Dream Impact Trust (MPCTUN) Earnings Call Transcript & Summary

Good morning. It is 11:00 o'clock. We will now call the meeting to order. My name is Amar Bhalla, I'm the chair of the board of Dream Impact Trust and welcome to our meeting. I'll like to chair the meeting. Robert Hughes will act as Secretary of the meeting. With the consent of the meeting, I appoint Daniela Munoz and Arlene Arellano of Computershare Trust Company of Canada as scrutineers for the meeting. We will first proceed with our formal business. To expedite the formal part of the meeting, Robert Hughes, a unitholder, will move and Shannon Macri, a unitholder, will second all motions. After our formal business is concluded, our management team will make a brief presentation, and then there'll be an opportunity to ask questions. Please hold questions that do not relate to the formal business of the meeting until that time. I have an affidavit from Computershare, the mailing of the notice of availability of proxy materials and the form of proxy. Our circular and other meeting materials remain available through the notice and access system. I would ask the secretary to place the affidavit before the meeting and to keep the affidavit of the trust records. The scrutineers have advised that there are at least 2 individuals present who are unitholders, represent by proxy unitholders who hold at least 10% of the votes attached to all outstanding units. As a result, we have a record it quorum of unitholders present, and I declare the meeting to be properly constituted for the transaction of business. The first item of business is the presentation of the Trust 2023 Annual Report, which contains the Trust's audited financial statements for 2023 and the report of auditors thereon. I note that the secretary has placed before the meeting a copy of the 2023 annual report. The next item of business is the election of trustees. As stated in our circular, 5 trustees are to be elected at the meeting and 5 nominees are named. They are Dr. Catherine Brownstein, Robert Goodall, Jennifer Lee Koss, Karine MacIndoe and myself. Rob, will you please propose the nominees for election?

I nominate the individuals listed in the management information circular for election as trustees of the trust to hold office for the upcoming term.

I second the motion.

Thank you. As the trust did not previously receive timely notice of any further nominations for persons for election of trustees in accordance with the advanced notice regulations to its decoration of trust, I declare the nominations closed. Are there any questions on this motion? Seeing none, based on the proxies received, I would mention that each of the 5 nominees received a majority of votes cast in favor of their election as trustee. After the meeting, we will issue a press release with detailed voting results. Given the proxies received and as the number of persons nominated for election as a trustee is equal to the number of trustees to be elected, I propose with the consent of the meeting not to take a formal vote on the election of trustees. Therefore, I confirm that the motion has been carried and the 5 persons who are nominated have been elected as trustees by acclamation. The next item of business is the appointment of auditors. The Audit Committee and the Board have recommended the reappointment of PricewaterhouseCoopers LLP chartered professional accountants as auditors. Can I have a motion?

I move that PricewaterhouseCoopers LLP be appointed as auditors of the Trust and its subsidiaries for the ensuing year, and the Board of Trustees be authorized to fix their remuneration.

I second the motion.

Are there any questions on this motion? The meeting will now vote on the motion. I propose to take the vote by a show of hands. I would ask those registered unitholders and duly appointed proxy holders who are in favor of the motion to please raise your hand. [Voting]

Any votes withheld? The motion is carried. PricewaterhouseCoopers LLP have been reappointed as auditors and the trustees authorized to fix their remuneration. The next item of business is to vote on a resolution authorizing the issuance and delivery of up to 1.8 million units of the trust to Dream Asset Management Corporation, the Asset Manager of the Trust. In satisfaction of the base management fees and acquisition fees payable under the management agreement for the period from January 1, 2024, to December 31, 2026, as contemplated by the third letter agreement, all is more particularly described in the management information circular. In order to be effective, this resolution to be passed by a majority of votes cast by the unitholders who vote on this resolution. DAM and its associates and affiliates will not be voting on this resolution because of their interest in the proposed transaction. Can I have a motion?

I move to approve the fee proposal resolution authorizing the issuance and delivery of up to 1.8 million units of the trust to Dream Asset Management Corporation pursuant to the third letter agreement as set out in the management information circular.

I second the motion.

Are there any questions on this motion? The meeting will now vote on the motion. I propose to take the vote by a show of hands. I would ask those registered unitholders and duly appointed proxy holders who are in favor of the motion to please raise your hand. [Voting]

Any against? The motion is carried. I declare that the fee proposal resolution in the form set out in the management information circular relating to the issuance and delivery of up to 1.8 million units of the Trusted Dream Asset Management Corporation pursuant to the third letter agreement is approved. The formal item of business is set out in the notice of meeting have now been dealt with. As there is no further business to come before this meeting, I declare that the formal part of the meeting to be concluded, and the formal meeting adjourned. I now invite the management team to make a short presentation. After their presentation, we'll have a question period.

