GREY:DUNDF - Post Discussion
Post by
retiredcf on Feb 25, 2019 9:50am
TD Upgrade
Dream Global REIT
(DRG.UN-T) C$13.50
Enviable Fundamentals Point to Further NAV Growth
Event
Forecast update following Q4/18 results.
Impact: POSITIVE
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Following the 25% increase in our NAV y/y, we see further NAV growth in 2019. Our confidence is driven by DRG's strong Q4/18 operating results, 2019 guidance (Exhibit 3), and conference call commentary, combined with continually improving market fundamentals (Exhibit 6).
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Despite +1.8% office space supply growth anticipated in Germany this year, demand remains strong and could get a boost from WeWork's accelerated growth plans for Germany (it recently set up a Berlin-based team). The tight leasing markets are enabling more NAV-accretive development and intensification opportunities for DRG (Exhibit 4).
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Portfolio: DRG intends to dispose the last of its non-core assets this year, and acquisitions will be more focused on industrial/logistics properties where management is comfortable bringing exposure to ~10% from 6% currently.
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Forecast & NAV Update: Our FFO and AFFO estimates are largely unchanged, while we have increased our NAV estimate by 9% to $15.30 (NOI growth and cap rate reduced by 30bps to 5.3%).
TD Investment Conclusion
DRG continues to enjoy among the best fundamentals within our entire coverage universe. Steady leasing demand should keep vacancy rates at or near today's already historical low levels, push market rents higher, and contribute to rising replacement cost values. Near-term NOI growth continues to be driven by higher rents in Germany and a combination of occupancy and rents in the Netherlands. DRG's experienced on-the-ground team and successful track-record should continue to give rise to growth opportunities beyond those implied in the guidance, like the 2017 Merin acquisition. With balance-sheet metrics migrating more closely to those of its peers while growing both NAV and AFFO, we believe that DRG's unit price has good potential for valuation expansion. We are reiterating our BUY recommendation and raising our target price to $16.50.
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