Non-essential property sales led to a 10% jump in cash flow for this company during the most-recent quarter.
A recently completed strategic initiative has helped the company lower costs and realize better market value.
The stock trades at 17.5 times the company’s 2020 cash flow forecast.
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DREAM OFFICE REIT, (Symbol D.UN; www.dream.ca/office) on Toronto, owns and manages 33 office and retail properties in major Canadian cities. Altogether, those properties—including three under development—comprise 6.2 million square feet of leasable space. The REIT’s occupancy rate is 94.3%.
In early 2016, Dream Office launched a three-year strategic initiative. That strategy includes selling non-essential properties in order to realize their full market value.
As part of its plan, the REIT has now sold roughly 138 properties for $3.7 billion. It used $1.8 billion of the proceeds to pay down its high-interest debt. It also repurchased over $1.1 billion of its outstanding units.
On June 10, 2019, the REIT announced the sale of 700 De La Gauchetiere Street West in Montreal, a 986,000-square-foot office building, for gross proceeds of $322.5 million.
Dream expects to complete the sale in the third quarter of 2019. The REIT is currently in negotiations to sell its remaining Ottawa property. When that sale is completed, Dream will not have holdings in Montreal or Ottawa.
Dividend Stocks: Revenue drops, cash flow rises on property sales
For the three months ended June 30, 2019, overall revenue dropped 2.9%, to $57.0 million from $58.7 million a year earlier. The decline reflected the REIT’s property sales. Its total number of properties was down to 33 by the end of the latest quarter from 41 a year earlier. Cash flow per share rose 10.0%, to $0.44 from $0.40. The increase was mostly due to lower costs, including lower interest expense after refinancing some debt
Now that Dream has completed its restructuring, it has a strong balance sheet and a high-quality office portfolio. Its remaining properties focus on Toronto, including the Greater Toronto Area, and other big urban centres with lower vacancies and higher rents. Those key markets now account for 86.5% of its portfolio.
The REIT trades at 17.5 times the forecast 2020 cash flow of $1.70 per unit. The annual distribution rate of $0.08333 a unit yields a high 3.4%.
We think the best measure for companies in some industries is cash flow per share, rather than earnings per share.
Earnings per share includes a number of non-cash items such as depreciation and amortization or depletion….and earnings are not always an accurate reflection of a company’s health or ability to pay its dividend.
The best examples of this are real estate and resource firms, including oil and gas. For example, real estate companies (like Dream Office) are not as concerned as industrials in putting profits aside to replace depreciated/obsolete plant and equipment…they can buy a new property and take out a new mortgage.
We do look at earnings per share…but we find (as do the majority of analysts, brokers and so on) that cash flow per share is a better measure in some cases.
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Good, but a forward P/E would be helpful.
Thanks for your comment.
We think the best measure for companies in some industries is cash flow per share, rather than earnings per share.
Earnings per share includes a number of non-cash items such as depreciation and amortization or depletion….and earnings are not always an accurate reflection of a company’s health or ability to pay its dividend.
The best examples of this are real estate and resource firms, including oil and gas. For example, real estate companies (like Dream Office) are not as concerned as industrials in putting profits aside to replace depreciated/obsolete plant and equipment…they can buy a new property and take out a new mortgage.
We do look at earnings per share…but we find (as do the majority of analysts, brokers and so on) that cash flow per share is a better measure in some cases.