Dream Impact Trust (MPCTUN) Earnings Call Transcript & Summary

There's anybody who is a minute late, forget it. I'm stepping in for Amar Bhalla, the Chairman of the Board. I'm not here in my capacity as portfolio manager, but I'm going to do the formal part of the meeting if that is okay. Rob Hughes will act as Secretary of the meeting. And Daniella and Mohammad of Computer Trust are the scrutineers. We'll first proceed with our formal business to expedite the formal part of the meeting, Rob Hughes and Shannon Macri will second all motions. Rob will introduce and Mr. Shannon will second them. After our formal business is concluded, Meaghan Peloso will provide a presentation. And then after that, we'll answer questions. It says I have an affidavit, but they told me it's true of the mailing of the notice of availability of proxy materials in the form of proxy or circular materials were done as they're supposed to be done. The scrutineers have advised that there are at least 2 individuals present who are unitholders or who represent proxy unitholders who hold at least 10% of the votes attached to all the outstanding units. As a result, we have a quorum, and I declare the meeting is properly constituted. The first item of business is the financial statements. I note that the Secretary has placed them before the meeting. The next item of business is the election of trustees. As stated in our circular, 5 trustees will be elected at this meeting. They are Amar Bhalla, Catherine Brownstein, Rob Goodall, Jennifer Lee Koss and Karine MacIndoe. Rob, will you please propose the nominees for election?

I'll nominate the individuals listed in the management information circular dated April 17, 2025, 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 as Trustees in accordance with the advanced notice regulation to its declaration of trust, I declare the nominations closed. Are there any questions -- seeing none. Everybody got a majority, a lot -- a big majority. And I confirm that they're now the Trustees. Appointment of auditor. The next item of business is the appointment of auditors. The Audit Committee and the Board have recommended PwC. Can I have a motion?

I move that PricewaterhouseCoopers LLP be appointed auditors of the Trust and its subsidiaries for the ensuing year and that 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. Let's do it by vote of hands. I would ask that those registered unitholders and duly appointed proxy holders who are in favor of the motion, please raise your hand. [Voting]

Any votes withheld? The motion is carried. The formal items of business have now been dealt with. So the formal part is over. And now I'd ask Meaghan to make management's presentation. Thank you.

Thank you, Michael, and good morning, everyone. We wanted to provide a brief overview of some of the Trust progress made in 2024, and we'll be happy to take any questions at the end of the presentation. Dream Impact ended the year with over $680 million in total assets. When grossed up, that reflects about 1/3 of the portfolio being concentrated in the multifamily asset class which should go to about 2/3 as we complete projects that are underway. We've been steadily growing our recurring income segment, which generated $19 million of NOI in 2024. The Trust portfolio includes over 2,700 multifamily units with 40% currently in the lease-up phase, which will help grow the Trust's recurring income as the assets stabilize. Over the course of the year, our focus was really on execution and ongoing capital preservation. On the development front, we completed 445 multifamily units of Birch House and Voda at Zibi. We also completed another 550 condo units at Brightwater and IVY, allowing us to pay over $100 million in construction debt. By way of our pipeline, we've made significant progress on both 49 Ontario and Quayside which combined are expected to bring over 2,500 rental units to the portfolio upon completion. In December, we achieved fee waivers from the city of Toronto, and we've now also reached important financing milestones for both the projects. Over the course of the year through asset dispositions and legacy investments, we generated over $43 million in proceeds for the Trust. While we continue to be mindful of the Trust's liquidity constraints, we were very pleased to hit all of our capital objectives set out for 2024. As we often talk about, we've been focusing on shifting the composition of our portfolio to more stable asset classes. Compared to 5 years ago, we are really starting to see the change in our portfolio as we've invested significantly in the multifamily asset class, either through third-party acquisitions or development build-out. In 2024, we sold 2 of our office buildings and have another 2 on the market now. So over time, we'll be reducing our exposure to this asset class as well. The Trust still has a fair amount of exposure to development, and it has been challenging in this market to bring new projects online. Having said that, we are making progress on what we have under construction and have been working steadily to make projects more viable, either through financing programs or by working with various levels of government. More specifically, in 2024, we achieved several milestones at projects in various stages of development. At the end of 2023, we started leasing Maple House at Canary Landing. Over the course of the year, we've made great progress and are now about 80% occupied, and we expect the building to stabilize in 2025 and still have another 4 years until maturity on the ACLP debt. At the end of Q4 2024, we started leasing Birch house, the next building at Canary Landing at part of the indigenous hub. Lastly, in April 2024, we started construction on Odanak, which is in Ottawa about a 5-minute walk from the Zibi development. The project is financed through CMHC's ACLP debt program and the 608-unit building is expected to be completed in 2027. As we continue to see these development milestones hit between now and 2028, we'll continue to expand our multifamily portfolio as we finish construction on Odanak, Cherry House and start construction at 49 Ontario. Combined, these projects will add 2,700 units to the Trust portfolio, which will be a significant driver of growth for the Trust. In 2028, we expect that our total unit count will be approximately 5,700 multifamily units. So the final item I'd really like to touch on is progress made for 49 Ontario. Given the magnitude of the site, the 800,000 square foot redevelopment is incredibly important to the Trust. In December, we received approval for the waiver of development charges from the City of Toronto, as I mentioned, which generated meaningful savings to the project's economics. In early 2025, we secured $648 million in ACLP financing for the site and have now entered into an agreement to bring in a third party for a 10% investment in the project in line with IFRS values. Because of these efforts, we are now in a position to hopefully start construction by the end of the year, which we are incredibly excited about. So with that, I would ask Michael to come out for any closing remarks.

