Paul Gardner, CFADream Office REITD.UN.TOCOMMENTNov 27, 2012

Very concentrated portfolio in downtown Toronto, catering to smaller users. A call on the office market recovery, and the recovery is happening. Inexpensive. If one particular asset can boost leases, stock could do quite well. If not, you're only getting the yield of ~6% (which is good, but has been reduced).

Office environment continues to be challenging. B-team assets. Lots of work needs to be done on leasing. To invest, you have to be positive on the Toronto office environment, these assets, use of capital, and these operators. He's not there yet for Toronto.

It has been a tough environment for REITs in general, although industrial REITs have been holding up better than the rest. DIR.UN has a strong free cash flow yield, it offers a distribution yield of 5.4%, and has a high occupancy rate of 96%. Its FFO/debt ratio has been climbing over the years, signalling its funds from operations have been growing relative to its debt load. We would be comfortable buying DIR.UN for a long-term hold.
Unlock Premium - Try 5i Free

Investors really do not like commercial office companies right now. D.UN has an 80% in-place occupancy rate, down from year end (0.8%) and down 1.5% from last year's comparable quarter. It is priced well, but there are risks here, and its small size adds risk as well. We would see it as a higher-risk hold. 
Unlock Premium - Try 5i Free

In very different sectors. Both trade at wide discount to NAV. Neither has catalysts on horizon. CSH.UN at risk of cutting distribution, which is not being covered due to lower occupancy. CSH trustees see growth coming, but can it recover occupancy levels lost during Covid? He's watching that, as it's hard to invest in the face of a possible cut. D.UN is in an extremely tough sector. Office space, globally, has suffered with work from home. Office sector is not dead, but vacancy rates are in high teens and climbing. A good operator, Dream still owns good office buildings, especially in Toronto.