DREAM GLOBAL REIT GLOBAL DREAM Annual Report 2014 Dream Global REIT 2014 ANNUAL REPORT ANNUAL 2014 Letter to Unitholders In 2014, Dream Global accomplished some significant milestones in the continued progress and transformation of our business. We added over $400 million of accretive acquisitions. The transaction also performed well, with vacancy in the office properties in some of the best provided a new source of capital for the seven largest office markets reaching markets in Germany to our portfolio Trust to continue to take advantage of its lowest level since 2002 and global and continued to expand our local the attractive investment environment, investment capital continuing to identify management platform. In addition, and allowed us to leverage our Germany as a key target. we were able to realize gains on some operating platform by generating joint In 2014, Dream Global completed the of our newer assets and leverage our venture management income. sale of 35 non-core properties for total operating platform through our joint Our focus since the initial public offering sales proceeds of approximately venture with Public Official Benefits has been to improve the stability and $131 million, representing 101% of their Association (“POBA”). Throughout quality of the underlying cash flows book value. As part of our active capital 2014, we continued our strong leasing in our portfolio. Throughout 2014, we recycling program we sold, or put under performance with over one million continued to demonstrate our ability to contract for sale, over $200 million of square feet of new leases and renewals. execute on this strategy through high- assets since 2012. The proceeds from As a result of our accretive acquisitions quality office property acquisitions on these dispositions were redeployed into and our strong leasing performance, attractive borrowing terms, dispositions newer, high-quality properties. adjusted funds from operations and recycling capital. Over the last increased by 5% to 83 cents per unit Looking ahead, we will continue three years, we have added over in 2014 from 79 cents in 2013. to remain committed to our key $1.8 billion in high-quality assets and objective of providing predictable A key achievement in 2014 was the have been amongst the top three buyers and sustainable distributions to our successful joint venture with POBA. of German office properties. Over 70% investors. We have been recognized During the fourth quarter of 2014, we of our assets are now located in the for establishing an excellent operating closed the sale of a 50% interest in “Big 7” office markets in Germany. platform in Germany and will seek seven properties to POBA for gross Leasing remained a key operational further opportunities to leverage our proceeds of approximately $315 million. focus in 2014 with the completion of over platform and to grow our asset base. We quickly deployed the sales proceeds one million square feet of new leases On behalf of our management team into comparable or higher quality assets and renewals. From our initial public and our Board of Trustees, I would like to at more attractive cap rates and lower offering in August 2011 to the end of thank you for your continued support. borrowing rates than the assets we 2014, our exposure to Deutsche Post has sold. In January 2015, the Trust further been reduced from 85% to less than expanded its partnership with POBA 30% of the REIT’s gross rental income through the sale of a 50% interest in and will further decline as we continue Officium, one of our office properties to grow and diversify our portfolio. located in Stuttgart. This joint venture P. Jane Gavan serves as an endorsement of Dream The German economy continues President and Chief Executive Officer Global’s strong operating platform to perform well with the country’s in Germany and highlights POBA’s unemployment rate amongst the lowest March 15, 2015 confidence in our ability to source in Europe. The German real estate market 14% HAMBURG 4% 3% BERLIN Portfolio at-a-Glance HANNOVER DECEMBER 31, 2014 14% DÜSSELDORF 11% GERMANY Dream Global REIT is an owner COLOGNE and operator of 14.8 million 10% square feet of office and FRANKFURT mixed-use space in Germany 6% NUREMBERG and provides a unique opportunity to gain exposure 7% to the German real estate STUTTGART 7% market through an established MUNICH Canadian platform and six local offices in Europe. Geographic Diversification (% of gross rental income in key markets) Photos: 1. Oasis III, Stuttgart | 2. Cologne Tower, Cologne | 3. My Falkenried, Hamburg | 4. Europahaus, Darmstadt | 5. Officium, Stuttgart | 6. Millerntorplatz 1, Hamburg 