Thanks, Meaghan. Are there any questions. Can you introduce yourself?

I'm Paul Durnan from Burlington. This stock in 2020 was $30, now it's down below $3 and I have to ask how could that be? I understand there is no rent coming in buildings under construction that's straightforward. What's the value of the land alone? I -- when every -- all of this construction you are planning is finished, I think this stock turns and heads straight up and it won't be a serendipitous occurrence. That's what I think. This is a huge value right here and now.

It's a great ending to your comment. Thank you. What I would say just so that nobody thinks of us sort of avoiding that it's gone from $30 to $3. I'm using your number. You said $3, -- you said from $30 to $3. Fair enough. I'm glad we've resolved that issue, Paul. I think that a lot has happened during 2021 to today. And I think that in 2022, the federal government came out and said they wanted to double the number of housing starts, wanted to have more apartments. And right now, we have less housing starts, less apartments. In 2023, a few condominium projects hit the presale requirements and were started. And in '24, there might have been 2. So I think there might have been 5 since 2023. If I had to guess, I'd say there's 250 million square feet of zoned land in the city of Toronto, of which I think about 100 million square feet is in Scarborough, and there might be 7 million square feet used this year. So that would be $243 million for next year. It has fallen off a cliff to be able to build condos is next to impossible. And then for purpose-built rental, it's gotten very difficult, costs are relatively high. With the housing crisis people expected, were told about -- there aren't as many people renting apartments at the market rent. There's also not that many people buying new build construction in Southern Ontario. So just as an example, 2024 was almost a hopeless year for new condos, almost hopeless. And they just came out with numbers for the first quarter of 2025, saying the number of new condominiums that were sold were down 70% from last year. So that's the environment we're dealing with. So I think what's happened is people are aware that it's so hard to turn land into an income property or into a condo. And a lot of people who have properties are just sitting on them and paying interest. And in simple terms, the way I think about it is if you have 100 sweaters on inventory in a store and you sell 50 a day, you need to reorder. But if you have 100 sweaters in a store and you sell 1 a year, you don't have to reorder ever. And that's what's been happening in Toronto land, is that even though last year, condo developers, who started in 2019 and 2020, got more money back than they've ever had before when they look, they also had more land than they need. So a lot of money has come out this year, a lot of money is going to come out, and it's very difficult to start new construction. But what we've done, which Meaghan illustrated very well 1 slide ago was we've been working with the government for years. On 49 Ontario, we're expecting as long as interest rates are sort of relatively benign to be able to start a large project. That land is on our books for around $140 million. It's got $80 million of land debt on it and we should be able to advance construction October 1, borrow the money from the federal government before year-end, pay off the $80 million loan and crystallize the $65 million of equity in that project. We've got a few others like that, that we're working on. And right now, the way we're trying to turn land into development is through working with the federal government with CMHC with the ACLP loans as well as we were the recipient of about 50% of all of the development charge waivers for those building apartments with affordable housing. So we've been working really hard to try to create methods to turn land into income properties, but it's been hard. And I think what people are struggling with is, effectively, if you can't build anything on your own land, you're not going anywhere. And I think that's why the stock has really been hit. But I do appreciate you saying how assets into income properties, it's going to be pretty good. So I think you showed a slide -- I think you said we have 34% of our portfolio as income properties. And I think we had another 16% -- 15% under development. That's all multifamily. That gets us to about 49% apartments. I just mentioned in land. I think it was 25% -- do you mind putting it up or whatever, don't worry about it. I think it's about 25% land a couple -- it's so slow. Here we go. Yes, my numbers were right. 34% is the multifamily that we have now, 16% is apartments under construction that will get us to 50% relatively quickly. The 25% of $650 million of assets, I think, a big chunk of that is 49 Ontario. If we get that into the light blue get some of the light blue into the orange, we're going to have somewhere around 60% or 65% of this company will be income properties and that's going to make a big, big difference. And I think you showed that by 2028, we expect 5,700 apartment units. So that's everything that we're working at. We kind of feel like you don't really get 2 days in a row where you're not dealing with a new problem, but that's what the business is like building in Toronto today. So thanks, Paul.

