Michael Cooper reports
DREAM UNLIMITED CORP. REPORTS SECOND QUARTER RESULTS AND INCREASED CONTRIBUTION FROM ITS RECURRING INCOME BUSINESS
Dream Unlimited Corp. has released its financial results for the three and six months ended June 30, 2019. Basic earnings per share (EPS) for the three and six months ended June 30, 2019, were 10 cents and 27 cents, respectively, down from 14 cents and 37 cents in the comparative periods on a stand-alone basis, which excludes operational income generated from and fair value adjustments attributable to Dream Hard Asset Alternatives Trust. At June 30, 2019, Dream's total equity on a stand-alone basis increased to $9.56 per share, up from $9.33 at Dec. 31, 2018 (1). The company's recurring income business (composed of stabilized income-generating assets and asset management) has increased to 50 per cent of book equity per share from 48 per cent at the beginning of the year. The company's urban development segment, which includes the company's Toronto and Ottawa development assets, has increased to 10 per cent from 8 per cent, and the company's Western Canadian community development segment declined to 40 per cent from 45 per cent, a trend that is expected to continue.
Michael Cooper, president and chief responsible officer of Dream, commented: "We are pleased to see that our strategic efforts over the last few years to increase our investments in high-quality recurring assets through internal growth, development and acquisition are coming to fruition, having increased to 50 per cent of our book equity for the first time. We believe that our percentage of recurring income assets is even higher, as asset management and Arapahoe basin are carried at cost within our financials. We have had a very successful quarter as many initiatives that we have started on are progressing. We entered into a new pass partnership at Arapahoe basin, agreed to a 155,000-square-foot lease with the federal government to build our first new commercial building in our Zibi project in Ottawa, received key approvals for Brightwater, our Port Credit development, and received approval for the financing for our 750-unit purpose-built rental building in downtown Toronto, all of which contribute to growing the value of our business."
A summary of the company's results for the three and six months ended June 30, 2019, is included in the attached table.
(in thousands of dollars, except per-share amounts)
For the three months ended For the six months ended
June 30, June 30,
2019 2018 2019 2018
(including Dream Alternatives)
Revenue $76,044 $61,600 $133,001 $121,421
Net margin 19,442 13,221 38,410 29,010
Net margin % (2) 25.6% 21.5% 28.9% 23.9%
Earnings (loss) before income taxes (11,567) (31,334) (48,158) 120,063
Earnings (loss) for the period (11,089) (26,906) (44,613) 120,152
Basic earnings (loss) per share (4) (0.11) (0.25) (0.42) 1.10
Diluted earnings (loss) per share (0.11) (0.25) (0.42) 1.08
Dream stand-alone (5)
Revenue $63,131 $48,795 $108,981 $98,430
Net margin 11,444 6,206 25,648 17,533
Net margin % (2) 18.1% 12.7% 23.5% 17.8%
Earnings before income taxes 14,641 20,341 38,331 49,826
Earnings for the period 10,607 15,509 29,073 39,537
EBITDA (3) 24,318 28,671 57,218 65,798
Basic (4) and diluted earnings per share 0.10 0.14 0.27 0.37
--------- --------- --------- ---------
Dream stand-alone (5) June 30, 2019 Dec. 31, 2018
Total assets $2,163,403 $2,056,028
Total liabilities 1,096,673 1,010,776
Total equity (excluding non-controlling
interest) (1) 1,015,639 1,001,317
Total equity per share (1) 9.56 9.33
(1) Total equity (excluding non-controlling interests) and total equity per share
exclude $51.1-million of non-controlling interest as at June 30, 2019 ($43.9-million
as at Dec. 31, 2018), and include the company's investment in Dream Alternatives as
at June 30, 2019, and Dec. 31, 2018, of $91.3-million and $72.7-million,
respectively. For further details, refer to pages 25 and 26 in the company's
management's discussion and analysis for the three and six months ended June 30,
(2) Net margin per cent (see the "Non-IFRS Measures" section of the company's MD&A
for the three and six months ended June 30, 2019) represents net margin as a
percentage of revenue.
(3) EBITDA (see the "Non-IFRS Measures" section of the company's MD&A for the three
and six months ended June 30, 2019) is calculated as earnings before interest, taxes,
depreciation and amortization.
(4) Basic EPS is computed by dividing Dream's earnings attributable to owners of the
parent by the weighted-average number of Class A subordinate voting shares and Class
B common shares outstanding during the period. Refer to management's discussion on
consolidated results for the three and six months ended June 30, 2019.
(5) Dream stand-alone represents the stand-alone results of Dream, excluding the
impact of Dream Alternatives' consolidated results. Refer to the "Non-IFRS Measures"
section of the company's MD&A for further details. Total assets as at June 30, 2019,
and Dec. 31, 2018, include approximately $91.3-million and $72.7-million,
respectively, relating to the company's investment in Dream Alternatives.
In the three months ended June 30, 2019, on a consolidated basis, the company recognized a loss of $11.1-million, compared with a loss of $26.9-million in the comparative prior-year period. Dream Alternatives trust units held by other unitholders are treated as a liability on the condensed consolidated statement of financial position of Dream and are fair valued each period under international financial reporting standards, generating losses (gains) as Dream Alternatives' unit price increases (decreases). Included in the current period were $30.1-million of fair value losses related to Dream Alternatives (as a result of the unit price increasing from $7.17 at March 31, 2019, to $7.68 at June 30, 2019), compared with $41.8-million of fair value losses in the comparative period (as a result of the unit price increasing from $6.21 at March 31, 2018, to $6.89 at June 30, 2018).Outside of these fair value changes, the variance was primarily due to higher margin generated from the company's operating segments and increased equity earnings from Dream Office REIT, which were partially offset by a prior-year gain on the disposition of an asset held for sale.
