Opinions
Rob Lauzon
Dream Residential REIT
DRR.UN-T
TOP PICK
Mar 25, 2024
Stock price when the opinion was issued
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DRR.UN is a small-cap REITs focusing on residential properties, and is now trading at 8.2x times' Forward P/E. The company owns a portfolio of properties with a high occupancy level of 98%. Trading at a meaningful discount to NAV of $17. In the last few years, the company managed to grow distributions per share and NAV per share at attractive rates. Having said that, the balance sheet is highly leveraged, net debt to adjusted EBITDA is around 9.0x, and available liquidity is around $243M. However, the total debt service requirement amount for the remainder of 2023 is $131M, and 2024 is around $350M. The company's small size and leverage add significant risks if the economy/fundamentals were to falter. Payout ratio (12 months). As a new small public company, in a higher interest rate environment, we think investors can wait and watch this one and see how it performs as a public entity. We think buyers have time here.
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He focuses on supply and demand, and then goes bottom-up looking for discounts. Fundamentals in industrials in Canada and Europe are far superior today to US multi-family, especially in the Sunbelt.
It's a new construction supply problem, and demand won't be able to keep up. DRR.UN owns an older portfolio in key Sunbelt markets. Wide discount to NAV. Low liquidity, so no premium.
DIR.UN has stellar internal growth prospects. Spread between in-place rents and market rents gives them an advantage. He'd choose this one. New construction will fall off 15% into next year, and empty space will be absorbed.
It has garden style town homes and apartments in Texas and Cincinnati. It appeals to middle class renters and could get rent increases. It is trading below its NAV by over 30% so is mis-priced. Its payout ratio is 65% to70% so the dividend of 6% is safe. Buy 7 Hold 1 Sell 0
(Analysts’ price target is $12.56)