When evaluating whether a stock — or in this case, a real estate investment trust (REIT) — is potentially worth owning, one of the simplest approaches is to compare its performance to a benchmark. For investors focused on either long-term growth or consistent income, Dream Industrial REIT (TSX:DIR.UN) seems to be a decent idea on both fronts.
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Solid long-term returns
Over the past decade, Dream Industrial REIT has significantly outperformed its Canadian REIT peers. A $10,000 investment in the REIT 10 years ago would now be worth approximately $29,080, representing an impressive annualized return of 11.3%. By contrast, iShares S&P/TSX Capped REIT Index ETF (TSX:XRE) — a popular benchmark for the sector — delivered a far lower compound annual growth rate of 5.7%, turning the same investment into only $17,450.
Interestingly, Dream Industrial’s performance has been nearly on par with the broader Canadian stock market. Over the same period, iShares S&P/TSX 60 Index ETF (TSX:XIU) would have turned $10,000 into roughly $29,100. However, what sets Dream Industrial apart is its superior income potential. With a yield that more than doubles that of XIU, Dream Industrial could be particularly appealing to income-focused investors.
A solid income generator
As of writing, Dream Industrial REIT offers a healthy 5.6% yield at a unit price of $12.47, compared to XIU’s recent yield of around 2.6%. For investors seeking consistent and predictable income, that’s a significant advantage. Importantly, the REIT’s payout ratio is estimated to be sustainable at about 67% of its funds from operations this year.
Dream Industrial owns, manages, and operates a diversified portfolio of 72.9 million square feet of urban logistics and distribution properties spread across Canada, Europe, and the United States. Its high occupancy rate of 96% suggests there’s strong demand for its assets.
The REIT’s tenant diversification shines: its top three tenants each contribute just 2.6%, 1.4%, and 1.3% of gross revenue, respectively. This diversified tenant base helps protect against income volatility from any one source.
Growth potential and valuation
Dream Industrial has embedded rental growth baked into its contracts, typically in the range of about 2-3% annually, which supports organic cash flow growth. Even more encouraging is its recent market rent spread of 17%, highlighting the potential to raise rental rates as leases renew or new tenants are brought in.
From a valuation perspective, Dream Industrial appears to be reasonably valued. Although units currently trade at a 25% discount to their net asset value (NAV) of $16.69, analysts have a more conservative average price target of $13.77 suggests a discount of only 9%, which aligns closely with the REIT’s long-term average valuation that suggests a fair price of about $13.22.
Beyond rent growth, Dream Industrial is positioned to benefit from enhanced property management efficiencies, leasing income optimization, and a pipeline of development and intensification projects that could further drive long-term price appreciation.
Investor takeaway: A REIT worth holding?
For investors seeking a mix of reliable income and moderate long-term growth, Dream Industrial REIT checks the boxes. It has beaten its sector peers, kept pace with the broader market, and offers a compelling yield that particularly attracts income-focused investors.
While not without risks — such as risk of higher interest rates, economic slowdowns, and reduced industrial demand — Dream Industrial’s diversification, strong occupancy, rental growth potential, and fair valuation suggest it’s a reasonable buy, particularly for income-focused investors.
