Dream Impact Trust (MPCTUN) Earnings Call Transcript & Summary

My name is Michael Cooper. I'm the President of -- and a member of the Board of Dream Unlimited, and welcome to our Annual Meeting. I'll act as Chair of the meeting, and Rob Hughes will act as Secretary of the meeting. And with the consent of the meeting, I appoint Daniela Munoz and Paul Allen of Computershare as scrutineers for the meeting. You guys are okay with that? We will now proceed with our formal business. To expedite the formal part of the meeting, I will move and [ Shannon McCree ], a shareholder, will second all motions. After our formal business is concluded, our management team will make a brief presentation, and there will be an opportunity to ask questions. When we say the management team, I'll make a brief presentation. I have an affidavit from Computershare as of the mailing of everything. The scrutineers have advised that we have a quorum. The first item of business is the presentation of the company's 2021 annual report, which contains the company's audited financial statements for 2021. I note that the secretary has placed before the meeting a copy of the 2021 annual report. The next item of business is the election of directors. As stated in our circular, 8 directors to be elected at the meeting and 8 nominees are named. They are James Eaton, Joanne Ferstman, Richard Gateman, Jane Gavan, Duncan Jackman, Jennifer Lee Koss and myself. Shannon, will you please nominate the nominees.

I nominate the individuals listed in the Management Information Circular dated April 22, 2022, for election as directors of the company.

Thank you. Are there any further nominations? Single further nominations, I declare the nominations closed. Based on the process received, I would mention that each of the 8 nominees received a majority of votes cast in favor of their election as a director. After the meeting, we will issue a press release with detailed voting results. Given the proxy received and as the number of persons nominated for election as a director is equal to the number of directors to be elected with the consent of the meeting not to take a formal vote. Therefore, I confirm that the meeting has been carried. The motion has been carried and the 8 persons were nominated have been elected. The next item is the appointment of PricewaterhouseCoopers. I move the PwC be appointed auditors of the company until the next annual meeting, and the Board will determine their fees. Shannon?

I second the motion.

Thank you. The meeting will now vote on the motion. I propose to take the vote by a show of hands. [Voting]

