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. 🙂
Why Germany?
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. 🙂
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[edit] 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. 🙂 https://www.freedomthirtyfiveblog.com/2015/02/dream-global-reit-update.html. [/edit]
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Random Useless Fact:
If everyone in the world stood shoulder to shoulder, we could all fit within the city limits of Los Angeles.
Good choice!
I have owned DRG for a little while and while it is not a barn burner it pays a nice div – every month. So that is nice to build up the TFSA cash position for more purchases.
I used to utilize my divs from the TFSA to help pay down my HELOC every month as previously it was not worth while to re-invest (brokerage fees) because of the small amount. I did re-contribute the withdrawn funds in January of the following year and made my investments around that time. Since 2014 though, the divs have grown sufficiently that I hold all divs in the TFSA and re-invest every three months. This has helped my divs to accelerate in the TFSA as they are obviously going to pay me more from every purchase. From 2013 end 2014 I had a 38% increase in the dividends paid by the TFSA. Once you break in the range where it is worthwhile to hold the divs in the account the payback accelerates quite rapidly and makes it all the more worthwhile. Nothing like compounding.
RICARDO
Smart strategy, Ricardo. 🙂 I also prefer compound growth over paying low interest debt. I find that DRIPs help a lot too as it does a lot of my re-investing for me.
When u said Germany real estate my first thought was like hey Dream has holdings there. I also hold D.UN for Canadian office real estate. DRG has a great yield and Germany economy so strong right now. Things might get interesting when they kick a couple guys out of the EUro zone. Seems to be value in Europe markets right now in this uncertainty there
I don’t think Germany is in the position to “kick” as Greece wants to get out and erase their debt. Or print $200 billions euro equivalent in Greece new currency and pay Germany. Haha.
The Greek knows their options. Staying in the euro zone doesn’t benefit them. When the economy need a boost, us, Canada, England, china, japan, or any country with their own currency, can just print money like crazy, devaluation their money, lower interest rate to boost buying and lending. But the EU countries don’t have this option. As Germany is too strong, and controlling.
We might have a fall out. It might hit Germany, but in the long run of 5-10 years, they’ll recover.
@AG
D.UN is a great to own as well. I might buy some later on. 🙂 I’m taking a pause on Canadian investments for now, at least until our gdp starts growing again. But who knows, maybe some other interest opportunity will show up in the next several months.
@Vivianne
Yeah, it will be interesting to see what Europe decides to do with Greece. It’s hard to imagine that a country with only 11 million people, about the same size as Ohio, can have such a dramatic impact on the world’s largest economy.
Very interesting, F35. I have been thinking of looking into companies with international real estate holdings…and this company sounds like a gem. I hadnt heard of this one before…and will definitely take a close look at it. Thanks for introducing the company to me 🙂
R2R
You’re welcome. Thanks for reading. 🙂 The exciting thing is in the future Dream Global may decide to expand outside of Germany to neighboring countries like Belgium or Austria.
a global reit like cgr would be a better play for diversification
Good point. The iShares Global Real Estate Index (CGR) is definitely another option. In terms of diversification it’s probably even better than DRG.UN like you suggest. CGR is more of an ETF than a REIT but it has a good portion of its portfolio in the U.S. and Asian countries like Japan, Singapore, and Hong Kong. I’d say CGR is better for more of a global exposure to real estate, while DRG.UN is for investors who want higher yield and a focus on Europe. 🙂
CGR is at the top of it’s range currently and is paying 1.81% with over 50 % of their holdings in the US.
Many of their holdings are REITs so you get to pay those fees as well as CGR’s fees. They may be more diversified as far as land mass but nothing to rave about.
DRG is pretty well mid-range at present and paying 8.86%
All of it is in Germany but if the Germans can’t make it none of Europe will either.
DRG owns the properties so aside from the usual administration and maintenance fees the money is in their pocket – and then to yours.
For now I will take DRG
P.S. Dream is the old Dundee. They went through a re-branding last year
Long D.UN; DIR.UN; DRG.UN
Ricardo
I prefer DRG.UN as well. CGR is good if the U.S economy strengthens but its trading volume is a bit light. REITs should be a solid part of any portfolio for financial independence and you seem have a lot of them. 🙂
Seriously love love love your site, it’s my guilty pleasure lol. I don’t have any DRG at the moment but will definitely check it out. Are you planning on doing some investing in Asia? China and Singapore are very strong and look like they will be for a while. Do you count gold and silver in your assets or just as a collectible?
I haven’t done a lot of research on the Asian markets yet. I only have some RMB currency but no actual investments, which is too bad because I hear the Shanghai stock exchange index outperformed U.S. stocks last year. If I have some extra savings by the end of the summer I might put the money in an Asia/Australia focused ETF. 🙂
I treat my precious metals as collectibles and do not include them in my net worth. Although I can always sell some silver coins for immediate cash if I run into an emergency.
Do you pay tax on those dividends since it’s a foreign stock even though it’s in your TFSA?
I’m wondering the same thing. Usually if you buy a stock on the Canadian exchange (TSX) that holds US assets they will keep a 30% withholding tax on dividends if it’s in your TFSA or non registered account. They don’t withhold if it’s in your RRSP because the US considers that a retirement investment vehicle. I’d be very curious to see if you actually get 8.8%. Looks like the dividends are monthly so can you please advise next month?
@Olivia
Thanks for bringing that up. 🙂 I forgot to include this information in the post itself. Ricardo kind of explains it in a comment below. But basically I don’t expect the dividends to be sheltered by my TFSA. There is usually a 25% to 30% withholding tax for foreign income. But on its website Dream Global (DRG.UN) says that management estimates that 55% of the distribution to be made by the REIT will be tax deferred, and I’m honestly not sure what that will mean exactly. But like Bricks suggested, I’ll post an update after I get my first monthly payment.