Yes. Just 1 final comment. The -- based on what has been said, it makes me wonder all of the young people finishing school and going out on their own and all of the new people moving to the GTA, where are they going to live? That's the obvious question.

No, there's good questions. There's been big changes in immigration and those numbers are coming off. I think Toronto is still growing. I think the fundamental issue is when people hear quarter after quarter that the per capita income is down or that if you look at where we were with the U.S. in 2016 on GDP per capita and where we are now, and we're down $6,000 a person. We've got 40 million people. That's $0.25 trillion a year that Canada is not generating that we should have been generating. And I think when they talk about a housing crisis, it's not how many beds we have. The issue is there's not enough people who make enough money to be able to buy a house that at what it costs or rented apartment at an economic return. So when it's $2,700 for one-bedroom apartment, we're leasing them up. We're making progress. It's much slower than we thought. But the housing crisis is for people who need apartments for $1,000 a month. So when the federal governments talk about all these numbers, we're like, I don't know how they're going to add 250,000 new housing units. I think it's about $100 billion a year if they wanted to build a quarter -- actually, if they want to build a 0.25 million new houses a year -- new housing units a year and rent it for 1,000 to 1,500, they're going to need $100 billion a year that just goes away. It's capital you have to spend, and that's what the deficit is from renting it at affordable. So there is a real problem. The real problem is because the decisions have been made, we don't make enough money to afford the life that people expect to have, and it's a huge social issue, huge economic issue. And just if you're wondering what's happening in Alberta, they do not have that issue, and they're not that interested in paying for us. So I think we got some really significant issues to deal with.

My name is Michael Lin from Toronto. Michael, I think this company has been mismanaged over the last 5 to 10 years. You took over a mortgage company and you're highly criticized the mortgage company. Probably if we were in the mortgage company, it would have been fine. The stock might have been $10, not $2. I think reviewing the transactions over the last few years, it's always been the interest of what's best for Dream Group not for the shareholders and for yourself. I am appealing to the trustees. Do you work properly, due diligence. A lot of leverage has been used in this company, and that's part of the reason why we've lost capital. This is my worst real estate investment. And I hope I don't repeat this again. And -- so you said the easiest thing we used to sell...

Beg your pardon.

You'll probably say to me get out of my stock. That's the easiest way. But I'm saying, let's get some good management in this company. This has been -- stocks gone from $30 to $2. It's a reflection of the core management of the company.

The company performed very poorly -- your point about the Dream benefiting, I think, is completely misguided.

