Dream Impact Trust

Welcome to the Dream Impact Trust third quarter 2023 results conference call for Wednesday, November the 8th, 2023. Please be advised that all participants are currently in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. During this call, management of Dream Impact Trust 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 Impact Trust'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 Impact Trust's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Impact Trust's website at www.dreamimpacttrust.ca. Your host for today will be Mr. Michael Cooper, Portfolio Manager of Dream Impact Trust. Mr. Cooper, please proceed.

Thank you very much. I'd like to welcome everybody to the third quarter conference call for Dream Impact. First, I want to talk a little bit about the progress we're making with the operations. And then I'd like to talk a little bit about how the market's changed. And then I want to show you a little bit about how we look at the business and what we're doing to adapt to the changing market. So firstly, throughout our portfolio, we have incredible assets and they have great opportunities. We're very excited about it. We're making lots of progress. finishing buildings and financing in place to start a couple of others and getting zoning done. So a lot of things are going according to plan. Examples are Maple, which is Block 8 at West Onland. It's the 751 units and we're now leasing it up and it's going quite well. In Gatineau, we also finished what was Block 11, now it's Alto 2. about a quarter lease we're ahead of schedule and we're getting rents um that we had hoped for so that that's working out great we expect that um the new common at uh on the ontario side in the city will be we'll start to market at this uh probably next month so it's great to see those projects uh completed with construction and getting onto occupancy um And they're pretty much on budget and the values are great. So we're pleased with that. With Keysight, we've been working through the city to get the zoning. And it looks like we should have the zoning in place by the first half of next year. And that will cement the value of a great site. Victory Silos has its zoning. Gary West has its zoning. So we're really getting to a point where most of our assets are zoned and that's a great accomplishment. Our apartments that are in operation are proceeding very well and we have increasing occupancy and rents consistently and they're doing a lot of what we expected. So within the four corners of a piece of paper, things are going well. In the last six months, when the 10-year bond went from 2.5% to 4.2%, while the 30-day number went up by only 10%. So the 30-day or the overnight rate went up 10%, and the long rate went up about 60% or 70%. And I think that's really created a shiver within the real estate community, and a lot of projects are being delayed, and people are thinking about their portfolios, so things have really slowed down. On top of that, there was another war that started which is just another level of risk. So I think what we're seeing in real estate is things are getting pretty frozen. And then all of a sudden, last week, we saw that industries came off 50 basis points. So in March of this year, we wanted to start with Bretton Flats library parcel, but the financing that we had with CMHC, it wasn't a project that works. So over the last six months, we've been working with CMHC and others to make the project a better project than on September 18th. The federal government waived GST, and the province recently agreed to do it as well. That made the project very desirable. And then from September 18th, interest rates went from about $3.55 to $4.20, and the increase in interest rates offset the GST in terms of capital. So that didn't look good. But with the decline in the last couple weeks, the project is getting close to what we had hoped it would be, and we're working with CMHC to finalize the documents, and hopefully we'll be able to get all of that done, have a 10-year debt and attractive rate, and have the whole project set up to proceed by the end of January. So what I'm trying to get at is the viability of projects right now are incredibly sensitive to the interest rates. And the interest rates are moving around quite a bit. So people have moved and people's decisions are going to vary quite a bit depending on what happens with the 10-year bond over the next while. So I think that's really been a big push. The interest rate, it affects our ability to achieve the returns we think we need to proceed as a developer. But we're also seeing that the interest rates are affecting the demand for housing. Because especially when we think about condos and houses, they're very expensive. Still, the price is expensive, and the cost of caring is much higher than it used to be. It's ironic, while we talk about a housing crisis, that we're seeing a decline in housing starts. And it seems as if, intuitively anyways, something's going to give so that housing can be created to meet the needs of the Canadian population. Tomorrow, I'm speaking to... a subcommittee of the Ministry of Finance and the House of Commons about housing. There's five other deputies speaking, and it's clear that the governments are very focused on how do we create more supply. So I think one way or another, that'll work out well for us. But when I look at the business as it is today, we basically have about a little over $600 million of income properties. And we have another 365 million properties that are very far advanced. that are going to become income properties, or the condos at Gary, which is 70% tender and 85% sold. So we've got about a billion dollars of assets that are income properties or very advanced developments. They've got about 33% equity, 67% debt at the current carrying value, and they have very little requirements for new equity. They're a very desirable portfolio and very valuable. And I think the highest value, most likely, is to continue holding them and finishing the products and holding them. But we're open-minded how we deal with it in the future. But it's pretty amazing to have a billion dollars of assets in this company that don't require much further equity and are such high value. In addition to that, we have about $250 million invested in Zivi and Brightwater, which are two master plan communities. They've got about 60% debt and 40% equity And the nice thing about that is they consist, in the case of Zibby, would probably have about another 30 development blocks, and we can choose to sell individual blocks to third parties. We can build them out at about $60 to $100 million each one, or we can partner with people. So that's got a lot of flexibility. Brightwater is a project, 72 acres on Lake Ontario, and the teams have done an incredible job with our partners. But right now the demand is low, so it's taking longer. But that's a quarter of a billion dollars of great properties with 40% equity. Aside from that, we have some land holdings, and the land holdings are also about $250 million, but most of that is Victory Silos, and the Gary project is over 200. And those are great sites, and it's a little bit more difficult because it's hard to start these projects, but the carry on them isn't too bad. So I think as we get through the next 12 or 24 months, they should turn around. And then we have some passive investments that obviously we're going to want to liquidate to get the cash out and concentrate on the billion dollars of revenue properties we have furthering the master planning communities for a quarter billion and advancing the quarter billion of land holdings. So I think we've got a good plan. The market conditions are not in our favor. We're very disappointed in the stock price, especially when we have such good assets. So we're going to be mining the entire portfolio to see where we can bring in partners for projects, maybe sell some assets and generate more liquidity and just kind of distill the business to get to an incredible portfolio of assets that are self-sustaining over the long term. Megan.

