Dream Residential Real Estate Investment Trust (DRRUN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Dream Residential REIT First Quarter Conference Call for Thursday, May 04, 2023. During this call, management of Dream Residential REIT 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 Residential REIT'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 Residential REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Residential REIT's website at www.dreamresidentialreit.ca. [Operator Instructions] Your host for today will be Ms. Jane Gavan, CEO of Dream Residential REIT. Ms. Gavan, please go ahead.

Thank you, operator. Good morning, everybody. Thank you for joining us for our first quarter conference call. It has been quite the roller coaster ride since we started discussing the idea of a Dream Residential REIT in the autumn of 2021, from both micro and macro perspective, the world looks quite different than it did only 18 months ago, from the lack of availability of growth capital to the increase in the cost of debt to questions around the pace of rental growth and broader questions around the economy, no one for soft, the negative -- the rapid negative change in sentiment. But through all that disruption, DRR's assets have proven steady and resilient. The business is well positioned to grow when the opportunity is right. In the meantime, we continue to deliver stable distribution with a safe balance sheet. Our biggest goal after launching DRR was to deliver the IPO forecast in the prospectus and to build confidence in the platform, rounding the corner on the first anniversary of the formation of Dream Residential, management is very pleased that the business is doing what it said and delivering the results forecast 18 months ago. Our value-add program is proving to be a very valuable growth engine in a period, where growth by accretive acquisitions is challenging, and we have lots of inventory to continue that program. Against that solid backdrop, I am very pleased that Brian Pauls will be taking on the role of CEO of Dream Residential going forward into the next phase of its evolution. Brian is ideally suited to take over the helm. Well-known and respected in the capital markets and the U.S. multi-residential industry, he's very familiar with our business, the platform and, of course, the management team. From my part, I will continue focusing on growing Dream's asset management platform and supporting this management team from the Board. I'm going to hand the call over now to Scott and Derrick to give you more color on the operating environment and our results. Scott, Derrick, over to you.