Closed. The motion is carried. The formalized business as said on the -- on 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 closed. Okay. I asked Kim to put together some slides for other things we've done. So there's nothing original in our presentation. But what I've been trying to do is figure out how do we express how it all comes together. So this is from February. This was the spill my guts conference call where we talked about all kinds of numbers we don't normally talk about. We'll update this occasion. We're not going to update it minute by minute. But I think the key things are we've got a book value, and that doesn't reflect a lot of the great things of the company. Things like what's happening with urban development, asset management, A-Basin, Western Canada and the inherent interest in some of the like Dream Impact and Dream Office. So I'll get back to this later. I'll end with the same slide. Okay. Next. So what I'm going to try to do is focus on what I think about is the sustainability of the company. And when I say sustainability, I mean it in the fullest sense, how do we attract and motivate people that are here? How do we generate returns? How do we make sure we have the right liquidity? How do we make a difference in our communities and how do we contribute to reducing carbon emissions? This slide shows sort of a breakdown, $12.5 billion of third-party money and about $4 billion of our own broken out between development assets and income assets. Go ahead. One of the things we tried to do, certainly since 2016 is to really focus on making our company sustainable by having really high-quality assets. So I think throughout the photos that you'll see, we have really best-in-class assets. In fact, in the industrial REIT prior to 2016 or '17, we had a lot of small base buildings, older buildings. I actually like them. but these buildings are a lot more institutional and probably will weather up and downs better. One of the things we'll focus a little bit on is what's happened during COVID at the company, which has been probably one of the greatest growth periods for our company of all time, which is counter-intuitive. Within Dream Industrial REIT, we have more than doubled the amount of square feet, and more than doubled the market cap, and we've grown to the U.S. and Europe. This one is interesting because we were looking at what the returns have been. So industrial, going back to Paul's question earlier, we had a big value increase in Dream Industrial, and that value increase allowed us to be able to grow the business by issuing equity. We ended up with a 54% increase in value for the shareholders of the company over a 27-month period and a more than doubling of the company. Next, so this is digging in a little deeper. Dream Industrial or the entire Dream Organization hasn't developed a lot of industrial buildings in the past, and we've really made that a focus of having high-quality assets, sustainable assets both in terms of climate change as well as economics. And we're now quite active, and we've had some great successes so far completing buildings. We've got land and we'll get into that a little more. But this is a new expertise that we've added over the last 27 months. This is like I think when we talk about sustainable as well, we're doing so many things to manage buildings in a way that are for the future. And I do want, if you can, I think that's one of the themes is that so much of what we're doing is to be really well positioned to have competitive advantages against our peers for the future. This is 5 million square feet of solar. We did a lot of solar. We actually did 20% of the rooftop solar in Ontario between 2005 and 2013. And now with that expertise we're taking to the industrial buildings, I think the team is looking at doing some net 0 industrial buildings. But throughout the business, so as the whole business and in each business, we're really focusing on how do we create buildings that are better for the environment. Next, and you'll see this throughout. I just want to -- you'll see it, and I'm not going to talk about each one, but we're leaders in just about every type of future proofing for sustainability for carbon emissions for not just net 0, but even a lot of the stuff we're doing with our employees and our community. Next. This comes out of Gord's presentation. This is a pretty amazing concentration of downtown Toronto offices, office buildings. We're doing a tremendous amount to make these buildings more valuable and more competitive. And I don't think there's many people in the world that have assets to rival this in Toronto, which is the third largest city, fastest-growing city. So I think it's going to be good over time. Next. Yes. This is a slide that I also stole from Gord's presentation. I did it because -- I chose this one rather than the bathrooms of the hallways because we went to the city and said we wanted to tear down Fisherman's Wharf. And they don't like giving us demolition permit, they don't know what you're going to build. We're going, like we're not going to build anything. We want to open up a really special place. So we think we'll make more money off of this alley than we would have off of the building. This is going to be a pretty cool place in the center of the city to sit out, have a beer and be a little bit like how it is in London. So we're excited to get that together. I'm glad to hear Gord say it's 99% complete. And I can't wait to see it. Next. Again, we're going to distance in all of these. The scores we're getting are unbelievable. And I would say that we've been very focused on impact. We haven't really been focused on having organizations give us their good housekeeping seal. That has not been what we're focused on. But the more stuff we've been doing with the impact we had to apply for these things because I think it kind of -- that's what people want to know, right? So we're pretty thrilled that even though this hasn't been a focus of ours, specifically, it's really a derivative of what we're doing with the impact, we still have such great scores. This is more innovative. I mean, what we're doing with the green lease. I think we just won a community award for it and for what we're doing with the procurement. But this is really innovative for how we're trying to work with our tenants to promote operating our businesses with more green focus. Jay had this one up. What I thought was really interesting was notwithstanding what's been happening in the office sector Dream Office still increases net asset value, including distributions by 13% per year. And I was glad that Jay didn't mention what I think is the most fascinating is that, that gain comes from buying back stock. We've been helped by that 54% increase in value from Dream Industrial. We've saved some cash, and we've also had 2 buildings approved that have increased the value quite a bit. The part that's missing here is there's been no change in the values of buildings notwithstanding the amount of money we're putting into it. So we've been very, very conservative focus on the building. So I think that's kind of a pretty conservative way of making the buildings better and better and better and how we're doing our accounting. Next. Yes. This one is -- just for those who don't follow Dream Office and its predecessor, Dream Dundee Realty have now reduced their shares outstanding by more than 40% 3x. One from 1998 to -- 1998 to 2002. Another one was in -- one big swoop in 2007. And from 2016 to now, it's down 60%. And I don't know if there's another company in Canada that's reduced their shares outstanding more than 40% 3x. But what we've done is we sold 140 buildings that I'm really glad we don't own now because I think in office today, you got to have your best and you've got to take a really good care of them, and they've got to have great offerings for your tenants. So between selling assets, reducing shares and improving our assets, I think we're in really good shape. Okay. Western Canada is back, baby. So all you guys who said, sell Western Canada, it came back. And I think we're going to have better numbers this year than last year. Two years ago, we had really bad numbers. And it's nice because if we would have had those numbers in 2015, it wasn't that valuable to us. But having Western Canada come back the way it is, that's really going to help us deal with some negative surprises. So it's going to be up from what do we have Jose, last year, $40-something million of margin. Okay. Yes. So we're looking to have maybe 8 to 10x as much margin in Western Canada as we did 2 years ago, and we're really thankful for it. We've got incredible sites Providence is one I've been talking about since June of 1997 when we bought it, and I was right. 