Thank you, Michael. Good morning, everyone. In the third quarter, the Trust recognized a net loss of $12.4 million compared to net income of $0.3 million in the prior year. Broadly speaking, the fluctuation year-over-year was attributable to fair value breakdowns in the period, although there are a number of puts and takes, which I'll describe further on a segmented basis. As it relates to our development segment, in the period, the segment reported net income of $3.1 million, up slightly from prior year. Most of current quarter earnings related to a fair value gain on Maple House, which we previously referred to as Westall News Blocking. Over the summer, we were extremely pleased to commence leasing at Maple House, which is a 770-unit rental building of which one-third of the units are dedicated as affordable. The site is located in downtown Toronto, adjacent to the distillery Canary District. As of November 6th, nearly a third of units were leased, and we expect to realize additional fair value gains on this asset over the next 16 to 18 months as the building stabilizes. As it relates to our Ottawa portfolio, we recognize the fair value gain in the third quarter primarily related to Alto 2, our second multifamily rental building in Sibi, which also commenced leasing in the period. Following shortly behind next quarter will be leasing commencement for Common at Sibi, which is a 207-unit rental building, which will offer a mix of unit typologies. We're also pleased or we're very pleased with the momentum we're gaining across our multifamily portfolio as we continue to grow our recurring income segment and further diversify our asset composition. Once stabilized, we expect Maple House, also two accommodated cities, to add $200 million as shared to the trust recurring income segment assets. In the third quarter, the development segment recognized income related to condo occupancy that Brightwater was. This is the first vertical block of the development to occupy with roughly half the units occupying in the period and the remainder to follow in the fourth quarter. Sales for this building initially launched in late 2020. Now, as it relates to our current income segment, NOI from commercial properties is $2.7 million in this quarter. Downsides from the prior year due to higher OPEX from assets within equity account investments combined with lower revenues on an income property currently under renovation. NOI from the multi-family rental portfolio was $1.5 million in the period, up from $1.3 million in the comparative period due to increased tenant occupancy and the timing of completion at Alpha Suite Mississippi. Total segmented earnings from recurring income assets with a loss of $15.6 million compared to net income of $1.2 million in the prior year. The fluctuation was driven by fair value adjustments on the trust office portfolio due to increases in discount rate assumptions as well as higher interest expense in the current period. As of September 30th, the trust has $28.6 million in available liquidity, which includes cash on hand and availability under the corporate credit facility. We've previously given guidance on our expected capital needs for development projects over the next 18-month period. Based on current timelines and market conditions, We anticipate capital contributions could be anywhere between $25 to $30 million. However, I want to stress that the lion's share of the spend is objective and dependent on advancing new development blocks across our projects. Should market conditions worsen or alternative liquidity needs arise, we could defer construction starts and spend. It's also worth noting that for the Trust's advanced development projects, including Maple House, Cherry House, and Forma, among others, We do not anticipate additional equity needs to complete these buildings as they are fully funded through construction-level financing, which should not have a significant impact on our leverage. Said differently, to add the additional $200 million of stabilized income properties, which I referred to earlier, no additional cash is needed. Overall leverage for the trust increased slightly from 36.1% last quarter to 37% as of September 30th, or 65.5% including project-level debt. Nearly a third of the trust debt profile is considered government-affiliated, which we consider to be less risky than conventional debt, as it oftentimes provides for higher LTVs, lower interest rates, and longer amortization periods. As the period ends, two-thirds of the trust debt was fixed at a weighted average interest rate of 4.2%. With that, I'll turn the call back over to Michael.