On today's TSX Breakouts report, there are 44 stocks on the positive breakouts list (stocks with positive price momentum), and 26 securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appears to be on the cusp of appearing on the positive breakouts list - Dream Industrial Real Estate Investment Trust (DIR.UN-T). On Tuesday, its unit price jumped 3 per cent on high volume on news that an industry peer, Pure Industrial REIT (AAR.UN-T), was being acquired by Blackstone Property Partners at a hefty premium.
Consequently, the valuation for Dream Industrial was driven higher. A new Chief Executive Officer took the helm at the start of the year as he plans to accelerate the Trust's growth through acquisitions. Industrial pays unitholders an attractive distribution, currently yielding 7.7 per cent that appears to be sustainable. The monthly distribution has been maintained at its current level since 2013.
A brief outline on Dream Industrial REIT is provided below that may serve as a springboard for further fundamental research.
The REIT
Dream Industrial REIT owns and operates a portfolio of 214 industrial properties across North America.
On Jan. 1, Brian Pauls became the new Chief Executive Officer and is focused on accelerate the Trust's growth through acquisitions. In a news release from October, Mr. Pauls said,"I am excited to join Dream Industrial and am looking forward to working with the team to optimize the existing assets and boost the Trust's growth in Canada and the United States." In October, Dream Industrial entered into a strategic relationship with PaulsCorp, which will assist the Trust with its U.S. growth strategy.
On Nov. 9, the Trust announced plans to acquire four U.S. industrial distribution properties for $103-million (U.S.). The properties are located in Memphis, Orlando, and Charlotte. To fund this purchase, Dream Industrial completed an $86.5-million equity offering on Nov. 21, issuing nearly 10-million units at a price of $8.75 per unit, and raised $26-million in two private placements.
On Nov. 7, the REIT reported its third-quarter financial results that were in-line with expectations. Funds from operations (FFO) came in at 23 cents per unit, matching the consensus estimate. Adjusted funds from operations was 21 cents per unit, up 2.5 per cent year-over-year. Same-property net operating income (NOI) growth was 1.4 per cent. Occupancy was solid at 96.7 per cent. Post the quarter, the Trust completed its first U.S. acquisition, purchasing a distribution center in Nashville, Tennessee.
Chief Financial Officer Lenis Quan elaborated on the financial results on the conference call stating, "Comparative property NOI was strong, improving by 1.4 per cent from the same quarter last year, and is up 1.5 per cent year-to-date, reflecting higher occupancy in Ontario, Quebec and Eastern Canada as well as higher recoveries on capital invested in our properties. The value of our investment properties was stable at $1.6-billion, reflecting an overall cap rate of 6.61 per cent. We continue to improve our debt metrics, with leverage declining by 10 basis points over the same quarter of last year to 52.6 per cent. Our interest coverage ratio was stable at 3.3 times and debt-to-adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is 8.1 years. Our weighted average face interest rate is weighted term to maturity of 3.8 years. Our AFFO payout ratio for the quarter was 84.1%, improving 210 basis points from the same quarter last year."
The Chief Financial Officer Lenis Quan provided his outlook for the fourth quarter stating, "Looking at the remainder of the year, we expect occupancy to remain strong and have effectively addressed all of our 2017 expiries...On a comparative property basis, we expect NOI to be up about 1.5 per cent, and overall occupancy to be 80 to 100 basis points higher than our 2016 year-end. By region, Ontario and Quebec continue to be strong, and we expect NOI to further improve in both regions. Western Canada has stabilized, and we expect year-end occupancy to be largely flat. We are optimistic that we will see improvements in this market going forward, and we remain aggressive in maintaining occupancy and using that to drive rents in this market. In Eastern Canada, we are pleased with the progress we have made and have achieved a 370 basis point increase in occupancy since the beginning of the year. We expect the NOI contribution from the East to increase over the upcoming quarters as these leases take effect. In conjunction with our cost-reduction initiative and the recently announced Nissan building acquisition, we are expecting approximately 3 per cent growth this year over our 2016 reported AFFO."
Dream Industrial is anticipated to report its fourth-quarter financial results in February. The Street is anticipating FFO per unit of 23 cents. Management will be providing their outlook for 2018 on the earnings call.
Distribution policy
Dream Industrial pays its unitholders a monthly distribution of 5.833 cents per unit, or 79 cents per unit yearly. This equates to an annualized yield of 7.7 per cent. The Trust has maintained its monthly distribution at 5.833 cents per unit since 2013.
The monthly distribution appears sustainable with a FFO payout ratio of 77 per cent for the first nine months of 2017 and an AFFO (adjusted funds from operations) payout ratio of 86 per cent.
Analysts' recommendations
The REIT is covered by nine analysts, of which six analysts have buy recommendations and three analysts have hold recommendations.
These nine firms providing research coverage on the REIT are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Desjardins Securities, Echelon Wealth Partners, , Industrial Alliance Securities, National Bank Financial, Scotia Capital, and TD Securities.
Revised recommendations
This week, two analysts revised their target prices – both higher. Matt Kornack, the analyst from National Bank Financial, lifted his target price to $10.25 (the high on the Street) from $9.25, and upgraded the REIT to an "outperform" recommendation from a "sector perform" recommendation. Mark Rothschild, the analyst at Canaccord Genuity, raised his target price by 50 cents to $10 from $9.50.
In December, Sam Damiani from TD Securities bumped his target price to $9.50 from $9.
Financial forecasts
Steady but modest growth is forecast for the REIT. The consensus FFO per unit estimate is 91 cents in 2017, and is forecast to rise to 92 cents in 2018 and 94 cents in 2019. The consensus adjusted funds from operations (AFFO) per unit is 73 cents in 2017, 77 cents in 2018, and 84 cents in 2019.
Forecasts have been relatively stable. To illustrate, four months ago, the FFO per unit estimates were 91 cents for 2017 and 94 cents for 2018.
Valuation
According to Bloomberg, the REIT is trading at a price-to-FFO multiple of 9.9 times the consensus 2018 estimate and at an price-to-AFFO multiple of 11.9 times the consensus 2018 estimate.
The average one-year target price is $9.61, implying the unit price may appreciate 5 per cent over the next 12 months. Target prices are quite concentrated ranging from a low of $9.25 (at Scotia Capital) to a high of $10.25 (at National Bank Financial). Individual target prices are as follows in numerical order: $9.25, six at $9.50, $10, and $10.25.
Insider transaction activity
Looking back over the past six months, there has been no insider transaction activity in the public markets.
Chart watch
Over the past two years, the unit price has traded principally between $7.50 and $9.
On Jan. 9, the unit price jumped 3 per cent on very high volume with over 625,000 units traded. This is well above the three-month historical daily average trading volume of approximately 215,000 units.
If the positive price momentum can be maintained, the unit price could rally to around $10, where there is major overhead resistance. In terms of downside support level, the unit price has strong support just below $9, near its 50-day moving average (at $8.86) and its 200-day moving average (at $8.82).
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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.