Dream Residential Real Estate Investment Trust

Good morning, ladies and gentlemen. Welcome to the Dream Residential REIT fourth quarter conference call for Thursday, February 15, 2024. During this call, management of Dream Residential REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Residential REIT's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Residential REIT's filings with security regulators, including its MD&A. These filings are also available on Dream Residential REIT's website at www.dreamresidentialreit.ca. Later in the presentation, we will have a question and answer session. To queue up for a question, please press star, then 1 on your telephone keypad. Your host for today will be Mr. Brian Pauls, CEO of Dream Residential REIT. Mr. Pauls, please go ahead.

Good morning, everyone, and thank you for joining us today for Dream Residential REIT's fourth quarter and year-end 2023 conference call. Speaking with me today are Scott Schumann, our Chief Operating Officer, and Derek Lau, our Chief Financial Officer. Despite rapidly changing market conditions, we had a strong inaugural year as a public company. We successfully delivered on our operational and financial targets, meeting our IPO forecast by achieving the top end of our annual NOI guidance of $24.5 million and meeting our FFO target of 71 cents per unit for 2023. For the fourth quarter, net operating income rose by 9.3% from Q4 2022 to $6.2 million. Comparative NOI growth was over 10 percent, with operating comparative NOI margin improving to 52.1 percent. These were large drivers to our FFO per unit of 18 cents, which increased 11 percent year over year. During the year, we completed renovations on 410 suites, achieving an average lease tradeout of 21.6 percent on renovated units and a return on capital invested exceeding our targeted 12 to 16 percent range. We are planning on renovating approximately 350 suites next year, focusing on larger renovations, including opening up kitchens and living spaces. Following our success so far, we are excited to expand the program to the Cincinnati region in 2024. Our value-add program continues to be a differentiator and we expect the renovations to continue to yield attractive returns. During the quarter, we completed the sale of Forest Grove, which resulted in net proceeds of $5 million after debt repayment. We are very pleased with the pricing we achieved, which was 3.3 percent above Q3 IFRS value and provides support for NIV book value. This was a good opportunity to recycle proceeds from a non-core asset with limited value add potential. We have earmarked net proceeds for investment in other existing assets to improve rents and enhance their value. We expect that the reinvestment will be cash flow neutral in less than one year, and we are earning interest income of 5.5% as the net proceeds are deployed to the renovations. We continue to focus on preserving capital for our value-add renovations as our best use of capital. We continue to maintain the NCIB and plan to use this tool selectively as we prioritize maintaining a safe and flexible balance sheet. We will continue monitoring overall market conditions and opportunities as we prioritize capital and balance sheet strength. We ended 2024 with a net total debt to net total assets ratio of 31.6% and a weighted average term to maturity of 5.3 years on our mortgages. We believe DRR is a compelling investment opportunity with embedded long-term value. Our business and distribution are very safe, backed by the stability of our portfolio and a strong balance sheet. We are well supported by a conservative payout ratio of 60% on 2023 FFO, and our growth outlook remains strong. In 2024, we are focused on surfacing this embedded value for our unit holders by increasing investor awareness of DRR and through prudent asset and property management. Overall, I'm very pleased with our financial and operations performance for 2023. As we looked on certain conditions in economic environment, our portfolio, capital structure, and platform are well positioned to deliver attractive returns. I will now turn it over to Scott to provide an operations update for the quarter. Scott?

