Dream Residential Real Estate Investment Trust

At June 3rd, we had mortgages with a face value of $144 million at a contracted interest rate of 3.95% and a weighted average term to maturity of approximately six years. We currently have no exposure to variable debt, and our earliest debt maturity is in 2025. At the end of the quarter, we had approximately $86 million in liquidity, comprising $15.7 million in cash and full availability of our $7 million credit facility. Looking at the remainder of the year, we are well-positioned to continue to execute on our strategic initiatives, including driving organic growth, expanding our value-add program, and executing on focused capital deployment. We have balance sheet capacity and financial flexibility to pursue both internal and external growth initiatives. I will now turn it back to Jane.

Thanks, Derek. Dream and Pulse, over their long histories, have successfully managed through economic turbulence, GFCs, rising and falling interest rates, inflation, even a European debt crisis when we launched Dream Global. But like everything we do, we build with conviction with a view to the long term, for years, not quarters. So we're excited about the prospects for Dream Residential as we get started, and we believe we've got great building blocks from which to grow and to deliver strong returns for our investors. So with that, I'd like to open the call to questions.

Thank you. We will now begin the question and answer session. If you have a question, please press 01 on your touchstone phone. If you wish to be removed from the queue, please press 02. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 01 on your touchstone phone. We have a question from Lorne Calmar from TD Securities. Please go ahead.

Thanks. Good morning, everybody, and congrats on getting the first quarter under your belt. Looks like a pretty nice and inline quarter. But I was wondering, you know, there's been a lot of talk about maybe a deceleration in rents, and Dallas-Fort Worth seems to be in the headlines now and again. It looked like you guys did pretty well there. But I was wondering if you could maybe give us a little bit of color on what you're sort of seeing on that front.

Good morning, Lorne. This is Scott. I have seen articles that talk about the acceleration in rent and I have seen articles that speak to a deceleration in rent. What I would say is we are seeing consistently across Q1 and Q2 1% rent growth per month and we're not seeing that waiver at this point in time. There are no indications in a change of that other than what I'm reading in the media. But our data does not suggest seeing that just yet.

Okay. And then, so you kind of covered off the occupancy drop in Dallas. With you guys starting the program now in Oklahoma City, do you anticipate a similar drop?

We will see our occupancy remain in that target range of 94% to 96%. I think we hit about the middle of that at 95% to wrap up Q2, and I think we'll see ourselves in that collective range. When we initiate in a market or at a property, as we've seen in Dallas, you'll see that open up a little bit by proactively making those suites available, and then as it stabilizes and that program matures over the asset for the next few months, then it will sort of reset towards 95% or so. So I think we'll stay in our range 94 to 96%.

I would add though, Lauren, I mean, notwithstanding whatever we're doing on occupancy, it's intentional and we're pretty confident in our forecast.

Okay. And then on the renovations, I know, you know, cost kind of went pretty haywire and I was wondering if you're seeing any sort of relief in terms of cost increases and how that may be plays into the returns you're able to achieve on the program?

I would start with, you know, when you said costs went haywire, we didn't see that. I appreciate there's a lot, you know, obviously with inflation, but I think, you know, when we were together, I think one of the things Scott impressed was we had done significant buying. I mean, Scott, I don't know if you're seeing costs come down, but we didn't experience the boost. There was an availability increase, gap for a little while, but we've, you know, supplemented our inventory.

We have not seen costs escalate beyond what we've projected. In some cases, we've seen the supply chain improve. Appliances. Appliances being an example, you know, not long ago, it was taking anywhere from 60 upwards to 90 days to pre-order appliances. Now we're probably in the 45 to to 60-day range, so that has improved. Our costs are in line with our forecast, and I think those have, you know, that planning has accommodated where we expected the cost to settle out for the year.

Okay, so everything kind of going according to plan, if not a little bit better, so that's good. And then last one from me, again back to the headlines, but have you guys seen any increase in delinquencies in the recent months?

We've seen delinquencies and collections vary throughout from month to month from basically March 2020 through this year. And so we're monitoring these very closely as we have over the past two years, and we see ebbs and flows. We don't see any true trends or indicators right now, but we're monitoring that very closely as we have over the past 24 months.

Okay, great. Thanks for the call, everyone, and congrats again. Thanks, Lauren.

Thank you.

