Analysis: Toronto vacancy rate in 2017+I really like the Dream Office REIT story in the sense that it is a 11% yield, high end properties in CBD of every major city in Canda (not some B rate malls - Sorry Derek Warren lol), share buybacks (even though they are semi-diluted after each distribution payment), disposition of non-core assets, and upgrading their existing buildings to retain/attrack new tenants.
I also like the fact D.TO's market cap is north of $2B. This gives me some comfort in the fact that they are not a $200M micro cap that doesn't have as much bench strength.
My real question is I keep hearing about this vacancy rate problems in Toronto that is supposed to impact Dream's AFFO each year going forward. Maybe a 5% drop in AFFO over the next 2-3 years. According to RBC Capital Markets, the payout ratio will be slightly over 100% by 2017. Not a big deal but it will slowly decay away Dream's NBV. But beyond that I'm having a hard time figuring out what to expect in 2018+.
Doing some digging I found these 2 articles from the Globe & Mail (2014 & 2013 articles):
Toronto Flooded With Office Space Spurs Fears of New Bust
Office vacancy rate in Toronto set to soar: report
From the first article: "The seven properties set to open by 2017 have 5.1 million square feet of space and are about 55 percent leased, according to brokerage Cushman & Wakefield Inc."
Is this what all the fuss is about? An additional 5.1M sq ft of space? Does anyone know how much existing Toronto office space is out there? What percentage of additional office space square footage are we adding to the Toronto office market? I'm having a hard time putting context around what the impact is on Dream Office REIT.
And the greatest question I have is: what is the impact on Dream Office REIT's AFFO? Are we looking at a 0%, 10%, 20%, or 30% decline in D.UN's AFFO? This is what we need to know as investors because then we can assume what their annualized dividend will be. Whether its 85-95% divdiend payout ratio, then we can figure out what the long-term effects on this company will be.
Any comments or research that other unitholders have would be greatly appreciated.
-dsark