1 2 $2.4B 6 TOTAL ASSETS LOCAL OFFICES IN EUROPE 5 266 PROPERTIES Diversified, High-Quality Tenants TOTAL ANNUALIZED CREDIT TENANT COMPOSITION GRI (%) RATING Deutsche Post 29.5 BBB+ Freshfields Bruckhaus Deringer 3.5 n/a ERGO Direkt Lebensversicherungs AG 3.1 AA- Imtech Deutschland GmbH & Co. KG 2.4 n/a BNP Paribas Fortis SA/NV 1.9 A+ Deutsche Postbank AG 1.8 A+ CinemaxX Entertainment GmbH & Co. KG 1.6 n/a Maersk Deutschland A/S & Co. KG 1.4 BBB+ Google Germany GmbH 1.3 AA Grohe AG 1.3 n/a Other third-party tenants 52.2 n/a Total 100.0 In-place Rent 2014 Adjusted Funds from Operations (per square foot per year) (“AFFO”) (Q4/2014) 10.00€ €8.86 9.00€ 8.00€ 7.00€ 6.00€ 35% INITIAL 5.00€ PROPERTIES 4.00€ 3.00€ 2.00€ 65% 1.00€ NEW ACQUISITIONS 0.00€ 2011 2012 2013 2014 3 4 1M 69% SQUARE FEET OF TENANT RETENTION LEASING IN 2014 6 5% $400M+ INCREASE IN ACQUISITIONS 2014 AFFO/UNIT IN 2014 0.21 0.20 0.19 0.18 0.17 0.16 0.15 Q4-12 Q1-13 Table of Contents Management’s discussion and analysis 1 Management’s responsibility for the consolidated financial tatementss 50 Independent auditor’s report 51 1 Consolidated financial 2 3 statements 52 Notes to the consolidated financial tatementss 56 Trustees IBC Corporate information IBC 4 Photos: 1. Feldmuehleplatz, Dusseldorf 2. Z-UP, Stuttgart 3. k26, Frankfurt 4. ABC Bogen, Hamburg Management’s discussion and analysis All dollar amounts in our tables are presented in thousands of Canadian dollars, except rental rates, unit and per unit amounts. SECTION I – OVERVIEW AND FINANCIAL HIGHLIGHTS KEY PERFORMANCE INDICATORS As at As at As at December 31, September 30, December 31, 2014 2014 2013 PortFolio Number of properties(1) 266 279 296 Gross leasable area (“GLA”) (in square feet)(1) 14,839,661 15,839,035 15,705,425 Occupancy rate – including committed (period-end)(1)(2) 85.3% 87.1% 86.4% Occupancy rate – in-place (period-end)(1)(2) 84.7% 85.9% 85.9% Average in-place net rent per square foot (period-end)(1) € 8.86 € 8.90 € 8.46 Market rents above in-place net rents(1) 2.9% 2.0% 2.2% Three months ended December 31, Year ended December 31, 2014(3) 2013(3) 2014(3) 2013(3) Operating results Investment properties revenue(4) $ 61,690 $ 62,528 $ 257,725 $ 220,220 Net rental income(5) Total portfolio 43,069 41,872 179,464 144,853 Initial Properties 16,537 20,033 76,202 79,126 Acquisition Properties 26,532 21,839 103,262 65,727 Funds from operations (“FFO”)(6) 23,428 24,235 97,496 84,422 Adjusted funds from operations (“AFFO”)(7) 22,401 22,259 91,370 78,007 Distributions Declared distributions $ 22,263 $ 21,910 $ 88,547 $ 79,784 DRIP participation ratio (for the period) 16% 17% 16% 13% Per unit amounts(8) Distribution $ 0.20 $ 0.20 $ 0.80 $ 0.80 Basic: FFO 0.21 0.22 0.88 0.85 AFFO 0.20 0.20 0.83 0.79 Diluted: FFO 0.21 0.22 0.87 0.84 AFFO 0.20 0.20 0.82 0.79 PaYout ratio:(9) Distribution/AFFO (basic) 100% 100% 96% 101% Dream Global REIT 2014 Annual Report | 1 As at As at As at December 31, September 30, December 31, 2014 2014 2013 Financing Weighted average effective interest rate on debt (period-end)(1) 3.54% 3.63% 3.72% Weighted average face rate of interest on debt (period-end)(1) 3.23% 3.28% 3.37% Interest coverage ratio(1)(10)(11) 3.26 times 3.30 times 3.40 times Debt-to-adjusted EBITDFV (years)(1)(10)(11) 9.18 9.56 8.80 Level of debt (net debt-to-gross book value, net of cash)(1)(10)(11) 51% 56% 54% Debt – average term to maturity (years)(1)(11)(12) 4.3 4.1 4.6 Unsecured convertible debentures $ 152,365 $ 151,841 $ 150,326 (1) Reflects Owned Share of joint venture properties starting in Q4 2014. Number of properties includes the joint venture properties. Joint venture properties are accounted for using the equity method in our consolidated financial statements. (2) Occupancy rates as at December 31, 2014 and September 30, 2014 include space covered by a head lease that was classified as vacant space in the prior year. The December 31, 2013 occupancy rate has not been restated. (3) Results from operations were converted into Canadian dollars from euros using the average exchange rates found on page 30. (4) Investment properties revenue (non-GAAP measure) is defined as total revenue, including the share of investment property revenue from investments in joint ventures from the date of closing of the sale of the respective properties. The reconciliation of investment property revenue can be found in the section “Non-GAAP measures and other disclosures”. (5) Net rental income (non-GAAP measure) is defined as total of net rental income, including the share of net rental income from investment in joint ventures from the date of closing of the sale of the respective properties.