Thanks, Amar, and hi, everyone. Thank you all for coming today. Along with Michael Cooper, the Trust portfolio manager, we wanted to provide a brief overview of some of the progress we've made in the trust in 2023. We'd be happy to take any questions at the end of the presentation. Dream Impact ended the year with roughly $430 million in net assets, which is largely concentrated in our recurring income segment. This segment has been a significant focus for us as it provides stability and consistency in our cash flows to help with -- to help fund our ongoing business needs. We've been consciously working towards a more diversified asset base with a large emphasis on multifamily assets. Over the 2 years, we've actually doubled the value of our multifamily segment, now 50% of that is growth from our development build-out with the latter half being from high-quality apartment acquisitions across the GTA. We've also decreased our commercial allocation, which we view as a positive in light of some of the ongoing challenges within the sector. In 2023, we completed over 900 multifamily units at 100% asset level, of which roughly 40% are considered affordable. We also made significant headway advancing on our multifamily pipeline and are on track to deliver an additional 440 units for 2024. Maple House is the first multifamily rental building in our Canary Landing Community or which we previously referred to as West Don Lands Block 8. This was significant for the trust for a number of reasons. Now initially acquired in 2018, the site is the combination of 5 years of construction execution in a market that has been challenging to say the least. It's the largest rental development to be completed to date within the Trust portfolio, and we financed the project through CMHC's apartment construction loan program, which is formerly RCFI. Now at the time, this is one of the largest loans that was actually done as part of the program. Because of this, the interest rate on the in-place debt is locked in at 1.3% for a further 5 years, which mitigates our takeout financing risk now that the construction is complete. Also completed in 2023 was Aalto II, which is the sister building to Aalto Suites that welcomed residents in the fourth quarter. Combined, these 2 buildings brought online 310 multifamily units along the Gatineau side of the Ottawa River at Zibi. Aalto II also houses Zibi's District Thermal Energy System, which will provide NetZero heating and cooling for the entire Zibi development. Crossing the Ottawa River, construction on Block 206 at Zibi progressed well over the year, and we're able to commence leasing this past February. Now by commencing vertical build for Block 206, Aalto and Aalto 2, we were actually able to reduce our land loan at Zibi by $20 million, which helps to derisk the overall project, but also reduces the trust land loan exposure. Now as we look forward from our efforts in 2023, we're able to deliver a further 1,900 rental units over the next 3.5 years. This includes Burch House and Cherry House, which are both under active construction today as well as Dream LeBreton. Dream LeBreton is an incredible site located in downtown Ottawa and probably about a 5-minute walk to Zibi. We've now secured ACLP financing to the project, tendered over 80% of hard costs and are extremely pleased that we were able to start construction this past April. Based on our current timelines, we expect to complete the building in 2027. The last asset I'd like to highlight is 49 Ontario. We have to talk to this one, given its significant redevelopment potential, but also the impact on liquidity for the trust. For those not familiar, 49 Ontario is located in downtown Toronto in close proximity to future Ontario line stop. In May of 2023, we achieved rezoning, which will provide for 800,000 square feet of residential density. We're now working on obtaining government-affiliated financing and pursuing partnership opportunities, which will help bolster liquidity for the trust in the latter half of 2025. Now as I mentioned, building out a recurring income segment has been extremely important to provide consistent cash flows to fund our business needs. Over 2023 and continued into this year, managing the trust liquidity has been a very high priority for us. Between the fourth quarter and now, we were able to generate $9 million in proceeds from the sale of noncore legacy investments and loan repayments. We also took 2 office properties to market, which have gone extremely well, and we anticipate closing on the sale of both in the latter half of this year, which will be able to generate gross proceeds in excess of $30 million. We were happy with the arrangement we negotiated with Dream Unlimited to settle our asset management fee and units, which could result in $39 million of cash savings for the trust over the next 3 years, which is incredibly meaningful. In addition, we have a further $21 million of passive investments on our blocks, which will further enhance our liquidity position as we exit these investments in due course. Overall, we're comfortable with our liquidity position today, and we'll continue to provide updates on [indiscernible] Ontario and our other asset progress as they come up. And with that, I'll ask Michael to join me to take any questions.

Are there any questions? If there's none, it's fine. Yes.

[Indiscernible]

Yes. That's Canada. I think it's a significant issue that if you build a building, and you want to get a 4.5% return on costs, that's what you have to do. And that's how we're trying to get housing, but there's no doubt that the new units are relatively small and relatively expensive. Construction costs are expensive, development charges are expensive. And it's tough because you're talking about your experience from your son. And then if you talk to the shareholders, they're like, it's been really tough. So I think it's not a problem but what we're building. It's a real issue about affordability in the country.

[Indiscernible]

