Andrew MoffsDream Industrial REITDIR.UN.TOTOP PICKMar 30, 2023

Wide discount to private market value. Thinks it will have the highest cashflow growth (estimated at 9%) of any REIT globally. Share price worth north of $18. Will benefit from dynamics of e-commerce, onshoring, reshoring.

Prefers GRT.UN, a better investment than DIR.UN. Steadier assets. Backed more by management. Only weakness is that US properties are suffering a bit. 

DIR.UN has good numbers, but issued equity in September, instead of selling assets, to get leverage down. Motivated by externally managed contract remuneration based on assets under management. Stock fell. Can't support management on any level. Supply's coming on, so the story's getting tired.

Europe and Canada, with major focus on Toronto and Montreal, which are seeing market rent growth of 40-50%. Strong internal cashflow growth, discount to NAV of $17-18. Quality. Yield is 5.40%.

Industrial REIT's are still a good investment. Dream has done well with its holdings in large cities. REIT's are under pressure with rising interest rates but it has been able to pass along some of this through increased rents.

In the Q2-2023, DIR.UN’s FFO per unit grew 14% compared to the same period last year to $0.25 per share. In addition, NAV grew 20% to $16.97 per unit compared to $16.64 last year, DIR.UN is trading at a wide discount to NAV. DIR.UN’s portfolio focuses on high-quality industrial properties. As a result, the occupancy level is consistent over the years, with the occupancy rate slightly down to 97.6% compared to last year of 98.6%, which indicates the stickiness in the company’s portfolio. DIR.UN has a track record of acquiring and managing properties to increase cash flow per unit, and generate consistent FFO per unit growth, also trading at a discount to NAV is an attractive valuation. We would be quite comfortable holding this name.
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In its Q1 2023, FFO per unit grew 13% compared to the same period last year. In addition, DIR.UN is trading at a discount to NAV of $17.

DIR.UN’s portfolio focuses on high-quality industrial properties. As a result, the occupancy level is still solid, with the occupancy rate in line with last year, around 98.6%, which indicates the stickiness in the company’s portfolio.

DIR.UN has a track record of acquiring and managing properties to increase cash flow per unit. We think going forward the investment thesis is still intact. We would be comfortable holding this name.
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EPS was ($0.06) and revenue was $81.46M for the recent quarter. Diluted funds from operations per unit was $0.25, an increase of 13.3%, and net rental income rose by 24.7%. Its net loss was largely driven by a fair value adjustment to financial instruments of ($64.6M) and other expenses of $43.3M. Since the previous quarter, DIR.UN has signed 0.9 million square feet of new leases and renewals at an average spread of 41% over prior or expiring rents. 

These were decent numbers, although, Dream Office REIT (D.UN) recently announced an agreement to sell 12.5M units of DIR.UN (roughly 50% of Dream Office's holdings of DIR) at a price of $14.20 per DIR unit. Dream Office then intends to use these proceeds to purchase 12.5M units of its outstanding D.UN units at a price of $15.50 per unit. For DIR.UN, this caused its price to fall to $14.20, the sale price of units, and for D.UN, this caused its price to jump by 18% to ~$14.9, slightly below the purchase price of $15.50. Dream Office has made this move as it mentioned the NAV per unit of D.UN as of March 31, 2023 was $31.50, and this move would increase its NAV to $35.85. Management is taking advantage of the steep discount to NAV on its D.UN units by selling some of its DIR.UN holdings.  

We would be OK buying here, given that the sale price was not at too significant of a discount to its recent close, and management is looking to capitalize on DIR.UN's success and buy its D.UN units at a steep discount.
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It is the cheapest industrial warehouse stock so he would still buy. Its ownership of places in Europe caused the stock to drop but that situation is improving. The value of its real estate markets has increased and there is an opportunity for increased rent growth of 40 to 70% in Toronto and Montreal. Trades at a wide discount to NAV

They are taking over (with a partner) Summit Industrial REIT currently. He values shares at $18, though it's now trading at $12. That takeover partner is a large, foreign and sophisticated entity that saw opportunity and value in both Dream and Summit, so he's quite bullish on Dream. (Analysts’ price target is $15.18)