Dream Office REIT jumps most in 7 years on plan to sell $1.2 billion of property and cut payout

Dream Office Investment Trust, Canada’s biggest office REIT, jumped probably the most in additional than seven years after it said it would sell about $1.2 billion of property and lower its payout to weather the power downturn.

Dream Office rallied as much as 14 percent to $18.60 in Toronto, the most since December 2008. The REIT is down 51 percent since 2013, surpassing the 14 per cent drop in the Bloomberg Canadian REIT Index, as the collapse in the price of crude reduced demand for its Alberta property.

The Toronto-based company reported fourth-quarter results Thursday and announced an objective to sell non-core assets by 2018. Additionally, it cut its distribution to $1.50 from $2.24 and boosted its credit facility to $800 million from $355 million, allowing it to reduce debt, invest in current or future properties, or buy back shares.

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“Today, we present a personal equity-like strategy and build a leaner, more resilient and valuable company for our unitholders,” Michael Cooper, chairman from the company, said in the statement. “When the plan is complete, Dream Office REIT will have the best assets in Canada, supported by an industry-leading balance sheet and ample liquidity for growth.”

The disposition, about one-sixth from the company’s portfolio, will come from assets in Toronto’s suburbs, Ottawa, Vancouver and Saskatchewan. It forecasts net proceeds of approximately $700 million, or at least $6 per unit, from the sales, taking advantage of increased local and foreign demand for the nation’s property, particularly outside of the oil patch.
Dream is already discussing the sale of $300 million in properties, based on the statement.

2007 Redux?

Dream Office said it designed a similar move in 2007, when the company sold enough to return $1.6 billion to shareholders.

“While cutting the distribution may initially result in trading volatility, our view is the fact that capital retention for the purpose of investment and repositioning of properties is wise in the present market/office environment,” Matt Kornack, analyst at National Bank Financial, said inside a note to clients.

Toronto-Dominion Bank raised the REIT to a strong purchase from buy.

Bloomberg.com