Dream Unlimited Corp

Dream Unlimited Corp (TSX: DRM) is a leading developer of exceptional office and residential assets in Toronto, owns stabilized income-generating assets in both Canada and the U.S.

Recent Developments

• On September 04, the board of directors has approved an increase to the annual dividend from CAD 0.12 to CAD 0.24 per Class A Subordinate Voting Share and Class B Common Share. The board has approved the payment of a quarterly cash dividend of $0.060 per Class A Subordinate Voting Share and Class B Common Share payable on September 30, 2020, to shareholders of record on September 15, 2020.
• On August 17, the company informed that its interest in Dream Hard Asset Alternatives Trust is deemed to have increased as a result of the deemed acquisition by Michael Cooper of 211 Units of Dream Hard Asset Alternatives Trust.

Investment Rationale 

• European Expansion Strategy: The group is actively pursuing an aggressive European expansion strategy, which I likely to establish the group in some of Western Europe's most important logistics markets.

• Focus on Lowering Capital Cost: Another reason that Dream Industrial REIT finds Europe to be an attractive market is due to the low costs of capital available in the European debt markets. According to the Trust's January 2020 press release: The Trust intends to hedge its entire Euro capital exposure by borrowing 100% of the Euro value of its portfolio to mitigate currency risk. The debt will be a combination of unsecured and secured financings on properties in Europe and North America, denominated in Euros. As a result, the total value of the portfolio will be hedged, and the group will access debt at 1.30% to 1.50% over a five-year term from the group's debt and hedging strategy. Effectively, the group will continue to maintain a low leverage ratio with a higher proportion of the debt hedged in Euros.

• Bullish Technical indicators: DRM's shares traded above the crucial short-term support levels of 50-day and 100-day SMAs; which indicates a bullish trend.

Risk: The company is exposed to credit risk, which is related to investment properties, and certain investment holdings arise from the possibility that tenants may not fulfil their lease or contractual obligations. Any such scenario would dampen the group's performance.

Valuation Methodology (Illustrative): Price to Earnings Based Relative Valuation

Note: All forecasted figures have been taken from Refinitiv (Thomson Reuters)

Stock Recommendation: Dream Industrial has done an admirable job in reducing its total leverage. Over the past five years, the group has reduced net debt to adjusted EBITDAFV from 9.03x in FY18 to 1.91x in FY19. Similarly, Dream Industrial has improved its balance sheet by shrinking its net debt to assets. Further, Dream Global REIT owned a high-quality portfolio of European assets with a focus on the key logistics markets of Western Europe, especially Germany and the Netherlands. Also, the company is offering an LTM Return on Equity of 45.48%, which is significantly higher against the industry median. Therefore, based on the above rationale and valuation done using the above methodology we have given a Buy recommendation at the closing price of CAD 19.71 (on September 22, 2020), with lower double digit upside potential based on the NTM Peer’s Average PE multiple of 10.3x on the FY20E EPS.

DRM 1 Year Technical Price Chart. Source: Refinitiv (Thomson Reuters)

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