Dream Office Real Estate Investment Trust, Canada’s biggest office REIT, jumped the most in more than seven years after it said it would sell about C$1.2 billion ($870 million) of property and reduce its payout to weather the energy downturn.
Dream Office rallied as much as 14 percent to C$18.60 in Toronto, the most since December 2008. The REIT is down 51 percent since 2013, surpassing the 14 percent drop in the Bloomberg Canadian REIT Index, as the collapse in the price of crude reduced demand for its Alberta real estate.
The Toronto-based company reported fourth-quarter results Thursday and announced a goal to sell non-core assets by 2018. It also cut its distribution to C$1.50 from C$2.24 and boosted its credit facility to C$800 million from C$355 million, allowing it to pay down debt, invest in current or future properties, or buy back shares.
“Today, we present a private equity-like strategy that will create a leaner, more resilient and valuable company for our unitholders,” Michael Cooper, chairman of the company, said in the statement. “Once the plan is complete, Dream Office REIT will have some of the best assets in Canada, supported by an industry-leading balance sheet and ample liquidity for growth.”
The disposition, about one-sixth of the company’s portfolio, will come from assets in Toronto’s suburbs, Ottawa, Vancouver and Saskatchewan. It forecasts net proceeds of about C$700 million, or at least C$6 per unit, from the sales, taking advantage of increased local and foreign demand for the country’s real estate, particularly outside of the oil patch. Dream is already discussing the sale of C$300 million in properties, according to the statement.
Dream Office said it made a similar move in 2007, when the company sold enough to return C$1.6 billion to shareholders.
“While cutting the distribution may initially lead to trading volatility, our view is that capital retention for the purpose of investment and repositioning of properties is wise in the current market/office environment,” Matt Kornack, analyst at National Bank Financial, said in a note to clients.
Toronto-Dominion Bank raised the REIT to a strong buy from buy.