Dream Office REIT (D.UN.TO)

Dream Office (D.UN-T) or Dream Global (DRG.UN-T). Which would you Sell? This is a lot of Toronto
and Calgary offices. You have to balance out where you feel the growth is going to be. What is happening in Toronto and Calgary is that there is a lot of construction, about 10 million square feet of office that is going to come
online in the next few years. That will keep rents down which is why this one has not been doing very well. The dividend is safe and the stock is cheap. Just don't expect a lot of upside in the next little while. Of the 2, he would keep Dream Global.

Office assets across Canada. Has been in a range because sentiment around the office sector is very poor right now. There is supply coming on in both Toronto and Calgary and the market fears lower rents and lower occupancies. It is trading at a 10% discount to net asset value.

Excess supply is what has been weighing on this REIT. There still is suburban office exposure at about 60%. Dividend is sustainable, so he would hang on to it. Likes and owns BOX.UN-T, thinking it could get taken out.

8% yield. There are a couple of challenges. It is in the office space and this area has the weakest fundamentals because there is a lot of supply coming to market over the next couple of years without the same demand coming. This one was a growth by acquisition story and was good in a falling interest rate environment but now there is a shift in the market and it is all about organic growth. The valuation is attractive here, but there are better companies.

Likes at this level. Pays an 8% distribution. Trading at about a 15% discount is estimated NAV. Payout ratio looks fine. Trending down at about 92%. Thinks that improved office market sentiment may be 6-9 months away.

Office markets have been in a bit of a decline. This REIT is very cheap and is staying there because people think there is no catalyst. There is no risk so you can sit with it and collect the yield.

Preferred Shares. A non-investment grade REIT. There is so much debt ahead of you. Buy the equity instead of the preferreds.

When he looks at the office sector in Canada, one of his concerns is that supply is going to increase by about 5% nationally during the next few years. A lot of what they own is suburban office space and when there is a big increase in supply, it tends to pressure suburban rents more than central business district rents. As a result of that, the stock has not been very well and is trading at about a 15% discount to NAV. (See Top Picks.)

The stock has been unfairly hammered by the market and has very nice upside potential. Yield of 7.66%.

It is stuck in a rut. They own a lot of the buildings in the core. They are adding a lot of supply. Does not see a solution any time soon. Prefers Dream unlimited. ‘Dream’ is a branding effort. They are changing the way they do things in this company and he is positive about it.

Dream REITs are not knew, just renamed. In 2016/17 is when a lot more supply comes on and is only 50% pre-leased. He continues to own it because it trades below NAV, leverage has lowered over the last few years and the distribution is stable.

Dream Office REIT (D.UN-T) versus Summit Industrial REIT (SMU.UN-T)? In general, he really likes the industrial space, which is going to benefit the most from the improving US economy as industry picks up. This one would have a little bit more growth opportunity. Summit is fully leased, and has a longer lease term, so you won’t see as much turnover, and you want turnover in the sort term. (See Top Picks.)

Dundee (D.UN-T) or H&R Real Estate (HR.UN-T)? She would recommend H&R. One of the challenges with Dundee is that it had really grown through acquisitions and played the Cap Rate compression game and that game is now over. She is a little less favourable on office properties, which she thinks will potentially be a little bit weak going forward.

There is so much building going on in Toronto south of the tracks that the leasing environment is becoming very aggressive. They feel some of the suburban tenants will leave and be hard to replace. It lacks a catalyst and we need to see what is going to happen with the office market, which could take two years.

(A Top Pick April 1/13. Down 15.47%.) Got out of this one a while ago. This one was hurt more than any other REIT out there. Part of the issue was the external management. Thinks this is a great Buy.