In general, Real Estate Investment Trusts (REITs) tend to carry higher interest rates than the average equity, due to the fact that these trusts are designed to return maximum value to shareholders, often having dividend payout ratios close to 100%.
In the case of Dream Office REIT (TSX:D.UN), the underlying cash flows provided by the REIT come from a range of office properties located across Canada, complete with their own set of benefits and risks compared to peers operating in other sectors such as retail, residential, commercial or industrial real estate.
The headwinds office real estate REITs provide investors with are somewhat unique in the sense that this real estate category is one which has continued to see declining supply and demand fundamentals over time, with trends toward telecommuting and working from home beginning to take hold in many major Canadian metropolitan areas.
As areas densify and cities sprawl out, travel to and from the office will continue to become more and more of a drag on employee productivity, eating up valuable time which could be used actually working rather than sitting in a car or on a train.
Office space has generally seen a devaluation of late, with many key assets held by companies such as Dream Office REIT being sold off for less than the initial purchase price; I expect to see these industry headwinds pick up steam for companies like Dream Office REIT and would suggest investors looking for a REIT to look at other sectors for long-term growth, avoiding the short-term allure of a dividend which currently sits at 4.8%.
Invest Wisely, my friends.
