Dream Industrial Real Estate Investment Trust is “delivering Canada’s best organic growth,” according to National Bank Financial analyst Matt Kornack, who now sees “runway for more.”
On Tuesday after the bell, the Toronto-based REIT reported first-quarter funds from operations of 24 cents per unit, up 2 cents from the same period a year ago and matching the forecast of both Mr. Kornack and the Street. While committed occupancy slipped 0.3 per cent sequentially to 98.6 per cent, due to the vacancy of a 225,000 square foot property in Montreal, however same-property net operating income rose 13 per cent, led by 14.3-per-cent gain in Canada.
“Dream Industrial continued to excel operationally in Q1 with rent spreads in core Canadian markets sustaining their brisk pace while MTM potential widened,” said the analyst. “In Europe, the CPI background also propelled organic growth; albeit, that market as a result is tracking closer to underlying fundamentals, whereas domestically, the REIT is building a long runway for future outsized organic performance.
“For the quarter, FFO was in line with our forecast but the composition was favourable as NOI [net operating income] beat, whereas interest expense was an offset on greater refinancing activity (this ultimately took the weighted average interest rate closer to market rates). The benefits of fee revenue from property management on JV assets was a notable earnings boost and even in the short stint since closing the SMU transaction, the MTM spreads achieved have been substantial. This gave management confidence to reiterate their guidance with an expectation for SPNOI growth at the top-end of the earlier stated range (8-10 per cent).”
Touting its “strong” operating performance and seeing further NOI gains ahead, Mr. Kornack increased his target for Dream Industrial units to $18.50 from $18 with an “outperform” rating. The average on the Street is $17.23.
Elsewhere, others making changes include:
* Desjardins Securities’ Kyle Stanley to $18 from $17 with a “buy” rating.
“DIR remains our highest-conviction idea within our coverage universe following a review of better-than-expected 1Q23 results,” said Mr. Stanley. “We are increasing our target ... reflecting an improved NOI and FFOPU growth profile and a 4.5-per-cent increase in our NAVPU estimate. Despite achieving record organic growth, DIR trades at a approximately 100 basis points wider FFO yield spread (393 bps) relative to the prior peak achieved in April 2022, which, in our view, represents an unwarranted discount.”
* Canaccord Genuity’s Mark Rotschild to $16.60 from $16 with a “buy” rating.
“Dream Industrial REIT (Dream Industrial) reported robust quarterly results that were slightly ahead of expectations, as an acceleration in internal growth, largely attributable to wide leasing spreads, drove an increase in FFO per unit of 13 per cent,” said Mr. Rothschild. “Despite the outlook for a slight moderation in the pace of industrial market rental rate growth going forward given an influx of new supply, leasing spreads should remain robust, as management currently estimates that the gap between in-place and market rents is greater than 37 per cent. For the full-year 2023, management expects the rise in same-property NOI to be at the high end of guidance for growth of 8-10 per cent, which we believe is achievable, contributing to our outlook for near double-digit cash flow per unit growth for the full year.”
*CIBC’s Dean Wilkinson to $18 from $17 with an “outperformer” rating.