CIBCEQUITY RESEARCH
August 12, 2022 Earnings Update
DREAM UNLIMITED CORP.
Putting The U.S. Multi-family To Bed
Our Conclusion
DRM reported consolidated diluted EPS of ~$1.74. As we provide estimates
on a “stand-alone basis,” we adjust the company’s EPS for non-controlling
interests and estimate the company reported stand-alone EPS of $0.45,
modestly below our estimate but in line with consensus. We note that, given
the myriad of “moving parts” within the Dream complex, earnings estimates
in and of themselves can be quite lumpy and we believe the overall
directionality of the underlying businesses is a greater factor in share price
performance. We continue to believe that DRM’s high-quality development
pipeline, growth in its many Dream subsidiaries, and rapidly growing asset
management platform (which added a further ~$1B in AUM this quarter) will
continue to be material growth drivers, and could lead to a further valuation
expansion in coming years. Our view of intrinsic value (and, indeed, the
discount thereto) is based on: 1) an implied value of $85,000 per acre for
DRM’s ~9,000-acre Western Canada land bank; 2) a 12.5x multiple on its
asset management platform given the higher proportion of external
third-party managed assets; and, 3) a 1.4x multiple on DRM’s development
assets to reflect the nearing of completion and a heavy GTA focus.
We maintain our Outperformer rating, and lower our NAV modestly to $53.00
(from $53.75), while sequentially lowering our price target from $53.00 to
$50.00, reflecting our revised estimates and a modest discount to our NAV.
Key Points
Earnings Update: DRM (consolidated) reported diluted EPS of $1.74, an
improvement over Q2/21, when it reported ($0.01). We estimate DRM has a
stand-alone BV of $32.31, and after adjusting for non-controlling interests
stand-alone EPS of ~$0.45 (we forecast ~$0.52 on a stand-alone basis).
Development Pipeline: DRM continues to have a robust development
pipeline in the GTA and National Capital Region, with over 21,000
condominiums or purpose-built rentals units, 3,000 of which will be added to
recurring income assets by the end of 2025. Additionally, DRM completed
occupancies at 364 condominium units at Canary Commons. The company
continues to make progress at Zibi, West Don Lands, Dream LeBreton,
Riverside Square, and Brightwater.
Debt and Liquidity: As at Q2/22, DRM had a Debt/Asset ratio of 40.1%,
compared to 27.8% in Q2/21, and $246MM in available liquidity (as
measured but DRM’s stand-alone cash and cash equivalents + undrawn
facilities).
Share Capital And Return To Shareholders: DRM paid $4.3MM in
dividends during the quarter, compared to $3.1MM in Q2/21. It successfully
spun out the U.S. multi-family residential portfolio to a newly listed IPO
(Dream Residential REIT) in the quarter.