Post by
retiredcf on May 04, 2023 9:48am
CIBC Report
EQUITY RESEARCH
May 3, 2023 Earnings Update
DREAM INDUSTRIAL REIT
A Very Industrious Start To The Year
Our Conclusion
Dream Industrial REIT reported another quarter of strong growth,
showcasing its ability to continue achieving robust (and reaccelerating)
double-digit SPNOI growth despite some broader economic uncertainty.
Providing further fuel to the growth, the REIT completed ~120k sq. ft. of
development activity in the quarter, achieving an impressive 8.4% unlevered
yield. With ~$335MM in estimated costs to complete its near-term
development pipeline and ~$431MM in available liquidity, we note the REIT’s
ample liquidity position to fully develop the ~3MM sq. ft. pipeline with an
estimated 6.5% unlevered yield over the next two years. As such, DIR
remains Outperformer rated as we increase our NOI run rate. We
subsequently raise our NAV to $17.75 (from $17.00) and our price target to
$18.00 (from $17.00) on a blended 5.25% cap rate. DIR also announced that
the current COO, Alexander Sannikov, is being promoted to President and
COO, while Brian Pauls remains CEO.
Key Points
Results And Outlook: DIR reported Q1/23 FFO per unit of $0.25 (a 13.3%
increase Y/Y), above our estimate of $0.23 and consensus of $0.24. We note
a modest $1.1MM (~$0.004 FFOPU) boost from lease termination income
related to a ~190k sq. ft. building in Europe. SPNOI ex. foreign exchange
was a robust +13.0%, headlined by +22.3% in Ontario. In-place and
committed occupancy modestly decreased 30 bps Q/Q to 98.6%, while in-
place base rents grew an impressive ~3% and ~4% in the Canadian and
European portfolios Q/Q, respectively. We note that occupancy was
impacted by an anticipated ~225k sq. ft. vacancy near the Port of Montreal
but acknowledge that the REIT is experiencing significant demand and it
expects the rent will exceed prior rent by up to 50%. The REIT reaffirmed
2023 FFO guidance of mid-nineties with upside potential as it expects SPNOI
to come in at the upper end of the 8%-10% 2023 growth target.
Balance Sheet And Liquidity Update: Net debt to total assets was 36.0%,
a ~10% increase Y/Y, and up sequentially from 31.7%, with the increase
largely related to the acquisition of Summit Industrial Income REIT. We note
the strong interest coverage ratio of 9.9x along with ~$431MM in available
liquidity, with access to an additional $250MM via an accordion on its
unsecured revolving credit facility. Boosting liquidity during the quarter,
following the Summit acquisition, the REIT issued a $200M unsecured
debenture at an interest rate of 5.383%, with proceeds repaying a portion of
the unsecured credit facility. DIR also closed a $200MM unsecured term loan
and subsequently rolled the entire principal into a US$145MM loan, while
fixing the floating rate at 4.848%.
Cap Rate Tracking: DIR’s weighted average IFRS cap rate was 5.72%,
expanding 11 bps Q/Q. Further illustrating DIR’s growth is the ~3.3%
increase in NAVPU when compared to Q1/22, despite 80 bps of cap rate
expansion in the same period.