Dream Office REIT (D.UN.TO)

Prefers a Top Pick of his today. Owns a little bit still. He avoids office sector because it has an increase in supply. He is worried about ability to increase rents and sustain cash flow. Dividend is safe.

Predominantly office REIT. Got hit over the last 6 months or so because they have done a fair bit of acquisition, raised equity to do so and in combination with that there are some fears about supply in the office markets, most notably in Calgary and Toronto. This drove the units down in comparison with some of their peers. Have actually improved their asset quality over the last 2-3 years, have lowered leverage and their payout ratio is very sustainable. Trading at about a 10%-12% discount to NAV. 7.8% yield.

Externally managed. Thinks it won’t change and that it will hold it back. It is already at the bottom so going forward it will rise as the value of the properties rise. Has a lot of exposure to GTA office markets but it is priced in.

Has been some softness in the office sector because of a threat of increased supply. You’ll see some new developments get delivered to the market during the next 3-5 years, mostly in major city centers like Calgary and Toronto. Usually when you see an increase in supply, you see a decrease in rents. Nationally, supply is going to increase by about 5% in the next few years, which will pressure this company’s rents. Yield is absolutely safe. Feels the stock will drift down $1-$2 lower.

Dundee (D.UN-T) or Cominar (CUF.UN-T)? Trading below his assumed NAV. To him, Cominar is the better pick because of a slightly higher dividend and a slightly lower payout ratio. Also, a little less expensive. This one probably looks better on leverage.

Got hit along with the other REITs during the interest-rate scare. Very attractive dividend yield. Good, long-term hold for income.

There is nothing particularly wrong with this REIT. Well-run company. It’s just that rising interest rates are going to negatively impact all of these yield plays that investors were looking at as quasi-fixed income yields. Doesn’t know that he would get out of this but don’t expect much upside in the next couple of years.

Has been really beaten up. Yield down to 8%. One of the two REITs with the highest yield and has a terrific balance sheet. Nice discount to book value.

Not afraid to own the convertibles. They have been beat up too much. Concern over office markets becoming too weak in the Toronto and Calgary. Excellent management. Pressure has been well overdone.

This was punished a lot more than some of the other REITs over the summer. In the office space which is her least favourite property class right now. Because of supply/demand balance, this is an area that will be seeing a little bit of excess supply coming to the market, particularly in Toronto and Calgary. Has been a growth by acquisition story and have done very, very well over a period of time, but given the changing sentiment on the changing direction of interest rates and that the cap rate compression story is behind us, acquisitions are going to be much, much harder to come by.

Now a pure play office REIT in Canada. While it seemed like a good idea 2 years ago to go into a pure play office REIT, the last few months, the office sector has seen the most negative sentiment of any other sector in Canada. With their asset management team, they will be able to deal with what ever lease maturities they are going to see over the next 2-3 years. Units are trading close to a 20% discount to NAV now. Distribution yield should be stable as well as having 2%-3% cash flow growth.

On valuation, this one is at about 11.8 X forward, which he would give an A for. Payout ratio is 93%, which he would give a B. Growth rate is not so good at 1.2% over the next 2 years so he would give this a C. Balance sheet is improving with fair value at about 41%, which he would give as a B+. You could buy this one on a pull back.

Had trimmed a little because he was worried about an increase in office supply. Not that expensive as compared to other REITs. Good value and good yield.

They are paying out cash flow from their properties. So what you have to worry about is are all their buildings becoming empty so the 7.9% distribution is very safe. This stock has been beat up due to its exposure to the secondary office markets of Calgary and Toronto, the only areas where there is a lot of building. He feels the stock is too cheap and is offering an opportunity but their future is a little rocky for the next couple of years.

This is not his favourite among REITs. Prefers others. (See Top Picks.)