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Good afternoon, ladies and gentlemen. Welcome to Dream Unlimited Corp's Third Quarter Conference Call for Thursday, November 10th, 2022. During this call, management of Dream Unlimited Corp. 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 Unlimited Corp'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 Unlimited Corp's filings with the securities regulators, including its latest annual form and MD&A. These filings are also available on Dream Unlimited Corp's website at www.dream.ca. Later in the presentation, we will have a question-and-answer session. [Operator Instructions] Your host for today will be Mr. Michael Cooper, CRO of Dream Unlimited Corp. Mr. Cooper, please go ahead.
Thank you very much, operator and good afternoon and welcome to our third quarter conference call. I think we put out a lot of information, I think is relatively self-explanatory, but what I would like to comment on is, since the beginning of COVID, we've been very active, we try to do the best we can, overcoming the adversity that we've all had to deal with. We've grown our asset management business. We created a significant impact investing business. We've grown our assets under management both public and private. And we've really made big improvements on our affordable housing and development business. So we're pretty pleased with it. This year we did win LeBreton Flats Library Parcel and we were awarded the Quayside. We've really worked on increasing our liquidity and we're going to end the year with a fair amount of liquidity. And with the announcement on Monday regarding work with GIC, we made a lot of progress on our asset management business and I'd also say that, with 43 million square feet of industrial buildings in Canada between the 2 companies of which 60% is in Toronto-Montreal, we're becoming a very large industrial asset manager and property manager for Canada and the top 3. I think there's a lot of synergies we're going to get out of being able to have so many tenants and working so many properties. We also have 11 million square feet of development properties coming and we've got firepower to increase our development pipeline, as well as buying existing acquisitions through the ranges that we've set-up. I'm hopeful that very soon we'll complete the negotiations for Quayside, that's about a $5.5 billion development, is a very exciting development and one that will have a big impact on the City. Hopefully, we'll be going all out by the beginning of the New year to get it re-zoned and get ready to go, so that's all great. We've been buying back stock. For a number of reasons, we haven't bought back as much as prior years, one is to increase our liquidity, the other one is been blacked out most of the year because of our activities. We expect to continue to buy back stock over the next few years, maybe not at the same rate that we have been. And I don't think we want to use some of our capital to create other opportunities like buying the US apartments to create apartment business and other opportunities to create cede assets for our asset management business. Overall, our developments -- all the developments underway are going very well, they are pretty much on time, they are on budget, in many cases like Block 8 at West Don Lands, we're going to start leasing it soon and the apartment rents are going to be very good. We've locked in interest rates a couple of years ago, the construction costs are in line, so I think that's going to turn out good, Block 347 is coming. We mentioned Zibi, we're building Block 11 in Gatineau which is an apartment building, Block 206 is that -- the first apartment building in Ontario, they're both coming along. We're building quite a bit in Saskatoon and altogether it's a lot of rental properties. And as we've mentioned the Frank Gehry design Forma has been very, we're very pleased with how well it's been received and how much sales. We've actually started construction this month and will be going full-bore within the next 4 to 6 weeks, so there's a lot happening. We got a backdrop that's very uncertain. Today the markets were up 1,200 points, because there was slightly better CPI number than people expected. I think we're going to continue to have a lot of volatility, but I would just say that there's opportunities in all markets and we're going to continue to look for more opportunities and take advantage of the opportunities we've been blessed with. Deb Starkman is with me today, you want to speak to the financials?