Thank you, Jane. Before getting into more detail about the quarter, I would like to recognize Jane's leadership as CEO of Dream Residential. We have been in business for a year come this Saturday, but the genesis of DRR began 18 to 20 months ago. Dream and Pauls needed a unique leader to steer this private to public transition, someone with exceptional real estate proficiency, connected capital markets wisdom and top shelf executive attitude. We are grateful she accepted this challenge and privileged to have her navigate the IPO and the subsequent black swan capital market of a year that has transpired around the globe. It has been an honor to work with and report to Jane. I am thankful that you remain at the helm of DRR with the Board of Trustees, and I know you are invested, and I know your investment matters. Thank you, Jane. DRR is delighted to open 2023 with solid first quarter performance. Net operating income over $6 million topped last quarter by 6% and beat IPO forecast by 3%. Slightly stronger revenue growth and modest expense savings resulted in a 51.9% NOI margin that was 100 basis points better than planned and $181,000 ahead of forecast. Revenue of $11.6 million increased 2.4% over last quarter, driven by the REIT's 19.9% new lease trade-outs on renovated suites and 8.8% spread on renewals across the portfolio. Operating expenses, excluding the impact of IFRIC held flat at $5.6 million as a result of deliberate cost controls, combined with passive savings by virtue of increasing the suite count drafted into the renovation program leading into spring. Expenses will be impacted next quarter by rising insurance premiums, while increases have been budgeted, market conditions are pointing to further escalation that will not be finalized until renewal later in Q2. Collectively, through 3 full quarters of operations, DRR NOI is in line with the original IPO forecast and on track to achieve the full IPO forecast ending in Q2. Across the United States, national trends have included decreasing occupancy, decelerated but narrowly positive rent growth and climate costs. The Apartment List national vacancy index escalated to 6.6% and national monthly rent growth indices edged on an average 20 basis points positive after 5 consecutive months of negative reversion. By comparison, Dream Residential REIT ended Q1 at 94.0% occupancy, approximately 60 basis points higher than the index, while still sustaining 1% to 2% of the portfolio suites offline under construction in our value-add program. Likewise, DRR rents increased approximately 50 basis points per month during Q1, better than double the national trend. Blended lease trade-outs of 7.9% pushed Q1 in-place rent up 1.5% during the quarter to $1,095 per month, sustaining double-digit year-over-year rent growth of 11.2% compared with March 31, 2022. Our Cincinnati communities led renewal trade-out growth at 9.2% and the Dallas assets spurred by the value-add program led all regions with plus 8.9% new lease trade-outs. DRR's Oklahoma region increased rent 1.7% in the first quarter and led the entire portfolio with plus 11.8% year-over-year rent growth from March 31, 2022. Cincinnati and Oklahoma, both list nationally in the top 10 of fastest metro level rent growth over the past 12 months. DRR continues to create value in diverse markets, where efficiently concentrated assets allow our own vertically integrated management and construction teams to grow income and provide safe, consistent cash flow. Over the past several quarters, we have described the seasonal nature of U.S. multi-residential operations and how it influences lease and investment activity. Rent control is not present in DRR markets, and our sophisticated revenue management software helps to optimize seasonal cycles common across our resident base. In the same way, our in-house construction teams forecast in-suite renovations to best time with the spring and summer leasing seasons. In the winter Q4 of 2022, 85 suites were completed. Starting this year in Q1, 94 suites completed construction weighted toward the latter half of the quarter as we open spring. Next quarter, nearly 130 suites are planned starts for the summer. DRR projects to invest $7 million to $7.5 million to value-add 400 suites over the course of 2023. Of the 94 suites completed during Q1, 54 were in DFW and 40 in our Oklahoma City region. In fact, on March 31, this past quarter, over 2% of the 1,049 suites in our Dallas market were in the renovation phase preparing for spring leasing. Last summer, we were earning about 15 percentage point premiums on renovations compared to the same property classic trade-outs. In Q1, value-add renovations resulted in lease to lease growth of $216 per month per suite, a full 19 percentage points higher than same property classic finished lease trade-outs. So it seems thus far that while market-wide organic growth has decelerated, the 19 percentage point premium across our value-add renovations points to an increasing benefit over time compared to same property classics. With double-digit returns on capital, the value-add program continues to be one of the most attractive ways to reinvest in our business and to enhance the quality of our portfolio and generate returns for our investors. The larger economic environment ahead remains murky. As a result, first quarter multi-residential trading volumes slumped roughly 70% off of last year on balance with the pandemic quarter of quarter 2 2020. Transactions in Q2 and Q3 this year may pick up in historical fashion, but brokerages see an overall down year compared with last and are not expecting a pointed bounce in deal volume. It is reasonable to conclude values will be difficult to pin down over the course of this calendar year. Rents nationally seem to be stable, leveling in the low- to mid-single-digit growth band. It has been speculated for months that the proverbial spring leasing season would be a truth teller of economic direction. However, the early Q2 data leads to our house view that we may experience more of the same, meaning no trauma or downward counter cycle but also perhaps a muted spring leasing season. More of the same could be mid-single-digit rent growth for DRR over 2023 on the heels of continued value-add momentum. That is a range that beats pre-pandemic national index norms and positions DRR management to remain confident of our 2023 NOI forecast band from the upper $23 million range into the mid $24 million range. Acquisitions, that remains a near-term question mark. The bid-ask spread continues to be quite wide with today's cost of capital, though we have toured and underwritten a number of potential opportunities in each of our markets during Q1. Distress has appeared on a limited basis across older vintage, lower quality, highly levered assets, but bridge debt and recapitalization activities same available to most. Economists speak to near-term headwinds in terms of both uncertainty and volatility, and that tells us there will be growth windows for which we continue to scour the markets with discipline and patience. Over the midterm and long-term, the fundamentals for attainable middle-income apartments are why we are committed to this business. Housing shortfalls and unaffordability persist and could become more aggravated because of the pipeline altering economic conditions, which are delaying and degrading new supply. DRR's communities are in demand, and our operations and value creation continue to prove out. We are positioned to not only endure but to thrive now and to grow when conditions make sense. Now I'm pleased to turn things over to Derrick Lau, our Chief Financial Officer.

