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On today’s Breakouts report, there are 26 stocks on the positive breakouts list (stocks with positive price momentum) and 52 securities are on the negative breakouts list (stocks with negative price momentum). Approximately one-third of the companies on the negative breakouts list are precious metals stocks.

With declining interest rates, investors are scooping up REITs. Discussed today is a REIT whose unit price closed at a record high on Friday - Dream Industrial Real Estate Investment Trust (DIR-UN-T).

Management has been successfully executing its capital recycling program. The Trust is covered by nine analysts and has a unanimous buy recommendation. It is anticipated to deliver a 9-per-cent total return (including the yield) over the next 12 months. However, target prices have been moving up.

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The REIT offers its unitholders an attractive 4.7 per cent yield with a monthly distribution that has been maintained since 2013.

A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The REIT

Toronto-based Dream Industrial REIT holds a portfolio of 280 industrial properties, which are located in North America and Europe.

Management is committed to strengthening its portfolio through its asset recycling program - purchasing strategic acquisitions and completing divestitures. Year-to-date, the Trust has completed over $350-million of acquisitions with approximately $155-million of pending potential acquisitions for properties located in Canada, the U.S., the Netherlands and Germany. On June 24, the REIT acquired 31 European properties at a purchase price of roughly $850-million. In 2020, over $620-million of acquisitions were completed.

If the pending European acquisition is completed (advanced negotiations are currently underway, and if successful, the acquisition may be completed by late-July), the REIT’s gross asset value will increase to $4.9-billion from $3.6-billion with a geographical breakdown as follows: Canada at 51 per cent, Europe at 37 per cent, and the U.S. at 12 per cent. The current geographic mix is 68 per cent Canada, 17 per cent U.S., and 15 per cent Europe.

At the annual general meeting held earlier this month, Chair Vincenza Sera highlighted several positive company attributes, “We focus on increasing scale in markets that have significant barriers to entry, providing strong organic growth potential. Over the past year, we have expanded into Europe and have added significant scale in the Greater Toronto and Montreal areas, which will allow us to capture significant upside in cash flows and asset values over time. Our recently announced transformational acquisition of a $1.3 billion portfolio in Europe will allow us to further expand our European platform while adding scale in attractive markets and significantly improving portfolio quality. Our European expansion has also allowed us to transform our financing model and significantly lower our leverage -- our average interest rate. Last year, we obtained a BBB investment-grade credit rating from DBRS and raised nearly $450 million of unsecured debt at an average interest rate of only 0.65 per cent, which has resulted in a 100 basis point drop in the average interest rate on our total outstanding debt. With euro equivalent debt at rates well below 1 per cent and a strong acquisition pipeline, we expect our average interest rate to continue to reduce further.”

Investment thesis

  • Double-digit funds from operations (FFO) per unit growth.
  • Longer-term growth driven by its development pipeline - greenfields/new developments, expansions, and redevelopments of existing properties.
  • Diversified tenant base, industry exposures, and geographic exposures.
  • Healthy balance sheet.
  • Attractive yield in the current low interest rate environment.

Industry fundamentals

At the AGM, Chair Sera highlighted improving market conditions, “Availability rates have already dropped to pre-pandemic lows and cap rates continue to compress across all our operating regions. With current e-commerce trends forecast to persist, we expect demand for well-located industrial real estate to continue to accelerate from both occupiers and investors. Our portfolio is well-positioned to take advantage of these trends.” Strong demand is translating into rising asset values, higher rents, and strong leasing activity.

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Quarterly financial results

After the market closed on May 4, the Trust reported strong first-quarter financial results.

FFO per unit came in at 19 cents, in-line with the Street’s expectations, and up from 17 cents per unit reported during the same period last year. In the first-quarter, same-property NOI (net operating income) increased 3.1 per cent year-over-year. Same-property NOI from the Canadian portfolio increased 2 per cent year-over-year with strength in Ontario. Same-property NOI from the U.S. portfolio rose 6.7 per cent year-over-year fueled by higher rents and a 2 per cent increase in the occupancy rate. The overall occupancy rate stood at 97.2 per cent (in-place and committed). As of March 31, the net debt-to-assets ratio declined to 28.7 per cent down from 31.3 per cent reported last year. The following day, the unit price was relatively unchanged, declining by a penny.