Sure. Thank you, Michael and good afternoon. For the 3 and 9 months ended September 30th, 2022, earnings before income taxes after adjusting for the fair-value adjustments taken on Dream Impact Trust units held by other unitholders was $82.7 million and $172.5 million respectively, compared to earnings of $16.3 million and $51.8 million in 2021. The increase over 2021 is primarily due to fair-value gains on our multifamily rental portfolio, again on land expropriation and condominium occupancies at Canary Commons in the first half of the year, partly offset by lower equity accounting earnings and higher interest expense. We maintained a strong liquidity and managed risk worth $279 million and liquidity as of today and a conservative leverage ratio of 40% as of quarter end. I'll briefly go over the results by operating segment now. In the third quarter, our recurring income segment generated revenue and net operating income of $34.4 million and $9.9 million, compared to $21.2 million and $3.8 million in 2021. Year-to-date, our recurring income segment generated revenue and net operating income of $125.3 million and $49.2 million, an increase of $44 million and $18.8 million over 2021. The change was primarily driven by our multifamily rental portfolio created over the past 12 months, a growing asset management base and strong results at A Basin. Included in revenue for the 9 months ended September 30th is $36 million relating to asset management and development contracts. We have Dream Industrial REIT, Dream Office REIT, Dream Residential REIT, a private asset management business and our partnership up from $29 million in 2021. We expect these revenues to grow over time, as we actively pursued new asset management opportunity. In third quarter, our development segment generated revenue of $20.7 million and incurred negative margin of $1.8 million, compared to $24.9 million, a minimal net margin in 2021. Year-to-date revenue and net margin for the development segment was down from the prior year as 2021 included results from the sale of the multiplex -- multilevel auto flex at Riverside Square. Today, we've achieved 168 lot sales and sold 13 anchors in Western Canada and have secured commitments for 650 lots in 25 acres that we expect to contribute to earnings in the fourth quarter. Earlier today, we announced a special dividend of $0.50 per subordinated voting share and Class B share payable to shareholders on December 30th. We also hold a 38% interest in Dream Office REIT, 31% in Dream Impact Trust and 12% in Dream Residential REIT, all inclusive of senior management holdings. Year-to-date, we have received $194 million in cash distributions from these holdings. As of November 9th, the market value of our interest in the Trust is $395 million, approximately 34% to Dream's current market cap. And I'll turn it back over to Michael.
Thanks, Deb. Just to sort of summarize, our recurring income continues to increase. We're very pleased with that. Development properties are moving along and we're creating value and we're starting to see more-and-more turn into either income properties or properties that are sold. At A Basin we opened I think on October 13th, we're within a couple of weeks of finishing our high speed 6 seat new lift that's going to make a big difference for the ski area, operations have started well. I think our numbers for 2022 will be the best we've ever had and we're hopeful that 2023 will be even better. Western Canada, we've had a good year. House prices in the West did not increase the way they did in other parts of the country and income growth is very good. So although it slowed a little bit, we do hope that housing will perform better in Saskatchewan, Alberta than other parts of the country and in Saskatchewan just like Ottawa and Toronto, our rental properties are very much in-demand at high rents. So today, we had a Board meeting and sorry -- so the finance, they reflect what's happened in the first 9 months of the year. At our Board meeting, well, let me go slow. We work on our business plan, the business plan goes from 2023 to 2026 and we've done a lot of work on it, it looks very good. But it's still only captured a small part of our business today. At the Board meeting, management presented and probably somewhere around 75% of what was presented would not even be in our business plan between now and 2026. So we're very excited about the opportunities that we're working on our business. It does take a while, but ultimately those the projects that we work on, the new ideas that we have, it takes time but then they happen and you know the results are very good. So Dream is what it is. I think in the last 10 years, we've had 7 years with extraordinary events and of the 10 years where we had several extraordinary events every single one of them was positive. This year there's been a number of positive events, but it's nice that we run a business then when you have an extraordinary event they're positive. With that I'd be happy to answer any questions.
[Operator Instructions] And our first question comes from Sam Damiani from TD Securities.
I just wanted to touch on your comments on A Basin. Could you be any more I guess specific in terms of what you're seeing for the upcoming season in terms of I guess revenues and EBITDA relative to last year?
Yes I would base it on a couple of things, one is [ Ikon ] is our partner and they've had a very good season selling Seasons passes and the Seasons passes were at a higher rate than last year. We've also reduced the number of blackout days, so we think there'll be probably an extra 10,000 skiers just from that, there's a lot excite about the new lift. We've already had pretty decent snow a lot better than we did this time last year. And our own season tickets have been very strong. So we think that those pieces put together are pretty good. Last year we had about 75% of snowfall, which is pretty bad. And in December-January, December especially we were losing something like 25 people a day to Omicron, traffic through the Eisenhower tunnel was down by 20% from normal. So last year was had by the way we didn't -- we weren't allowed to have our restaurants open and then when we were allowed to have them open, it was a highly restricted capacity. So all of those negatives are gone, plus we have some positive so we're hoping that we'll do better and even with all those things last year was a great year financially.
