Dream Unlimited Corp.
(DRM-T) C$48.33
NAV Raised to $66.50, Reflecting Higher NAV for Dream Office Event
We are increasing our NAV/share estimate to reflect our higher NAV/unit estimate for Dream Office REIT. We are also changing our risk rating to MEDIUM from High.
Impact: SLIGHTLY POSITIVE
Increasing our NAV/share estimate +3.7% to $66.50. Our NAV/share bump for Dream follows a +16% increase in our Dream Office NAV/unit to $35.90 (see our separately published note). We have increased our Dream Office NAV/unit to reflect pricing on recent private market transactions that we believe is largely unaffected by concerns around WFH/remote-working policies.
We are lowering our risk rating for Dream to MEDIUM from High. Our lower risk rating follows Dream's increased percentage of revenue coming from recurring income sources, along with an acceleration in AUM growth and the relative healthiness of the western Canada housing market — all of which should allow for earnings to become more predictable going forward. Dream's $15bln of total AUM (+ $5bln y/y) is now 47%-concentrated in Industrial properties, and 12%-concentrated in Rental Residential properties.
Today, over 60% of Dream's gross asset value (GAV) comprises assets that deliver recurring and relatively steady cash flows. This is in contrast to less than 50% when we raised our risk rating to High back in 2016 (the remainder comes from development activities, which produce more volatile earnings).
We expect meaningful further near-term growth in recurring-income assets, with Dream's current development pipeline set to add over 2,500 residential rental units (including over 1,400 units by 2023) plus an additional 200,000sf of commercial space.
TD Investment Conclusion
Despite the recovery in Dream's P/NAV valuation (currently 73%), we continue to see attractive upside through further NAV growth. With current favourable market conditions for profitable development of both rental and for-sale projects, organic SPNOI growth, and fundraising driving higher AUM, we see potential for continued attractive NAV growth going forward. Concurrent with our increased NAV/share estimate, we are also raising our target price to $58.00 from $55.00 to maintain our ~80-90% target P/NAV.