On the earnings call, chief operating officer Alex Sannikov said, “We expect the same-property NOI growth will accelerate through the year as new leases take effect.”

Distribution policy

Dream Industrial REIT pays its unitholders a monthly distribution of 5.833 cents per unit, or 70 cents per unit yearly. This equates to a current annualized yield of 4.7 per cent. The Trust has maintained its monthly distribution at 5.833 cents per unit since 2013.

Analysts’ recommendations

This mid-cap REIT with a market capitalization of $3.1-billion is covered by nine analysts and has a unanimous buy recommendation.

The firms providing research coverage on the REIT are: Canaccord Genuity, CIBC World Markets, Desjardins Securities, Industrial Alliance Securities, National Bank Financial, Raymond James, RBC Dominion Securities, Scotia Capital and TD Securities.

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Revised recommendations

After the Trust released its first-quarter financial results, all nine analysts revised their expectations slightly higher.

Financial forecasts

The consensus FFO per unit estimates are 78 cents in 2021, rising 10 per cent to 86 cents in 2022. The consensus AFFO (adjusted funds from operations) per unit estimates are 69 cents in 2021 and 76 cents in 2022.

Management anticipates FFO per unit will increase 10 per cent in 2021.

Financial forecasts have remained fairly steady in recent months. To illustrate, three months ago, the consensus FFO per unit estimates were 80 cents for 2021 and 85 cents for 2022.

According to Refinitiv, the consensus FFO per unit estimates for industry peer Summit Industrial Income Real Estate Investment Trust (SMU-UN-T) are 69 cents in 2021, rising 7 per cent to 74 cents in 2022.

Valuation

According to Bloomberg, the Trust is trading at peak multiples - a price-to-AFFO multiple of 21.7 times the consensus 2022 estimate and a price-to-FFO multiple of 17.5 times the consensus 2022 estimate.

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According to Refinitiv, industry peer Summit Industrial Income Real Estate Investment Trust (SMU-UN-T) is trading at a higher price-to-FFO multiple, 23.7 times the consensus 2022 estimate.

The average one-year target price is $15.69, implying the unit price has 5 per cent potential upside over the next 12 months (a potential total return of 9 per cent if you include 4.7 per cent yield. Target prices are concentrated ranging from a low of $15 (from RBC’s Pammi Bir) to a high of $16. Individual target prices are as follows in numerical order: $15, three at $15.50, $15.75, and four at $16.

Insider transaction activity

Quarter-to-date, there has not been any buying or selling activity reported in the public market by insiders.

Chart watch

On June 18, the unit price closed at a record high, rising nearly 1 per cent on unusually high volume. That day, over 5.8 million units traded, which is well above the three-month historical daily average trading volume of approximately 1.1 million units.

Year-to-date, the unit price has rallied 14 per cent, lagging the S&P/TSX real estate index, which is up 19.9 per cent. However, on a month-to-date basis, the REIT has been playing catch-up, rising 8.3 per cent and outperforming the S&P/TSX real estate index, which has gained 4.1 per cent.

In terms of key resistance and support levels, the next ceiling of resistance is around $16. After that, there is resistance around $17. Looking at the downside, the unit price has initial technical support around $14, near its 50-day moving average (at $14.06). Failing that, there is support around $13, which is near its 200-day moving average (at $12.92).

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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.

