Mr. Michael Cooper reports

DREAM OFFICE REIT REPORTS Q1 2023 RESULTS

Dream Office Real Estate Investment Trust has released its financial results for the three months ended March 31, 2023, and has provided a business update.

"After more than three years of COVID, the future of the office sector continues to remain uncertain although there are many ways to achieve value in Dream Office REIT through uses other than as traditional office buildings," said Michael Cooper, chief executive officer of Dream Office REIT. "The sale of 720 Bay to reduce debt and repurchase units was one such example and we will continue to identify opportunities to increase value for our unitholders."

• Net income for the quarter: For the three months ended March 31, 2023, the trust generated net income of $1.4-million. Included in net income for the three months ended March 31, 2023, are net rental income totalling $26.2-million, net income from the trust's investment in Dream Industrial Real Estate Investment Trust totalling $2.4-million and positive fair value adjustments to financial instruments totalling $2.8-million, primarily due to the revaluation of the subsidiary redeemable units as a result of a decrease in the trust's unit price, which were partially offset by negative fair value adjustments to investment properties totalling $12.1-million across the portfolio.
• Diluted FFO per unit for the quarter: For the three months ended March 31, 2023, diluted FFO per unit decreased by three cents per unit to 36 cents per unit relative to 39 cents per unit in Q1 2022, driven by higher interest expense (negative five cents), partially offset by higher FFO from the trust's investment in Dream Industrial REIT (positive one cent) and higher comparative properties NOI (positive one cent).
• Net rental income for the quarter: Net rental income for the three months ended March 31, 2023, increased by $300,000 relative to the prior-year comparative quarter due to higher rental rates across the portfolio and a net decrease in provisions for bad debt during the quarter, partially offset by the sale of 720 Bay St.
• Comparative properties NOI for the quarter: For the three months ended March 31, 2023, comparative properties NOI increased by 2.5 per cent, or $700,000, over the prior-year comparative quarter, primarily driven by higher in-place net rents across the portfolio from rent step ups, higher rates on new leases and renewals and overall higher parking revenues of $400,000 across the portfolio. Partially offsetting the increases was lower weighted average in-place occupancy in both regions.
  • The company is actively managing its assets in the Toronto downtown region, which represent 82 per cent of its active portfolio investment property fair values, to improve the quality of the buildings and to continue to improve rental rates in this market. For the company's assets in the other markets region, which make up the remaining 18 per cent of our active portfolio investment properties fair value, the company is repositioning these assets to improve occupancy and liquidity in the private market.
• In-place occupancy: Total portfolio in-place occupancy on a quarter-over-quarter basis decreased by 0.8 per cent relative to Q4 2022. In the other markets region, in-place occupancy decreased by 1.1 per cent relative to Q4 2022 as 36,000 square feet of expiries were partially offset by 11,000 square feet of renewals and 2,000 square feet of new lease commencements. In Toronto downtown, in-place occupancy decreased by 0.6 per cent relative to Q4 2022 as 123,000 square feet of expiries were partially offset by 59,000 square feet of renewals and 48,000 square feet of new lease commencements.
  • Total portfolio in-place occupancy on a year-over-year basis decreased from 81.7 per cent at Q1 2022 to 80.2 per cent this quarter due to negative absorption in Toronto downtown and the sale of 720 Bay St. in Q1 2023 along with negative absorption in Other markets, partially offset by the sale of Princeton Tower in Saskatoon in Q3 2022.
• Lease commencements for the quarter: For the three months ended March 31, 2023, 107,000 square feet of leases commenced in Toronto downtown at $30.47 per square foot, or 22.8 per cent higher than the previous rent in the same space with a weighted average lease term of 7.1 years. In the other markets region, 13,000 square feet of leases commenced at $21.55 per square foot, or 11.2 per cent higher than the previous rents in the same space with a weighted average lease term of 5.1 years.
  • The renewal and relocation rate to expiring rate spread for the quarter was 13.5 per cent above expiring rates on 70,000 square feet of renewals.

Business update

As at March 31, 2023, the trust had $2.9-billion of total assets, $2.4-billion of investment properties and $1.3-billion of total debt.

During Q1 2023, the trust executed leases totalling approximately 184,000 square feet across its portfolio. In Toronto downtown, the trust executed 178,000 square feet of leases at a weighted average initial net rent of $31.36 per square foot, or 9.8-per-cent higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 5.6 years. In the other markets region, comprising Dream Office's properties located in Calgary, Saskatoon, Regina, Mississauga, Scarborough and the United States, the trust executed leases totalling 6,000 square feet at a weighted average net rent of $21.43 per square foot, an increase of 4.4 per cent from the weighted average prior net rent on the same space, with a weighted average lease term of 2.4 years.

