© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, ladies and gentlemen. Welcome to the Dream Unlimited Corp Fourth Quarter Conference Call for Tuesday, February 21, 2023. 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 securities regulators, including its latest Annual Information 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 and welcome everybody to Dream's year-end conference call.
We released our results earlier. Today I'm with our CFO, Deb and she will present the financials. After that, I will discuss some of the particulars about the company. But I'd just start with more of a macro point of view.
Last night or this morning I read one of the reports on Dream Industrial, it said that European rents are up 20% and cap rates have expanded 75% -- 75 basis points. And I thought like 20% increase in rent is huge. It's kind of remarkable that cap rates would be up so much, so that kind of defines everything we're seeing.
This morning Canadian CPI came out, it was -- it looked actually great that core inflation is down at a reasonable number we're making progress. And then you see a jobs number that's off the charts. You're hearing people talking about how the market is going to crash, other people saying we're past the bottom, interest rates are going to come down. Others like -- it's just such a hard environment to manage through.
At Dream, we report quarterly -- we really do have a longer-term outlook. I mean currently, the equity in the company is quite a reasonable number down and I think it's even higher than our trading value, but the amazing thing about our equity is almost 100% retained earnings and we've made that money starting on a very small equity base and we keep growing it and a lot of the work we're doing is long-term in nature.
But I think if you look at the progress we've made in the last year, the last three years, last five years, company has changed a lot and has gotten higher quality. I think we're showing a lot better, best-in-class management. We got innovative products all over the place and I think the company is in really great shape. So while the macro environment is fluctuating, I do think that we are building a great platform for the long term.
I think that the undercurrent is, we're going through 25 years of declining interest rates, which have been a boost, and now interest rates are back to where they were in 2006, which doesn't seem shocking in its face. But we are looking at different sort of environments, one that might be different from the last 25 years. And what I would say is, from a year ago we're incredibly -- the whole economy is adjusting way better than I would have ever thought and quite honestly way better than anything I've ever read.
So I think we've gotten through a lot of it. I'm actually quite bullish going forward subject to the geopolitical events. But I do think it's been an amazing recovery in the last 12 months to adapt to a very different environment. And I think Dream set up very well to perform in this environment.
But at this point, Deb, do you want to provide some information on the financials?
Thank you, Michael, and good afternoon.
For the three and 12 months ended December 31, earnings before income taxes after adjusting for fair value gains and losses on income trust units -- Impact Trust units held by other unit holders was a loss of $56 million and earnings of $117 million respectively, compared to earnings of $99 million and $151 million in 2021.
The change from 2021 is primarily due to lower fair value adjustments on our investment properties including those held in equity-accounted investments and fair value loss on Impact Trust's investment in Virgin Hotels in Las Vegas.
This was partially offset by condominium occupancies at Canary Commons during the first half of the year and a gain on land settlement recognized in the third quarter. We maintained strong liquidity and managed risk with $286 million in liquidity and a conservative leverage ratio of 41%.
I'll now go through a brief overview of the results by operating segment. In the fourth quarter, our recurring income segment generated revenue and net operating income of $43 million and $14 million respectively, up from $36 million and $10 million in 2021. For the year ended December 31, 2022, our recurring income segment generated revenue and net operating income of $168 million and $64 million respectively, an increase of $51 million and $23 million over 2021.
The increase was primarily driven by strong results at A-Basin, earnings from our growing multifamily portfolio and improved performance at the Distillery District in our boutique hotels in Toronto. Included in revenue for the year ended December 31, it's $48 million relating to the asset management and development contracts with Dream Industrial REIT, Dream Office REIT, Dream Residential REIT and our partnerships up from $43 million in 2021. We expect these revenues to grow over time as we absolutely pursue new asset management opportunities.
In the fourth quarter, our development segment generated revenue and a net margin of $125 million and $33 million respectively, compared to $114 million and $27 million in the prior year. Fourth quarter results were largely driven by our sales in Western Canada. Revenue and net margin for the development segment was down from the prior year as 2021 results included occupancies at Phase 1 at Riverside Square. In 2022, we achieved 858 lots sales and 39 acre sales, compared to 959 lots and 10 acres in 2021.
