Mr. Michael Cooper reports

DREAM OFFICE REIT REPORTS 2023 YEAR-END RESULTS AND UNIT CONSOLIDATION; ANNUAL DISTRIBUTION TO REMAIN UNCHANGED AT $1.00 PER UNIT FOLLOWING CONSOLIDATION

Dream Office Real Estate Investment Trust has released its financial results for the three months ended Dec. 31, 2023, and its board of trustees has determined to implement the previously approved consolidation of all the issued and outstanding REIT units, Series A, REIT units, Series B, and special trust units of the trust on the basis of one postconsolidation unit for every two preconsolidation units. The unit consolidation was authorized by the unitholders of the trust at the annual meeting of the trust held on June 6, 2023.

All dollar amounts in the attached tables are presented in thousands of dollars, except for rental rates and per-unit amounts, unless otherwise stated.

The unit consolidation is expected to take effect on or around Feb. 22, 2024, and the REIT A units are expected to begin trading on a postconsolidation basis on the Toronto Stock Exchange at markets open on Feb. 27, 2024, under the same trading symbol D.UN. The REIT B units and special trust units are not listed or quoted on any marketplace. The new Cusip number and ISIN for the postconsolidation REIT A units are 26153P203 and CA26153P2035, respectively.

The monthly distributions on the REIT A units of the trust are currently 8.333 cents per REIT A unit on a preconsolidation basis. Following the unit consolidation, the monthly distributions of the trust will not be proportionately increased and adjusted. As a result, the monthly distributions will remain 8.333 cents per REIT A unit on a postconsolidation basis, which will represent annualized distributions of $1 per REIT A unit on a postconsolidation basis. Based on the change in unit count, the total annualized distribution on REIT A units and LP B units will adjust from $37.9-million to $18.9-million based on the number of REIT A units and LP B units outstanding on today's date.

Management will host a conference call to discuss the financial results on Feb. 15, 2024, at 5 p.m. ET.

"We have made progress improving our in-place occupancy over the course of the year, refinanced all of our expiring debt, completed rezoning on our large development sites and sold 720 Bay St. at a premium valuation," said Michael Cooper, chief executive officer of Dream Office. "In 2024, we are focusing on leasing, reducing risk, preserving liquidity and exploring delivering long-term value to our unitholders in a very challenging office market."

Office utilization rates in downtown Toronto continue to improve gradually each quarter. Year over year, its downtown Toronto in-place occupancy rate improved from 82.7 per cent to 85.4 per cent, and in-place and committed occupancy improved from 87.7 per cent to 89.0 per cent. This compares favourably with general downtown Toronto market statistics published by CBRE research, where occupancy declined from 86.4 per cent to 82.6 per cent over 2023. It continues to believe its portfolio is well located, difficult to replace and uniquely positioned to outperform over the long term. It remains committed to investing in its buildings and leasing to distinguish its portfolio and continue to attract tenants.

During fourth quarter 2023, the trust executed leases totalling approximately 388,000 square feet across its portfolio. In downtown Toronto, the trust executed 384,000 square feet of leases at a weighted-average initial net rent of $26.84 per square foot, or 4.4 per cent higher than the weighted-average prior net rent per square foot on the same space, with a weighted-average lease term of 6.2 years. In the other markets region, comprising its properties located in Calgary, Saskatoon, Regina, Mississauga, Scarborough and the United States, it executed leases totalling 4,000 square feet at a weighted-average net rent of $18.67 per square foot, a decrease of 13.6 per cent from the weighted-average prior net rent on the same space, with a weighted-average lease term of 3.7 years.

Subsequent to Dec. 31, 2023, the trust executed a further 46,000 square feet of leases in downtown Toronto at a weighted-average initial net rent of $31.52 per square foot, or 4.4 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.

Since the beginning of 2023 to today's date, the trust has executed leases totalling approximately 874,000 square feet across its portfolio. In downtown Toronto, the trust has executed 798,000 square feet of leases at a weighted-average initial net rent of $30.53 per square foot, or 13.1 per cent higher than the weighted-average prior net rent per square foot on the same space, with a weighted-average lease term of 6.1 years. In the other markets region, the trust has executed leases totalling 76,000 square feet at a weighted-average initial net rent per square foot of $19.11, or 11.2 per cent higher than the weighted-average prior net rent per square foot on the same space, with a weighted-average lease term of 4.1 years.

To date, the trust has secured commitments for approximately 427,000 square feet, or 53 per cent, of full-year 2024 natural lease expiries.

