DREAM Unlimited Corp

DREAM Unlimited Corp (TSX: DRM) is a real estate company. The company's operating segment includes Asset management; Stabilized income-generating assets; Urban development - Toronto and Ottawa and Western Canada community development. It generates the majority revenue from the Asset Management segment.

Investment Rationale:

• The company has strong liquidity of CAD 378.1 million, under its revolving credit facilities, which seems sufficient to withstand the current crisis.
• Lower debt contribution in the balance sheet with Debt/Equity ratio 0.54x, with 7.52x interest coverage ratio at the end of the last quarter. The interest coverage ratio is significantly higher and implies no balance sheet risk.

Recent Developments:

• Recently, the company reported the installation of The Zibi Community Utility, used for substantial reduction of carbon emissions using district energy for heating and cooling.
• On September 30, 2020, the company announced the appointment of Ms. Deborah Starkman as the company’s Chief Financial Officer.

Q2FY20 Operating Highlights:

• Second-quarter revenue stood at CAD 62.044 million, lower than CAD 76.044 million in the previous corresponding quarter, primarily attributable to a significantly lower recurring income (CAD 19.8 million vs CAD 42.5 million in pcp).
• The company’s recurring income took a hit due to a temporary closure of Arapahoe Basin and reduced income from Dream Alternatives’ portfolio on account of asset dispositions in previous year and loan repayments as per the Trust’s strategic plan.
• Net margin stood lower at CAD 6.253 million, as compared to CAD 19.457 million in pcp.
• However, the company reported improved performance from development segment and posted revenue and a net margin of CAD 42.3 million and CAD 3.4 million, respectively, grew by CAD 8.7 million and CAD 4.1 million on y-o-y basis. 

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Continuation of a sluggish industrial scenario due to lower employment rates, temporary suspension of non-essential businesses, etc. may weigh on the company’s overall performance.

Valuation Methodology: P/E Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months.

Stock Recommendation: The stock of DRM plunged 5.26% in the last one year. The introduction of the District Energy System is one of the innovative technologies used within North America and would make Zibi the region's first zero-carbon-emission community by using a temperature controlling application through mobile devices. 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. We have valued the stock using P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Howard Hughes Corp, Melcor Developments Ltd etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 19.10 on October 16, 2020.

DRM Daily Technical Chart (Source: Refinitiv, Thomson Reuters).

Disclaimer

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