TSX:DIR.UN - Post Discussion
Post by
retiredcf on Feb 17, 2022 8:29am
TD 2
Dream Industrial REIT
(DIR.UN-T) C$16.18
Growth Outlook Affirmed; Valuation Pullback = Buying Opportunity
Event
Post-Q4/21 update (initial views: link).
Impact: SLIGHTLY POSITIVE
Leasing Pace Remains Strong and has Arguably Accelerated: DIR is backfilling vacancies and leasing-up space in new developments and expansions all at higher and higher rents. Development yields were raised by 100bps+ on two projects scheduled for 2022 completion. The spread between market and in-place rents in Canada is now 24% (+2% q/q, +15% y/y), while spreads in Europe remained steady at ~7%, but those realized are consistently above 10%.
Forecasts/2022 Guidance Introduced: DIR guided for a healthy 7%-plus SPNOI growth pace and FFO/unit in the "high $0.80s-$0.90" range. Our revised forecasts have resulted in largely unchanged estimates, including 2022E FFO/unit of $0.92. We believe guidance includes a buffer, as the guidance did for 2021 (actual FFO/ unit growth came in at +15% versus guidance of "just over 10% growth").
Our forecasts through to 2023 (Exhibit 2) call for a 14% three-year CAGR and 12% two-year CAGR in AFFO/unit. Our forecast revisions include 5% (previously: 4%) annualized sequential SPNOI growth (which we believe approximates management's guidance of 7%-plus average y/y SPNOI growth), $100mm annual net spending on developments and acquisitions (funded by the DRIP and ATM), and 33-34% leverage.
We have raised our NAV/unit estimate by 5% to $16.00 (4.56% cap rate versus IFRS using 5.02%). We believe IFRS values remain conservative, given today's fast pace of asset appreciation. DIR's GTA- and "Golden Horseshoe"-centric Ontario portfolio is valued at $218/sf under IFRS, while many recent transactions are near or above $300/sf. In Europe, recent M&A/recapitalization portfolio transactions have valued properties (which we believe are generally comparable with those of DIR) in the range of €1,400/sqm-€1,650/sqm, whereas DIR's IFRS values are at €1,070/ sqm. IFRS values for DIR's Ontario and European portfolios would need to rise by more than 30% or $1.2bln ($4.80/unit) to reflect these market-comparable transactions.
TD Investment Conclusion
DIR's unit price closed last night at 101%/99% of our NAV/consensus, representing a valuation back down close to where it was in mid-/late-2020. From current levels, we see the unit prices of DIR and its industrial REIT peers being top performers for the rest of 2022.
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