To date, we have secured commitments for 420 lots and 23 acres that we expect to contribute to our earnings in 2023. We hold interest in Dream Office REIT, Dream Impact Trust and Dream Residential REIT at 38%, 32% and 12%, inclusive of the Senior Management's Holdings. During the year, we received $28 million in cash distributions from the Trust.
As of February 17, the market value of our interest in the trust is $420 million or approximately 34% of Dream's current market cap. We remain committed to maintaining a conservative debt position and may use excess liquidity to fund potential new investment opportunities as they arise as well as purchase an additional unit of Dream Office REIT and Dream Impact Trust.
And now I'll turn it back over to Michael.
Thank you, Deb.
Just by segment, for years, we've been saying, we want to increase our recurring income. We've taken a lot of steps in that direction. We have been completing quite a bit of income properties that have contributed significantly, especially getting into the apartment sector. Over the next number of years, next three or four years, we have I think a significant number of properties being completed and we're also starting a lot more.
So that's going to grow quite a bit and all of our recurring income assets are performing very well. A-Basin had a good year last year, it's the best we ever had. I think this year will be even higher and I think it's going very well there and appreciate the work that the team is doing. We increased our position in the Distillery District from 50% to 62.5%.
I think that is a very valuable Dream with its partners are completing West Don Lands, the Indigenous Hub. We've got Victory Silos and a Quayside, but addition -- other developers are also finishing a lot of properties there and we think that the population is going to increase a lot, traffic is going to increase a lot and I think the Distillery will be worth more in the future than it is now. So we're pretty excited about that.
Western Canada is holding in pretty good, which is great. I mean I think the interesting Western Canada is as oil fell after 2014, we weren't doing very well. It's picked up quite a bit in the last couple of years. The first quarter of 2022 was unbelievably strong and throughout the year it kind of petered off, but Alberta and Saskatchewan have a highest discretionary income, the highest income per capita and the businesses are going very well there.
So I think that will be increasing pressure on people's pent-up demand to start buying houses again and this year will be a little slow, but we think it'll be pretty good. It's looking very good for partial sales, both to institutions like for schools as well as for commercial use. So I think we'll pick up there what we might lose some of in lots. So I think it's going to turn out pretty good and I think future years look very strong.
So I think Western Canada is going to pay off well for us. Impact investing has been a big business for us. I think we've got over $3 billion of capital throughout the organization, invested in Impact and the type of investing we're doing, I truly believe that this is how all real estate companies will be developing. And we're very pleased with the acceptance we've got from governments, the progress we've made on our developments when a Quayside at LeBreton flats are huge for us.
And I also think the Dream Community Foundation is making a difference and we're seeing that in the neighborhood of Western comments. We're going to expand it more over the next year, but as far as impact goes dealing with having affordable housing units is great, reducing carbon emissions is great. But the foundation itself is providing a much more social safety net for the people in the community.
And generally with the Community Foundation, a third to half of the recipients are residents and the other half would be people in neighborhood, we're trying to elevate the whole community, not just our properties. And we've had amazing results just by how people feel about their community and as we expand over the next couple of years, I think it'll become much more obvious, the amount of benefits that come from it and the benefits that Dream will reap as a result of the communities that were involved in doing better.
We put up an investment -- investor presentation earlier this afternoon. I want to go through a couple of things in it on Page 3, you don't have to look at it, I'll tell you what I'm referring to. We now have $23 billion of assets under management, that's up 56% from the beginning of last year.
As I mentioned, we have $3.2 billion of impact assets, considering that we weren't thought of as a residential and income residential business is pretty amazing that we have about 34,000 units that we own or have land for. We've got a 19% annualized return for our shareholders over the last four years and the number that kind of jumps out were up to 84 million square feet of commercial space as we are now. Since the launch in June at Forma, we've sold over $800 million of condos and that's really magnificent number. It's an example of -- I think that's the biggest launch ever.
