DRETF - Dream Office REIT: A Dream Turned Sour
2024-02-19 10:43:04 ET
Summary
- Dream Office REIT's Q4 earnings report confirmed our suspicions of a distribution cut, but showed improved occupancy and easing pressure on net effective rents.
- Margin of safety has greatly improved, with the units down ~26% since our Sell report (n.b., ~12% post-earnings), but we still want to see lower prices before getting long.
- Upgrading to a cautious Hold due to the recovery in leasing dynamics and improved margin of safety. Significant uncertainty around asset values and high leverage keep us on the sideline.
Summary
Our initial report rated Dream Office REIT (D.UN:CA) (DRETF) a Sell. While it looked cheap then, we believed the discount was warranted by the precipitous drop in net effective rents (i.e., "NERs"; base rents adjusted for leasing costs and incentives) and the high likelihood of a distribution cut. Last week's Q4 earnings report vindicated our prediction of a cut, with management sneaking in a halving the distribution via 2:1 unit consolidation. However, it also showed easing pressure on NERs and improved occupancy....
Dream Office REIT: A Dream Turned Sour