Dream Office Real Estate Investment Trust T.D.UN

Alternate Symbol(s): DRETF

Dream Office Real Estate Investment Trust (the Trust) is an open-ended real estate investment trust. The Trust owns central business district office properties in various urban centers across Canada, with a focus on downtown Toronto. The Trust owns and manages 3.5 million square feet of office land in downtown Toronto. Its objectives include managing its business and assets to provide both yield and growth over the longer term. Its properties are located across Adelaide Place, Toronto; 30 Adelaide Street East, Toronto; 438 University Avenue, Toronto; 655 Bay Street, Toronto; 74 Victoria Street/137 Yonge Street, Toronto; 36 Toronto Street, Toronto; 330 Bay Street, Toronto; 20 Toronto Street/33 Victoria Street, Toronto; 250 Dundas Street West, Toronto; 80 Richmond Street West, Toronto; 425 Bloor Street East, Toronto; 212 King Street West, Toronto; 357 Bay Street, Toronto; 360 Bay Street, Toronto; 350 Bay Street, Toronto; 56 Temperance Street, Toronto; and 6 Adelaide Street East, Toronto.

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Dream Office Real Estate Investment Trust

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Post by incomedreamer11on Nov 10, 2023 10:57am

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Post# 35728367

Scotia comments

Q3 Glance: In Line; Stable Q/Q Occupancy While WeWork Watch Begins

OUR TAKE: Neutral. Reported FFOPU was $0.35. Ex. ~$0.4M of one-time cost, we estimate recurring FFOPU = $0.359, slightly below our $0.363 and $0.365 consensus (range = $0.36-$0.37); reflects +1.7% q/q and-1.5% y/y (Q2 = -8% y/y).

IFRS NAVPU was essentially flat q/q (-0.8%) at $34.42 (q2 = +10% q/q) on a $17M FV Loss ($0.45/un), representing ~1% of Q2 GBV and 5.5% of unit price (pretty remarkable gap). Avg. cap rate was +4bp q/q to 5.70% (DT Toronto = +2bp q/q to 5.34%) vs. our 6.24%.

SPNOI accelerated to +4.4% y/y (Q2 = +3.8%; YTD = +3.6%). DT Toronto and Other Market SPNOI were +4.7% and 0.2%, respectively (Q2 = +5.1% and +0.1%).

WeWork uncertainty. D acknowledged the bankruptcy filing, noting WeWork (sole tenant at 357 Bay Street, Toronto) = $2.8M of revenue YTD (listed as 9th largest tenant at 2.3% of revenue). We note 357 Bay was not one of the 4 announced disclaimed leases in Canada to date (FCR had one in Liberty Village), nor has D received any indication from WeWork re: plans (WeWork is current on rent).

Full update post c/c tomorrow @ 10 a.m. ET; 1-800-319-4610.

In-place occupancy was flattish post Q2 jump. Disclosed in-place occupancy fell 10bp q/q to 80.8% (including -20bp in DT Toronto) below our +20bp forecast (Q2 = +70bp q/q). That said, committed occupancy was +40bp q/q to 84.3% (Q2 = -10bp). Bad debt expense was +$0.1M q/q to $0.2M (Q2 = $0.3M) and = 0.9% of NOI vs. 1.1% q/q. Q3 Tenant retention ratio remained relatively low at 56% vs. 46% q/q (2022A= 72%).

Strong leasing spreads, albeit on more modest leasing; leasing costs remain elevated. Lease renewal spread (on 91k sf) was 26% vs. 19% q/q (on 114k sf) and 17.3% for 2022A (546k sf). Total leasing cost/sf was $43/sf ($10/sf per year; WALT = 4.2 years) or 160% of one-year net rent vs. $114.59/sf ($16.85/sf per year) q/q. Avg. in-place rent +0.6% q/q to $25.47/sf, (Q2 = +0.8%). D-est. market rent (gross, not NER) was flat q/q at $26.73, leading to an est. portfolio MTM of 5% (Q2 = 5.6%). Ex. temp vacancies, D has 379Ksf expiring in Q4/23 with 423Ksf commencing (112%), for total occupancy uplift of ~90bp. It has 756k expiring in 2024 vs. 207k of commencements to date (+ conditional on another 91k).

Leverage continues to move higher, but liquidity should be sufficient to fund near-term maturities if need be. Liquidity was flat q/q at $204M (incl. $16M in cash) and = 2.8x 2024 debt maturities (no maturities in 2023; Q2 = 1.13x 2023). D has only $73M of debt maturing in 2024 (6% of total debt). A $17M unencumbered asset pool = 1% of total debt (Q2 = $17M). Reported net debt/GBV was +50bp to 48.8% (Q2 = +530bp) and Debt/EBITDA was +0.7x to 11.6x (Q2 = +0.6x), well above sector avg. of 45% and 9.3x, respectively.