Thank you, Scott, and good morning. Overall financial results for the first quarter of 2023 were solid. For the quarter ended March 31, 2023, diluted funds from operations was $0.18 per unit and $0.01 ahead of our IPO forecast. Net operating income and NOI margin were $6 million and 51.9%, respectively. This compared to the IPO forecast of $5.9 million and 50.9%. Operating revenue of $11.6 million was approximately $122,000 higher than forecast. Operating expenses, excluding the impact of IFRIC 21 were $5.6 million and compared favorably to the IPO forecast of $5.7 million. G&A was $795,000 and slightly over IPO forecast. This is largely due to higher professional fees and personnel costs. Interest and other income of $80,000 was driven by higher interest rates on cash balances. IFRS NAV at March 31, 2023, is $14.73 per unit compared to $14.50 in the prior quarter. The IFRS value of our properties is $422.6 million or a 1% increase from the prior quarter and reflects $2.3 million of billing improvements and $2.1 million of fair value gains. Net debt to net total assets was 30% and it includes the refinancing of Oak Place. As at March 31, 2023, all of our debt remains fixed rate with an average -- weighted average term of 6 years and at a weighted average contracted interest rate of 4%. At the end of the quarter, we had approximately $83 million in liquidity, comprising $13 million of cash on hand and full availability of our credit facility. Since commencing our NCIB in January, we have purchased and canceled over 73,000 units or roughly 8% of the total allowable under our NCIB at an average price of $8.24. At current trading levels, we will continue to use the NCIB opportunistically, in addition to allocating capital towards our value-add program. We are continuing to forecast 2023 FFO per unit to be in the high $0.60 to $0.70 range, excluding acquisitions and our current total unit counts. Before turning back, I want to also thank Jane for her leadership in starting the REIT and her continued mentorship. I'm excited to be working together with Brian to achieve our strategic initiatives going forward. Thanks very much, and back to you, Jane.

Thank you, Scott and Derrick. Operator, I think we'll open the call to questions, please.

[Operator Instructions] And it seems we have our first question from Jonathan Kelcher with TD Cowen.

First question, just on the cost side, Scott, you talked about rising insurance costs being a headwind. Can you maybe give us an idea of the magnitude of that on maybe a year-over-year basis? And how much insurance makes up like what sort of percentage of revenue it is?

Jonathan, insurance makes up about 8% of our operating expenses combined together with property taxes that equates to about 1/3 of our operating expenses. Our renewal for insurance is later in quarter 2. I don't have a good sense of where that is going to come in, but we have generally budgeted about a 10% increase in property taxes and insurance this calendar year.

Okay. That helps. And then secondly, you talked about touring properties in the quarter and looking to maybe deploy some funds. Did you guys make any bids this quarter?

DRR did not submit any formal letters of intent or bids this quarter. There's quite a bit of dialogue on different things, but in the end, we're not comfortable with -- or maybe a better way to say it is, we're not yet willing to pay what is being asked on these communities.

Okay. And have those communities trade? I'm just trying to get a sense of what you guys are underwriting versus what stuff might ultimately be trading for?

The assets that we have toured and looked at very closely during Q1 have not traded yet. They've not closed. Some of them are under contract. Some of them are still being negotiated. And they're just really is not a whole lot of transaction volume that serves as good data points in Q1.

We have our next question from Sairam Srinivas with Cormark Securities.

My first question is primarily on the gain to lease. I see there's a bit of a slowdown in the trend of gain to lease number. Would you say it's more to do with seasonality? Or is there more of a macro read on that as well?

Yes. The gain to lease went from 6.8% to 5.8% quarter-over-quarter. And that change is predominantly due to exactly what you say, the seasonality. Quarter 1 is traditionally a historically slower leasing quarter. I would expect to see that gain to lease pick up a little bit. But with where things are, we're pretty comfortable with that sort of upper 5% to 7% range. I think you'll see it in that range continuing throughout the year.

And just want to digging down on that, I know Oklahoma has been one of the historically higher gain to lease market. How are you guys thinking about the strategy there in terms of -- are you thinking of being more aggressive on rents there and generate growth in that?

Yes. You highlighted that we have trended to push rents more so in Oklahoma over the past 12 months. Oklahoma, as I pointed out in the remarks, has been the strongest year-over-year growth. It's in the top 10 nationally through March -- through the end of March. We experienced, I think, about 11.8% year-over-year growth in Oklahoma. And so part of that market rent that gain to lease spread has been a result of us continuing to grow rents there with the addition of the value-add program. We are seeing that seasonally decelerate right now. And I think a lot of that is just a function of you're not going to hold those high numbers sustained for longer periods of time. We've been terribly excited about our enduring growth in Oklahoma. The value-add program is continuing to pencil out very nicely there. And while it's decelerating compared to being top 10 over the past year, I think it's going to continue to perform for us.

