CIBC UgradeEQUITY RESEARCH
May 12, 2022 Earnings Update
DREAM UNLIMITED CORP.
Not A Sleepy Quarter
Our Conclusion
After what was an impressive 2021, DRM kicked off the new year without
missing a beat. In the first four months of 2022, DRM completed the IPO of
Dream Residential REIT, launched a $1.5B industrial development fund
(partnering with a sovereign wealth fund) of which it owns a 25% stake and
will earn management fees on, and was selected to develop the first phase of
the Lebreton Flats Library Parcel in Quayside, a project consisting of 601
residential units and 409,000 square feet of gross floor area. For Q1/22,
DRM reported diluted EPS of $0.96 (although the comparable standalone
earnings were $1.12 fueled by significant fair value adjustments that we don’t
model for), beating consensus estimates of $0.53 (CIBC $0.45). To reflect
the strong performance, we update our drivers as follows: 1) an upward
revision of the Western Canada land bank from an implied value of ~$80,000
per acre to ~$85,000; 2) raising our multiple on the development assets
slightly from 1.4x to 1.5x to reflect the nearing of completion of the
development assets in the GTA; and 3) raising our estimated EBITDA
multiple on the asset management platform from 12.0x to 12.5x. As such, we
increase our price target to $56.00 from $52.00, reflecting parity to our
estimated NAV, and maintain our Outperformer rating.
Key Points
Earnings Update: DRM (consolidated) reported diluted EPS of $0.96, an
improvement over Q1/21 which reported a loss of ($0.10). DRM had a
standalone BV of $31.68, and after adjusting for a non-controlling interest in
the GTA rentals, DRM would have a standalone EPS of ~$1.12 (we initially
calculated ~$1.21). However, after adjusting for items that we don’t model
(over $70MM in unrealized gains related to its real estate portfolio),
standalone EPS was generally in line with our expectations.
Debt and Liquidity: As at Q1/22, DRM had a D/A ratio of 39.5% compared
to 37% in Q1/21, and had $214.3MM in liquidity.
NCIB Program: For the quarter ended March 31, 2022, 0.4MM Subordinated
Voting Shares were purchased for cancellation at an average price of
$39.53, for total proceeds of $14.9MM. We expect DRM to continue to utilize
and take advantage of its NCIB program, given the continued wide discount
to NAV, as this is likely more conducive to value creation compared to other
distribution methods.
Dream Residential REIT: On May 6, 2022, DRM closed an IPO of 9,620,000
units of Dream Residential REIT (TSX: DRR) at US$13.00 per unit. DRR’s
initial portfolio will include 16 garden-style multi-family residential properties,
consisting of 3,432 units primarily located in three markets across the Sunbelt
and Midwest regions of the United States. DRM will own an 12% effective
ownership interest, directly or indirectly, as a result of contributing its interest in
a 672 unit portfolio and its GP interest in another 2,760 unit portfolio