@Bricks
Yup, that’s all true as far as I know. It will depend primarily on how the company breaks down their distribution. In Canada interest income, foreign non-business income, and capital gains are taxed differently but if the revenue are all from Canadian sources then a TFSA or RRSP would shelter everything. I’m not sure how a REIT with European holdings would work. We’ll have to wait a month and see. Yes, I’ll update this later. 🙂
Any update on how much % dividend you got? Looks like the payable date was Feb 13th.
Thanks!
Thanks for checking up. I haven’t received anything yet. TD does this weird thing sometimes where distributions are settled on the correct date and the transaction completes, thereby impacting my account balance. However I don’t actually see the money or know how much it is until a week or so later. I’ll probably know by tomorrow or early next week. 🙂
This was a sweet article. I like how much research you do and your reasoning for why you purchase your assets. I have been getting into stocks quite a bit lately. One of your previous articles about stock options inspired me to start exploring the options world. I’ve done a few put and call options, and more recently did my first Strangle on COS.UN. Overall I’m up a bit. Broke even on the strangle. made a small profit on a call and a put. and one put expired worthless. I notice you are paying $10 commission on trades. Ever consider going to Questrade or Interactive Brokers? I’m with Questrade and trades are 4.95. If you are heavy trader interactive brokers is even cheaper but they do charge 10/month minimum. Just curious why you pay 100% more than you have to on commissions. Keep the articles coming!
Thanks for the kinds words. 🙂 I’ve thought about using other brokerage firms as well but there’s a few reasons I’m still using a big bank today. Cheap cost of margin – I use a fair bit of margin in my portfolio. I currently have over $50,000 of margin loan outstanding which I update in my monthly net worth articles. With a bank like TD the margin interest rate is 4.1%, but the margin rate for Questrade is currently 6.0%. So it’s cheaper for me to stick with my current broker. However, Interactive Brokers does have cheaper margin rates than TD, but IB’s minimum margin requirements are more strict, and require investors to keep an eye on things. Low trading frequency – I don’t buy a lot of stocks and I rarely sell them. Last year I probably traded a dozen different stocks. But if I was a heavy trader then I would definitely move my account to IB. Laziness – I’ve thought about creating an IB account just for trading options and maybe some stocks for fun, but I haven’t gotten to it yet. Maybe I’ll do that in the future if I decide to spend more time trading.… Read more »
Interesting blog, but please don’t carelessly use the term “nazi” as an attempt at humour. There is nothing funny about the untold horrors the Nazis inflicted on many in Europe and Russia. My in-laws suffered greatly in Holland during WWII and my parents endured five years of Nazi occupation in Norway.
Sorry to hear about your family. I apologize about the nazi pun and have removed it from the blog post. It was not an intentional offense.
Agree about the reference to “Nazi”
Unless it is in a documentry on that idiocy it does not need to be used. Too many suffered to make any use of it.
I cringed when I saw that in the article.
Good article, bad choice of word
You are subject to the withholding tax within a TFSA. The rules are not the same as an RRSP
Even in an RRSP, if you are holding a MLP (Master Limited Partnership) or foreign equities traded on a US exchange (ex: RDS.A) there is a withholding tax. I know, I got taxed.
Ricardo
Haha, I learned it the hard way too. But in my case it was an LLP (Limited Liability Partnership). I guess certain business structures are exempt from the tax sheltering benefit in the U.S./Canada tax treaty.
Hey man, great choice. I was just talking about investing in Euro countries earlier on with our friend in Belgium. I’ve not heard of Dream, but I guess it’s a Canadian company? I’m also looking for a way to own Euro stocks or get exposure to the market with as little tax as possible… not liking the withholding taxes on most countries though!
Cheers
[…] [DRG.UN.TO] New Investment: German Real Estate by Freedom Thirty Five […]
Interesting pick, I’ve been looking at this stock for a while now but haven’t pulled the trigger. Would be interested to know about the foreign withhold tax.
The stock is down a little bit since my purchase so if you get in now at least you’d be ahead of me lol. I’ll update with the withholding tax information once I figure out how it works.
I can chime in on this. I had 439 shares last month and I received $29.97 in dividends. From that I had automatically purchased 3 new shares totalling 29.04 through dividend reinvestment. The stock is held in my tax free savings account. It looks like there was 0.06 charge for something. It doesn’t look like any foreign withholding tax 2 taken as this works out to 6.667 cents a share.
[…] – Liquid wrote a good article on DRG.UN a few days ago. Dream Global REIT invests in properties in Germany. We would like to add a bit more REIT’s in […]
[…] month I blogged about investing in German real estate through a Canadian REIT called Dream Global. I chose this investment for its strong foothold in the […]
any update on how drg.un was taxed in your account. I’m thinking about making this a core position in my portfolio. thanks
I can chime in on this. I had 439 shares last month and I received $29.97 in dividends. From that I had automatically purchased 3 new shares totalling 29.04 through dividend reinvestment. The stock is held in my tax free savings account. It looks like there was 0.06 charge for something. It doesn’t look like any foreign withholding tax 2 taken as this works out to 6.667 cents a share.
Thanks for the answer, Bricks. The same thing happened with mine in my TFSA as well. 🙂
I have a high percentage of retirement money in Canadian REITs. Am thinking of doubling my DRG.UN for diversification and income. I live in Toronto. Thoughts? Thanks, Kevin
Go for it. 🙂 Double check you have a good diversification of other investments as well.
[…] better bargains, than in any single country. This is why I invested in Germany through Dream Global (DRG.UN) a couple of years ago. Canada’s real estate prices were too expensive, so I looked elsewhere for a bargain, and I […]