A Member of Pat McKeough’s Inner Circle recently asked for his advice on a REIT that specializes in industrial properties in North America and Europe.
Pat likes the rising revenue, earnings and cash flow as well as the wide geographical and tenant diversity. However, he notes the company keeps expanding by acquisitions, which means higher risk and unit dilution.
Dream Industrial REIT (Symbol DIR.UN on Toronto; www.dreamindustrialreit.ca), offers investors a portfolio of industrial properties in North America and Europe.
The REIT, originally named Dundee Industrial REIT, first sold units to the public and began trading in October 2012 at $10 per unit. Dream Office REIT (symbol D.UN on Toronto and a recommendation of our Power Growth Investor newsletter) holds 15.5% of the REIT.
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Dream Industrial owns and operates a portfolio of 177 geographically diverse light industrial properties. They comprise 27.3 million square feet of leasable area, with 24% located in Ontario. Another 19% is centred in Western Canada, with 27% in the U.S., 16% in Quebec, and 14% in Europe. Investors benefit from the high 95.6% occupancy rate of the REIT’s properties—despite the pandemic.
The trust’s largest tenants by rental revenue are Nissan North America, Spectra Premium Industries, TC Transcontinental, Gienow Windows& Doors, Accel Inc., United Agri Products Canada, and Molson Breweries.
Over the past five years, Dream Industrial’s revenue has increased by 35.0%, from $174.7 million in 2016 to $235.9 million in 2020. Over that same period, the REIT improved its cash flow by 67.7%, from $71.3 million to $119.6 million. However, cash flow per unit fell 21.1%, from $0.90 to $0.71, due to more units outstanding.
Inner Circle: Growth by acquisition continues to build the numbers
In the three months ended December 31, 2020, Dream Industrial’s revenue rose 20.2%, to $61.3 million from $51.0 million a year earlier. Cash flow improved 23.6%, to $31.9 million from $25.8 million. Cash flow per unit rose just 5.6%, to $0.19 from $0.18 on more units outstanding from acquisitions.
The REIT keeps expanding by acquisitions. In 2020, it acquired over $620 million of industrial real estate, which increased the size of its portfolio by 25%. That included buying $475 million of properties in Europe. So far in 2021, Dream Industrial has already purchased $355 million of additional real estate.
Meanwhile, the trust is in the middle of pre-development work on its first Las Vegas project. The site will accommodate a 460,000-square-foot Class A distribution facility. It also expects to start construction on more than one million square feet of other developments in 2021.
With a monthly distribution of $0.05833 a unit, Dream Industrial currently offers you a high yield of 4.8%.
The REIT’s decision to expand into Europe carries with it acquisitional risk, which is only heightened by that move to enter a new market. While the rise of e-commerce and online retailing has weakened the demand for retail space, demand for industrial real estate has grown because of the need for packaging and logistics centres. That bodes well for Dream Industrial’s prospects.
Recommendation in Pat’s Inner Circle: Dream Industrial REIT is a hold.
Comments
Dean
I have bought every stock Pat and TSI recommend and my portfolio routinely out performs the TSX.Im new to the market so I listen to Pat,the proof is in the numbers,thanks Pat and the TSI team.
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I have bought every stock Pat and TSI recommend and my portfolio routinely out performs the TSX.Im new to the market so I listen to Pat,the proof is in the numbers,thanks Pat and the TSI team.