That makes sense. And my last question is primarily on your point on affordability and just to kind of dry down the point of your competitive advantage relative to your peers as well as other supplier in the market. Can you comment on the delta between where DRR rents are versus a Class A property and maybe a new build to kind of just reflect what that rent differential looks like in the current market?

Sure. I'll just sort of describe generically across all of our 3 markets where we fall out. So we're cemented in the middle of the middle. So we are about $600 to $800 on average below the rental rate of a Class A property, probably $800 over a new lease-up property. Across the nation and in our markets, particularly in Dallas, we're seeing new supply hit. There was negative absorption in Q1, meaning that the supply exceeded demand, but that's a short-term phenomenon, and that puts a little pressure on the newer assets or the Class A assets. For us, that really hasn't impacted things. Our occupancy is really driven by our drafting of renovation suites. We could be at 96.5% if we wanted to, but we're prioritizing our renovation program right now and continuing to draft for that. So I feel very good about where we are. We still see that delta between our communities and the new pipeline. And frankly, the economic conditions right now are putting a lot of pressure on the future pipeline. So that bodes well for our apartment demand going forward. And I think that -- I hope that answers your question, Sai.

Definitely, Scott. Probably just taking back on that government, as you mentioned -- you said, Dallas has seen a negative absorption in new demand. In that context, how is that cap rate differential looking like between, let's say, a Class A versus the middle of the middle kind of properties? And do you think that might actually make acquiring newer assets more attractive at some point in time.

So could you help me -- could you clarify that question a little bit? I couldn't quite hear you.

Yes. So basically, going back to your point on new developments and there'll be negative absorption on new builds coming in and there being pressure on that side of the market. Do you see a point where in the valuation of those kind of newer assets would probably be at a more attractive range versus what you're seeing for more value-add properties? And will that entice you at some point in time, but actually switch maybe to buy some newer assets, which might maybe entail lesser CapEx and lesser repair and maintenance?

Well, we see right now, and we have experienced value-adding properties from our current vintage late '80s, all the way up into the 2016 range. We are renovating properties or we have a track record of renovating and value-adding properties across that range. So our value-add program is not limited to just the '80s or '90s communities. I think -- I agree with you that, I think there is potential to look at new properties, particularly from merchant builders that maybe have some difficult or unpalatable construction debt in place or mezzanine loans that are not attractive for them. So we are actively looking in that space. I would just say that we are committed to the suburban garden-style product type. You're not going to likely see us in mid-rise urban environments, where there's rent control threats. And I think the urban environment is still at least a question mark in our country right now across the U.S. because of some of the demographic trends that we've seen in the urban environment. So we like suburban garden cell. We're going to stay there. We'll certainly look to improve our -- we'll look for new opportunities from the pipeline coming forward.

Our next question is from Himanshu Gupta with Scotiabank.

So just on the potential acquisitions, the stuff which you are underwriting, are they in your existing markets? Or are you exploring new markets as well?

Himanshu, we are -- the assets that I have -- that our team has toured this quarter and specifically underwritten have been in our current markets. I would say that we are actively still underwriting though, in additional markets. So our search pattern has not changed. We like our target markets. We liked our existing markets, but we're more focused today on our existing markets.

Got it. And Scott, are you still looking for older Class B product? Or are you even looking at the new builds, which is under lease up those kind of properties as well?

Just maybe a good way to respond to that would be answering your question with some very specific. I've looked at 1991 to 2012 assets in the past 3 months.

Okay. Okay. That's fair enough. And then just turning on your operations, portfolio occupancy at 94%. So as you continue to rollout the value-add program, would Q2 occupancy look very similar to Q1 and then we should expect some pickup in Q3. Is it fair to say that?

No, I would not expect occupancy to pick up in Q3. Last Q3 in 2022, I think we were in the mid- to high 93% range. I think we'll see ourselves in that range in Q2 and Q3 because we're -- our surge of value-add suite is occurring during Q2 and Q3. So we -- it's not mathematically possible for us to get too high on occupancy because they're in construction right now. So we're going to hang out about what you see right now, maybe a little bit, maybe 25 to 50 basis points less than that in the 93.5% to 94% range as we drop those suites in. That will be through Q2 and Q3, and that's our strong season. We're going to continue to push that.

Okay. So kind of consistent occupancy. And then, Scott, in your prepared remarks, I think you mentioned about a muted spring leasing season. So which of 3 markets are you seeing the most deceleration? Are you expecting the most deceleration in the next 3 months or in this season where it go?