The price per unit is very high. I think it's the highest price per square foot for any building with more than a couple hundred units. It's gone exceptionally well in a very difficult environment. And I think that it's a testament to the innovation of our team and our partner's teams to be able to create something that's received this well in a tough environment. We also closed the Summit transaction with GIC last Friday. I'll probably refer to that a little bit more in a minute.
On Page 5, we sort of break out the company and there's some really interesting numbers. In the first section, which is just third-party asset management, we've got about $11 billion of assets in our public vehicles. We now have $8 billion in our private investment vehicles and that's a pretty dramatic increase. We had very little three or four years ago.
We can see growth in both and we think that being able to access private and public market will make us more able to pursue the growth and the style of business that would like to do without taking on leverage risk within Dream Unlimited. So I think that's very exciting progress for us.
On the recurring income, when you include our REIT units, which are an indirect ownership of real estate, we had $88 million of recurring cash flow. I think that's a special number. I think we're going to be over $100 million pretty soon, and that will really put us in good stead to be able to fund the business without anything from development and that's the direction we've been working on since around 2016 and 2017. And to get to $100 million will be a big accomplishment. Again, our development business continues to be significant, although the whole business is growing and I think it's not necessarily increasing as quickly as the overall business.
On Page 6, I do want to refer to the growth of our asset management business. As I said, we're at $23 billion of assets under management, it's a pretty big increase from the beginning of 2022. But I want to point out that in 2016, we internalized Dream Office REIT, and in 2019, we saw Dream Global that's the equivalent of another $10 billion of assets.
So in 2015, we were at about $15 billion of assets under management, now we have pretty good growth to $23 billion, but if you include what we sold, it would be $33 billion. So there really has been growth and now I think we've got -- we've been building out a whole platform to support the growth in our asset management business. So I think it's pretty good progress at each -- in each sector of our business.
Last comment on assets under management is that the mix of assets have really changed over the last two years. We had $10 billion of assets under management at the end of 2020, now we have $23.4 billion, but of that about 70% -- 72% are now Office -- I'm sorry, the Industrial and Residential, up from 31% at the end of 2019. So that I think has been a pretty good shift to make sure that we own assets that are high quality predictable and safer.
As we move forward, I think you're going to see us focusing on increasing our recurring income from the assets that we developed. We may be buying some more apartments with Impact Trust and Impact Fund. We're going to be growing our asset management business. And I'd say that the thing that has really stuck out is when I talk about Forma that was a pretty innovative project that has been very successful.
And if we look at the work we did with CMHC to do a pilot project that led up to MLI Select Financing, that was pretty innovative as well. And MLI Select has become the number one platform for CMHC to be lending two apartments has been a great part of creating that. We also worked with Canadian Infrastructure Bank to create a $136 million loan to decarbonize our buildings and now we're making a lot of progress, actually working on the decarbonization, but that was a pretty innovative loan.
The transaction with a sovereign wealth fund to buy Summit was also pretty innovative. And when you look at it and also, I'd say this, aside from decarbonizing the assets in Dream Office, the use that we're making of the buildings has been really quite innovative as well and we're excited to see the Bay Street collection opened later this year.
And then of course with Impact that is -- you know it's a relatively new asset class and I think that, well, since we launched it over two years ago, where we've been very successful dealing with different levels of governments in order to win projects, we've got about 20 investors -- 20 institutional investors that are investing with us at Impact and when you put all this together, I think what's really happening is Dream is rising to the top individual sectors and doing innovative work and getting good returns for it.
So we're very excited to keep building from where we are. And as the macro environment changes, we'll either get a little bit of a push or maybe a bit of a body check, but I think over the longer term, it will turn out to be not as significant as the actual work that we're doing to make our company better.
I'd be happy to answer any questions. Deb would be happy to answer any questions. So if there are any, operator can you deal with them?
[Operator Instructions] We have our first question from Mark Rothschild with Canaccord. Please go ahead. Please standby, while I open up your line. And your line is now open.
