DREAM OFFICE REIT $14.31 - Toronto symbol D.UN

DREAM OFFICE REIT $14.31 (Toronto symbol D.UN; TSINetwork Rating: Extra Risk) (416-365-3535; www.dream.ca/office; Units outstanding: 107.7 million; Market cap: $1.7 billion; Dividend yield: 15.7%) owns and manages 174 properties comprising 23.3 million square feet of office space in major Canadian cities. In Western Canada, the trust has 17% of its total square footage in Calgary and 20% elsewhere. In Eastern Canada, it holds 23% of its square footage in downtown Toronto, 18% in suburban Toronto and 22% elsewhere. Its occupancy rate is 91.6%. In the three months ended September 30, 2015, Dream’s revenue rose just slightly, to $202.4 million from $201.7 million a year earlier. Cash flow gained 2.5%, to $69.7 million from $68.1 million, while cash flow per unit fell 3.2%, to $0.61 from $0.64, on more units outstanding.

High yield looks safe

Focusing on office properties entails some shortterm risk, as both recently completed and soon-to-befinished developments (in Toronto, especially) will put pressure on vacancy rates by the end of this year. However, Dream has a high percentage of federal and provincial government tenants on long-term leases, and that should keep its occupancy rate high. The trust pays a monthly distribution of $0.1866 a unit, for a high 15.7% yield. It pays out a reasonable 92% of its cash flow as distributions, and it’s holding onto tenants in spite of the slowdown in Alberta and new office buildings coming on the market. While it’s not guaranteed, Dream Office’s payout appears sustainable. Dream Office REIT is still a buy.

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