Mr. Michael Cooper reports

DREAM OFFICE REIT REPORTS Q3 2023 RESULTS

Dream Office Real Estate Investment Trust today released its financial results for the three months ended Sept. 30, 2023, and has provided a business update. Management will host a conference call to discuss the financial results on Nov. 10, 2023, at 10 a.m. ET.

"The third quarter was a very successful quarter for Dream Office in leasing and we are working on many more excellent tenants in joining our portfolio. The improvements we have been making in our buildings have been very well received by our tenants and their employees," said Michael Cooper, chief executive officer of Dream Office REIT. "We are pleased to have executed on 362,000 square feet of new leases since the beginning of the third quarter and are conditional on an additional 91,000 square feet, together at 15.1-per-cent higher rents than expiry."

• Net income for the quarter: For the three months ended Sept. 30, 2023, the trust generated a net income of $13.6-million. Included in net income for the three months ended Sept. 30, 2023, are net rental income totalling $25.1-million, positive fair value adjustments to financial instruments totalling $24.2-million, primarily due to the revaluation of the subsidiary redeemable units as a result of a decrease in the trust's unit price and fair value gains on interest rate swaps, and net income from its investment in Dream Industrial Real Estate Investment Trust totalling $400,000 partially offset by negative fair value adjustments to investment properties totalling $16.6-million across the portfolio.
• Diluted FFO (funds from operations) per unit for the quarter: For the three months ended Sept. 30, 2023, diluted FFO per unit decreased by two cents per unit to 35 cents per unit relative to 37 cents per unit in Q3 2022, driven by lower net rental income from the sale of 720 Bay St. in Q1 2023 (negative five cents), one-time expenses associated with the start-up costs of the company's restaurant partnership on Bay St. (negative one cent), lower NOI (net operating income) from properties under development (negative one cent), higher interest expense (negative one cent) and other items (negative two cents), partially offset by the accretive effect of repurchases under the normal course issuer bid and substantial issuer bid (SIB), net of reduced FFO from Dream Industrial REIT as a result of selling units to facilitate the buyback under the SIB in Q2 2023 (five cents) and higher comparative properties NOI (three cents).
• Net rental income for the quarter: Net rental income for the three months ended Sept. 30, 2023, decreased by 6.1 per cent, or $1.6-million, over the prior-year comparative quarter primarily due to the sale of 720 Bay St. in Q1 2023.
• Comparative properties NOI for the quarter: For the three months ended Sept. 30, 2023, comparative properties NOI increased by 4.4 per cent, or $1.2-million, over the prior-year comparative quarter, primarily driven by higher in-place net rents across the portfolio from rent step ups and higher rates on new leases and renewals. Partially offsetting the increases was lower weighted average in-place occupancy in the other markets region.
• In-place occupancy: Total portfolio in-place occupancy on a quarter-over-quarter basis decreased by 0.1 per cent relative to Q2 2023. In the Other markets region, in-place occupancy increased by 0.3 per cent to 76.6 per cent relative to Q2 2023 as 12,000 square feet of new leasing and 11,000 square feet of renewals were partially offset by 17,000 square feet of expiries. In Toronto downtown, in-place occupancy decreased by 0.2 per cent to 83.4 per cent relative to Q2 2023 as 75,000 square feet of expiries were partially offset by 35,000 square feet of renewals and 33,000 square feet of new lease commencements.
• Total portfolio in-place occupancy on a year-over-year basis decreased from 81.8 per cent at Q3 2022 to 80.8 per cent this quarter primarily driven by negative absorption in other markets. In Toronto downtown, in-place occupancy increased by 0.1 per cent year over year as the region saw positive absorption of 1.4 per cent, offset by a 1.3-per-cent decrease as a result of the sale of the fully occupied 720 Bay St. in Q1 2023.
• Lease commencements for the quarter: For the three months ended Sept. 30, 2023, excluding temporary leasing, 68,000 square feet of leases commenced in Toronto downtown at net rents of $31.51 per square foot, or 22.1-per-cent higher than the previous rent in the same space with a weighted average lease term of 4.3 years. In the other markets region, 23,000 square feet of leases commenced at $12.48 per square foot, or 27.5 per cent lower than previous rents in the same space as rental rates on new leases rolled down to market rates with a weighted average lease term of 3.9 years.
• The renewal and relocation rate to expiring rate spread for the quarter was 25.7 per cent above expiring rates on 46,000 square feet of renewals.
• Fair value adjustments to investment properties for the quarter: For the three months ended Sept. 30, 2023, the trust recorded a fair value loss totalling $16.6-million comprising fair value losses of $11.2-million in Toronto downtown, $4.1-million in other markets and $1.4-million in the trust's properties under development. Fair value losses in Toronto downtown were driven by the revaluation of a property as a result of a change in the quality of a tenant covenant and maintenance capital spent. In the other markets region the fair value losses were driven by cap rate expansions at one property as well as maintenance capital spent.
• Year over year, the trust's capitalization rates for properties valued under the direct capitalization method have expanded by 55 bps in Toronto downtown and 56 bps for the trust's total portfolio.
• WeWork files for creditor protection: WeWork Canada GP ULC, a subsidiary of WeWork Inc., a publicly listed company in the United States, is the sole tenant at the trust's 357 Bay St. property in Toronto, Ont., representing $2.8-million of the trust's investment properties revenue for the nine months ended Sept. 30, 2023. On Nov. 6, 2023, WeWork filed for Chapter 11 bankruptcy in the United States and on Nov. 7, 2023, filed for creditor protection under part IV of the Companies' Creditors Arrangement Act in Canada as foreign representative of WeWork Canada GP ULC and other Canadian subsidiaries. The effect of these filings on the trust is uncertain. To date, the trust has not received any indication from WeWork whether it intends to disclaim the lease at the trust's property and the court filings do not indicate 357 Bay St. as one of the rejected unexpired leases in Canada. the trust is monitoring the situation closely and is developing contingency plans for all potential outcomes. WeWork is current on its rental payment obligations to today's date. The trust is actively monitoring the effect, if any, on the trust's income, investment properties fair values and debt.

