This REIT’s strategy is set to strengthen investor returns

A leading office and retail property owner, this REIT has completed a major restructuring to sell its non-core properties and focus on big urban markets.

The company’s units yield a high 4.1%, which—along with a strong cash flow forecast for 2019—just adds to its appeal.

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DREAM OFFICE REIT (Toronto symbol D.UN; owns and manages 34 office and retail properties in major Canadian cities. Altogether, those properties—including three under development—comprise 6.6 million square feet of leasable space. The REIT’s overall occupancy rate is 93.0%.

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 bought back over $1.1 billion of its outstanding units.

For the three months ended December 31, 2018, overall revenue dropped 15.5%, to $66.8 million from $79.0 million a year earlier. Cash flow per share fell 2.5%, to $0.39 from $0.40.

The declines reflect the REIT’s property sales. Its total number of properties was down to 34 by the end of the latest quarter from 42 a year earlier.

Dividend Stocks: A new focus on key cities while yielding 4.1%

Now that Dream has completed its restructuring, it has a strong balance sheet and a high-quality office portfolio. Its remaining properties focus on big urban markets, especially downtown Toronto. Properties in that city now comprise 68% of assets.

Most recently, the REIT completed the acquisition of a 205,000-square-foot, fully leased, industrial property in the Toronto area for $34.3 million. Dream is also in advanced negotiations to acquire two high-quality industrial buildings in the U.S. Midwest for $81 million and one in the Greater Montreal area for $14 million.

The REIT’s units trade at 14.4 times the forecast 2019 cash flow of $1.69 per unit. Dream pays a monthly distribution of $0.08333 a unit for a high 4.1% yield.

Recommendation in Stock Pickers Digest: Dream Office REIT is a buy.


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