Redevelopment project update

During 2022, it took 366 Bay St. and 67 Richmond St. West in Toronto off-line 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 floor plates. At 366 Bay St., it has spent $11.0-million over the course of the project, $8.2-million of which has been financed by its Canada Infrastructure Bank credit facility. At 67 Richmond St. West, it has spent $4.6-million on the project, $3.7-million of which has been financed by the CIB facility. The project at 67 Richmond St. West is expected to be completed and ready to lease in the second half of 2024.

During the year, it 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 its 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 per square foot, escalating to $50 per square foot over the term of the lease. The full building fixturing and fitout commenced in Q4 2023 on redevelopment project completion, with lease commencement scheduled for Q4 2024. As part of the lease agreement, the trust secured a non-revolving term loan facility of $8.2-million with the tenant to finance the tenant's construction allowance under the terms of the lease. The accumulated drawings will bear interest at an annual fixed rate of 6.75 per cent for a period of five years. Subsequent to the initial availability period during the tenant fitout period, the loan will convert to an amortizing term facility.

"We continue to be focused on strategies to improve liquidity and reduce risk in our business," said Jay Jiang, chief financial officer of Dream Office. "We are in advanced negotiations on securing renewals for $73.4-million of mortgages maturing in 2024 and are also working on refinancing 2025 debt maturities early with our lenders."

As at Dec. 31, 2023, the trust had $2.7-billion of total assets, $2.3-billion of investment properties and $1.3-billion of total debt.

As at Dec. 31, 2023, the trust had approximately $187.2-million of available liquidity, comprising $13.3-million of cash, undrawn revolving credit facilities totalling $73.4-million, undrawn amounts on its non-revolving term loan facility for the purpose of financing a tenant's construction allowance obligations under the aforementioned 366 Bay St. lease totalling $8.2-million, and undrawn amounts on its CIB facility of $92.4-million, which provides low-cost fixed-rate financing solely for the purpose of commercial property retrofits to achieve certain energy-efficiency savings and greenhouse gas emission reductions. The trust also had $17-million of unencumbered assets and a level of debt (net total debt to net total assets) of 50.0 per cent.

During the quarter, the trust entered into a fixed-for-variable swap to fix the interest rate on a $66.5-million mortgage at 6.14 per cent secured by a property in Scarborough, Ont. Also, during the quarter, the trust entered into a swap in relation to borrowings under the $375-million revolving credit facility whereby the trust fixed the annual rate on $40-million of the outstanding drawings at 5.42 per cent (at the current pricing for bankers acceptance drawings under the facility) for five years. Over the course of the year, the trust has addressed $250.7-million of mortgage maturities, and the trust is in advanced renewal discussions with its lenders on the $73.4-million of mortgage maturities coming due in 2024. Discussions for the $336.1-million of mortgage maturities coming due in 2025 are also under way.

Since commencing its hedging strategy in 2022, it has entered into fixed-for-variable swaps on its credit facility and mortgage debt totalling $365.6-million at a weighted-average rate of 5.50 per cent, including loan-specific borrowing spreads. Based on indexes as at Dec. 31, 2023, the weighted-average unhedged rate for swapped debt was 7.22 per cent, representing annualized savings of 1.73 per cent or $6.3-million per year. As a result of this hedging strategy, variable rate as a percentage of total debt has decreased from 24.1 per cent as at Dec. 31, 2021, to 6.7 per cent as at Dec. 31, 2023.

During Q4 2023, the trust drew $4.3-million against the CIB facility. In total, it has drawn $20.5-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 downtown Toronto for projects to reduce the operational carbon emissions in these buildings by an estimated 3,241 tonnes of carbon dioxide, or 57.5 per cent, per year on project completion.

GRESB real estate assessment

On Oct. 2, 2023, the trust achieved a four-star GRESB rating of 87 out of 100. GRESB is an industry-driven organization that is committed to assessing the environmental, social and governance performance of real estate portfolios around the globe. Participation in the GRESB assessment gives Dream Office the opportunity to receive a third party assessment of its progress toward reaching its ESG goals, and the latest score validates the trust's accomplishments to date.

