Dream Office has executed strategic asset sales and used the proceeds to pay down debt and strengthen the balance sheet. The trust has also secured an $11 million grant and favourable financing for a major Calgary office-to-residential conversion. This will further unlock value and cut risk in its portfolio.
Recent news highlights Dream Office‘s ability to sign new leases in downtown Toronto at rents well above prior rates, reflecting the enduring quality of its irreplaceable urban assets. Meanwhile the monthly distributions remain secure as it trades at a very compelling 6.9 times its forecast cash flow per unit.
DREAM OFFICE REIT (Toronto symbol D.UN; www.dream.ca/office) owns 26 office properties, including two under development. The downtown Toronto market supplies 77% of rental revenue and accounts for 83% of the portfolio’s value.
Dream Office will soon embark on an office conversion project in Calgary, after securing both a grant from the city and financing for the project.
The property is the 16-storey office tower known as 606-Fourth, located at 606 4th Street SW in the downtown core. Dream Office owns a 100% interest in the property, which also includes the adjacent three-level Barclay Parkade and is one of three properties the REIT owns in Calgary.
Dream Office intends to convert the building into a 166-unit rental building—and it will relocate the current tenants to 444 7th Avenue SW, the office building directly to the south, also owned by the REIT. This will let the REIT improve the occupancy of 444-7th while creating a new residential rental building in downtown Calgary, thereby reducing the operational and financial risk of both buildings.
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Notably, for the conversion, Dream Office obtained a grant of up to $11 million from the City of Calgary via its Downtown Development Strategy Incentive Program; that’s a multi-pronged program, which includes its office conversion program. Additionally, Dream secured government financing for a 10-year loan at an interest rate lower than that of conventional development and mortgage loans.
Dividend Stocks: Valuation remains attractive, with plenty of upside available
In the three months ended March 31, 2025, the REIT’s overall revenue decreased 1.8%, to $25.0 million from $25.5 million a year earlier. That’s due to lower income as it sold a Toronto property in February. Its occupancy rate at the end of the quarter was 81.2%, down from 83.5% a year earlier.
Cash flow fell 5.9%, to $13.3 million from $14.1 million on that lower rental income but also higher interest expense and higher provisioning for possible tenant loss. Higher rents and higher income from the completed development in Toronto only partially offset those higher expenses. Cash flow per unit also fell 6.8%, to $0.68 from $0.73.
The units now trade at a reasonable 6.9 times Dream Office’s likely 2025 cash flow of $2.52 a unit.
Recommendation in Power Growth Investor: Dream Office REIT is a buy.
