On Tuesday, major North American stock markets all finished the trading session slightly higher.
In the U.S., the Dow Jones Industrial Average advanced 0.21 per cent, the S&P 500 index increased 0.18 per cent and the Nasdaq composite index rallied 0.08 per cent.
Turning to Canada, the S&P/TSX composite index climbed 18 points, or 0.12 per cent. There were 116 securities in the TSX Index that advanced, 129 securities declined in value, and five stocks closed the day unchanged.
Year to date, the TSX Index is up 1.24 per cent. While the Dow Jones Industrial Average is up 5.95 per cent, the S&P 500 index is up 7.13 per cent, and the Nasdaq is the shining star with a 14.04 per cent gain.
On today's TSX Breakouts report, there are 26 stocks on the positive breakouts list (stocks with positive price momentum), and 15 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a trust that we last highlighted in April 2016. Since then, the unit price has appreciated 23 per cent, in addition to offering investors a high yield. The REIT has an attractive positioning in the strengthening German economy. In addition, the REIT offers investors stable distributions, currently yielding 7.7 per cent. The security I am referred to is Dream Global Real Estate Investment Trust (DRG.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The REIT
The REIT owns and operates international office, industrial, and mixed use real estate properties with a focus on three European countries, Germany, Austria, and recently gained a footprint into Belgium. In terms of its tenants, in 2016, Deutsche Post, the REIT's largest customer, represented 18.9 per cent of the Trust's total gross rental income. The second largest tenant represented 3.9 per cent of the Trust's total gross rental income, and the top 10 tenants accounted for 41 per cent of total gross rental income.
The REIT's largest geographical exposure is to Germany, a country seeing its economy strengthen. In the first-quarter, the German economy expanded 0.6 per cent. The April adjusted unemployment rate was 5.8 per cent, its lowest level in over two decades. Earlier this month, the DAX, the German stock exchange, closed at an all-time high.
On May 3, Dream Global reported first-quarter financial results that were in-line with expectations. Funds from operations (FFO) per unit came in at 22 cents, in-line with the consensus estimate. Occupancy was 90.1 per cent, the highest occupancy level in the Trust's history. Same-property net operating income (NOI) increased 2.2 per cent year-over-year. Management's outlook was positive stating, "The fundamentals in the German office sector are expected to remain strong in the foreseeable future."
On March 21, management announced that it completed a $115-million equity offering, issuing 11.983-million units at a price of $9.60 per unit, with proceeds earmarked to fund acquisitions. On May 16, the REIT announced it completed an acquisition allowing the Trust to enter a new market. In a news release, the president and chief executive officer Jane Gavan remarked, ""We are excited to have entered into the compelling Brussels market with this high-quality acquisition. Brussels, headquarters of the European Union, is amongst the largest office markets in Europe and a strategic location for many multinational companies, making it an ideal location for the Trust's expansion. We have now entered into our second market outside of Germany, further solidifying our reputation as a local European investor with a strong management platform."
Investors should monitor updates on contract negotiations with its largest tenant as Deutsche Post's lease expires on June 30, 2018. Management indicated in their first-quarter Management's Discussion and Analysis, "We believe we will be able to retain a significant portion of the space."
Distribution policy
Dream Global REIT pays a monthly distribution of 6.667 cents per unit, or 80 cents per unit yearly, equating to an annualized yield of 7.7 per cent. Management has maintained the distribution at this level since 2011.
Analysts' recommendations
There are 10 firms that have issued research reports on the REIT since the beginning of the year, seven reports are buy recommendations and three are hold or neutral recommendations.
The ten firms issuing recent research reports are as follows in alphabetical order: Canaccord Genuity, CIBC World Markets, Desjardins Securities, Eight Capital, GMP, National Bank Financial, RBC Capital Markets, Scotia Capital, TD Securities and Value Investment Principals.
Financial forecasts
The Street is forecasting FFO per unit of 87 cents for 2017, rising to 91 cents in 2018. The consensus adjusted funds from operations (AFFO) per unit estimate is 78 cents in 2017 and 80 cents the following year.
Earnings expectations have been relatively stable. For instance, three months ago, the consensus FFO per unit estimates were 89 cents for 2017 and 90 cents for 2018. The Street was anticipating AFFO per unit of 78 cents for 2017 and 79 cents for 2018.
Valuation
According to Bloomberg, the REIT is trading at a price-to-FFO multiple of 11.5 times the 2018 consensus estimate, and at a price-to-AFFO multiple of 13 times the 2018 consensus estimate.
The average one-year target price is $10.70, suggesting the REIT is nearly fairly valued. Individual target prices are as follows in numerical order: two at $10, $10.25, $10.50, $10.75, four at $11, and $11.50.
Revised recommendations
Earlier this month, several analysts revised their expectations –all higher. Sam Damiani, the analyst from TD Securities, lifted his target price to $11 from $10.50. Matt Kornack from National Bank Financial increased his target price by 50 cents to $11. Michael Markidis from Desjardins Securities took his target price up to $11 from $10. Yashwant Sankpal from CIBC World Market hiked his target price to $10 from $9.50. Pammi Bir from Scotia Capital tweaked his target price higher by 25 cents, increasing it to $10.25. Mark Rothschild from Canaccord Genuity increased his target price to $10.50 from $10. Lastly, Jimmy Shan from GMP took his target price up to $10.75 from $10.50.
Insider transaction activity
Only one insider has reported transaction activity in the public market so far this year. On March 3, president and chief executive officer Jane Gavan exercised her rights and sold just over half of the corresponding number of units, selling 12,622 units in the public market that same day.
Chart watch
The units are in an uptrend. Year to date, the unit price is up over 10 per cent, outperforming the S&P/TSX composite real estate sector index gain of 4.1 per cent. Dream Global REIT is the sixth top performing security in the TSX composite real estate sector out of the 21 members in the index.
On continued price strength, there is initial overhead resistance around $10.50, and after that, around $11, and then at $11.50.
Should the positive price momentum pause and the unit price retreat, there is initial support around $10, which is close to its 50-day moving average (at $9.88). Failing that, there is support around $9.50, near its 200-day moving average (at $9.42), and after that, there is support around $9.
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.