Despite the ongoing impact of COVID-19, we still like the outlook for this REIT. In fact, it appears that tours by prospective tenants have returned to pre-pandemic levels.
Leasing rates continue to hold up, and it has not seen any significant rise in tenants changing their space needs due to remote-work policies.
This stock is trading below its March 2020 high of $37, but we think it’s now poised to regain that pre-COVID-19 level and rise even higher for our subscribers.
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DREAM OFFICE REIT (Toronto symbol D.UN; www.dream.ca) sold roughly 138 properties in 2016 as part of a new strategic plan. Due to those sales, in July 2017, Dream cut its monthly distribution by a third, to $0.0833 a unit from $0.125. The new annual rate of $1.00 yields a high 4.1%.
Dream now has 30 office properties, including one under development. The downtown Toronto market supplies 79% of the REIT’s rental revenue and accounts for 82% of the portfolio’s value. As well, the REIT has an under-appreciated asset: its 11.6% stake in Dream Industrial REIT (Toronto symbol DIR.UN), which owns a diversified portfolio of industrial and logistics space in North America. As of September 30, 2021, that investment was worth $431.0 million.
The REIT’s overall occupancy rate as of September 30, 2021, was 84.6%. Its Toronto downtown properties had an occupancy rate of 90.9%, while the occupancy rate for its other markets was 75.3%.
The REIT is now selling 700 De La Gauchetière Street West, a 986,000-square-foot property in Montreal for $322.5 million. It is also in “advanced negotiations” to sell its property in Ottawa.
Assuming the successful completion of these sales, Dream Office will no longer own any properties in the Ottawa and Montréal regions. In fact, its downtown Toronto and Greater Toronto Area properties will then account for approximately 86.5% of its overall portfolio.
Dividend Stocks: Future prospects look promising due to high-quality tenants
Meanwhile, Dream Office’s top tenant is the Government of Ontario, at 11.2% of its rental revenue. Next is the Government of Canada at 8.0%. Overall, its top 10 tenants make up 39% of rental revenue; moreover, 50% of its top tenants have credit ratings of A or higher.
In the three months ended September 30, 2021, the REIT’s overall revenue decreased 2% to $27.3 million from $27.9 million a year earlier. Revenues were down due to lower parking demand as a result of COVID-19 closures. The sale of properties and lower occupancy rates also hurt revenue.
Dream Office also holds 11.6% interest in Dream Industrial REIT (Toronto symbol DIR.UN), which owns a diversified portfolio of industrial and logistics space in North America. As of September 30, 2021, that investment was valued at $431.0 million.
As its next key step to building value for investors, Dream Office is selectively adding high-quality properties. This includes redeveloping 366 Bay Street in Toronto’s financial core. Dream Office aims to transform this property into a best-in-class boutique office building.
The REIT trades at 14.5 times its 2022 forecast cash flow of $1.70 per unit.
In the article two references are made to Dream Industrial REIT Sept 30 2021 value, but the valuations differ by 66 million. Not good for credibility.
TM
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If Dream cuts the distribution from roughly 12 cents per month to 6 cents, that would be half the original amount (50 % decrease).
In the article two references are made to Dream Industrial REIT Sept 30 2021 value, but the valuations differ by 66 million. Not good for credibility.
TM