Dream Impact Trust (MPCTUN) Earnings Call Transcript & Summary

Good morning, and welcome to the Annual Meeting of Unitholders for Dream Hard Asset Alternatives Trust. Your host for today's call is Mr. Amar Bhalla, Chair of the Board of Dream Hard Asset Alternatives Trust. Mr. Bhalla, please go ahead, sir.

Thank you, and good morning, everyone. As this meeting is held virtually via a live audio webcast, for the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Registered unitholders and duly appointed proxyholders will be asked to vote on each business item. At any time during the meeting, registered unitholders who have not already provided voting instructions or appointed a proxyholder that are logged on or wish to vote their units may do so by clicking on the Vote Here button on your screen and following the instructions provided. Proxyholders may also vote now using the same method. The polls will remain open until just before the conclusion of the formal business of the meeting. If you voted your units prior to the start of the meeting, your vote has been received by the scrutineers, and there's no need to vote those units during the meeting, unless you wish to revoke or change your vote. We have been advised by Broadridge Financial Solutions, Inc. that based on the proxies already deposited with them, enough votes have been cast to carry each of the motions. [Operator Instructions] We will respond to questions received on the matters of formal business just prior to closing the polls for voting. Questions that are not received by that time or which do not relate to the formal business of the meeting will be addressed in the question-and-answer session following the conclusion of the meeting. If unitholders or proxyholders wish to ask questions about the trust business, you may do so at any time during the meeting or during the question-and-answer session, following the conclusion of the formal business of the meeting. We will now proceed with the formal portion of today's meeting. To expedite the formal part of the meeting, I will move and [ Cher Matthew ] will second all motions. I will ask as Chair of the meeting, Robert Hughes, to act as the secretary of the meeting. For the purpose of this meeting, I appoint Leanne Branston and Rosemary Colakic of Broadridge Financial Solutions, Inc. to act as scrutineers to compute the votes of any polls taken at this meeting and to report thereon. The Board of Trustees fixed May 21, 2020, as the record date for determining unitholders entitled to vote at this meeting. An affidavit has been delivered attesting to the mailing of the notice of availability of proxy materials and the voting instruction form or form of proxy. Our circular and other meeting materials were made available through the notice and access system. I'll ask the secretary to place the affidavit before the meeting and to keep the affidavit with the corporate records. I'm pleased to announce that there are, present by proxy, a sufficient number of voting units of the trust to constitute a quorum. Accordingly, this meeting is duly called to order and properly constituted for the transaction of business. After our formal business is concluded, our management team will provide a few brief remarks, and then there will be an opportunity to ask questions. Please hold questions that do not relate to the formal business of the meeting until that time. The first item of business is the presentation of the Trust 2019 Annual Report, which contains the Trust's audited financial statements for 2019. I note that the secretary has placed before the meeting a copy of the 2019 Annual Report. The next item of business is the election of trustees. The 4 trustees to be elected by the unitholders of the trust shall hold office until the close of business of the first annual meeting of unitholders of the trust following election or until their successors are elected or appointed. The 4 nominees are David Kaufman, Karine MacIndoe, Michael Tsourounis and myself. Each of the persons nominated has confirmed that he or she is prepared to serve as a trustee. Mr. Hughes, have we received any other nominations?

No. We have not.

Since there are no other nominations, I declare the nominations closed, and I move a motion to elect the trustees. The next item of business is the appointment of auditors. The Audit Committee and the Board of Trustees have recommended the reappointment of PricewaterhouseCoopers LLP chartered professional accountants as auditors. I move that PricewaterhouseCoopers LLP be appointed auditors of the trust until the next annual meeting of unitholders and that the Board of Trustees be authorized to fix their remuneration. May I have a seconder?

I second the motion.

Thank you. We will be closing the polls for voting momentarily. Before we do so, I'll ask Mr. Hughes whether we have received any questions relating to the formal items of business on our agenda today.

No. We have not.

Now that everyone has had the opportunity to vote, I now declare the polls for the 2020 Annual Meeting of Unitholders of Dream Hard Asset Alternatives Trust closed. I've been advised by the scrutineers that a significant majority of the proxies received by management prior to the meeting have been voted for the election of trustees and the appointment of auditors. I, therefore, confirm that the 4 nominees for election as trustees have been elected as trustees and that the motion to appoint the auditors is carried. I would ask that the scrutineers to compile the report regarding the results of voting on all business matters. Results will be published on SEDAR and results of the director election issued by press release later today. The formal items of the business as set out in the notice of meeting have now been dealt with. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. I now invite Mr. Michael Cooper, Portfolio Manager of the trust, to provide a few brief remarks. After Mr. Cooper's remarks, we'll have a question period. [Operator Instructions] We'll answer as many questions as time permits. Mr. Cooper, please go ahead.

