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Dream Industrial REIT: (DIR.UN TSX)
Dream Industrial REIT is a pure-play industrial REIT focused on owning primarily distribution and logistics assets across Canada (62 per cent of investment property value, excluding assets held for sale) and Europe (38 per cent). It also owns a 25 per cent interest in a private open-ended U.S. industrial fund, in which the REIT earns fees for property and construction management as well as leasing services. The REIT recently formed a joint-venture with Singapore Sovereign Wealth Fund “GIC” to acquire Summit Industrial Income REIT for $5.9 billion. In addition to participating as a 10 per cent equity owner, the REIT will earn management fees from this new platform allowing the deal to be immediately accretive to earnings.
The REIT’s portfolio is concentrated in low vacancy, high-barrier to entry industrial hubs across North America and Europe, which over the last several years has resulted in sizeable market rent growth. Specifically, the REIT has 33 per cent of its portfolio in the Toronto and Montreal areas, which experienced market rent growth of 40 per cent and 50 per cent in 2022. With new supply in these markets de minimis, market rent growth should continue to remain above inflationary levels for the next few years, which in turn should further improve the REIT’s already robust earnings growth profile. As a result of realizing its strong mark-to-market potential and several development projects coming online in 2023, the REIT is expected to achieve nine per cent same-property NOI growth and 10 per cent FFO growth. These metrics place Dream Industrial amongst the fastest growth industrial REITs in North America. Moreover, when overlaid with its conservative balance sheet of 32 per cent debt to assets, the REIT screens highly attractive from a risk-adjusted growth basis.
Despite this, units of the REIT continue to trade at a compelling 21 per cent discount to its underlying NAV.