• Company takes $518 million charge on Alberta properties
  • Says it expects Alberta economy, office weakness to continue

Dream Office Real Estate Investment Trust dropped the most since March after reporting second-quarter results that missed analysts’ estimates and a charge on its Alberta portfolio as the downturn in the province lasts longer than initially forecast.

Dream Office slid 6.8 percent to C$17.33 at 9:40 a.m. in Toronto, the most intraday since March 18 and the lowest since February. The Toronto-based company reported funds from operations per share, a metric used to gauge a REIT’s profitability via the cash flow generated from their real estate, of 65 cents. That was below the 68-cent average of seven analysts compiled by Bloomberg. It also took a charge of C$675 million ($518 million) in the quarter as it repriced the value of its Alberta portfolio.

“Even as the economy recovers, we expect it’s going to take some time for businesses to add people and to require more space," said Chief Executive Officer Jane Gavan in the company’s conference call. “Since the beginning of the year it’s become apparent that the scene for Alberta office real estate is lower for longer."

Dream Office has been struggling with its assets in the western province as the price of crude oil has more than halved since 2013 to about $42 a barrel, prompting layoffs in the region, and hollowing out office towers. Last quarter the company announced a strategic plan that includes selling assets and reducing its payout.

It took the charge on Alberta offices after factoring in the province’s market rents, discounts, capitalization rates, leasing costs and vacancy.

The landlord is about a third of the way through its disposition plan, selling C$437 million or 36 percent of its three-year, C$1.2 billion target. Dream Office is negotiating the sale currently of an additional C$130 million, the company said in the statement. The company has sold 17 properties in the last 12 months, as well as interest in some properties such as Scotia Plaza in Toronto, with its portfolio value shrinking 22 percent to C$5.6 billion. Profit from the sales went largely to pay down debt, Gavan said in the conference call.

Occupancy at Dream Office towers in Alberta eroded to 84 percent in the quarter from 89 percent in the year-ago period, according to financial documents. Suburban Toronto property occupancy also remained lower than other regions in the portfolio at 83 percent. Despite the empty space, the company’s average rents at C$18.75 a square foot across its portfolio are still higher than the market’s at C$17.65.

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