Thank you, Chairman. This is a different format than we're used to, so we didn't create a presentation. It's an awkward manner to have annual meetings. So just generally, what I would say is we've been realigning the portfolio. We've been making the assets better. And as time has passed, we're getting closer to our goal. So at the end of next year, we will have Block 211, which is the new office building, 165,000-square-foot office building in Ottawa, leased to the federal government. That one comes online. Before that, we have, Block 2, 3 and 208 being occupied and paying rent. We're building Block 8, which is a apartment building in downtown Toronto that we're doing with the Ontario government, funded by the federal government. And that building is well under construction, and it will become a great income property. So we can now see the income properties getting closer to producing income, and that will totally transform the company in 2000 -- at the end of 2021 and 2022. So that's really exciting to see. In addition, at Yonge and Steeles, we have a great site. We're working our way through approvals. And it's been confirmed that the subway is going to be extended. It will be less than 100 meters from our site, and that's going to make it pretty incredible. Our site in Port Credit, we're planning on marketing at this fall. Once -- the first site, we've got over 3,000 units there. We're probably going to do the first 200 or maybe 5% of the total site. So within 24 months or so, that should start to produce income, and then we'll have income from there every year. So there's a huge transition going on in the company. And we've been very fortunate. The Victory Silos site is worth a lot of money. With Sidewalk Labs leaving, it might delay us a little bit until they figure out what to do with Quayside. But all of these sites are amazing. And one of the wonderful things we're doing is building an indigenous hub in downtown Toronto. We call it Block 10. And it's going to have an apartment building for DAT, and I think that's going to be pretty exciting and it's also pretty special because it's the only First Nations hub in downtown or that I know of in North America. So I think, within our company, we're doing incredible work, incredible sites. And our sites are ending up doing incredible good for our society. So we're really pleased with the progress we're making. As far as the stock price goes, it had been a great year and then COVID hit. And quite honestly, we're just trying to manage our way through 3 things at once. We're dealing with public health issue, we're dealing with the economic crisis that accompanies it. And as of more recently, there's a lot of social issues that need to be addressed. And we think that DAT's really well positioned to be a leader in that. So I would say from here on, we're looking to manage our business prudently. We own a hotel in Las Vegas. Fortunately, that hotel is under redevelopment. We plan on opening it in December, but it's very difficult for us to determine what to expect once it's opened. We've got some loans we're a little bit concerned about. We're not sure if some of our projects will require more capital, but we're well funded to deal with all of that. That's basically where we're at. There's a few questions.

