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Dream Office REIT cut its dividend last week, but it's not the only REIT to cut or suspend payouts
Published on February 20, 2024 • Last updated 1 day ago • 3 minutes reading time
Office REITs have had to cut or suspend their payouts due to the shift to remote work and higher interest rates. Photo by Azin Ghaffari/Postmedia
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Real estate investment trusts with significant office properties have been under pressure since the pandemic as the shift to remote work and higher interest rates have hit the sector. Last week, Dream Office REIT became the latest company to cut its payout amid ongoing challenges. The Financial Post's Shantaé Campbell weighs in on her decision and rounds up the other major REITs that cut or suspended their payouts last year.
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Dream Office REIT
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Despite holding out longer than many of its peers, Dream Office REIT was finally forced to cut its dividend last week. In its fourth-quarter earnings report on Feb. 15, Dream said it would reduce its distribution to shareholders by 50 percent. It said the move would take effect when a planned one-for-two stock consolidation is carried out later this month.
According to the company, Dream Office occupancy is at 82 percent, down from 90 percent just before the pandemic began. The company's board said the move would strengthen the trust's finances as its reserves would be increased by $19 million each year.
Dream Office CEO Michael Cooper stressed the importance of conserving cash during difficult times in an analyst conference call following the earnings release.
“With all the news and all the frustration around offices, it’s better to hold on to cash,” Cooper said.
Shareholders punished the company, sending shares plunging more than 11 percent in Friday trading. As of Tuesday, February 20, shares were trading at $8.15, down about 50 percent from a year ago.
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Slate Office REIT
Slate, which has interests in North America and Europe, has cut its distribution twice in the past year.
In April, the company announced it would cut its monthly payout from 3.3 cents to one cent per unit, a cut of nearly 70 percent. In mid-November, the company decided to completely suspend the distribution. The company hoped to free up an additional $10.2 million annually to reduce debt and finance operations.
In addition, the company announced a major portfolio restructuring that involves divesting “non-core” assets that make up 40 percent of its rentable space. The sale came as the company posted a net loss of $34.7 million for the quarter ended Sept. 30 – a significant turnaround from a profit of $18.4 million in the same period last year.
“Obviously there's a lot of negativity around the office,” interim CEO Brady Welch said during a call with analysts to discuss third-quarter results. “What continues to be a bit of a headwind is the current elevated interest rate environment and the broader investment market.”
Shares of Slate have fallen 80 percent over the past year, closing at 88 cents a unit in Toronto on Friday.
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True North Commercial REIT
Best known for its Class B office buildings in the Greater Toronto Area and Ottawa, True North also cut its dividend in two steps.
In mid-March, the company cut its payout by 50 percent to 29.7 cents per unit per year. At the time, the board said it was reducing the cash payout to maintain financial health and adjust to market conditions.
Then in November, the company announced it would stop distributions entirely “for approximately six months,” causing the trust’s share value to plummet again.
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True North Commercial said it would instead initiate a share buyback program to narrow the gap between its share price and its net asset value. In a press release, CEO Daniel Drimmer said the decision was “the next logical step in the REIT strategy.”
Shares of True North have fallen about 74 percent in the past 12 months, closing at $9.25 on Friday.
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