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

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Dream Office REIT cut its dividend last week, but it’s hardly the only REIT to have slashed or suspended payouts

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Real estate investment trusts with significant office holdings have been under pressure since the pandemic, with the shift to remote work and higher interest rates hammering the sector. Last week, Dream Office REIT became the latest to cut its distribution in the face of the ongoing challenges. The Financial Post’s Shantaé Campbell looks at their decision and rounds up the other major REITs that have cut or suspended their payouts over the past year.

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Dream Office REIT

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Despite hanging on for longer than many of its peers, Dream Office REIT was finally forced to cut its dividend last week. In its Feb. 15 fourth quarter earnings report, Dream said it would be reducing its distribution to unitholders by 50 per cent. It said the move would come into effect when it conducts a scheduled one-for-two share consolidation later this month.

According to the company, Dream Office’s occupancy rate is at 82 per cent, down from 90 per cent just prior to the start of the pandemic. The company’s board of directors said the move will strengthen the trust’s finances by adding $19 million to its reserves each year.

Dream Office chief executive Michael Cooper emphasized the importance of conserving cash during tough times on an analyst conference call following the earnings release.

“With all the news and all the frustration around offices, it’s better to keep cash,” Cooper said.

Shareholders punished the company, sending shares down more than 11 per cent in Friday trading. As of Tuesday, Feb. 20, shares were trading at $8.15, down about 50 per cent from a year ago.

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Slate Office REIT

Slate, which has holdings in North America and Europe, has cut its distribution twice in the past year.

In April, the company announced it would be reducing its monthly payout to one cent per unit from 3.3 cents, a cut of nearly 70 per cent. In mid-November, it decided to suspend the distribution entirely, a move the company said it hoped would unlock an extra $10.2 million annually for debt reduction and to fund operations.

It also announced a major portfolio reconstruction, in which it would seek to offload “non-core” assets making up 40 per cent of its leasable space. The sale came as the company posted a $34.7-million net loss for the quarter ending Sept. 30 — a stark turnaround from the $18.4-million profit recorded the same period last year.

“Obviously there is a lot of negativity around office,” interim CEO Brady Welch said during a call with analysts to discuss the third quarter results. “What continues to be a little bit of a headwind is the interest rate environment at its current elevated levels and the general investment market.”

Shares of Slate are down 80 per cent over the past year and closed at 88 cents per unit on Friday in Toronto.

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True North Commercial REIT

Primarily recognized for its Class B office buildings in the Greater Toronto Area and Ottawa, True North has also cut its dividend in two stages.

In mid–March, it slashed its payout by 50 per cent to 29.7 cents per unit annually. At the time, the board said it was reducing the cash payout to maintain financial health and adapt to market conditions.

Then in November, it announced it would completely halt distributions “for approximately six months,” sending the trust’s unit value tumbling again.

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True North Commercial said it would instead initiate a share buyback program, aiming to reduce the gap between its share price and net asset value. In a news release, CEO Daniel Drimmer said the decision was “the next logical step in the REIT’s strategy.”

True North shares are down about 74 per cent over the past 12 months and closed Friday at $9.25.

• Email: shcampbell@postmedia.com


Want to know more about the mortgage market? Read Robert McLister’s new weekly column in the Financial Post for the latest trends and details on financing opportunities you won’t want to miss.

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