Business update

As at Sept. 30, 2023, the trust had $2.7-billion of total assets, $2.4-billion of investment properties and $1.3-billion of total debt.

During Q3 2023, the trust executed leases totalling approximately 147,000 square feet across the trust's portfolio. In Toronto downtown, the trust executed 126,000 square feet of leases at a weighted average initial net rent of $35.76 per square foot, or 36.2 per cent higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 7.8 years. In the other markets region, comprising the trust's properties located in Calgary, Saskatoon, Regina, Mississauga, Scarborough and the United States, Dream Office executed leases totalling 21,000 square feet at a weighted average net rent of $20.14 per square foot, an increase of 7.7 per cent from the weighted average prior net rent on the same space, with a weighted average lease term of 3.3 years. Subsequent to Sept. 30, 2023, the trust executed a further 215,000 square feet of leases in Toronto downtown at a weighted average initial net rent of $25.48 per square foot, or 5.9 per cent higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 4.8 years.

In addition, the trust has a further 91,000 square feet of conditional deals at a weighted average initial net rent of $31.12 per square foot, or 9.1 per cent higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 8.6 years.

Since the beginning of the year to today's date, the trust has executed leases totalling approximately 614,000 square feet across the trust's portfolio. In Toronto downtown, the trust has executed 583,000 square feet of leases at a weighted average initial net rent of $31.03 per square foot, or 17.0 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, the trust has executed leases totalling 31,000 square feet at a weighted average initial net rent per square foot of $21.00, or 5.3 per cent higher than the weighted average prior net rents on the same space, with a weighted average lease term of 3.1 years.

To date, the trust has secured commitments for approximately 781,000 square feet, or 112 per cent, of 2023 full-year natural lease expiries.

Touring volume has been healthy and relatively in line with pre-COVID levels and office utilization rates in Toronto downtown continue to improve gradually with employers mandating more days in office. However, as a result of current economic uncertainty and higher interest rates, tenants are taking longer to make decisions which has stretched out the time to complete deals. For leases completed over the course of the year, Dream Office continues to see strong net rents; however, leasing costs are elevated relative to historical norms as tenants are putting more emphasis on upgrading their workspace to attract employees back into the office as well as higher material and labour costs. Demand for built Dream Office's space is increasing as tenants seek to minimize downtime and capital while maximizing flexibility. When considering the incentives offered to tenants, the trust focuses on investing in leases with longer terms and strong covenants to maximize the return on the invested capital and occupancy in the trust's best buildings to maintain property value, manage cash flows, and to maximize liquidity and refinancing value.

