s economy as a whole. I think there are too many fiscal, political, and monetary issues within the European Union. But thankfully investors can be picky about what we buy. 🙂 And I do have confidence in ze Germans. With its strong financial leverage, world class ingenuity, and globally recognized auto brands like Audi, Porsche, Volkswagen, and BMW, it appears Germany’s economy is the only one in Europe that’s successfully firing on all cylinders right now. 😀
Why Real Estate?
With a national unemployment rate below 5% Germany is a powerhouse when it comes to financial growth and that kind of environment attracts investors like myself. Places with high volumes of financial transactions lead to highly lucrative opportunities for investors who know where to put their money. Unfortunately I’m not smart enough to pick winning and losing companies, or even industries. However I believe that the one sector that always benefits from a strong economy is real estate. So I view Germany’s real estate market as a proxy for the country’s overall economy, which I feel bullish about. Plus, the capitalization rates are generally higher in Europe than in Canada.
Dream Global REIT Analysis
Buying units of DRG.UN on the public market is a simple and tax-efficient way for Canadian investors to get European exposure without buying any EU stocks directly. Dream Global currently trades at about $9/unit and has a price to earnings ratio of just 7 times, which is quite cheap. It also distributes a very attractive 6.7 cents per share dividend (8.8% yield) which it hasn’t ever cut before. Its tenants include Oracle, BNS Paribas, and other well-known financial and technology companies.
Overall I like what this company is doing and believe in its long term profitability and commitment to keep the dividends flowing. So earlier this week I bought 180 units of Dream Global, DRG.UN with the cash I had sitting in my TFSA. 🙂 My annual dividend income just increased by $144. Wunderbar! I love passive income. 😉
So exciting! This is my first investment of 2015. The share price has dropped a little since I bought it but it’s not the wurst that could happen. Below are some major German cities in which Dream Global conducts its business.
Munich – the home to Oktoberfest as well as Siemens and BMW – is a busy city of 1.4 million people. Das vibrant economy has a local unemployment rate of only 3%. Pretty much anyone who wants to work can easily find a job. 🙂
Hamburg – Home to 1.8 million – although smaller than Toronto by population, Hamburg is able to hold its own in terms of office space.
Hamburg is also one of the most affluent cities in all of Europe. Located by the North Sea the city is Europe’s second largest port, making it a very important business and shipping center. Dream Global owns many offices here, including the Klinik ABC Bogen building, an architectural landmark, as well as home to Google’s German headquarters. 😀 It’s almost fully leased right now and is convenient to public transit.
Berlin – Germany’s capital – one of the most active office leasing markets in continental Europe. The amount of office space in Berlin is equivalent to that of Calgary, Montreal, and Vancouver all combined. 😯
Cologne – over 1 million residents – Dream Global recently acquired Cologne Tower, the tallest office building in the city. Das tower was built in 2001, and extensively upgraded in 2012. It’s often regarded as the premier office location in the city and is currently rented out to companies such as the Boston Consulting Group, Swiss Life, and Liberty Mutual. Many of these life insurance companies have been around for over 100 years and are high quality tenants who hold long term lease agreements with Dream Global. 🙂
The brick and mortar business of building management fits my investor profile pretty well. I’m a big fan of hard assets, which is why I own gold and farmland. German real estate has now become another addition to my growing portfolio of hard assets. 😉 Dream Global is a top performing REIT and a great play on ze German economy. The REIT also holds some of the highest quality properties on the market which I really like.
With a 5+ years outlook I should be okay with this stock. Once again, through investing I have learned something new and interesting about the world, while making money. 🙂
 February update: As per the questions in the comments section, I have received my first dividend payment from DRG.UN. Apparently there’s no withholding tax. 🙂 http://www.freedomthirtyfiveblog.com/2015/02/dream-global-reit-update.html. [/edit]
Random Useless Fact:
If everyone in the world stood shoulder to shoulder, we could all fit within the city limits of Los Angeles.