Thank you. The next question comes from Brad Sturges from Raymond James. Please go ahead.

Hi there. Just on the 80% gain to lease at quarter end there, can you break that down by market, what that would look like between Dallas, Oklahoma City, and Cincinnati? Good morning, Brad.

This is Scott. Sure. In Dallas, we saw about a 5% gain to lease present on June 30th. And the gain to lease, as you recall, between asking and in place is a snapshot in time. So in January 31st, it was 12%. Now it's 7.6%. But it's a moving target. But the snapshot on June 30th was 7.6% as a portfolio, about 5% in DFW, about 14% in Oklahoma City, and about 1% in Cincinnati.

Okay. That's helpful. Just on the leasing spreads, obviously a pretty strong number in the partial period for Q2. Just how would that be trending in Q3? Are you still at similar rates, or are you seeing a little bit of moderation on the spreads?

Our lease tradeouts starting in Q3 are trending very similar to Q2. Okay.

And just on the renovation program, obviously you're just kind of getting ramped up here. Dallas is now rolling out to Oklahoma City. How should we think about that? program ramp up in terms of the number of suites you'll renovate over the next few quarters? I assume that stabilizes out more in early 2023 when you add Cincinnati to the mix, but just trying to get a little bit more understanding of how we should think about that program rollout.

We would anticipate completing 150 to 200 suites through the remainder of this calendar year. And that is subject to some acceleration, depending upon things. But we're pretty solidly in the 150 to 200. And we would expect to complete over 300 total during the forecast period.

And last question, just back on the occupancy. Obviously, you have a target range. It sounds like maybe you could be trending a little bit at the lower end of the range, short term, just for the ramp of the renovation program. Is that a fair assumption that you could be more 94-95 instead of 95-96?

This is a little bit semantics, but I would change the vocabulary a little bit. It's not that they're trending, it's that we're actively managing occupancy. So we need to preemptively select suites to make them available, and when this kicks off at a particular community, we will introduce that over the first couple months, and you'll see a proactive selection of suites, which is managing occupancy to source that program. And then as that program ramps and that stabilizes out, that occupancy will allow that to elevate back up as we get stabilized in the process.

Makes sense. Thanks a lot.

Thank you. As a reminder, if you have a question, please press 01 on your touchstone phone. The next question comes from Dean Wilkinson from CIBC. Please go ahead.

Thanks. Morning, everyone. Congratulations on the inaugural quarter.

Good morning. Thank you.

This might be Derek, might be Jane, might be Scott. Can you just clarify on the fair value adjustment? That was relative to, was that $45 million, that was relative to the discounted acquisition value, not the

appraised value at the time of the IPO is that correct that's correct Dean so the increase reflects the change between the appraisal value and basically the acquisition cost okay so then the difference between right okay so then the difference between the sort of you know the

The appraised value today relative to the IPO is a more incremental 4-ish percent increase, which makes a whole lot more sense. Is that the same for the fair value adjustment on the Class B units?

The fair value adjustment on the Class B units is, on acquisition, those were marked at $13, consistent with the IPO price.

on June 30th so the change in that is the difference between exactly got it got it and then just to clarify that one last point the 200 or so value-add programs those are not in the forecast so you know without sort of holding you into the to the wall, it would appear that if you add the 200 units, you add the rent at over $1,000 a month, that maybe as we look forward the next four quarters, the bias would be to the upside as to what was put in the FOFI.

Thank you, Dean. This is Scott. I would just say that You know, with value add, it's much like a snowball that the benefit of the program really starts to show itself in the second, third, fourth year. So in the forecast, we don't show a benefit to that. We do hinder it in some regards. We penalize ourselves in a positive way. I know that's the wrong term. We do include the vacancy loss in there, but we don't credit ourselves with the rent growth in the first year of the forecast. So we will see benefit from OpEx and CapEx savings, and we'll see vacancy as a result of the value-add program, but the real benefit begins to show itself in year two through five.

As you roll over those rents. Okay, yeah, makes sense. That's all I had. Thanks, guys.

Thank you.

Thank you. Once again, if you have any questions, please press 01 on your touchtone phone. At this moment, we have no further questions. I will turn the call over to Ms. Gavin for final remarks.

Well, thank you, everybody, for joining us this morning. We're very excited about our first call, and we look forward to speaking to you next quarter. Thanks very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.