Dream Office remains committed to investing in the trust's well-located real estate portfolio in downtown Toronto to distinguish its assets and attract unique tenants. During 2022, the trust took 366 Bay St. and 67 Richmond St. West in Toronto offline to fully revitalize the assets. The development projects at these properties comprise full modernizations of the properties, including technical systems, interior lighting and elevators, along with enhanced common areas and larger floorplates. At 366 Bay St., the trust spent $11.0-million over the course of the project, $8.1-million of which has been financed by the trust's Canada infrastructure bank credit facility (the CIB facility). At 67 Richmond St. West, Dream Office has spent $1.9-million on the project, $1.3-million of which has been funded by the CIB facility. The project at 67 Richmond St. West is expected to be completed and ready to lease in Q2 2024, and 366 Bay has been fully leased prior to its expected Q4 2023 completion.

During Q3 2023, the trust secured a commitment at 366 Bay St. for a lease for the entire building with a global financial institution that was attracted by the location of the asset, as well as the successful completion of our redevelopment and decarbonization program at the building. The lease is for a term of 15 years for approximately 40,000 square feet with initial net rents of $38.00 per square foot, escalating to $50.00 per square foot over the term of the lease. The full building fixturing and fitout is expected to commence in Q4 2023 on redevelopment project completion with lease commencement scheduled for Q4 2024.

During the quarter, the trust refinanced a mortgage totalling $114.4-million secured by an investment property in downtown Toronto at maturity. The refinanced interest-only mortgage totals $141.8-million for a term of seven years at an annual fixed interest rate of approximately 6.14 per cent. Also during the quarter, the trust negotiated a two-year extension for a $66.5-million interest-only mortgage secured by a property in Scarborough, Ont., bearing interest at the BA rate plus 1.95 per cent. The trust is exploring hedging options for this variable rate mortgage. Over the course of the year, the trust has successfully addressed $250.7-million of mortgage maturities and the trust is working with lenders on the $73.4-million of mortgage maturities coming due in 2024.

As at Sept. 30, 2023, the trust had approximately $203.8-million of available liquidity, comprising $15.8-million of cash, undrawn revolving credit facilities totalling $91.3-million and undrawn amounts on the trust's CIB facility of $96.7-million which provides low-cost fixed-rate financing solely for the purpose of commercial property retrofits to achieve certain energy efficiency savings and GHG emission reductions. The trust also had $17-million of unencumbered assets and a level of debt (net total debt-to-net total assets) of 48.8 per cent.

During Q3 2023, the trust drew $1.8-million against the CIB facility. In total, the trust has drawn $16.2-million against the CIB facility since 2022. These draws represent 80 per cent of the costs to date for capital retrofits at 13 properties in Toronto downtown for projects to reduce the operational carbon emissions in these buildings by an estimated 3,241 tonnes of carbon dioxide (CO2), or 57.5 per cent, per year on project completion.

On Oct. 2, 2023, the trust achieved a four-star GRESB rating of 87/100.

"We have successfully addressed all of our 2023 debt maturities, replacing $250.7-million at maturity with $278.4-million at 6.3 per cent for a term of 4.6 years," said Jay Jiang, chief financial officer of Dream Office REIT. "Looking ahead, we believe our 2024 debt exposure is very manageable with $73.4-million of mortgages maturing, or only 5.5 per cent of our total debt stack. We are already working towards addressing our 2024 and 2025 debt maturities."

Conference call

Management will host a conference call to discuss the financial results tomorrow, Nov. 10, 2023, at 10 a.m. ET. To access the conference call, please dial 1-800-319-4160 in Canada or 416-915-3239 elsewhere. To access the conference call via webcast, please go to Dream Office REIT's websit and click on the link for news, then click on events. A taped replay of the conference call and the webcast will be archived for 90 days.

Other information

Information appearing in this press release is a selected summary of results. The condensed consolidated financial statements and management's discussion and analysis (MD&A) of the trust are available at the Dream Office website and on SEDAR+.

About Dream Office Real Estate Investment Trust

Dream Office REIT is an unincorporated, open-ended real estate investment trust. Dream Office REIT is a premier office landlord in downtown Toronto with over 3.5-million square feet owned and managed. It has carefully curated an investment portfolio of high-quality assets in irreplaceable locations in one of the finest office markets in the world.

We seek Safe Harbor.