Thanks and good afternoon everyone. Maybe just looking overall at the company with liquidity approaching $300 million, is that more than you feel you need at this point, is that the right number? And how does that fit into your overall goals in the near term as far as capital uses, whether it's starting new condo projects, investing in Dream Office units or buying back stock in Dream Unlimited?
Mark, I love that question. I can't tell you how many hours I thought pondering on beaches, on ski hills. And I think the answer, I get to is, it's not enough. As we have gone through the upheaval over the last year, I think we're seeing different kinds of investors and some investors are feeling quite stressed already. A method of building condos. It stay a little bit longer, interest rates are a little bit higher and they are already committed to the next one and they're struggling a little bit.
We look at the pension funds, they generally have quite a bit of liquidity and when you look at sort of either wealthy families or long-term real estate businesses, a lot of them either have very little debt or massive amounts of liquidity. So the last year it's been really quite uncertain how things are going to turn out. And I would say that we feel that the company should have more liquidity in the future. What we have now is great, it's great compared to what we've had any time before this.
But I think we're sort of thinking about maybe a good number would be $500 million, which we hope to get to over the next like four or five years, but that's just directional. But I would say that to be able to pursue our plans without interruption as macro things change, we want to -- we want to have more and more liquidity.
Having said that, we do have a lot of liquidity let's say from third-party investors, so we got a lot of liquidity for our Impact Fund. We've got liquidity for Industrial. So some of the liquidity is at the top company, but clearly, we're trying to have more recurring income, a safer business, more liquidity, and more activity down at the managed entities whether they're public or private. So I would say we will tend to increase the liquidity and we'll obviously be opportunistic to invest in properties or buy stock, but it'll probably be a lot less our capital that has been for the last 20 years.
Okay, that's interesting. Thanks. And maybe just following up on that, to what extent is that -- may be evolving view and position on liquidity because of the current economic environment or more just how do you want to position the company may be through cycles?
Yes, that's a great question too. I mean I think that we had tailwinds from the beginning of the company's history. And although the recession of 2000 looked a bit scary, the global financial crisis looks scary, when the U.S. was potentially going to default in 2011 that was a bit scary, COVID was really scary. I think the point is, if we're going to have a view to run the company over the long term, we need to make sure that we have the ability to get through it.
And I'd say that the conditions in the last year was an example of what could happen. Actually quite well, I mean we haven't had any issues rolling over debt or getting new debt, but that could happen and I'd say it's a combination of both. We have enough assets, enough reputation, enough activity to be able to get a lot of stuff done, and not necessarily needing as much of our own money. And I think we should just be safer to sort of be in a position to always be able to achieve our dreams.
Okay, great. Maybe just one more quick question on the lot sales. It sounds like the number now is about 420 that you have under contract you're looking to. Would that be a target for the year and if you could also maybe just comment on how the demand has evolved over the past six months with higher interest rate?
Yes, it's another good question. So what's happened is, for the last couple of years our builders have been building everything they can. And there -- the bottleneck was being able to produce properties, not having buyers. So in the first quarter was pretty extreme with last year and it eased off, we're seeing now more people visiting like people are getting on with their life and the interest rates are kind of in the same places as they were now for like 90 days or whatever.
So we're starting to see more people looking to buy houses and starting to buy more. So we're seeing a pickup. It's fortunate that Alberta and Saskatchewan have such good economics going on, but we think it's going to get a bit better. So the 420 is pre-sold, that doesn't include houses that we're doing or any builders come to us and ask for more lots. So we expect it to be higher, but that's going to depend on what the progress is.
Okay, great. Thank you so much.
Thank you. We have our next question from Sam Damiani with TD Securities. Please standby and I will open up your line for you. Your line is now open.
Thanks. Good afternoon. Good afternoon, Michael. Good afternoon, Deb. Maybe first question, just a little bit of a follow on from one of Mark's, just on the leverage ratio that you guys quoted in the MD&A, it's around 40%. Is that a focus metric for you and how do you feel about that metric in terms of where you'd like to see leverage in the business in the next few years?