Yes. Well, I think they're actually -- look, the basic numbers is a new unit is going to cost about $3,000 a month. And that's going to drive about a 4.5% return on your capital. Today, the bond rate is about -- I'm not sure exactly because the U.S. had some good numbers, but it's about $3.5 million. We can borrow at 4.3%. So we get 4.5% as a return on all our costs, that's a very tight return. So that's the issue. Now we do a lot of affordable. So you mentioned [indiscernible], which is over 40% at Maple House, it's 30%. So that's how we're trying to help the situation. But what's happening now is, if you use CMHC's numbers about people should have 30% for their housing costs after tax, well, somebody makes $110,000 a year, which is in the top 50% of all Canadians would be able to afford about $2,200 a month. So $110,000 enough. One of the issues is that $110,000 of income, you're paying 25,000 tax. I picked the 110,000 because with the next dollar you make, you pay 40% tax. So it means you got to get to about 160,000 to be able to rent a $3,000 a month unit and be at 30%. So it's tough. There's a lot of demands on the money. I think that a lot of people who think they're not doing that well are paying a very high level of tax, and they're not getting -- they're not able to purchase with their money, what they used to be able to. And I think just read the news, that's what's happening everywhere. In our industry, it's really tough to make the numbers work. So that is the real issue, and we're really glad to work with the federal government on trying to create as many units that are affordable as we can. As far as what the choices are, depending on which market we're in, the leasing is pretty good. So there's enough people who make enough money, but it's expensive. Sometimes people say, nobod make build bigger units. Well, then you're starting to say, okay, we're only building for people to make $300,000 a year. That's a small market. So it's tough. But I mean we're doing our best to balance everything. Are you, Paul?

Yes, Paul [indiscernible] from Burlington.

From Burlington. Are you going to move? Could you do the speech...

You [indiscernible] up a building in Burlington, and I'll move in.

Okay. We closed [Indiscernible] for credit.

Okay. So the Dream Impact Trust management fees are paid in units instead of cash. That money is going to Dream Asset Management is it?

Units, no money.

Yes, but it's going to Dream Asset Management.

Yes.

Okay. This stock has come down a long way to $3, a very long way.

It hasn't hit $3. It's 360...

All right. It's just over...

[Indiscernible] factually correct, Paul. You go to Page 22, you ask a question to the MD&A. So it's [ 360 ] was the low.

Okay. The negative return on equity and the distribution has been cut out completely and the increased loss, net loss, okay. Now are not going to be all negative. This rental accommodation is a key word. It's on the news every night. It strikes me that what -- you've got stuff in the pipeline, and it's going to be snapped up. I really believe that you're going to fill these buildings and this stock has come down too far. The only drawback is you have had difficulty in selling some commercial buildings, and there still are 2 handfuls in the portfolio. But I -- my own personal view is this stock is a buy because I think this rental accommodation is going to fill right up.;

That sounded like a statement.

Yes, not a question.

Yes, thank you. Look, just fundamentally, departments we're building when we're finished, they're performing the way we had expected. The 2 big issues in the stock market and to a certain extent in real life is that we have a fair amount of debt, and we have a fair amount of land that we need to convert into income properties. And that's gone up a lot in cost, that's hurt us. And making the numbers work like we're proud of what we do, but you cannot build something for $1,500 a month without the government giving you $600,000 a unit. And we'll work very closely with the government, so trying to get a piece of land that you're paying interest on to become an income property is very difficult. I think you mentioned LeBreton. We're excited because I think we're making real progress on 49 Ontario. So every time we take a site from having a cash drag on it, put it into development where the debt accrues in the construction loan, that's great progress. And then when it comes out of construction, starts producing, that's great. So now what we have is nobody wants development. Actually, nobody wants real estate stocks. They don't want development. They don't want leverage, and it's been killing us in the stock market. So as we get through each development, it contributes a lot of value to the business, and it also reduces the cash drag. So we've definitely been on the wrong side of the trends in the stock market. But I was in New York and a guy was asking me a question, this was a great question. I was asking me, 49 Ontario, if you get it to development, how much value does it contribute, whether you sell it or develop it compared to the market cap of the business. I'm like somewhere between 50% and 200%. That's like 1 building. So there's a lot of operating leverage on the business. And if we can take it to the other side, continue to get buildings done. We're very excited about the business. And quite honestly, we're paying cash for the expenses. We're taking stock at net asset value, so it was at $24. Currently, this year, we're going to fix the number. But it turns out to be equivalent to $24. So we're paying effectively for going $24 to get 1 share, and we're happy doing that. And we think when we get to the other side, it's going to be great. But this is a very difficult time. We're very focused on liquidity. On the commercial side, I would say Sussex is more of an issue. I don't think there -- I'm not really concerned about the other commercial assets, but we're working our way through raising cash as we need it.

What's the -- okay, I understand CMHC has special rates for anybody that's creating apartments. What are your rates that CMHC is giving you now on this...

On Friday, if we were to close the deal, it would have been 3.21% for 10 years.

Well, that's good.

Yes, it's good. And they're doing everything they can do. It's a very bureaucratic process. It's very difficult. By the way, we're not even talking about the approvals and the site plan or dealing with the traits. So there's a lot of difficult parts. But the government is doing a lot at the federal level to help us get this land movie.

Have you had any trouble with leaks in the basement on the Ottawa River.

The references to Zibi, and we're on both banks of the river. And I was there and there's a dam, just maybe 200 meters west of our site, and they have, I think, 24 doors. And when the water builds up, they open more doors. And I was there on time when the water was going under the bridge and hitting the bridge, and you can see all the water in the river going around 1 building fortunately for auto hydros not us. But we've -- to prepare the site, we prepared it for what they call like a 1 in 1,000 year storms.. So we haven't had any issues with water. That was great, Paul. Anybody else? Thank you. And we'll be around if you want to ask questions.