Deferred rents have contributed to a 10.6% revenue decline and a 9.5% cash flow drop from a year earlier.
But while COVID-19 has hurt this REIT, current distributions look sustainable.
DREAM OFFICE REIT (Toronto symbol D.UN; www.dream.ca) launched a three-year strategic initiative in 2016. As part of that plan, it 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.
The trust now has 30 office properties, including two under development. These properties have a total of 5.5 million square feet of gross leasable area. Also, the highly profitable downtown Toronto market supplies 80% of the REIT’s rental revenue. Its overall occupancy rate as of September 30, 2020, was 88.0%.
In July 2017, as part of its strategic plan, Dream cut its monthly distribution by 50.6%, to $0.0833 a unit from $0.125. Since then, it has held that new rate steady. It offers a high 4.7% yield.
The REIT’s Dividend Sustainability Rating is Average.
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The REIT’s overall revenue in the three months ended September 30, 2020, decreased 10.6%, to $51.3 million from $57.4 million a year earlier. Cash flow per unit was $0.38 a unit (or a total of $23.1 million). That’s down 9.5% from $0.42 a unit ($26.7 million) a year earlier.
Due to COVID-19, Dream let several of its smaller tenants defer some of their rent payments. Even so, in the third quarter, it still managed to collect 96.0% of its contractual rent.
Back in February 2020, Vancouver-based activist investor Sandpiper Group announced that it had taken a 10% stake in the REIT. It believes the trust’s office buildings in downtown Toronto are worth considerably more than investors currently value them at.
Further, the activist believes the shares are worth between $42 and $48 a unit. That’s much higher than the current price, which in part reflects uncertainty surrounding the COVID-19 pandemic and the short-term impact for landlords. While that forecast may prove overly optimistic, the activist should continue to draw investor attention to Dream Office’s strong prospects.
My worry is that large corporations will abandon the downtown Toronto market for years to come, as more and more people opt for “work at Home” in country retreats or cottages.
Hundreds and maybe thousands are doing that now as people migrate from all over Ontario and the world to the Belleville, Quinte West and Prince Edward County areas.
Our property (60 acres and 15 year old Home) within Belleville’s City Limits has increased in value 2&1/2 times since 2017.
My son is a Chartered Accountant with a large corporation in downtown Toronto with at least 140 workers on one floor in one of the large towers and only about 8 people work there now on any given day. Will that change again in the near future???
Thank you for sharing that information. It reinforces what a significant impact COVID restrictions and lockdowns have had on companies like REITs. The REITs we recommend as buys are well positioned to rebound when Canadians return to the office. They have also taken real steps, before the pandemic, to introduce mixed-use properties, which lets them benefit from the need for more housing.
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My worry is that large corporations will abandon the downtown Toronto market for years to come, as more and more people opt for “work at Home” in country retreats or cottages.
Hundreds and maybe thousands are doing that now as people migrate from all over Ontario and the world to the Belleville, Quinte West and Prince Edward County areas.
Our property (60 acres and 15 year old Home) within Belleville’s City Limits has increased in value 2&1/2 times since 2017.
My son is a Chartered Accountant with a large corporation in downtown Toronto with at least 140 workers on one floor in one of the large towers and only about 8 people work there now on any given day. Will that change again in the near future???
Thank you for sharing that information. It reinforces what a significant impact COVID restrictions and lockdowns have had on companies like REITs. The REITs we recommend as buys are well positioned to rebound when Canadians return to the office. They have also taken real steps, before the pandemic, to introduce mixed-use properties, which lets them benefit from the need for more housing.