The first question, or I don't know what order they've come in, has to do with, "Can you please tell me the process to decide when to conduct an appraisal of various properties. Given that there is so little information available, it would seem reasonable to get this information out to the unitholders on a comprehensive and regular way." Yes, that would be great. The problem is, there's hardly any properties that traded through these crises. I don't think the appraisers have information that they can rely on. Generally, we do -- we get appraisals every 3 years, and we use the information that we get against other -- to compare to our other properties and adjust them. So what I would say is if we got appraised of all the properties, I would put a lot of weight on what that means. We've got to actually be patient and wait our way through it. But from what we're seeing so far, things are really quite good. Another question has to do with the trading volume of the stock. The stock traded 107,000 shares yesterday. It looks like it's averaged about 65,000 shares a day over the last while. Throughout COVID, volume has been down. And then I'm actually a little bit curious in terms of if we continue to buy back stock, how do we get the trading volume up? So I think it's a natural consequence of reducing the shares outstanding if the trading is lower. And I think with COVID, it's been difficult. We are working on getting coverage, but I don't know if the trading volume is high or low for a company this size. One thing I would also mention is Dream Alternative Trust has been active buying back stock. I'm not sure if people are aware, but up until today, because of the crisis, companies are allowed to buy double the number of shares they could do on a daily basis for the last while. And Dream Alternative Trust has been buying back shares at the current stock price, which is very accretive. And we have the capital to do so. So I think we're going to continue trying to take care of our assets and our people through these 3 crises. And we're going to continue to buy back stock if the pricing is attractive. And we'll look at our future strategic plans when the CDC, the World Health Organization, the Fed, the Canadian government, the Central Bank and smart people say that it looks like we've got an environment where it's safe to make plans. The next question is a fascinating one. We think about it all the time. "How have development plans changed given the huge uncertainty in the Toronto residential market, including the type of units now desired, the price points, lack of immigration, huge apparent shifts in demand?" That's an interesting question, huge apparent shifts in demand. We're not sure. What's happened in single-family is there's a lot less listings, volumes are down and prices are up. In condos, there's been a long time since there was a launch until the last 10 days. We have seen some very successful launches recently. So we're watching that market very carefully. In Toronto, right now, we're building Block 8, which is 100% purpose-built rental. We want to build Block 10, which has apartment and a condo. So we'll see what that is when we get there, what the demand is. But again, we don't have to build it and see if it sells. We can sell first. For the other ones, my first opinion is I'm actually jumping out of my boots in terms of how exciting I think Port Credit is going to be. It's got 2,000 feet of waterfront. It is close to a GO station. It's close to great transportation. And I think that building a new community on the lake so close to Toronto is probably the best of all worlds. So I think that one is going to be great. But again, we're looking at building 1 building, which is probably less than 5% of the whole development. We'll go market. We'll see how the market is, and then we'll make our decisions. But a lot of the risk management is we actually get to see the results before we put up significant capital. So what I would say is I'm not sure we're doing anything different because we always try to manage risk that way. Oh, this is a great question. "Can you comment, please, on what you were seeing in cap rates on residential properties in the market that we're in, and rents, and what vacancy are expected over the next 6 to 18 months?" This is a great question. And just to be clear, I've spoken to some of the largest real estate businesses in the world like New Beam, Blackstone and others. And it's a very confusing market because the Fed came out and said they're going to keep the overnight rate between 0 and 25 basis points for 3 years. In my life, I've never seen central bankers try to create an environment to eliminate interest rate risks for investors. So I think that's an enormous statement. Apartments have done relatively well and all over the world. And what we're seeing is the highest-quality buildings, where they have traded, are looking like the cap rates are as good or better as what they were before the crisis. So cap rates look very strong. There's a question before about appraisals. We need more trades. But I do know that in Europe, we're looking at apartments that sometimes are trading around 2.5 caps. And in the States, there are more trades, and they're going at sub-5 for the typical garden-style. There isn't a lot of evidence about what the best-in-class departments are trading at. As far as rents go, we're seeing in Toronto that it's a little bit -- what we're seeing in most places, by the way, is tenants who are living in an apartment building aren't moving as much as they used to. People are just staying put, although some people might go move in with their parents or somebody else who they have affinity for. But when there are apartments to rent that are condos, it's been a bit slow. But what we're seeing in purpose-built rental is it's still looking pretty attractive. So we'll have to see. But I think for me, the type of environment we're now in is as hard as anything I've seen, not because we're not well positioned, but I feel as if we've already gone through 4 months of not knowing what's going to happen next. I don't think we're going to get many answers in July, August, September or October. We may not even have them well into the spring. And I don't know what it's like for shareholders, but I can tell you, trying to run a company when you don't know what's going to happen with any comfort is very difficult. And what then -- when the Chair of the Fed comes out yesterday and says there's tremendous uncertainty and we don't have any conviction as to what might happen, it's unnerving. And when the health agencies say they have no idea what's going to happen, it's unnerving. And in Canada, the federal government said they're preparing for the second wave. So that's pretty unnerving. So for me, it's not a pleasant thing. We're managing prudently. But I would say there's big flashing signals out there, and we respect the fact that the risk in the market is systemic and it is serious. And we're glad we have cash. We're going to continue buying back stock at a measured rate at cheap prices. And as we get through this, we will alter our plans as it becomes clearer. But having said that, I'm so glad we've got the portfolio that we have and we have the capital that we have, and we're going to be able to weather this just fine. And I think pretty much on the trust, we'll continue buying back stock. I think pretty much [ unlimited ], we'll continue to buy stock over the year, and we're very bullish on the long-term prospects of the business. With that, Mr. Chairperson, I turn it over to you.

Thank you, everyone, for joining us. That's it today for today's meeting.