That muted may have been not the best word choice on my part. I would just say, it's more of the same. So we saw January, February and March were, frankly, pretty exciting for us to see. And I think we're seeing more of the same of that in the spring. So instead of seeing a more seasonal decrease in January, February, March, we saw it pretty consistent in level in that mid-teen range. And then I think -- are the mid-single-digit range. I think we're seeing more of the same right now. In terms of -- I think your question about the spring leasing season and markets is an important one. I'll start by just broadly saying what the United States is experiencing. If you draw a line through Dallas, Texas, and you look to the west of there out to the coast, most of those markets have a lower potentially even decreasing month-over-month rent trend. If you go east of that line, generally speaking, notwithstanding New York City, most of those markets are experiencing a positive spring leasing season. And I would say, our markets are similar, we've got Oklahoma and City and Dallas, Texas that are together more of the same right now is what we're seeing. And I would say -- I would add to that, that our Cincinnati market is experiencing one of the most robust spring leasing seasons that I've seen in recent years. So it's very, very strong there. I was in town in that region about 3 weeks ago. And I mean, it was almost no small on the phone calls coming in. It was very, very exciting to see, and that's what we're experiencing in that market.

And the markets which are seeing lower month-on-month trends versus the market which are seeing higher month-on-month rent, the differentiation is the new supply? Or is it the migration? So the markets which are seeing new supply are seeing negative or the markets which are seeing positive migration are seem positive, any interrelation there?

There could be a little speculation there that is the short-term supply function that might be the case in Texas markets, but I would see that as a short-term blip on the radar. I think it's more a factor of just in the Sunbelt, they've experienced tremendous growth over the past, call it, 24 months. And I think it's just moderated. It's just decelerated a little bit. It's still very good. In fact, our rent growth right now is, call it, twofold better than the norm pre-pandemic. So we're very excited about that compared to last year, maybe it's a little bit less, but compared to -- before the pandemic, it's very, very strong. So I think it's just a function of balancing out over time.

Got it. Fair enough. My last question is for Derrick here. So I think you guys did the debt refinancing this quarter for Oklahoma property. Did you get an appraisal done as well when you did the refinance? And any color in terms of how values have moved since IPO on that property?

Sure. Yes. So the refinancing that you're talking about financier is Oakley. We did refinance that, and we did an appraisal on that. It was largely consistent with our Q4 valuation, which we coincidentally did a separate appraisal loan. So really consistent with what we saw in Q4 and a little slightly higher than the IPO forecast, but not materially.

Got it. And maybe one follow-up, I mean, I think it was done in mid-February some of the transaction, a bit below the regional bank prices headlines, so to speak. Has anything changed since then? I mean, in terms of debt availability in your asset class or in your region?

Sure. Maybe I'll give some context on that. The availability from agency lenders is still there. We may see given recent bank I guess what's happened with the banks less lending on their side. However, with agency, we're still seeing strong supply. And I would say that while the supply is there, the rates have increased. So maybe for comparable purposes, we locked in at 4.88% then. What we see today is probably maybe 30 to 35 bps higher. So availability is still there, but we could see that spread widen going forward.

And we have our next question from Matt Kornack with NBF.

Just with regards to the move in occupancy, you carried pretty high occupancy as of December 31 into presumably January, but what you've given here is end of quarter, I believe, in terms of the pullback. So would most of Q1, you've been sitting at that higher occupancy level and hence the beat to your forecast? I'm just trying to understand kind of the dynamics in the quarter itself.

Thank you, Matt. To your point, I mean, it's occupancy -- average day occupancy is not linear necessarily, but I would agree with you that our occupancy was pretty stable through January, in line with where December finished. And then as we ramped up construction, we saw that occupancy intentionally with draw down to where it finished the quarter out. I don't know that, that was a materially contributed to the quarter's NOI. It certainly influenced it, but I don't think it materially changed it from what we expected.

Okay. That makes sense. And then with regards to margins in the quarter versus for the full year, I mean, it sounds like you're maintaining your view on NOI for the most part for the year. So should we expect the margins will come down a bit? Obviously, you mentioned insurance, but is there anything else we should be looking at there?

I think that's a fair estimate. As the margins, we would anticipate coming down a bit, partially non-materially due to insurance more so just a function of seasonality. In Q1, sometimes you can see less spending. For example, when your renewal rates are high and turnover is low, then your make-ready and other maintenance costs are typically going to be lesser as well as landscaping. We're always somewhat conservative when we budget that because you don't know what the weather is going to be like. But in the case of this past quarter, both the landscaping costs and the make-ready costs were less. In addition, when we ramp up that value-add program, those are passive savings because you're not spending money on a make ready for that particular suite you're investing in the value-add program.

