Opinions Greg Newman
Dream Office REITD.UN.TOBUYJun 12, 2013
Greg NewmanStock price when the opinion was issued
As of Jun 08, 2026. Market Open.
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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).
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.
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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.
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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.
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Had a very big correction with bond yields pushing up. Has now come down into a value space. Trades at around 13X price to AFFO 2014, which he thinks is the low in the group. Really cleaned their portfolio up to a much higher level, and improved quality over the last year or two. Lowered their leverage. It depends on where bond yields gold and where the appetite for REITs goes. There is new supply coming on to the market which doesn’t help, but he thinks this is a name you could be buying at this level. 7% dividend yield is safe for now.