Two major players announce dividend cutbacks
In the past several weeks, two significant REITs have announced dividend cutbacks, highlighting the challenges the real estate sector is facing. After conducting a strategic assessment, Slate Office REIT reduced its payout from 3.3 cents per unit each month — or over 70% — to 1 cent.
“The REIT is also announcing the conclusion of the comprehensive review of strategic alternatives undertaken by the REIT and its external advisors and a corresponding unitholder value preservation plan, under which the REIT will amend its monthly cash distribution from $0.0333 per trust unit of the REIT to $0.0100 per trust unit of the REIT,” the firm said in its statement.
Monty Baker, Interim Chair of the Board of Trustees, said, “We completed a thorough strategic review in partnership with our advisors and determined that a revision to our distribution policy is prudent to preserve capital in a challenging environment and ensure the REIT will be in a stronger position when we emerge from this economic cycle.”
True North Commercial REIT's policy revision is anticipated to provide an extra $23.9 million in cash annually, which will be used to improve the REIT's balance sheet and liquidity. This comes after the REIT reduced its own payout by 50% in March as a result of greater inflation and increasing interest rates. The board said that it will regularly review its distribution plan, and the annual cash dividend was decreased to $0.297 per unit.
“This decision underlines the board’s and management’s view that the unitholders are best served by a well-capitalized REIT, which bolsters the REIT’s ability to enhance its portfolio and pursue value-creating opportunities,” the firm said in a statement.
With an additional $5 million in sale proceeds, True North has agreed to sell two office buildings in Toronto and Ottawa for $24.8 million.
Since the epidemic started, several REITs including Slate and True North have cut their dividends.
RioCan and First Capital are only two of the several other REITs that have cut back on dividends.
Slate and True North's recent choices stand out in contrast to some of the REITs who slashed their dividends early since those companies have started to increase them.
Most real estate investment trusts, which have mortgages equal to 50%–60% of their property prices, have been negatively impacted by rising interest rates.
In Canada's REIT sector, the weighted average interest rate on outstanding debt is 3.5%, and a five-year commercial mortgage at the going rate is anticipated to cost 5.5%. The REIT unitholders, many of whom are retail investors, are affected by rising interest rates.
Due to the prevalence of working from home, ultrasafe guaranteed investment certificates pay almost the same, and office building owners are having trouble keeping tenants; occupancy was 81% as per Slate's February earnings report.
During the H&R REIT annual meeting in June, K2 & Associates Investment Management intends to propose four board nominees, setting off an activist conflict at one of Canada's largest publicly listed real estate companies. H&R intends to concentrate 75% of its real estate portfolio on American multifamily assets and 25% on Canadian industrial properties.
On March 1, K2 got in touch with H&R and let the REIT know that while it supports the current strategy, it would want to see more rapid development. Since the revised strategy was revealed, H&R has sold around $1.1 billion in assets, with another $3.7 billion still up for grabs, according to RBC Dominion Securities.
According to a statement released by H&R on Tuesday, the company will "continue to engage with K2 in good faith, as it does with all unitholders," but it "won't put K2's shorter-term objectives ahead of the longer-term interests of other unitholders."
