TSX:DIR.UN - Post by User
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retiredcfon Aug 03, 2023 8:41am
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Post# 35570698
TD 2
TD 2 Dream Industrial REIT
(DIR.UN-T) C$14.08
Strong Leasing Demand and Acqn's Drive Raised Growth Outlook
Event
Post-Q2/23 outlook update. Initial views: here.
Impact: SLIGHTLY POSITIVE
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DIR delivered another strong quarter both operationally and financially and raised 2023 guidance for both SPNOI growth and FFO/unit (see Exhibit 4 for new vs. old guidance and our forecast revisions). At the same time, there are signs that the pace of organic growth may be peaking (see charts for NOI growth and occupancy in Exhibit 1), and both consensus and our previous forecast were already above the prior guidance.
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That said, this SPNOI growth pace is near the top of our entire coverage universe. Industrial property fundamentals remain among the best across all real estate sectors and, in our view, demand/supply dynamics are unlikely to change meaningfully for the foreseeable future. This is particularly true for the GTA and GMA markets (which represent ~50% of DIR's asset value). Therefore, we continue to expect outsized performance from DIR on both SPNOI growth and capital deployment opportunities.
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DIR continues to focus its growth capex on the GTA market (see our review of DIR's recent property tour here), which remains one of the strongest, largest and most liquid across North America. IPP acquisitions within the Dream-Summit JV are currently targeting initial cap rates in the 5s (stabilizing in the mid-6s based on 40% mark-to-market on rents), resulting in mid-to-high-teens levered IRRs (low- teens excluding fee income). Capital recycling is increasingly being targeted, with some small disposals already completed in Europe and others being pursued including in Canada.
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DIR remains well-positioned to fund its strategic growth priorities, including 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, with ownership interests ranging 5% to 25% on new investments.
Forecast/NAV: Our new AFFO/unit estimates now reflect a two-year AFFO/unit CAGR of 9%. We raised our NAV/unit estimate 2% to $16.00 (higher NOI more than offset a higher cap rate – Exhibit 3), while IFRS NAV/unit was steady at $16.97.
TD Investment Conclusion
We reiterate our BUY recommendation and $16.50 target price.