I look more at what the debt is to our fair value as a more significant metric and onto liquidity, that's one of the focuses, what's your ability would withstand a more difficult financing time. I think if you look at on a proportionate basis, when you look at what we own and what the debt is against that, we're just under $1.2 billion.
We have over $300 million of liquidity, I think that's pretty good. A big part of our debt is like RCFI Financing and mortgages. So, I feel that we're safe in a lot of different times, but I don't really look at what debt is to asset management and $43 million in land at cost.
Got it. And maybe just over -- switching over to the assets under management, obviously fantastic trajectory over the last couple of years, culminating with the Summit transaction. I'm wondering if you could give us a sense as to how active the programmatic element of that relationship is going to be going forward in the Canadian Industrial property market?
Well, that's interesting. I think we're going to be quite active in the Canadian Industrial market and I think we've got the firepower to do it. I think that the JV will grow quite a bit and it won't be that difficult for Dream Industrial to keep up. So I think we'll be a solid buyer of excellent properties. So I think it will be meaningful. And I guess with Industrial, I think we have 43 million square feet in Canada now that we either -- that we own and manage and 11 million square feet at our development pipeline. I think that's going to grow significantly.
And what I'm really excited about is how we're going to develop our ability to make the most out of having a large platform. Was that moving tenants to new developments and releasing the space before moving tenants around or other ways to make additional funds. We should be able to be much more profitable because we have scale than we had in the past. So that would be focused on that a lot, but we expect to have decent growth in the Industrial platform.
Okay, great. And just last one for me, I've asked you this before, but just the build out of the residential pipeline is a meaningful part of the expected growth in recurring income over the next few years. What's your sense as to how the stars are aligning for economical residential rental development kick-starting a new project today?
Yes, that's a really interesting one and I think we're proceeding as planned for the most part. In Zibi, the numbers are working well. In Western Canada, it's really quite shocking that we're able to get decent rents, built to a good yield on cost and get 10-year debt at a rate that's very profitable. So I think we've got 220 units, finishing this year. But soon as we have any level comparable, we'll start the next one. At Zibi, we're getting ready to start the second residential building at the end of this year, even though the first isn't finished. So there's a lot that is working. We've very rarely bought land at today's market value.
So we have a lot of -- we have a low cost base. I would say if we paid $225 a foot for building -- space downtown, land downtown, it might be harder, but we're in pretty good shape. We've announced this in different ways. I think it's in the press release that Quayside is closing soon and Quayside, it's going to -- it's already consumed tremendous resources here. We've had very good meetings with the City Waterfront Toronto on different levels. I think that project is going to progress very quickly, even more quickly than we had assumed originally.
So, I would say that we are looking at risks and -- so, I say that Quayside was designed in a way that it can go forward and it will generate decent returns and will be able to meet the commitments we made to the government. So that's very exciting. But at this point, I think we've got almost our maximum amount that we can build. So the issue really now isn't going to be like, are we going to a project that we were thinking of doing. I think for the most part, it will be, let's make sure we do a great job in what we have.
So we own a lot of lands and some of that is being deferred until we get other such stuff done, but the market is challenged. I talked about Forma and let me be clear Forma is one of two projects in the last year that have been successfully launched. Others have been launched, but not to get to pre-sales very quickly.
So the condo market is struggling and hopefully we'll be able to get decent interest rates to be able to do more housing, but a lot of the housing we're doing -- the rental is with CMHC, RCFI debt, so we have certainty about the amount of debt and the long-term cost and that seems to work okay, right now.
Okay, great. Thank you.
Thank you.
Thank you. I'm standing by for further questions. [Operator Instructions] I see no further questions in queue. I will now turn the call back over to Mr. Cooper for closing remarks.
Thanks, Sam. Thanks, Mark. If anybody else has questions, please don't hesitate to contact Deb or myself. Thank you for listening in today and I hope that you continue to have interest in our business. Be well.
And thank you. This concludes today's conference. We thank you for participating. You may now disconnect.