These major office REITS have cut their dividends and paid the price

0
49
Financial contribution

Breadcrumb trail links

Dream Office REIT cut its dividend last week, but it's not the only REIT to cut or suspend payouts

Published on February 20, 2024Last updated 1 day ago3 minutes reading time

Office REITs have had to cut or suspend their payouts due to the shift to remote work and higher interest rates.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

Article content

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.

Advertising 2

This ad has not loaded yet, but your article continues below.

THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY

Subscribe now to read the latest news in your city and across Canada.

  • Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and more.
  • Daily content from Financial Times, the world's leading global business publication.
  • Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
  • National Post ePaper, an electronic copy of the print edition that you can view, share and comment on any device.
  • Daily puzzles including the New York Times Crossword.

SUBSCRIBE TO UNLOCK MORE ARTICLES

Subscribe now to read the latest news in your city and across Canada.

  • Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and more.
  • Daily content from Financial Times, the world's leading global business publication.
  • Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
  • National Post ePaper, an electronic copy of the print edition that you can view, share and comment on any device.
  • Daily puzzles including the New York Times Crossword.

REGISTER / LOGIN TO UNLOCK MORE ARTICLES

Create an account or log in to continue your reading experience.

  • Access articles from across Canada with one account.
  • Share your thoughts and join the discussion in the comments.
  • Enjoy additional articles per month.
  • Get email updates from your favorite authors.

Log in or create an account

or

Article content

Dream Office REIT

Article content

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.

FP investor banner

investor

Thanks for registering!

Article content

Advertising 3

This ad has not loaded yet, but your article continues below.

Article content

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.

Advertising 4

This ad has not loaded yet, but your article continues below.

Article content

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.

Recommended by Editorial

  1. None

    Canada's office real estate sector is facing a reckoning

  2. Office buildings in downtown Toronto.

    Slowing rate hikes could trigger a REIT rally

  3. REITs appear well-positioned to weather rising interest rates through 2026 for several reasons, according to a report from CIBC Capital Markets.

    REITs have reason to be optimistic

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.

• Email: [email protected]

Would you like to learn more about the mortgage market? Read Robert McLister's new weekly column in the Financial Post for the latest trends and details on funding opportunities you won't want to miss.

Article content

Share this article on your social network