TSX:DIR.UN - Post Discussion
Post by
retiredcf on May 04, 2023 10:33am
TD
Dream Industrial REIT
(DIR.UN-T) C$14.80
DIR Delivers in Inaugural Post-Summit Quarter
Event
Post-Q1/23 outlook update. Initial views: here.
Impact: SLIGHTLY POSITIVE
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DIR delivered strong Q1/23 results, with a solid beat on NOI and AFFO driven by record same-property growth. With no sign of any meaningful slowing of leasing demand across DIR's markets, we are becoming increasingly optimistic for an increase in management's FY2023 guidance. Existing FY2023 guidance for FFO/unit in the “mid-90 cent range” was maintained and SPNOI growth guidance was raised to the upper end of the previous 8%-10% range.
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We raised our 2023-2024 FFO/unit and AFFO/unit estimates by 1%-3% (now reflecting a two-year AFFO/unit CAGR of 8%), while our NAV/unit estimate remains unchanged at $15.70 (higher cap rate offset by higher NOI).
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Leasing momentum remains strong, as demonstrated by the further rise in market rents this quarter. While DIR's rental rate uplifts on leasing moderated slightly this quarter due to mix, initial leasing on the Summit portfolio produced +150% rental rate spreads — nearly triple what SMU.un achieved in 2022. As market vacancy rates have fallen to historic lows, it is natural to see a deceleration of leasing transactions (tenants cannot absorb space that does not yet exist). Occupiers of smaller-midsize spaces (e.g., 50,000sf or less) are more frequently accepting rents above $20/sf with built-in 5% annual increases, while larger users are more often pushing back and taking longer to make commitments.
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DIR remains well-positioned to fund its strategic growth priorities, which currently include a steady cadence of development projects and expansion of the Dream Summit JV with its partner, GIC. DIR intends to invest up to $300mm of additional equity in the Dream Summit JV over the next several years, which, assuming DIR maintains its 10% ownership, would translate into $3 billion of equity buying power (even more with asset-level leverage). Dream Summit's acquisition focus includes “covered land plays” with ample trailer storage. With this, we believe DIR stands to remain a leading participant in the Canadian industrial property transaction market.
TD Investment Conclusion
DIR's Q1/23 results demonstrate all the reasons we continue to favour industrial property-focused REITs with lower balance sheet leverage. We reiterate our BUY recommendation and $17.00 target price.
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