Fantastic. Switching to Toronto on the condo side, what are you seeing in the sales trends recently sort of real time. How do you feel about the trajectory now versus let's say 3 months ago?
It's a market different than what I've ever seen before. The Forma project is going great and we've really picked-up momentum over the last 10 weeks or so. So I guess we expect to be at 70% sold by the end-of-the year, that's an amazing number considering how big the building is in only 6 months. But we understand like 8 [ elm ] was released and that, that building did very well like where there is one other building that's done very well. And for the most part, in other areas it's been slow. So we have some standing inventory in the Canary District, that's been slow, Brightwater is coming along, we're selling we're selling some. But it really is different depending on where you're at. But it's been amazing to see that some projects when they're launched create a lot of excitement and are selling well at the highest prices ever. So I mean I think the numbers are that new sales are down quite a bit. But because there is a delay the cost of interest hasn't had the same impact on buying pre-sales as it might buying a house or some like that.
Got it. And then just switching to the press release that was put out about a month ago or maybe 3 weeks ago about the legal settlement and now we have a little more color on it. Would you say your outlook for pre-tax earnings for Q4 is the same as it was back in October?
Yes, Q4 would be what we expected.
Okay. Last question from me just on the land settlement gain, is whatever tax that was required has already been provisioned in Q3 or would there be a tax?
Yes, it would be in Q3.
[Operator Instructions] And our next question comes from Chris Koutsikaloudis from Canaccord Genuity.
Just wondering maybe for my first question, if you could justify or help us understand the special dividend versus buying back stock?
Oh, I think that firstly, we're blacked out, we continue to be blacked out, we've blacked out probably since July 1st. We will be buying back stock. Secondly, the stock has been so volatile. We thought we would reward our shareholders with some cash. I think we're probably going to be a little bit more balanced between providing dividends and buying back stock in the future. So I think it's just more balance, we put a tremendous amount of capital buying back stock in the past, we're going to continue buying back stock, but I think we're also going to focus on providing a decent stream of dividends to our shareholders.
Okay, got it. And then just on the Summit transaction, I realize you're limited and what you can say at this point, but when would you expect the asset management fees associated with that deal begin hitting the P&L, would it be fair to assume Q2 of next year?
So the asset management fees should start to go through our income statement when the deal closed and we're responsible for providing the services. I think the expectation is, that sometime in February the deal should close, that's just an expectation. I think the surface come out in couple of weeks, there'll be more -- there'll be a ton of information in that. But I mean subject to any surprise by the way, obviously, we need a vote to go in favor of the sale, but we should have income in the first quarter.
Got it. And then just last one for me here. As we look out over the next few years beyond the development you have underway, what do you need to see if anything to move forward on new projects and I'm thinking of Quayside in particular. What do you need to see to break ground in terms of rent growth or other factors for as far as you're concerned of those projects kind of ready to go with synergy get to zoning?
Yes, Quayside, we will start the zoning within weeks and as soon as we're ready to develop that we will go ahead with it. It's been size and price with all the current assumptions, so we'll be ready to go with that. It's really hard to get approval. I think by the way I think Quayside should do pretty well getting approvals through the city, it's a project that city wants. They've been involved in it so far, but most projects when they are finished we'll go with them, we're ready to go. Now keep in mind, we do a lot of affordable housing, we do a lot of relatively complex financial structuring and that really does give us an advantage to be able to start projects in this market. But having said that, I mean, Forma started a bad time, we've had great numbers, it looks like construction prices are moderating becoming a little bit more predictable and we would definitely start condos now and if we got the pre-sales, we would build them.
And we have no more questions in the queue. I will turn it back to Mr. Cooper for final comments.
Just going to point out that Chris is the only analyst that is covering our company at this minute until Sam comes off restriction. So we just view Chris as consensus and Chris if there's anything you want to talk about, give us a shout. To everybody else, you're also very important, thank you for your interest and feel free to reach out to Deb and I if you have any further questions. Thank you very much.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating, you may now disconnect.