20 years late, but I was right. And the Homewood is just I mean we've got a 40% to 50% market share in Saskatoon. We've been building apartments there. We built townhouses for rent. Now we're doing some single-family rental, and all of that in this market, we're still getting over 6% returns, including land at market. So we're pretty excited about continuing to build that up. Next. Yes, A-Basin. That one this year, our yield was 18% higher per skier than our best year ever. This year, we had about 375,000 skiers. Our best sheet was 600,000, but we had low yields. And our revenue, total dollars with 375,000 skiers is higher than what we had as revenue when we had 600,000 skiers. This year, we had the highest revenue ever. Costs are up a lot, but I think we're going to have the best financial results we've ever had at A-Basin. In December -- the whole year, we had 75% of a normal snowfall, so there's upside there. We're working with the Ikon Pass who have privileges at our ski area, and we're adding another 8 days when the blackout that should add another $1 million, but we continue to see great opportunities and maybe the most wonderful thing as I think we're going to pull out between USD 5 million and USD 10 million that's not needed for operations. So we're actually seeing big cash flows coming out post COVID and post no longer accepting Wales Pass. The distillery here really just represents that we own a lot of income properties, and it's been growing a lot and they're good quality income properties. And again, they help us be a sustainable business. So here we get into impact, which has really become a leading innovation within our company in terms of how we think of everything we do. Just a couple of things I'd point out is of $6 billion of net euro communities is probably $5 billion more than anybody else. The way we're measuring our emissions, other people do, but we're publishing it and the numbers are pretty good. In affordable housing, we now have 2,618 units that we're building -- that we finished building or are underway. When we talk about affordable housing, it can mean anything less than market rent. And sometimes there's uncertainty as to what it means. On average, the rents in our affordable housing units are 43% below market, which is high. And the most amazing part is in those 2,600 units, the residents are saving $42 million a year. So this is meaningful. And in addition to that, between our procurement and some of our mentoring and our community foundation, we're really figuring out how do we make a community that is meaningfully better for the people who reside there, which I think is a good way to attract and keep people here. It's a great way to make money. It's a great way to be, as Tsering was talking about a partner of choice. So I'm really pleased with the progress we've made in this area. And I think that we are where everybody is going to have to go, and we're doing everything we can to continue to innovate and innovate and innovate to go further in what we're doing with governments and how we're doing impact. Just another long list of -- these are all one or other things that we're signatories up and living up to and trying to provide the community the best we can from our buildings. Yes, I just -- I want to take a second on this. So the federal government approved $26 billion of RCFI financing. They have not put out $26 billion. That's just the amount that they have. And we've already secured over $1 billion of that. We're building buildings now with, let's say, an average of under 1.5% debt for 10 years. And that really helps us create this affordable housing at such a discount. The second one here was an idea that Tsering and the team had, how do you get affordable housing cheaper, faster with less risk? And the idea was could we find a way to create affordable housing within existing buildings by using some known financing techniques, which are basically longer amortization period, higher debt ratio. And that's important because government debt's cheap, and our equity is expensive. So the more cheap debt we use and less expensive equity use, the more we have available. So what we're basically doing for the analysts in the back is reducing our overall cost of capital of the project, and we can push more of that reduction in the cost of capital to the benefit of our residents and our stakeholders can still do just as well or better than a market project. The government gave us a $450 million commitment as a pilot project. And on November 1, they announced the MLI Select program, which was a program -- sorry, the other thing we decided to do is reduce carbon emissions by 15%. So MLI Select is a new program that is based on what we went to CMHC with, and that's available nationally, and I know a lot of people are taking advantage of it. But we're actually very proud of that because the goal is to make as much impact as we can. We can make a lot more impact when we're not the only ones doing it. So we're really proud of this. Next. Yes. I tried to get a bigger picture, Gord. So this is another innovation where we went to the Canadian Infrastructure Bank and talked to them about what kind of financing we could use that would help us reduce the carbon emissions dramatically. And we came up with a $136 million loan, and everything is engineered before the loans approved. And then whenever we want to draw money, the engineers have to certify it. And this Could be certifying that a $3,000 electric heat pump has been installed. So it's very like tiny, it's a tremendous amount of work, but altogether, we're going to save a lot of carbon emissions that were going to be a lot more attractive to our tenants, and we're going to save money. Again, Canada Infrastructure Bank was really keen to do this. They were keen to do it with us and they want to do more of it. So they've asked us to promote what they're doing. And it's just another example of how we try to create programs with the government. Next. Yes. So one of the things is Dream Unlimited has a lot of interest in impact investments that aren't in the Impact Fund or the Impact Trust. And depending on how you look at it, it's between $3.2 billion and $3.8 billion, and it will continue to grow. And we're now looking at -- our impact report, I think it was out yesterday, it has an impact score for all of our office buildings. So we're really expanding the way we look at the business. Okay. Next. Okay. This is mind boggling to me. This is -- so one of the things I tried to emphasize with the people that work here is that when we look at a pro forma to make an investment decision, the people tend to only look on what's the page. So you look at the interest rate, you look at the revenue, the cap rate and you go through it and you say, okay, it's ex IRR, so that means it's good or bad. And I think that's also good. I mean I often tell people our model is exactly what it says. It's a model. It's a model of an attribute. That's all it is. It's up to us to figure out how to use that model. We invested in the Distillery District in 2004. It was an incredibly lucrative investment. It was an investment in an abandoned God forsaken piece of land in the middle of nowhere. So we got it really cheap. And we may -- I think we're probably more than -- we're probably at 75x our money we made on that. Now that's -- you don't have to look at what other benefits there are that way. But the distillery district and what's been done with it has become a very important calling card for us. And it's probably the very first impact investment we made that really focus on what people's experiences are on one of our properties. And through that, with another partner, we did the Canary District, which was our first public product partnership. So the Distillery District really helped us convince the Ontario government that we'd be able to do this. And we did our first public private partnership. We've done a lot since then. This was in 2011. Then we got West Don Lands because the government felt that we would be a great partner who could execute, do what we said we would do and not renegotiate and we'd actually complete projects on time and on budget. And then concurrently, we did the Indigenous Hub. In 2017, we bought a site called Victory Silos, and that one is another one that -- all these things are once in a lifetime, but that one worked out very, very well. And all of this led to Quayside, which was a Sidewalk Labs site. I'm going to show you a little bit about it because I think it's not -- with Sidewalk Labs, a part of Alphabet was involved in it [indiscernible], once we win it, that's a beautiful picture. These are -- we put together a team of some incredible minds that have never worked in Toronto plus some who had on this one here, that long distance is the top of the lumber building, and that's a garden for the residents to grow vegetables and stuff. This is called The Curve building. And the idea is we're trying to create a community at the waterfront that unlike anything and our waterfront truly needs it. We're looking at net 0, and we've got a lot of affordable housing. We've got a 2-acre water park. We're hoping the city lets us do this is the access to it. What else? Do you have another one for Quayside? Okay. So just before we get to the video typically, projects should have about a 15% to 20% margin. Dream owns half of the site now we might bring in partners. If we're able to hit a 15% margin, that $750 million, our share one way or another would be $375 million. There's a lot of work to do. There's a lot of this that we need to work with the federal, provincial and city governments to come up with new programs to make this kind of thing possible. But there's a lot of excitement. And I think we were chosen. I think we won on what the design is and how we dealt with -- we bought a whole bunch of not-for-profits to partner with us in every way working with the First Nation but I think a lot of -- we've been told a lot of why we won was how much success we've had with the City of Toronto and with CMHC and it's about our ability to execute. And just as I was talking about sustainability in the beginning. Having these skills that are highly valued by governments when they're awarding $5 billion projects is an intangible that wasn't on that slide in terms of what the net asset value is. We did a net asset value in February, and we won this after that. So we can talk about where interest rates are today. We can talk about supply chain, we can talk about the employees. We can talk about all those things. This project will start if all goes well in 2024, it will be finished in about 2032. A lot of the stuff that we've shown you will whatever the interest rate today is it doesn't matter when they're finished, like we don't know what the interest rates are in 2028 in times like that. But as I mentioned about Providence and just for those -- [ Mark Stoneberg ] knows this, we bought Providence first 320 acres at $19,000 an acre in 1997. We were hoping if all went well, we could start developing in 2022, we make 50,000 acres. That would have been a great outcome. The land now is we're 300,000 acres because we failed to get it approved. How good a business is that? Okay. I then want to show you a video about Quayside. I hope people saw the video pro forma. But I think what we're trying to do is really create confidence in everybody we deal with that if they entrust us with their capital or their land or their debt, we're going to create something special. [Presentation]