Summary of key performance indicators:

• Net loss for the quarter: For the three months ended Dec. 31, 2023, the trust generated a net loss of $42.4-million. Included in net loss for the three months ended Dec. 31, 2023, are negative fair value adjustments to investment properties totalling $28.8-million across the portfolio and negative fair value adjustments to financial instruments totalling $19.3-million primarily due to remeasurements on rate swap contracts due to falling market yield curves and the remeasurement of the carrying value of subsidiary redeemable units as a result of an increase in the trust's unit price over the quarter, partially offset by net rental income totalling $25.8-million.
• Diluted funds from operations per unit for the quarter: For the three months ended Dec. 31, 2023, diluted FFO per unit increased by one cent per unit to 38 cents per unit relative to 37 cents per unit in Q4 2022, driven by the accretive effect of repurchases under the normal course issuer bid and substantial issuer bid, net of reduced FFO from Dream Industrial REIT as a result of selling units to facilitate the buyback of REIT A units under the SIB in second quarter 2023 and interest from drawing on credit facilities (positive three cents) and lease termination fee income and other items (positive three cents), partially offset by lower net rental income from the sale of 720 Bay St. (negative four cents), higher bad debt provisions (negative one cent) and higher general and administrative expenses (negative one cent).
• Net rental income for the quarter: Net rental income for the three months ended Dec. 31, 2023, decreased by 5.8 per cent, or $1.6-million, over the prior-year comparative quarter primarily due to the sale of 720 Bay St. in first quarter 2023.
• Comparative-property net operating income for the quarter: For the three months ended Dec. 31, 2023, comparative properties NOI was flat compared with the prior-year comparative quarter as higher in-place net rents in downtown Toronto and other markets were substantially offset by lower recoveries across both regions and lower weighted-average occupancy in other markets.
• In-place occupancy: Total portfolio in-place occupancy on a quarter-over-quarter basis increased by 1.2 per cent relative to third quarter 2023. In downtown Toronto, in-place occupancy increased by 2.0 per cent relative to Q3 2023 as 322,000 square feet of renewals and 114,000 square feet of new lease commencements were partially offset by 372,000 square feet of expiries. In the other markets region, in-place occupancy decreased by 0.4 per cent relative to Q3 2023 as 9,000 square feet of expiries were partially offset by 2,000 square feet of renewals.
• Total portfolio in-place occupancy on a year-over-year basis increased from 81.0 per cent at Q4 2022 to 82.0 per cent this quarter primarily driven by positive absorption in downtown Toronto of 2.7 per cent, partially offset by negative absorption of 1.9 per cent in other markets.
• Lease commencements for the quarter: For the three months ended Dec. 31, 2023, excluding temporary leasing, 435,000 square feet of leases commenced in downtown Toronto at net rents of $32.13 per square foot, or 27.1 per cent higher than the previous rent in the same space, with a weighted-average lease term of 5.3 years. In the other markets region, 2,000 square feet of leases commenced at $24.87 per square foot, or 5.6 per cent higher than previous rents in the same space, with a weighted-average lease term of 2.4 years.
• The renewal and relocation rate to expiring rate spread for the quarter was 29.9 per cent above expiring rates on 324,000 square feet of renewals.
• Net asset value per unit: As at Dec. 31, 2023, its NAV per unit increased to $33.15 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 its NCIB program and SIB, partially offset by the sale of 12.5 million units of Dream Industrial at a price below international financial reporting standard carrying value and fair value losses on investment properties in both regions. As at Dec. 31, 2023, equity per the consolidated financial statements was $1.2-billion.
• Fair value adjustments to investment properties for the quarter: For the three months ended Dec. 31, 2023, the trust recorded a fair value loss totalling $28.8-million comprising fair value losses of $25.8-million in downtown Toronto and $3.8-million in its properties under development, partially offset by a fair value gain of $800,000 in other markets. Fair value losses in downtown Toronto were primarily driven by expansions in weighted-average cap rates for several properties, as well as fair value losses on two properties valued by qualified external valuation professionals during the quarter. Fair value losses in its properties under development were primarily driven by a terminal cap rate expansion at one property, revisited leasing timelines and higher projected leasing costs.
• Year over year, its capitalization rates for properties valued under the direct capitalization method have expanded by 26 basis points in downtown Toronto and 27 bps for its total portfolio.
• Fair value adjustments to financial instruments: For the three months and year ended Dec. 31, 2023, the trust recorded fair value losses totalling $19.3-million and net fair value gains of $22.5-million, respectively. Fair value losses in the current quarter were primarily due to remeasurements on rate swap contracts resulting in a loss of $14-million due to falling market yield curves. Over the period from July, 2022, to December, 2023, the trust has entered into rate swap contracts for $365.6-million of variable-rate debt to fix the interest rates on the debt at a weighted-average rate of 5.50 per cent at current pricing for the swapped debt. Based on the hedged indexes as at Dec. 31, 2023, the unhedged pricing for the swapped debt would have been 7.22 per cent, representing annualized savings of $6.3-million per year.
• WeWork Canada GP ULC 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 (65,000 square feet) in Toronto, Ont., representing $3.7-million of the trust's investment properties revenue for the year ended Dec. 31, 2023.
• On Nov. 6, 2023, WeWork filed for Chapter 11 bankruptcy in the U.S., and on Nov. 7, 2023, it filed for creditor protection under Part IV of the Companies' Creditors Arrangement Act in Canada as foreign representative of WeWork Canada GP and other Canadian subsidiaries. The trust understands that the 357 Bay St. location is well occupied and utilized. 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. As of today's date, WeWork is current on all rental payment obligations. The trust continues to monitor the situation closely, assessing potential impact, if any, on the trust's income, its investment properties' fair values and debt, and is developing contingency plans for all potential outcomes.

