6 Things to Like at Dream Global REIT

Other than Dream Global REIT’s (TSX:DRG.UN) 8.7% yield, what else makes the REIT an attractive investment?

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If you want to earn monthly income from real estate, you don’t necessarily have to own and manage rental properties yourself. You can earn passive rental income by investing in real estate investment trusts (REITs).

There are different types of REITs. Some own apartments. Others own office buildings, industrial buildings, hospitals, malls, or storage spaces. Chances are that these REITs offer juicy yields for anyone who wants it.

You can consider Dream Global REIT (TSX:DRG.UN) to gain exposure to Europe. The company primarily owns and operates commercial and mixed-use properties in Germany.

Here are six things to like about the company, which has interests in 197 properties.

Higher-quality portfolio

In 2011 Dream Global earned as much as 85% of its gross rental income from one tenant, Deutsche Post. That amount has been reduced to 22% since then. Its other top tenants include Alphabet, the government of Hamburg, and the government of Dusseldorf.

Other than increased tenant diversification, Dream Global’s acquisitions, which are worth 78% of its portfolio, have a higher occupancy of 95% and a longer weighted average lease term of 5.4 years than its original portfolio.

A big distribution

At about $9.20 per unit, Dream Global yields 8.7%. Thanks to unitholders who reinvest their distributions, the REIT’s recent payout ratio was only 86.5%.

Tax-efficient distribution

Since 2011 at least half of Dream Global’s distribution has been return of capital. It reduces your cost basis and is tax deferred until you sell or your average cost basis becomes negative.

So, investors who have maxed out their TFSA contribution can consider holding the company in their non-registered accounts for tax-deferred income.

Operates in strong markets

Dream Global has 75% of its portfolio in Germany’s seven core office markets in the cities of Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich, and Stuttgart.

So, as one of the strongest countries in the European Union, Germany creates a safe environment for Dream Global to operate in. It has a low unemployment rate (4.2% in August), and its GDP continues to grow.

Growing rents

Germany’s major office markets have been experiencing rental growth. The market rent 6.7% higher than it was a year ago. So, Dream Global has also been enjoying higher in-place rent.

Low interest rates

Dream Global benefits from record-low interest rates, which allow it to invest at a lower cost of capital. Recently, it borrowed at an interest rate of 1.3% over an average term of nine years!

Conclusion

Germany has set up a nice environment of steady growth and low interest rates for Dream Global to operate in.

Additionally, the REIT’s efforts to improve its portfolio over the last few years have been paying off. It is experiencing higher occupancies and rents. So, the company’s juicy yield is as safe as it has ever been.

At about $9.20 per unit, Dream Global trades at an 18% discount from its net asset value per unit. However, if it fell to $8 per unit or lower, it will be an even better income opportunity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any stocks mentioned. David Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). Tom Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of Alphabet (A shares) and Alphabet (C shares).

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