So, I just want to present our business a little differently. I truly believe that I think Tsering pointed out that there needs to be $2.1 trillion invested to create the affordable housing that's necessary in this country, something like $8 trillion to $10 trillion on the carbon. We're so fixated on real estate in terms of those pro formas. Our view is that the opportunity in what we're doing is bigger than we've ever seen before. And it's almost like we're a new company but has a lot of assets, good cash flow and a market that is mind-blowingly large, and we'll work as hard as we can to catch it. This again is a slide we showed before, just to try to bring it back to what it means since we showed that slide in February. I think the Impact Trust and Dream Office are probably pretty similarly valued. Western Canada is probably a lot more valued. A-Basin, it's living up to what we thought maybe some more. The asset management platform is going pretty good. We announced an impact -- sorry, an industrial development fund in for Toronto. Jane took the residential Republic in the U.S. that as a start, they're going to grow some more in the impact fund this year. And the urban developments, we'll see. I mean winning Quayside is a big one. The rating is good. Clearly, we're showing some expertise in this. Right now, I think development is a little bit less certain with some of the government programs that don't work in more affordable housing plus interest rates. But I think we've got land a 23,000 apartments or condos, we'll take our way through it. And again, we've got a lot of financing on the stuff we're building now that's fixed that allows us to bill for the next 6 or 7 years. We said $60 in February of 2022, and I think the numbers that we've grown this business in value by 23% compounded for the last 19 years. And I don't know what's going to happen, but I don't see anything that's better or worse in the economy. And I think as a company, I think we've got better people, better assets, better capital than we've ever had. So, thank you.

