Canada’s primary stock market recorded its longest weekly winning week since April 2023 in early March 2024, then notched a new record close on April 1, 2024 (22,185.30 points). As of April 3, the TSX is up 5.51% year to date, with only three of 11 primary sectors in red territory.
The real estate sector is third worst performer (-2.29%) thus far, and many of its constituents, mostly real estate investment trusts (REITs) trade at a discount. A strong headwind is the uncertainty on interest rate cuts. The higher-for-longer environment could extend further if inflation remains high.
While the annual inflation rate slowed to 2.8% in February, economists think the Bank of Canada might delay the initial rate cut to July. Some say rent and mortgage interest costs are the primary drivers of the inflation rate. Nonetheless, there’s a buying opportunity in the real estate sector that you can’t afford to miss.
Dream Industrial (TSX:DIR.UN) is down 7.7% year to date, but at $12.72 per share, the dividend yield is a hefty 5.34%. This REIT belongs to the industrial sub-sector where evolving tenant demands and entrenchment of e-commerce will likely spur growth.
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Powerhouse REIT
Dream Industrial is a powerhouse name in Canada’s real estate industry. The $3.65 billion REIT owns, operates, and manages industrial assets in Canada, the United States, and Europe. Its property portfolio today consists of 327 industrial assets, which generate and deliver strong total returns.
For the benefit of income-focused investors, Dream Industrial pay monthly dividends. Based on its distribution or payment history, the REIT started paying dividends in 2012 and hasn’t missed a dividend payment. The $7,000 Tax-Free Savings Account (TFSA) limit for 2024 can purchase 550 shares and generate $32 monthly.
The industrial asset class remains stable and resilient, as evidenced by the financial results in 2023. Alexander Sannikov, Dream Industrial’s president and chief executive officer (CEO), credits the REIT’s strong and flexible balance sheet for the strong results. He added that business opportunities remain robust in the coming years, and Dream Industrial is well-positioned to continue creating value for all stakeholders.
Business highlights
In the 12 months ending December 31, 2023, net rental income climbed 18.7% year over year to $334.2 million, while net income dropped to $104.3 million from $705.8 million in 2022. The decline was mainly due to fair-value adjustments to financial instruments and investment properties.
The total assets at year-end were $7.9 billion, representing a 7.9% increase versus year-end 2022, while the in-place and committed occupancy as of December 31, 2023, remained strong at 96.2%. Furthermore, the strong leasing momentum at attractive rental spreads continues to drive organic growth. Furthermore,
From the end of the third quarter of 2023 to January 31 this year, the REIT has transacted around 1.3 million square feet of leases across its portfolio. The average rental rate spread was 41.6% over prior or expiring rents, which was high.
The positives
Dream Industrial’s underperformance is temporary, but the monthly dividend payments should be uninterrupted. The positives moving forward include the $7 billion industrial portfolio in well-located, tight industrial markets and a global acquisition platform that will enable sourcing high-quality and accretive acquisitions with long-term cash flow potential.
