Monthly Dividend Stock In Focus: Dream Office REIT

Updated on April 1st, 2025 by Felix Martinez

Real Estate Investment Trusts, or REITs, give investors a hands-off way to participate in real estate’s economic upside. They have grown in popularity over time as income investors seek alternative strategies to generate portfolio income.

One side effect of the growing popularity of REITs is the emergence of specialized REITs, which focus on only one subsector of the real estate industry. For example, Dream Office REIT (DRETF) is the largest pure-play office REIT in the Canadian market, with a dominant position in office properties.

Dream Office stock has a high 5.6% current dividend yield. And, its dividends are paid monthly, instead of the traditional quarterly payout.

Monthly dividend stocks are rare. You can download our full list of all 76 monthly dividend stocks (along with relevant financial metrics like dividend yields and payout ratios), which you can access below:

The combination of Dream Office REIT’s dividend yield and monthly dividend payments will surely catch the eye of high-income investors.

This article will analyze the investment prospects of Dream Office REIT in detail.

Business Overview

Dream Office REIT is an open-ended Investment Trust that acquires and manages predominantly office properties in major urban areas throughout Canada, but primarily in downtown Toronto. The trust has a market capitalization of $220 million at current market prices. It is part of the Dream Unlimited family of real estate trusts, which also includes Dream Industrial REIT (DREUF).

Dream Office concentrates heavily on office space properties in Toronto. Approximately 82% of its portfolio is in Toronto, and the remainder is spread across multiple markets.

Toronto’s office space fundamentals are favorable, so Dream Office continues to concentrate its investments there.

Source: Investor Presentation

This is a significant change from just a few years ago when the portfolio was more diversified. Dream Office has taken the bold step of significantly decreasing its geographic diversification, but it has very good reasons for doing so.

Toronto has tremendously strong fundamentals for office space, including low (and declining) vacancy rates. This helps drive pricing higher and is why Dream has bet big on Toronto.

Dream Office REIT reported Q4 2024 results with occupancy rates dropping to 81.1% (committed) and 77.5% (in-place), down from 84.5% and 80.9% in Q3. Property values declined to $2.18B from $2.3B. Net rental income rose to $27.3M (Q4 2023: $25.8M), while FFO fell to $14.1M (Q4 2023: $14.6M). Net loss improved to $19.1M from $42.4M, but the distribution per unit was reduced to $0.25 from $0.50.

To strengthen liquidity, the trust sold 438 University Ave and is converting 606-4th Ave in Calgary into residential rentals. At 74 Victoria St, 54K sq. ft. was leased at $28.50/sq. ft., increasing committed occupancy from 46% to 67%, with negotiations underway for 50K more. Renovations are in progress to attract tenants. Year-over-year, in-place occupancy fell from 82.0% to 77.5%, mainly due to lease expirations and reclassifications.

Leasing activity remained strong, with 122K sq. ft. leased in Q4, including 43K in Toronto at $33.45/sq. ft. (5.5% above prior rates). Year-to-date, 710K sq. ft. of leases were executed, with Toronto averaging $33.84/sq. ft. (up 8.1%). Despite market challenges, Dream Office REIT continues to optimize its portfolio, improve occupancy, and enhance financial stability.

Growth Prospects

While Dream Office’s near-term environment remains challenging, we believe the company will return to growth as the operating climate normalizes. We expect annual FFO-per-share growth of ~1.6% over the next five years.

Dream’s growth prospects depend upon high occupancy rates in Toronto and rising rent prices. The trust put in place a strategic plan to capitalize on its new concentration in Toronto and invest for the future. Under this plan, the trust sold billions of dollars of non-core assets, shrinking its portfolio and generating cash proceeds in the process. It used this transformation to improve unit pricing as well as enhance its exposure to downtown Toronto.

The result has been a substantially smaller portfolio, but one that has a much higher rent base, allowing the trust to deleverage and afford it the ability to reduce the trust’s share count. This has not only improved the balance sheet but its funds-from-operations per share as well because the share count has dwindled.

In short, while we don’t see Dream Office as producing huge growth numbers in the coming years, it is well-positioned to continue to grow organically from higher base rents. Toronto’s office space fundamentals are sufficient to support this growth.

Dividend Analysis

Dream Office currently distributes a monthly dividend of C$0.833 per share (C$1 per share annualized). This represents an annualized payout of roughly $0.70 per share in U.S. dollars, good for a 5.6% current yield.

Dream cut its distribution in 2017, and the payout has been rather stagnant since then. Given the manageable payout ratio (expected at 35% for 2025), we don’t see a high risk of a further cut today. However, we do remain wary of the somewhat shaky fundamentals in the office property market.

We currently expect $2.00 in FFO-per-share for this year. The decline reflects softer occupancy compared to last year and higher interest rates, which will suppress the company’s profitability. Still, coverage remains adequate on the current dividend, so we don’t see further cuts as necessary.

Note: As a Canadian stock, a 15% dividend tax will be imposed on US investors investing in the company outside of a retirement account. See our guide on Canadian taxes for US investors here.

The 5.6% dividend yield is likely high enough to entice income investors. This is particularly true because Dream pays shareholders monthly instead of quarterly.

Final Thoughts

Dream Office REIT’s high dividend yield and monthly dividend payments make it appealing to income investors. However, its long-term fundamental outlook is rather uncertain in the face of a rising rate environment, and we see humble growth levels in the coming years. Additionally, shares appear overvalued at current prices, which would weigh on total annualized returns.

The 2017 dividend cut looms large for investors, but the dividend yield is now quite hefty following the stock’s recent decline. Further, the current payout is well covered, and we view it as safe, even with softer occupancy levels and rising interest expenses. Overall, though, the stock is not very appealing at this time due to a weak total return potential.

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