DREAM Unlimited (TSX:DRM) is a real estate operating company and asset management firm. Significant business activities include real estate development and asset management for the Dream subsidiaries of TSX-listed real estate investment trusts (DIR.UN and DRG.UN) and investments in Canadian renewable energy infrastructure and commercial property companies.
Dream has looked to expand its land inventory with numerous land purchases in Saskatoon and Regina. It’s also developing multi-family housing in Alberta and developing retail operations throughout Canada. Dream also has grown its asset management business by using investment vehicles that provide income and long-term capital appreciation.
Important to note that Dream is the largest homebuilder in Saskatchewan and directly owns ~12,000 condo units and ~3.7 million sq. ft. of commercial space in the Greater Toronto region. Further, it owns ~10,000 acres of land in the Prairies. Much of its land is at approval stages for residential and commercial development. The company has also completed over $25 billion in commercial real estate transactions over the past 21 years, equipped with a team of real estate experts.
Dream reported a great start to the year, with book value per share increasing ~8% on a year-over-year basis. Recently, the company also reached an agreement with Dream Office, where Dream agreed to earn fees on Dream Office’s future development projects (i.e., 3.75% of total net revenues), while Dream Office will earn property management fees on Dream’s current and future income properties in Canada (i.e., 3.5% of gross revenues on assets). Dream has also increased its stake in Dream Alternatives by purchasing 2.2 million units in Dream Alternatives for $15 million in Q1 2019. Its ownership of Dream Alternatives now totals ~20%.
There are several catalysts on the horizon that could lead to Dream’s stock moving to fair value. Some of these include higher EPS growth that could be driven by asset management growth and Alberta lot land sales that could attract institutional buyers. At this point, a former link of CEO Michael Cooper with Dundee appears to be holding the stock from re-rating. Dream has been taking advantage of the weakness in its stock price by aggressively buying back shares and has recently started paying a small dividend.
Dream appears to be one of the cheapest stocks trading on the TSX. The fair value of the Dream’s holdings in the publicly traded Dream subsidiaries amounted to about 60% of Dream’s market value at end of Q1 2019 — implying that its asset management platform is trading for free!
Further, Dream has undeveloped land carried on the balance sheet at historical cost basis. Shares trade at a 60% discount to estimated NAV. Dream’s shares have been closely correlated with oil prices historically, and the recent run up in oil prices should bode well for share price appreciation.
The current valuation could be a great entry point for patient long-term value investors. Although, shares of Dream have been very volatile over the short term, CEO Mr. Cooper has an excellent track record, owns over 35% of the company through his private company, and has been buying shares hand over fist in the recent past.
Expect significant returns from this stock over the next decade!