Anybody got a question? Could it be Paul from Burlington?

Okay. The debt-to-equity ratio is 1:1. It looks kind of high for this.

No, it's not.

Okay. My other question is, what -- obviously, Zibi and West Don Lands were already presented in one of the other presentations. What is the relationship between overlapping -- why are you talking overlapping properties between 2 companies? That's my question.

That's a great question. Dream owns 50% of Zibi directly and owns 30% of Dream Impact Trust that owns the other 50%. So Dream's indirect and direct interest in Zibi is 65%. On the West Don Lands, we own 8.33% directly in Dream and the Impact Trust owns 25%. So putting them together, it's about 16% of West Don land is owned directly by Dream. So we've co-invested -- we have third-party partners in West Don Lands. Well, in Zibi, we own 100% between related parties. The West Don Lands, which is probably $1.6 billion in total project cost. We own a 1/3 as a group, and we're partners with Kilmer and Tricon. I think we're the builder. They might say they are. Kilmer is Larry Tannenbaum, Maple Leaf Sports. And Kilmer was actually -- originally Kilmer was a road building company. So they've been around a while. We've done -- we did -- it's a [indiscernible] with them as well.

Okay. [indiscernible], you bought that Dundee, is it?

No, we are Dundee.

You took over Dundee or?

We were Dundee, we changed the name. Dream is Dundee Real Estate Asset Management. So in 2013, we became a public company again, and we changed the name.

Okay. Fine.

How many questions today were there? Okay. Any other questions? I do want to thank everybody from the people we work with, our government partners, all of the professional firms that help us, not just lawyers and accountants, but also architects and engineers. The banks have been a huge help. We try to work very closely with the banks and get the best of their ideas, and they work very collaboratively. And we're innovating there as well. On the CMHC program that became MLI Select, we dealt with one of the banks to create that program. So in order for us to continue to innovate, we need everybody's help, and we're so proud of our Board and our employees and all our partners. So thank you all very much.