POSITIVE BREAKOUTSJune 18 close
ALA-TAltaGas Ltd $25.80
BEI-UN-TBoardwalk Real Estate Investment Trust $40.85
CPX-TCapital Power Corp $41.40
CUF-UN-TCominar Real Estate Investment Trust $10.48
DII-B-TDorel Industries Inc $14.95
DIR-UN-TDream Industrial REIT $14.98
D-UN-TDream Office REIT $23.53
ESI-TEnsign Energy Services Inc $2.17
EXF-TEXFO Inc $7.48
GTE-TGran Tierra Energy Inc $0.94
GRT-UN-TGranite Real Estate Investment Trust $85.01
ISV-TInformation Services Corp. $31.24
IIP-UN-TInterRent REIT $16.93
KMP-UN-TKillam Apartment REIT $20.60
LSPD-TLightspeed POS Inc. $99.53
MI-UN-TMinto Apartment REIT $23.67
NVA-TNuVista Energy Ltd $3.28
POM-TPolyMet Mining Corp. $4.63
PBH-TPremium Brands Holdings Corp $126.00
RECO-XReconnaissance Energy Africa Ltd. $12.24
SHOP-TShopify Inc. $1,820.37
SLL-XStandard Lithium Ltd. $4.80
SMU-UN-TSummit Industrial Income REIT $17.51
TVK-TTerraVest Capital Inc $19.25
TCN-TTricon Residential Inc $13.93
TFPM-TTriple Flag Precious Metals Corp. $16.26
NEGATIVE BREAKOUTS
ARE-TAecon Group Inc $17.65
AFN-TAg Growth International Inc $36.18
AGI-TAlamos Gold Inc $9.71
AIF-TAltus Group Ltd $55.55
USA-TAmericas Silver Corp $1.92
ADW-A-TAndrew Peller Ltd $9.58
AHC-TApollo HealthCare Corp. $2.79
BTO-TB2Gold Corp $5.44
BDT-TBird Construction Inc $8.74
CFX-TCanfor Pulp Products Inc $7.70
CLS-TCelestica Inc $9.65
CERV-TCervus Equipment Corp $15.05
CGG-TChina Gold International Resources Corp. $3.24
CGO-TCogeco Inc $91.10
CJR-B-TCorus Entertainment Inc $5.70
CL-CNCresco Labs Inc. $12.91
DPM-TDundee Precious Metals Inc $7.40
EMX-TEMX Royalty Corp. $3.67
EGLX-TEnthusiast Gaming Holdings Inc. $6.77
EQX-TEquinox Gold Corp. $9.86
FFH-TFairfax Financial Holdings Ltd $541.66
FVI-TFortuna Silver Mines Inc $7.25
GAU-TGaliano Gold Inc. $1.38
GSC-TGolden Star Resources Ltd. $3.67
HDI-THardwoods Distribution Inc $28.47
HBM-THudBay Minerals Inc $7.55
HUT-THut 8 Mining Corp. $4.64
IAG-TiA Financial Corporation Inc. $67.37
ITP-TIntertape Polymer Group Inc $27.69
JAG-TJaguar Mining Inc. $5.59
JWEL-TJamieson Wellness Inc. $33.29
K-TKinross Gold Corp $8.00
LUN-TLundin Mining Corp $11.33
MG-TMagna International Inc $110.10
MFC-TManulife Financial Corp $24.08
MMX-TMaverix Metals Inc. $6.57
MX-TMethanex Corp $40.98
NOU-XNouveau Monde Graphite Inc. $9.30
NG-TNovagold Resources Inc $10.20
PAAS-TPan American Silver Corp $34.98
PTM-TPlatinum Group Metals Ltd $4.36
PVG-TPretium Resources Inc $12.23
PRMW-TPrimo Water Corp. $19.90
SII-TSprott Inc $48.75
SJ-TStella-Jones Inc $44.11
STGO-TSteppe Gold Ltd. $1.96
SLF-TSun Life Financial Inc $62.24
TXP-TTouchstone Exploration Inc. $1.43
WM-TWallbridge Mining Company Limited $0.55
WTE-TWestshore Terminals Investment Corp $17.19
WILD-TWildBrain Ltd. $2.43
YRI-TYamana Gold Inc $5.34

Source: Bloomberg

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