On the leverage...

No, no. So you said, no. I'm sorry, you said the Dream was benefiting at the expense of impact. I think that's what you were saying.

Well, part of it is what's best for the Dream.

I don't think so because I know that...

Because you share projects with other companies.

We share projects with third parties, but I do know that in the last 7 years, Dream hasn't gotten paid in cash for its work because we were concerned about how this was shaping up -- but I think the comments -- also, the company we took over was not a mortgage company. They were participating mortgages, which meant they had lots of downside and hardly any upside, and they had severe troubles. They owned a bunch of office buildings that the losses on those buildings were over $150 million. So what we started with actually was more problematic. But given that there was a housing crisis, a tremendous need for more housing, it turns out that a lot of people were wrong. We were wrong. But I think the situation for Dream Impact is actually similar to a lot of condo developers in Toronto. And I think the globe wrote that there was 20 receiverships a month in Toronto from condo developers. We talk with all the financiers they're all dealing with. We get offered land all the time. It's really stuck now. So look, I take responsibility for the decisions we made. I think we've done a really earnest effort not to put Dream ahead of the impact. In fact, last year, we got liquidity because Dream bought a bunch of things from the Trust at prices that were fair, but maybe not what Dream would have wanted to otherwise buy. I think we stood behind the company a lot. We wear it. And I'm sure you've lost a lot of money. I suspect mathematically, nobody could have lost as much money as I have. So I'm not sure what the benefit to us is, but we're working hard to create as much value in this company as we can, but the Toronto residential market is tough.

Well, a few good years that you could have expanded the company profitability, but we don't seem to have...

Thank you.

Ian [indiscernible]. You've spoken a little bit about some of your pessimism of market situation. Can you talk a little bit about your optimism looking forward for the next 2 or 3 years as it relates to the Trust in particular. And obviously, there are a number of look like [ scheme of approvals ] and interest in various things. To what extent does that give you enough to juggle to move forward to make some sense.

This is a good slide to have up. Our expectation is that we'll sell the office buildings, we're going to become predominantly a multifamily business. There's something we call Block 8. I think it's called Maple House. It's 751 units that we've built with land from the Ontario government. We borrowed $357 million or 1.33%. We have high 90% debt on it. The project has done well, and we're leasing up now. I think we're at 80% leased. We hope before year-end to be 100% leased. That's an enormous project and a great accomplishment. The rents are pretty good, not quite as high as we thought, but with so little equity. There's probably minimum $20 million gain on very little equity on that one. Behind it, we have another project. We've got 1 project that it's I'm sorry about the lack of creativity of the names, but it's called Block 347, and 7 is a building that's finishing up soon. We've got 100% leased. It's only 50 units. We've got good rents on that one, Block 3 and 4. I think, are just over 800 units, and we're going to start leasing them up by year-end. And this is all within a stone's throw right beside the distillery. We also did a project with the Indigenous Hub, which is an incredible project. Impact Trust owns 1/3 of the apartment building there, and that building has been leasing up pretty well. We just started leasing it. So we're looking at having close to 2,000 units where the Trust owns 25% of it. That should be a great business. It has a lot of debt on it, but the debt is fixed at relatively low cost. We don't think there's any issues refinancing when the 10 years are up. 49 Ontario, currently has as much equity as the company's market cap. And the profit from that should be the company's market cap again. I think that the difficulty has been just how hard it is to execute on anything for anybody in the residential industry in Toronto. It's really been hard and a lot of people are -- literally a lot of people going broke. So what we're doing is we're selling off some assets to get the cash to continue until we completed the 34 and 16 in '25. So 75% of the business that we expect to be multifamily. The 22% that's office, we'll sell that. We don't expect a lot of cash out of it, but we'll get rid of a lot of debt and a lot of capital. And I'd say on the -- it's pretty hard to be optimistic when you read the news. But what I would say is our bar for the management of this country is so low. If Carney does have good, we should grow the GDP by 10%. There's been a lot of mistakes made and a lot of them are getting fixed slowly. And I think as we get through being punished for being loyal to the U.S. And I think Canada will be more independent. I think they're doing a lot already. I think the premiers are doing an amazing job. But I think there's more to do. I think people in Ontario and Toronto need to figure out that they're responsible to take care of themselves. So I think there's just been -- we had COVID. There's been a lot of things that have happened. But going forward, I think the stuff we're building are going to be great properties. I mentioned the bad part about how hard it is to build condos. The other way of saying it is, there's going to be nothing delivered. So right now, a lot of condos that were sold in 2019 and 2020 are being delivered. But if there have been condos sold in '23, '24 and '25, I think there's going to be a lot more demand. And if we get things straightened up, where people make enough money to be able to forward market rents, it should turn out to be pretty good. So that's the upside. And the question is, what's the timeframe? So we're working to be there by 2028, 2029. We got incredible assets. The assets we have are pretty special. They're really special before. But I guess when there's not a lot of demand, nothing is that special. But we're pretty excited about the opportunities. We put a lot of effort and a lot of capital from Dream's balance sheet into the company. And we like the assets we have. We're just kind of shocked as to how many things have gone the wrong way in Toronto housing.

