Dream Unlimited Corp.
(DRM-T) C$44.79
Well-positioned to Face Current Macro Challenges
Event
Post-Q1/22 update (initial views on the quarter: link).
Impact: SLIGHTLY POSITIVE
Scaling up in asset management: Dream manages $10bln of fee-earning AUM, and we value the asset management platform at $0.4bln or 4% of AUM (and 9% of our gross asset value for Dream). As fee-earning AUM grows (which we expect), we envision the platform value representing an increasing portion of total value, thereby helping overall NAV grow. The recent equity market sell-off has interrupted the ability of publicly traded REITs (including DIR.un) to raise equity capital. Dream's private- fund AUM growth in recent years provides some timely diversification, and existing funds have $1.6bln of committed and uncalled capital.
Our NAV/share estimate increases by $1.00 to $67.50. Due to the market sell-off in recent weeks, Dream's publicly traded subsidiaries are trading at historically wide discounts to NAV. When translating this discount to Dream, it represents ~$7.00/ share versus ~$3.50/share in mid-February.
In addition to the reiterated strong outlook for western Canada housing revenue, we have also seen evidence of sustained underlying asset value for future development land. Earlier this month, Genesis Land (GDC-TSX, not covered) committed to acquire 160 acres of raw land at the eastern edge of Calgary for $29.2mm. This equates to $181,000/acre and $26,000 per housing unit. The $275,000 per acre we assume in our NAV for Dream's Calgary landholdings (primarily Alpine Park, which has already been approved and is generating revenue) could be conservative by comparison, in our view.
Inflation and labour shortages are affecting construction costs and schedules, and higher interest rates are affecting homebuyer affordability. Partially offsetting this is higher wage growth. Dream's existing pipeline of active developments should be largely unaffected (costs mostly locked-in), but future project commencements are now less certain.
TD Investment Conclusion
Although recent market volatility has introduced some uncertainty, Dream benefits from having a diversified range of businesses and markets. Whatever economic softening that may be emerging, Dream is entering it with some of the strongest fundamentals we have seen in many years. Dream's combination of property development and asset management remains difficult to replicate in the public markets.