Dividend Cut: Dream Office REIT (D.UN)

On February 19th, Dream Office REIT (TSE: D.UN) cut their annual dividend by 33% from $2.24 to $1.50, starting with their February 2016 monthly distribution.

D.UN’s monthly distribution has dropped from $0.187 to $0.125. Considering the Dividend Beginner’s portfolio holds 45 shares, my annual dividend income received from D.UN has fallen from $100.80 to $67.5, a $33.30 reduction, or $2.78 per month.

This dividend reduction has decreased my 12-month forward dividend income from $1,340.92 to $1,307.62, a decrease of 2.48%.

It’s pretty disheartening to go through another dividend cut, after losing dividend income from Whitecap Resources and Pengrowth last month. I believe D.UN was my first ever investment, and back then I will admit I was chasing yield and knew very little about stocks. I’ve since grown and now chase dividend growth, coupled with sustainable payout ratios and a long track record of yearly dividend raises.

Dream Office REIT

Following are some notable highlights I enjoyed from their Q4 2015 report. The market responded very favourably on that day, with D.UN shares climbing 12.72%.

Funds from Operations
  • Basic FFO on a per unit basis for the three months and year ended December 31, 2015 was $0.70 and $2.83, respectively. Basic AFFO on a per unit basis for the three months and year ended December 31, 2015 was $0.62 and $2.50, respectively
  • The Trust generated $2.50 per unit of AFFO in the year ended December 31, 2015 and paid a distribution of $2.24 per unit
  • During the fourth quarter of 2015, the Trust renewed or refinanced mortgages totalling $164.4 million, representing an interest rate reduction of approximately 83 basis points (“bps”) per annum over the mortgages repaid with an annualized interest savings of approximately $1.4 million or $0.01 per unit.
Strategic Plan
  • Effective with the February 2016 distribution, payable on March 15, 2016, we have revised our distribution from $2.24 per unit to $1.50 per unit, on an annualized basis, which will reflect a more conservative payout ratio of approximately 67% of 2016 analyst consensus AFFO. Concurrently, the Trust suspended the DRIP (currently at 38% participation ratio) to eliminate dilution and to preserve value.
  • The Trust is targeting to sell non-core assets currently valued at approximately $1.2 billion over the next three years to crystallize the value of the assets, which we anticipate will narrow the significant trading discount, which is approximately 50% to current net asset value
  • The Trust intends to use the proceeds from the dispositions to first pay down debt to reduce leverage and subsequently, if the current discount to net asset value persists, to reduce the number of outstanding units through repurchases under the Trust’s NCIB
Share Buybacks
  • For the year ended December 31, 2015, the Trust has purchased for cancellation 4,486,473 REIT A units under the NCIB at a cost of approximately $105.1 million (excluding transaction costs)
  • This more than offset the 4,040,965 REIT A units that were issued as part of the Trust’s Distribution Reinvestment Plan (“DRIP”)

Do my fellow investors have a position in D.UN? Any recent buyers? Recent sellers? How much did D.UN’s 33% dividend cut reduce your annual income by?

6 Replies to “Dividend Cut: Dream Office REIT (D.UN)”

  1. Ouch. Third dividend cut in the portfolio. That hurts. Sorry to hear that buddy…but chalk that up as a lesson learned.
    High yields come with their risks and investors should always ask what that risk is. On the positive note, looks like D.UN rallied after the cut announcement, so if you are not confident in the business – a good time to dump it.


    1. Hey R2R,

      Indeed, the cuts have been eating in my dividend income, but I’ve been aggressively deploying capital for a net increase. The increase in share price really eased the pain of this cut for me.


  2. I have 45 shares of D.UN as well, but I’m not worried about the dividend cut. The market was expecting the dividend cut anyway, it’s just nobody knew when they would cut it. The NAV is $32 per share and they have a good 3-year restructuring plan including the sale of properties worth 1.2 billion. We just need to weather the storm and things will get back to normal.

  3. Dividend cut is tough. We own Dream Office as well and are definitely affected by this cut. Having said that, as a shareowner I’d rather have them cut the dividends and be able to sustain the business than losing tons of money.

    1. Hey Tawcan,

      Glad to meet a fellow shareholder. I concur with you, I’d prefer they look after the company. The cut isn’t as severe as the majority of energy companies cutting in the 70%s, at least.

      Thanks for commenting,

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