Is Dream Office Real Estate Investment Trst Still a Buy?

Because of a 31.25% discount to NAV and a strong 9.23% yield, I believe investors should buy Dream Office Real Estate Investment Trst (TSX:D.UN).

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Real estate is one of the most efficient ways that an individual can make money. There’s a finite amount of land, and people need it. For businesses, high-quality office space is a hot commodity. This is why I believe Dream Office Real Estate Investment Trst (TSX:D.UN) is worthy of consideration.

Due to a bit of bad news, Dream Office’s its stock price dropped from $18.59 to $16.92 overnight. The primary reason is because it continues to experience problems in its Albertan holdings due to oil and gas companies having a hard time surviving in this weak-pricing economy. But one investor’s bad news is another investor’s opportunity.

Investors who bought this company last year are feeling pain. The stock wasn’t doing well, its dividend was far too high, and they experienced a deep cut. But for new investors, I actually believe this is a great opportunity to buy.

Dream Office trades at a 31.25% discount to its NAV. Based on an analysis by the company, the value of its real estate per share is $23.64. Yet the shares trade at only $16.25. For every one share of Dream Office you buy, you’re getting an additional $7.39 in “free” real estate.

Here’s the reason that’s such a big deal…

According to management, the NAV of its “value add assets,” those predominantly in Alberta, is $4.10. Its Albertan properties–those impacted by oil and gas–are suffering the most for Dream Office. Therefore, investors have beaten Dream Office down even further than what the NAV of those at-risk assets are. If these assets were worth $0.00 (and they’re not), you’d still be getting $3.29 of free real estate if you bought shares today.

Dream Office, having recognized that investors weren’t going to value the company at its NAV, decided that it would force the issue by selling some of its non-core assets. Management put a plan in place to sell $1.2 billion of its assets over three years (ideally by the end of 2018). So far, it has sold $437 million worth of assets across 17 properties with two million square feet. There’s an additional $130 million in various stages of discussion and contract. This selling is necessary to strengthen its balance sheet.

By increasing cash on hand, Dream Office has the liquidity to deal with its Alberta problem. Further, it can reduce any high-interest debt, thus ensuring the company will be in a strong position for when Alberta’s properties return to strength.

The good news is that its core portfolio (which provides 40% of its net operating income) has an occupancy rate of 98% with a weighted average lease term of approximately six years. Further, it has already renewed 95.4% of its maturing leases for this year at a 10.4% increase in rent.

And while its portfolio is dealing with some tough times, it only has a 68% payout ratio. With a 9.23% yield, the company pays a monthly dividend of $0.125 per share. Because of the low payout ratio, the strategy of reducing debt, and the discount to NAV, investors should seriously consider buying this stock.

Should you invest $1,000 in Algonquin Power and Utilities right now?

Before you buy stock in Algonquin Power and Utilities, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Algonquin Power and Utilities wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

monthly desk calendar
Dividend Stocks

A 9.2% Dividend Stock Paying Cash Every Single Month

With one of the highest dividends out there, this dividend stock deserves attention in your portfolio.

Read more »

Happy golf player walks the course
Dividend Stocks

Build a Powerful Passive Income Portfolio With Just $20,000

If you are worried that the bear market could reduce your savings, these stocks can build a powerful passive income…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Use My $7,000 TFSA Contribution to Start Retirement Planning

These TSX stocks have solid fundamentals and are well-positioned to deliver significant tax-free total returns over time.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With Only $10,000

It doesn't have to be complicated or scary. You can turn any portfolio into a major gold mine.

Read more »

ways to boost income
Dividend Stocks

Passive Income: How to Invest Your TFSA Limit in 2025

This TFSA strategy can reduce risk and boost yield.

Read more »

coins jump into piggy bank
Dividend Stocks

Here’s the Average Canadian TFSA and RRSP at Age 25

Are you not meeting the average? Then check out this ETF that can bridge the gap.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

3 Canadian Multi-Sector Stocks to Buy and Hold for Built-In Diversification

Here are three of the best dividend-paying Canadian stocks with built-in diversification.

Read more »