One of the top-performing REITs (real estate investment trusts) in Canada in the last decade is Dream Industrial REIT (TSX:DIR.UN). The TSX stock has returned 230% to shareholders since September 2013, after accounting for dividends. In comparison, the TSX index has surged 125% in this period.
Despite its outsized gains, Dream Industrial also offers shareholders a tasty dividend yield of 5%, making the stock attractive to income-seeking investors. Let’s see if you should own Dream Industrial stock right now.
Is Dream Industrial stock a good buy?
Dream Industrial REIT owns, manages, and operates a portfolio of industrial assets. It ended the second quarter (Q2) with 321 properties totalling 70.3 million square feet of gross leasable area in key markets across Canada, the U.S., and Europe. The number of properties it owned stood at 257 in Q2 of 2022.
The REIT aims to deliver robust returns to unitholders via secure cash flows that are underpinned by its base of cash-generating properties and an investment-grade balance sheet.
With $7.8 billion in total assets, Dream Industrial has managed to increase sales from $195 million in 2019 to $369.5 million in 2022.
Dream Industrial has a strong record of sourcing attractive industrial properties in North America and Europe. It is building prime assets in core markets while continuing to access excess density on existing sites to further enhance returns.
The company aims to unlock organic growth in net operating income by optimizing performance and attracting and retaining its tenants. It also leverages regional operating platforms through private capital partnerships, allowing Dream Industrial to generate recurring property management and leasing fees.
Dream Industrial reported a net rental income of $83 million in Q2 of 2023, up from $68.7 million in the year-ago period. Its rental income rose by 24.4% in Ontario, 14.2% in Quebec, 2.6% in Western Canada, and 24.6% in Europe due to strong net operating income growth in 2023.
Its funds from operations (FFO) per unit surged from $0.25 in Q2, up from $0.22 in the prior-year quarter, an increase of 14% year over year.
Due to its stable cash flows, Dream Industrial pays shareholders a monthly dividend of $0.058 per share. Its funds from operations (FFO) stood at $0.25 per unit, up from $0.22 per unit, indicating a payout ratio of less than 70%. A sustainable payout ratio allows Dream Industrial to reinvest in capital projects, lower its balance sheet debt and increase dividends.
What’s next for Dream Industrial REIT stock?
With the majority of its assets located in Canada and Europe, Dream Industrial has a 25.6% interest in a private industrial fund in the U.S. valued at $300 million. Since the inception of this joint venture, Dream Industrial has recognized $8.1 million in net property management and leasing income.
Armed with a strong balance sheet, Dream Industrial ended Q2 with a net-debt-to-total assets ratio of 36.2%. It aims to maintain this ratio at less than 40%, allowing the company to pursue unsecured financings.
Priced at 19.4 times forward earnings, Dream Industrial is forecast to increase adjusted earnings per share from $0.72 in 2023 to $1.03 in 2024. The TSX stock trades currently at a discount of 22% to consensus price target estimates.