Thank you, Brian. Our team is pleased to report fourth quarter results, including $6.2 million net operating income, 51.9% operating margin, 85 newly renovated suites, and a successful disposition of Forest Grove Apartments at a sale price higher than book value. NOI rose 1.8 percent quarter-over-quarter, and year-end NOI of $24.5 million achieved the high end of forecast range, representing 9.3 percent growth year-over-year from Q4 2022. Since the 2021 DRR pre-IPO audit baseline two years ago, REIT NOI has compounded at a 13 percent annual growth rate, boosted by 19 percent in-place rent growth and a 380 basis point buildup in operating margin efficiency. We drive revenue and control costs. Multi-family conditions across the United States moderated in 2023 due to the elevated new housing supply, restraining rents, and sustained inflation, pressuring costs. Rent growth and vacancy rates have stabilized around the long-term means and are projected to idle during 2024 as the remaining pipeline of nationwide apartment completions peak. Dream Residential is not immune to these macro conditions, but our geographic diversity value-add program and middle market demographics insulate us from real estate cyclical valleys and provide leading performance. We ended 2024 with level quarter-over-quarter same-property rents, 5.9% year-over-year same-property in-place growth, and 93.7% occupancy, with suites continuing into the renovation draft. The Dallas-Fort Worth metro area remains a national leader in economic and population growth and accompanying apartment demand. Near-term new supply eased leasing activity and unwound the historic Sunbelt rent run-up experienced over the past several years. However, DRR metrics outperformed market-wide benchmarks in Dallas-Fort Worth with blended tradeouts leveling during Q4 and annual rent growth continuing positive at 4.0%. Our Midwest community, centered in Cincinnati, outperformed even as the winter leasing season took hold. Cincinnati tradeouts blended to 4.0% in Q4 and annual rent growth doubled that of Dallas-Fort Worth at 8.2%. I believe we will see fits and starts of leasing activity over the first half of the year, varying by market and likely normalizing later in the year. Early thus far in 2024, new and renewal trade-outs indicate Dallas-Fort Worth may be picking up, potentially hinting at a trough behind and a measured spring leasing season ahead. The long-term fundamentals in each DRR market hold strong, and the advantages of our geographic diversity and operating hubs allow us to serve as a capital safe haven. DRR's renovation program and internal property and construction management continue to add value and growth in unique and expected ways, even within the current market conditions. DRR has experienced replacement cost increases in line with peers. However, we have been able to manage operating expenses with cost control initiatives and in-suite upgrades. This combination has resulted in 8.8 percent compounding revenues, offset by 4.7 percent compounding expenses, for 13 percent compound NOI growth, two years running, and improving margins noted at the beginning of my remarks. In 2023, our construction teams renovated 410 suites in two markets. These upgrades led to $223 lease tradeout premiums, a 21 percent increase above the expiring term, and they generated 19 percent returns on invested capital. Further, by virtue of expanding our self-performed construction teams, We were able to reduce per suite construction costs by a cumulative $400,000 and reallocate these funds to mitigate replacement cost escalations that the entire industry has experienced. The renovation program is boosting revenue, abating costs, attracting residents, and enhancing quality and value across the portfolio. Dream Residential showed the strength of our assets and platform during the high watermarks of 2022. and we have demonstrated the resilience, safety, and sustenance of our portfolio and operations during the cyclical and uncertain conditions of 2023. Looking forward, DRR's specific markets are expected to enter a favorable transition down from peak supply headwinds into demand-driven tailwinds over the next three years, while other Sunbelt markets must lean into gusts or gluts of supply for several quarters or more still ahead Our markets pipeline cumulatively peaked last quarter and last year. According to CoStar, Dallas-Fort Worth delivered a crest of 9,400 suites in Q4 23 and 31,000 suites in calendar year 23. In 2024, CoStar projects a graduated 13 percent reduction of deliveries across Dallas-Fort Worth and nearly a 30 percent reduction in new deliveries across Cincinnati. Absorption is positive but takes time. Our team forecasts a more balanced leasing environment taking shape later in 2024. In the interim, we see 3 to 5 percent same property NOI growth during 2024 weighted towards the latter half of the year. Margins may compress early but hold over the duration as management prioritizes retention early and value-add increases later in the year. Our construction manager launched a new team in Cincinnati this year and projects to invest $7 to $7.5 million over 350 suites across three markets, focusing our renovation scope on opening up floor plans and fine-tuning cosmetic finishes, all the while with 12% to 16% returns projected to continue. 2023 transaction volume nationwide was choppy and off 70% from 2022. Q1 could be equally quiet as investors await stabilizing interest rates and economics. Values decreased as interest rates ran up in Q3, Q4 last year. Early feedback hints at a narrowing bid-ask spread wherein institutional capital begins to renew investment across the sector later in the year. Experts point to a modest increase in trading over the year ahead. Forecasts and predictions are still widely varied, Most sentiments speak to stabilizing expectations later in the year. DRR is exploring external growth with a disciplined eye, being mindful of potential pockets of distressed opportunity. Today, our best investment continues to be our internal value-add investment. Present-day surplus supply and high interest rates create demand for proven operators, disciplined managers, diversified markets, and value creators. At the same time, U.S. housing remains systemically undersupplied and historically unaffordable. Household demand for middle-of-the-middle multifamily remains strong. The fundamentals and multiyear outlook are well-suited for our vertically integrated leadership and platform growth. Dream Residential is excited about our track record, safe in our position, and prepared to grow forward when the time is right. I will now pass the lead to Derek Lau, our Chief Financial Officer.