To date, the trust has secured commitments for approximately 705,000 square feet, or 103 per cent, of 2023 full-year natural lease expiries. In Toronto downtown, 33,000 square feet, or approximately 1 per cent of the region's gross leasable area, is currently being held intentionally vacant for retail repositioning and property improvement purposes.

The trust remains committed to investing in its well-located real estate portfolio in downtown Toronto to distinguish its assets and attract unique tenants. During 2022, Dream Office took 366 Bay St. and 67 Richmond St. West in Toronto offline to fully revitalize the assets. The projects are expected to be completed and ready to lease in Q3 2023 and Q2 2024, respectively. The trust is currently in active discussions with potential tenants for the buildings on completion. At 67 Richmond St. West, Dream Office completed a lease with a premium restaurant tenant for the ground floor retail space which commences during Q2 2023.

At 67 Richmond St. West and 366 Bay St., the development projects comprise full modernizations of the properties, including technical systems, interior lighting and elevators, along with enhanced common areas and larger floor plates. The trust is targeting certain building and project certifications as part of the development projects. A portion of the development costs for these buildings satisfy the terms of the unsecured non-revolving credit facility and term credit facility with the Canada Infrastructure Bank (the CIB facility), which gives the trust access to an attractive financing program to decarbonize the properties.

During Q1 2023, the trust settled its zoning bylaw appeal with the City of Toronto for its development at 212-220 King St. West in Toronto, Ont. The trust is currently working through next steps with its partner. The density approval is for 535,000 square feet of gross floor area, comprising 438,500 square feet of residential area and 96,500 square feet square feet of commercial space including office, retail and hotel, at the trust's 50-per-cent interest.

As at March 31, 2023, the trust had approximately $231.3-million of available liquidity, comprising $12.4-million of cash, undrawn revolving credit facilities totalling $116.6-million and undrawn amounts on Dream's CIB facility of $102.2-million which offers low-cost fixed-rate financing for commercial property retrofits to achieve certain energy efficiency savings and greenhouse gas emission reductions. The trust also had $105-million of unencumbered assets and a level of debt (net total debt-to-net total assets) of 43.0 per cent. On Jan. 30, 2023, the trust sold 720 Bay St. in Toronto, Ont., for $135-million, the net proceeds of which were used to repay drawings on the $375-million credit facility, reducing leverage from 44.6 per cent as at Dec. 31, 2022, to 43.0 per cent as at March 31, 2023.

During Q1 2023, the trust drew $2.7-million against the CIB facility. Since entering into the facility in 2022, Dream Trust has drawn $10.6-million against that facility. These draws represent 80 per cent of the costs to date for capital retrofits at 10 properties in Toronto downtown for projects to reduce the operational carbon emissions in these buildings by an estimated 1,805 tonnes of carbon dioxide, or 52.9 per cent, per year on project completion.

"Dream Office REIT is pleased to deliver its first positive quarter of year-over-year comparative properties NOI growth in Toronto downtown since the pandemic," said Jay Jiang, chief financial officer of Dream Office REIT. "We are continuing to execute leases at a healthy spread against expiring rents, keeping committed occupancy relatively stable and have already secured leases for over 100 per cent of 2023 lease expiries."

• NAV per unit: As at March 31, 2023, Dream Office NAV per unit increased to $31.50 compared with $31.36 at Dec. 31, 2022. The increase in NAV per unit relative to Dec. 31, 2022, is driven by cash flow retention (FFO net of distributions) and the effect of accretive unit repurchases under the trust's normal course issuer bid program, partially offset by fair value losses on investment properties in both regions due to maintenance capital spent but not capitalized. As at March 31, 2023, equity per the condensed consolidated financial statements was $1.5-billion.
• Investment property disposition: On Jan. 30, 2023, the trust completed the sale of 720 Bay St. located in Toronto, Ont., for total gross proceeds before adjustments and transaction costs of $135.0-million. Proceeds from the disposition were used to repay drawings on the trust's revolving credit facilities.
• Mortgage extension: On March 13, 2023, the trust extended the maturity of a $44.3-million mortgage secured by an investment property in downtown Toronto to a new maturity date of May 31, 2025. In connection with the renewal, the trust entered into a fixed-for-variable swap to fix the interest rate on the mortgage at 5.03 per cent.
• Demand revolving credit facility: On Feb. 10, 2023, the trust entered into a $20-million demand revolving credit facility secured by a property in Saskatoon, Sask. The demand revolving credit facility bears interest at the bankers' acceptance rate plus 2.00 per cent or at the bank's prime rate plus 0.50 per cent. The facility is due on demand with no fixed maturity.

Conference call

Dream Office REIT holds semi-annual conference calls following the release of second and fourth quarter results.

We seek Safe Harbor.