Okay. Sure. That absolutely makes sense. And last one for me. With regards to the value-add program, it seems like it's still a great place to be deploying capital. You're seeing demand for these better quality suites. Can you give us a sense in past cycles, I mean, the employment market still is quite strong in the U.S., but let's say, if there is a deterioration, do you typically see the value-add segment not see demand or slowing demand? Or just general thoughts there as to whether how sustainable ultimately that investment is, if there's an economic downturn?

Well, that's a highly speculative question, Matt. I think what I would say is, this is -- we aren't seeing a change in demand. The demand remains strong for our renovated suites. The markets we're in, in large part, they're insulated from the job losses that you're reading about in the newspaper. We're not in super high tech markets. We're in fundamental economic contributing markets, where the job situation tends to remain strong and stable. That's why we selected those markets. They're going to be more insulated from those cyclical changes, and we just don't expect high magnitude differences in demand or in the jobs in our markets.

And presumably, from an affordability standpoint, the rent to income even after you do these renovations is probably still quite reasonable relative to what we're used to here in Toronto and other coastal markets?

Your descriptive word or phrase is quite reasonable. It's exactly how we would phrase it.

We have our next question from Jimmy Khing Shan with RBCCM.

So Scott, I'm just curious, what are you sending out in terms of renewal rate increase for the next couple of months? Would they be in line with the 9% in Q1?

Jimmy, I think we're going to see the renewal rate -- the renewal spread decrease off of that 9%, but I think it's still going to say, be in the upper single-digit range. Early indications would point to that.

Okay. And then just on the acquisition, you talked about seeing a lot of assets in the last month or so, what level of cap rate or IRR or however you want to frame it sort of gets you to pull the trigger on an asset today, just given all the uncertainties in your cost of capital. What is it that you need to see in terms of the number to get you there?

Let me clarify a little bit. There are not a lot of assets on the market to see. We have toured what we are interested in, and there are communities that meet our acquisition criteria in terms of the vintage and the quality and with our value-add program intent, but there are not a lot of assets to look at today. In terms of cap rates, I mean, it's all across the board, more opportunistic. But I would say, over a stabilized timeframe, we're looking in the 6.5% to 7% range on a cap rate in year 2 or year 3. That's our criteria. That's not the first year going in. That's our stabilized cap rate.

Right, but given that the rent growth have decelerated a bit, going in would be just a tiny bit less than that versus maybe a year ago when people were underwriting quite a bit of -- quite high double-digit rent growth. Is that fair? So like in other words…

That is absolutely fair to say. And that's where the disconnect is, right now is, as the sellers in general are not accounting for that. And we, as a prospective buyer, are going to demand that.

[Operator Instructions] And our next question is from George Huang with Raymond James.

Just keying off the visa shelf filing, can you talk about incremental capital raising, especially, as it relates to convertible debt, given your low leverage at this point, if the right acquisition was to come along?

George, we filed the base shelf largely as a housekeeping kind of item. We do want to be ready for when the markets do cooperate. Whether we look at -- given our cost -- current cost of capital, our equity raises are probably not in the -- wouldn't happen right now. I mean, we look at all sorts of capital. I think convertible debentures, equity. Having said that, we're still -- it's important to find the right investment opportunity to allocate our capital towards, so when we find that opportunity, we'll have -- we have our base shelf, and we will be in a position to either raise capital or convert, as you mentioned. But like I said, Scott has mentioned transaction activity is slow. We are continually monitoring it, and we'll be ready, willing and able to execute when that opportunity and time arises.

And we have no further calls at this time. I will now turn the call over to Jane Gavan for closing remarks.

Thank you so much. Dream Residential finishes it's an inaugural. Inaugurally, we're in very good shape with an absolutely excellent management team and a solid foundation to do great things. I can't thank Scott, Derrick and their teams for all their dedication and hard work to get us where we are today. It's been my sincere pleasure to be part of this journey, and I'm going to look forward to watching DRR's growth and evolution. And with that, I will conclude our call. Thanks very much.

Thank you. And thank you, ladies and gentlemen. This concludes our conference. We thank you for your participation. You may now disconnect.