Can you just speak to the last pie chart there and roll forward 5 years.

Do you mind just to one that shows 5,700 apartment units. So what we should end up with is the 2028 the 5,700 units. And there'll still be some land left over. There'll be Victory Silos, Gary West and we probably won't be finished Quayside by then, but it's going to be a good company.

But going back to your pie chart, can you just put percentages on each of those numbers you talked about selling down the office.

Yes. So what we'd end up with is effectively probably 85% apartments, 15% under development. That will become apartments in the next [ 24 ], we use 2032 for when everything is finished.

85%, 15%.

In 2028, it should probably be 85% finished multifamily, 15% is still under development.

Generally what sort of cash or return on equity.

Yes. So we're generally doing these apartments in Toronto at around today, we're doing around over 5 caps. And today, the funding moves so much because the U.S. bond rate is moving so much. But we did Odanak. We did that at 230, and we did another Block in Ottawa at 234 for 10 years. So those rates aren't bad when you're getting 5 or more on the yield on costs. The thing that's been a bit of a surprise is the rents haven't been increasing as much. I'm not sure. I think rents are flat in the last year or so, year to 2 years, and we would have expected 3% growth. So that hurts it. But it'll probably snap back a little bit once the condo delivery. So what's happening now is there's 25,000 condo units being delivered a year, most ever, and those people want to rent them. So they are a substitute. -- they're not as price-sensitive as they just want to get somebody in. And if we want 2,700 and at least a 2,400 has really put an edge on rental rate growth. So as those get dealt with, and what we would expect is -- okay, I'm trying to be optimistic, okay? Guys bought a condos at $1,400 a foot. They could probably sell them today for $900 a foot. So I think there's a good opportunity for individuals to start to buy condos, but it's a lot. It's 50,000 units that have to find a long-term hold over the next couple of years. I think once that's done, there's not going to be much to rent. So that's really we're a snake in Toronto that swallowed an elephant. And that elephant is getting digested. So we don't know how long it will take, but it's going to be good when it's digested.

What would the debt-to-equity ratio look like in 2032?

Claire, is it 63% or so. Since nobody is telling me I'm wrong, I'll go with 63%. And what that comes from, just so people get it, we use a fair amount -- I mean, look, every developer uses a lot of debt. You do it on a cost to complete basis. If you use traditional financing, people usually put in 25% equity and then they borrow the rest. With CMHC, we get some perks as part of an infrastructure project to borrow a little bit more. So if rents grow at 3% a year over 10 years, your $100 building because of the rent is probably worth $140 million. And if you pay off 10% of the debt, let's say, you start with 90% debt, you pay it down to $80 million, you got $140 million for value. You can refinance that traditionally. So the 63% debt is because we pay off some debt and the rents go up and the buildings are worth more. So that's the model, and it's worked for pretty much 7 decades since World War 2. Rating is optimistic, not optimistic that I tried to be fair and take responsibility, sir. Michael. We covered a lot if there's more questions, happy to answer them. If not, happy to call this meeting terminated. Thank you very much for your support and comments.