Unit consolidation

The unit consolidation is expected to take effect on the effective date, and the REIT A units are expected to begin trading on a postconsolidation basis on the TSX at market opening on Feb. 27, 2024, under the same trading symbol D.UN. The new Cusip number and ISIN for the postconsolidation units are 26153P203 and CA26153P2035, respectively.

As of Feb. 15, 2024, there were currently 32,626,435 REIT A units and 5,233,823 special trust units issued and outstanding. There are no REIT B units currently issued and outstanding. The exact number of outstanding REIT A units after the unit consolidation will vary based on the number of outstanding units on the effective date and taking into account the elimination of fractional units. No fractional REIT A units or special trust units will be issued in connection with the unit consolidation. All fractions of postconsolidation REIT A units and special trust units will be rounded down to the nearest whole number.

Registered unitholders of the trust will be mailed a letter of transmittal from the trust's transfer agent, Computershare Trust Company of Canada, providing instructions regarding how to exchange their existing unit certificates representing preconsolidation REIT A units or special trust units for direct registration advice statements or unit certificates representing the postconsolidation REIT A units or special trust units to which they are entitled as a result of the unit consolidation. Until surrendered to the transfer agent, each unit certificate representing old preconsolidation REIT A units or special trust units will be deemed to represent the number of new whole postconsolidation REIT A units or special trust units, as the case may be, to which the holder is entitled as a result of the unit consolidation. Non-registered unitholders holding their REIT A units or special trust units through a bank, broker or other nominee are encouraged to contact their nominee for further information. The special trust units are non-certificated, and there are currently no REIT B units issued and outstanding.

The unit consolidation is expected to affect unitholders of the trust uniformly, including holders of outstanding securities of the trust convertible or exercisable for REIT A units or special trust units, as the case may be, on the effective date, except for minor changes or adjustments resulting from the treatment of fractional units. On the effective date, the exercise prices and the number of REIT A units or special trust units, as the case may be, issuable upon the exercise or deemed exercise deferred units or other convertible or exchangeable securities of the trust will be automatically proportionately adjusted based on the consolidation ratio to reflect the unit consolidation.

The general partner of Dream Office LP also plans to take steps to effect a consolidation of the LP Class A units and LP Class B units of Dream Office LP on a proportionate basis, effective as of the effective date. As a result, if the unit consolidation is implemented, the LP Class B units of Dream Office LP will also be consolidated on the basis of one postconsolidation LP Class B unit for every two preconsolidation LP Class B units on the effective date.

Further details on the unit consolidation are contained in the management information circular of the trust dated April 21, 2023, which has been filed and is available under the trust's profile on SEDAR+. Please review the circular for the specific terms and conditions of the unit consolidation. The letter of transmittal will also be available under the trust's SEDAR+ profile.

Annual distribution to remain unchanged at $1 per unit

Following the unit consolidation, The trust will maintain its annualized distribution rate at $1 per unit. Based on the change in unit count, the annualized total distribution amount on the units and LP B units will adjust from $37.9-million to $18.9-million based on the units and LP B units outstanding on today's date. This will allow the trust to retain approximately $18.9-million of cash on an annualized basis to reinvest in improving occupancy and enhance liquidity in the business. In addition, the trust will consider opportunistically selling assets in the portfolio at fair prices to reduce debt and improve long-term financial flexibility. The trust will continue to explore strategies over the course of 2024 to deliver long-term value to its unitholders.

Conference call

Management will host a conference call to discuss the financial results today, Feb. 15, 2024, at 5 p.m. ET. To listen to the conference call, please dial 1-800-319-4610 in Canada or 416-915-3239 elsewhere. To listen to the conference call by webcast, please go to Dream Office's website and click on the link for news, and 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 of the trust are available at the Dream Office website and on SEDAR+.

Dream Office is an unincorporated, open-ended real estate investment trust. Dream Office 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.