Monthly Dividend Stock In Focus: Dream Office REIT

Up to date on June seventeenth, 2021 by Bob Ciura

Actual Property Funding Trusts, or REITs, give buyers a hands-off solution to take part within the financial upside of actual property. REITs have grown in reputation over time as revenue buyers search different methods to generate portfolio revenue.

One aspect impact of the rising reputation of REITs is the emergence of specialised REITs, specializing in just one sub-sector of the actual property business. For instance, Dream Workplace REIT (DRETF) is the most important pure-play workplace REIT within the Canadian market, with a dominant place in workplace properties.

Dream Workplace inventory has a excessive 4.2% present dividend yield. And, its dividends are paid month-to-month, as a substitute of the standard quarterly payout.

Month-to-month dividend shares are uncommon. You may obtain our full record of month-to-month dividend shares (together with related monetary metrics like dividend yields and payout ratios) which you’ll entry beneath:

The mix of Dream Workplace REIT’s dividend yield and month-to-month dividend funds will certainly catch the attention of excessive revenue buyers.

This text will analyze the funding prospects of Dream Workplace REIT intimately.

Enterprise Overview

Dream Workplace REIT is Canada’s largest pure-play workplace REIT. The belief has a market capitalization of ~$970 million at present market costs. It’s a part of the Dream Limitless household of actual property trusts, which additionally contains Dream Industrial REIT (DREUF).

Dream Workplace has a excessive focus in workplace house properties in Toronto particularly. Roughly 68% of its portfolio is in Toronto, with 14% in Montreal & Ottawa, and the rest unfold throughout a number of markets.

Its possession interests embody 5.5 million sq. pricet of gross leasable space from 30 properties, which embody 28 workplace properties, and two properties underneath improvement. Dream Workplace has leases with 500 tenants throughout Canada, a couple of of its bigger tenants include: Government of Canada (8.2% of revenue), Authorities of Ontario (11.4%) and State Avenue Belief (5.4%).

Toronto has fairly favorable fundamentals for workplace house, which is why Dream Workplace continues to pay attention its investments there.

Supply: Investor Presentation

This can be a important change from just some years in the past, when the portfolio was extra diversified. Dream Workplace has taken the daring step of considerably reducing its geographic diversification, however it has superb causes for doing so.

Toronto has tremendously sturdy fundamentals for workplace house, together with low (and declining) emptiness charges. This helps drive pricing increased and is why Dream has wager large on Toronto.

The corporate has struggled up to now yr, as workplace house was one of many hardest-hit areas of actual property as a result of coronavirus pandemic. Dream Workplace is on the trail towards restoration. On Might6th, 2021 Dream Workplace launched Q1 outcomes. Diluted FFO-per-share declined 2.6% to $0.38.

Web rental revenue fell 9% to $26.3 million, as Q1 comparative properties NOI decreased 11% yr–over–yr. In the meantime, NAV per share elevated barely to $28.73. Complete portfolio in–place occupancy decreased to 85.8% from 89.2% within the yr–in the past interval.

Development Prospects

Whereas the near-term surroundings stays challenged for Dream Workplace, we imagine the corporate will return to development because the working local weather normalizes. We count on annual FFO-per-share development of ~8.4% per yr over the following 5 years.

Dream’s development prospects depend on excessive occupancy charges in Toronto, in addition to rising lease costs. The belief put in place a strategic plan to capitalize on its new focus in Toronto and make investments for the longer term. Below this plan, the belief offered billions of {dollars} of non-core belongings, shrinking its portfolio and producing money proceeds within the course of. It used this transformation to enhance unit pricing in addition to enhancing its publicity to downtown Toronto.

The consequence has been a considerably smaller portfolio, however one which has a a lot increased lease base, allowed the belief to deleverage, and afforded it the power to scale back the belief’s share depend. This has not solely improved the steadiness sheet, however its funds-from-operations per share in addition to the share depend has dwindled.

Going ahead we count on disruption from the coronavirus pandemic and the rising work–from–residence motion to weigh on outcomes this yr and next earlier than fundamentals rebound within the years following. Given the corporate’s appreciable publicity to prime quality belongings in Toronto and pretty low payout ratio, it ought to have the ability to climate the storm higher than some friends

In brief, whereas we don’t see Dream Workplace as producing large development numbers within the coming years, it’s well-positioned to proceed to develop organically from increased base rents. Toronto’s workplace house fundamentals are greater than adequate to assist this development.

Dividend Evaluation

Dream Workplace at the moment distributes a month-to-month dividend of C$0.833 per share (C$1 per share annualized). In U.S. {dollars}, this represents an annualized payout of roughly $0.81 per share, good for a 4.2% present yield.

As talked about, Dream minimize its distribution in 2017, and the payout has been stagnant since then. We don’t see a excessive danger of an additional minimize right now given the manageable payout ratio (anticipated at 66% for 2021) and favorable fundamentals.

We at the moment count on $1.17 in FFO-per-share for this yr, reflecting a adverse influence from COVID-19-related weak spot. Nonetheless, protection remains to be sturdy on the present dividend, so we don’t see additional cuts as needed.

Observe: As a Canadian inventory, a 15% dividend tax will probably be imposed on US buyers investing within the firm outdoors of a retirement account. See our information on Canadian taxes for US buyers right here.

The 4.2% dividend yield is excessive sufficient to entice revenue buyers. That is significantly true with the truth that Dream pays shareholders month-to-month as a substitute of quarterly.

Last Ideas

Dream Workplace REIT’s excessive dividend yield and month-to-month dividend funds make it interesting to revenue buyers. Its long-term elementary outlook can also be fairly favorable, and we see average ranges of development within the coming years.

The 2017 dividend minimize looms giant for buyers because the yield is far decrease than it as soon as was for Dream Workplace inventory. However the present payout is effectively lined, and we view it as protected, even with COVID-19 impacts. General, the inventory is reasonably interesting for revenue buyers.