Scotiabank has updated its assessment of Dream Office REIT (D-U: CN) (OTC: DRETF (OTC:DRETF)), increasing the price target to C$19.50 from C$19.00, while maintaining a Sector Perform rating.
The adjustment follows a review of the company's second-quarter performance, which was described as decent and slightly better than the average for both the Absolute Performance (AP) and the sector.
The analyst noted that despite the mixed results in occupancy rates, with some areas of the portfolio showing gains while others experienced declines, the overall in-place occupancy was relatively stable, decreasing slightly by 0.10 percentage points quarter over quarter to 79.2%. This rate was in line with the broader market trends.
A significant point of focus for the analyst was Dream Office REIT's liquidity and leverage, which remain very high. The report highlighted that addressing these market concerns is a key catalyst for the near term, though there were no significant updates on this front in the second quarter.
In the context of the North American Office market and considering the company's elevated leverage, Scotiabank's analyst believes that Dream Office REIT is fairly valued. The valuation is based on a 10 times multiple of the estimated 2025 Adjusted Funds From Operations (AFFO), or approximately 7.6 times assuming a 14 times multiple for Dream Industrial REIT (DIR), which represents about 25% of Dream Office REIT's estimated 2024/2025 Funds From Operations (FFO).
Dream Office REIT has reported a resilient performance in the second quarter of 2024, despite facing market challenges. The company has seen an 8.7% year-over-year increase in diluted funds from operations, reaching CAD0.76 per unit.
Significant square footage has been leased, with additional space in advanced negotiations. The company is strategically mitigating risks associated with rising interest rates and debt maturities.
InvestingPro Insights
In light of the recent Scotiabank analysis, the real-time data from InvestingPro offers additional insights into Dream Office REIT's financial standing. The company's market capitalization stands at $245.41 million, which is indicative of its size and presence in the market. Impressively, revenue growth over the last twelve months as of Q2 2024 has increased by 15.13%, signaling a positive trajectory that aligns with analysts' expectations of sales growth in the current year. Furthermore, the company's Price / Book ratio is notably low at 0.28, suggesting that the stock may be undervalued relative to the company's book value.
From an investment standpoint, the InvestingPro Tips highlight that Dream Office REIT is expected to see net income growth this year and is trading at a low EBIT valuation multiple. These points could be of interest to investors looking for companies with potential for profitability and value. However, it's important to note that the company has faced challenges, as indicated by a negative P/E ratio of -7.39 and the fact that short-term obligations exceed liquid assets. Despite these concerns, Dream Office REIT has demonstrated a commitment to shareholders by maintaining dividend payments for 22 consecutive years.
For those considering an investment in Dream Office REIT, additional tips and metrics can be found on InvestingPro, including a fair value estimate of $16.73, which may assist in making informed decisions. There are a total of 8 additional InvestingPro Tips available for Dream Office REIT, which can be accessed for further detailed analysis.
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