![]() ![]() “Reflecting our current view on office values and recognizing the lack of transaction activity to confidently ascribe cap rates, we are reducing our NAV estimate from $16.97 to $15.31, and utilize a cap rate of 7.00 per cent (previously 6.75 per cent).”Įlsewhere, TD’s Sam Damiani reduced his target by $1 to $17 with a “buy” rating. Further, it is unclear what an appropriate cap rate is at a time when transactions are few. In the near-term however, we expect investors to continue to focus on property types with stronger near-term cash flow growth, and it is difficult to see a catalyst for the unit price to recover. “As well, the REIT is led by an experienced and aligned management team which has proven it will take steps to surface value, as evidenced by the $193.8-million SIB which expires on June 19, 2023. “In our view, Dream Office owns a well located portfolio concentrated in downtown Toronto, which would have significant value, particularly for redevelopment, over the long term,” he said. ![]() The average target on the Street is $16.33, according to Refinitiv data. Rothschild lowered his target for Dream units to $14 from $15.50. Year-to-date, True North Commercial REIT and Slate Office REIT, which have cut distributions in 2023, have returned negative 56.3 per cent and negative 49.9 per cent, respectively.” “Year-to-date, Dream Office and Allied Properties, which have not cut distributions so far in 2023, have returned 3.1 per cent and negative 9.1 per cent, respectively. “While all office REITs have posted negative returns, REITs which have a strong balance sheet and have not reduced distributions have meaningfully outperformed those which have cut distributions. “After returning negative 23.1 per cent in 2022, unit prices for office REITs have dropped further in 2023 as fundamentals and the economic outlook remains soft,” he said. Rothschild said the recent performance of REITs, including Toronto-based Dream, has reflected this “difficult” operating environment. For Dream Office’s portfolio, the vacancy rate jumped from 10.9 per cent in Q1/20 to 19.8 per cent currently.” In downtown Toronto, where Dream Office REIT derives 75 per cent of same-property NOI, vacancy has jumped 1,350 bps from 1.8 per cent in Q1/20 to 15.3 per cent currently. ![]() “The Canadian national office vacancy rate has climbed from 10.4 per cent in Q1/20 to 17.7 per cent currently, the highest level in over 30 years and comparable to the previous peak vacancy of 17.3 per cent in 1992. ![]()
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