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This picture taken 07 June 2004 shows the building of German Postbank in Bonn. (HENNING KAISER/AFP/Getty Images)
This picture taken 07 June 2004 shows the building of German Postbank in Bonn. (HENNING KAISER/AFP/Getty Images)

Dundee readies year's first REIT IPO Add to ...

The groundwork is being laid for the first real estate investment trust IPO of the year, as Dundee International REIT looks to raise $365-million to partially fund a German shopping spree.

The company has filed a prospectus for an offering priced at $10 a unit, and wants to use the money to buy 295 commercial properties in Germany. About 75 per cent of the 12.5-million square feet of space is leased to Deutsche Post, a mail and logistics group.

It is the first real estate initial public offering of the year, after Homburg REIT, Northwest Healthcare Properties REIT, Transglobe REIT and Leisureworld Senior Care Corp. went public in 2010. It will be a test of investors' appetite for real estate units, and comes at a time when there is growing concern about the state of the world economy.

Default worries in the Euro zone could scare off some investors, and competition for tenants is fierce in Germany.

"Some of the properties owned by our competitors are better located, better quality or less leveraged than the properties owned by us," the company said.

The buildings are 87-per-cent leased, with an average term of 7 years. They are being sold by Lorac Investment Management, which bought them from Deutsche Post in a sale-leaseback arrangement in 2008.

The deal is worth almost a billion dollars, with the rest of the price being covered with debt and additional investments from parent company Dundee Corp.

The newly formed company will also be the only real estate investment trust in Canada with a female chief executive officer. Jane Gavan plans to leave her job as executive vice-president at Dundee Realty Corp. to lead the new REIT.

Canadian pension funds have been active in Germany, most recently with the Canada Pension Plan spending $386-million for a 50 per cent stake in a shopping centre in Oberhausen. They have been attracted by a steady economy with markets that are relatively similar to those in North America.

"We believe that we are providing a unique opportunity for Canadian retail and institutional investors to diversify their real estate investments, as large Canadian pension funds and other large Canadian institutional investors have done," the prospectus reads.

The REIT said there is a "window of opportunity" for a Canadian company to invest outside the country, with capital easier to come by in Canada than in many other countries that are still struggling to recover from the recession.

"In certain countries in Europe, equity and other forms of real estate financing may not be readily available for many potential buyers of real estate," the REIT stated. "This challenging financing environment has created attractive investment opportunities for well-capitalized buyers seeking to purchase quality real estate assets at attractive yields."

Germany is the largest economy in the European Union and the fourth largest economy in the world. The economy grew 3.6 per cent in 2010, and expanded by 1.5 per cent over the previous quarter in the first quarter of 2011.

"We believe these are positive indicators of a stable and growing economy, one that is appealing to investors seeking stable, sustainable and growing cash flows," the REIT said.

While the REIT plans to start with the German assets, it said it would eventually look to buy properties in France and the United Kingdom.

The day-to-day oversight of the REIT will be contracted to Dundee Realty Corp., while property management will be handled in Germany by DP Real Estate. Dundee Corp. will be a major investor, buying $100-million units in a special subscription. Dundee Realty Corp. will invest another $20-million in the same way.

TD Securities is the bookrunner, with a syndicate made up of TD Securities (29 per cent), Bank of Nova Scotia (19 per cent), CIBC (12 per cent), Royal Bank of Canada (10 per cent), Bank of Montreal (9 per cent), Canaccord Genuity and Dundee (6 per cent each), and HSBC and Brookfield, GMP and National Bank (2 per cent each).

The proposed IPO consists of $290-million in units at $10 each, with an expected cash yield of 8 per cent on a 90 per cent payout. It will also include $75-million in convertible unsecured subordinated debentures due June 30, 2018 with a 5.5 per cent coupon.

The marketing will begin this month, with the units set to trade by mid-July.

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