In June this year, Canadian REIT Dundee International raised C$365m (€268m) in an initial public offering to invest in a German commercial property asset portfolio.
The real estate IPO is the first of the year in Canada and includes units for C$290m (€213m) to be sold at C$10 (€7.3) each, as well as convertible unsecured subordinated debentures for C$75m (€55m) due 30 June 2018.
The capital raised through the offering will be used by the trust to purchase a mixed-use portfolio of 295 buildings, including office, logistics and residential assets, for a total gross leaseable area of around 1.16m m2, nearly 75% of which is let to German mail and logistics group Deutsche Post.
Toronto-based Dundee International Real Estate Investment Trust is a subsidiary of Canada’s property company Dundee Realty Corporation (DRC), which manages around C$5bn (€3.7bn) in the country and is also the founder of listed investment trust Dundee REIT.
The International trust was created with the purpose of investing in real estate outside Canada, as the country’s largest pension funds and institutional investors start looking abroad for opportunities in the real estate and infrastructure sectors.
Reasons to go international
According to the IPO prospectus released by Dundee – the trust was not available for comment – “these investors have increased the international component of their real estate investments for reasons that include diversification, the opportunity to enhance returns and the possibility of generating long-term stable cash flows”.
Based on Dundee’s forecasts, owners of commercial real estate assets outside Canada will be looking for liquidity in the coming years. The company expects European private equity funds, banks, financial service providers and owners of over-leveraged property to put their assets on the market in the next few years, while local investors may not be able to find the financing they need to buy new properties.
According to Dundee, Canada’s investors may be in a better position to take advantage of new opportunities arising in the European real estate market, owing to more favourable economic conditions as well as to a lower cost of capital in the country.
The company attributes this advantage to the global financial crisis, which hit Europe harder than it did Canada. This generated opportunities for foreign buyers to purchase prime real estate in Europe at attractive yields.
Based on the company’s prospectus, Dundee International was created with the purpose of providing growing cash flows through real estate investments outside Canada. The company’s initial investment in the Deutsche Post assets is expected to be followed by other diversified acquisitions across Europe.
Dundee announced that it will focus initially on Germany, France and the UK and that, upon the closure of the IPO, when the Deutsche Post portfolio acquisition will be completed, the trust will be the first Canadian one to invest in commercial real estate abroad.
“We believe that the current yields on certain commercial real estate in certain European countries are comparable to the yields currently available from commercial real estate in Canada,” Dundee said in a note. “As a result, DRC has identified a stable, income-producing portfolio of assets in Germany for our initial investment.”
Dundee International said it picked Germany for its first investment in Europe owing to its stable, positive economic outlook, as well as its similarities to Canada in the areas of business and real estate.
“In comparing the German market to the Canadian market, we believe that in Canada there is a similar focus to that of Germany on building and maintaining long-term relationships with tenants, similarities between the two countries’ brokerage communities and lenders, as well as a similar leasing environment,” the company said in a note.
Dundee said it expected to buy more assets in Germany after the Deutsche Post deal is completed. France and the UK are also among the trust’s targets because their economies “are among the most stable in Europe”.
Other countries targeted
Based on the company’s prospectus, Dundee’s future investments may also target other countries in Europe, where it is looking for commercial properties providing “stable, sustainable and growing cash flows”.
The company said that it would focus on countries with a stable business environment, a liquid real estate market and a legal framework protecting real estate owners’ rights and facilitating investment management.
www.dundeereit.com