In the six months ended June 30, 2019, on a consolidated basis, the company recognized a loss before income taxes of $48.2-million, compared with earnings before taxes of $120.1-million in the prior year, due to adjustments relating to the Dream Alternatives trust units, partially offset by higher margin generated from the company's operating segments and increased equity earnings from Dream Office REIT. Results in the comparative period included a one-time net gain on acquisition of Dream Alternatives of $130.0-million. Fair value losses on the Dream Alternatives trust units were $85.9-million in the current period (due to the unit price increasing from $6.24 at Dec. 31, 2018, to $7.68 at June 30, 2019), compared with losses of $34.4-million in the prior year (due to the unit price increasing from $6.33 at Jan. 1, 2018, to $6.89 at June 30, 2018).
In the three months ended June 30, 2019, earnings before income taxes, on a Dream stand-alone basis, decreased to $14.6-million from $20.3-million, due to lower fair value adjustments on financial instruments of $5.7-million and a gain on the disposition of an asset held for sale of $9.4-million included in prior-period results. These were partially offset by $3.8-million of increased earnings from the company's investment in Dream Office REIT and $5.2-million higher net margin generated from the company's operating segments.
In the six months ended June 30, 2019, earnings before income taxes, on a Dream stand-alone basis, decreased to $38.3-million from $49.8-million in the prior year, due to lower fair value adjustments on financial instruments of $2.1-million, the aforementioned gain on disposition of an asset held for sale in the prior period of $9.4-million and higher interest expense of $2.5-million, in addition to a one-time net gain of $12.6-million on the acquisition of Dream Alternatives in the comparative prior period. These were partially offset by $7.9-million of increased earnings from the company's equity accounted investments (including Dream Office REIT) and $8.1-million higher net margin generated from the company's operating segments.
Key results highlights: stabilized income-generating assets and new pass partnership at Arapahoe basin:
In the three and six months ended June 30, 2019, the company's stabilized income-generating assets generated net operating income (NOI) of $7.4-million and $19.0-million, respectively, up $1.5-million and $2.5-million from the comparative period, primarily driven by an increase in NOI from the recently expanded Arapahoe basin.
Arapahoe basin has continued to grow in popularity over the last 15 years. Last ski year marked the first year the company had over 500,000 skier visits. This year, the company surpassed 590,000 skier visits driven by the company's newly opened ski area expansion and a favourable snow year. Our NOI for the first half of the year was $13.5-million, which was a $3.5-million increase from last year. At June 30, 2019, Arapahoe basin had a book value of $29.4-million (at depreciated cost).
- In August, 2019, the company announced that it has entered into a restricted pass arrangement with the Ikon pass. The Ikon pass was introduced in 2018 and provides unlimited or restricted access to 40 ski areas, including: Aspen, Deer Valley, Copper Mountain and many more. With the change from an unlimited pass to a restricted pass, the company expect more skiers to ski on Arapahoe basin tickets and pass products, and the company expects to increase its skier yields. With these changes, the company expects to provide exceptional customer experiences as the company is budgeting a reduction of skiers of 25 per cent, while at the same time increasing the company's earnings.
Asset management and investments in Dream publicly listed funds:
In the three and six months ended June 30, 2019, the asset management division generated net margin of $7.2-million and $16.0-million, compared with $7.0-million and $14.1-million, respectively, in the comparative periods. The changes in net margin were driven by growth in fee-earning assets under management and the timing of transactional activity. The company's asset management segment is a key source of recurring income for the company's business. For further details, please see the "Sources of Recurring Income" section of the company's management's discussion and analysis.
Effective April 1, 2019, the company will receive Dream Alternatives trust units in lieu of cash for management fees receivable until Dec. 31, 2020, calculated based on the trust's Dec. 31, 2018, net asset value per unit of $8.74 for the purposes of determining the number of trust units to be received.
As at June 30, 2019, fee-earning assets under management across the Dream publicly listed funds (Dream Global REIT, Dream Industrial REIT and Dream Alternatives) were approximately $7.2-billion, up from $6.7-billion as at Dec. 31, 2018. The increase was primarily driven by acquisition activity in the period by Dream Industrial REIT and Dream Global REIT. Fee-earning assets under management across private institutional partnerships, development partnerships and/or funds were $1.6-billion, relatively consistent with the prior year. Total fee-earning assets under management were approximately $8.8-billion at June 30, 2019.
In the three and six months ended June 30, 2019, Dream's share of equity income from its 24-per-cent investment in Dream Office REIT was $10.0-million and $15.2-million, up from $6.2-million and $12.2-million in the comparative periods, respectively. Dream Office REIT's net income was generated from rental income, its share of income from its investment in Dream Industrial REIT and fair value increases to investment properties, which were partially offset by interest expense and fair value losses on financial instruments. For the three and six months ended June 30, 2019, comparative properties NOI increased by 9.9 per cent, or $3.1-million, and 9.6 per cent, or $5.9-million, respectively, over the comparative periods, mainly driven by higher occupancy and rental rates in downtown Toronto, partially offset by lower occupancy and rental rates in other markets. Year to date, the company's investment in Dream Office REIT generated cash distributions of $7.3-million. At June 30, 2019, Dream Office reported a NAV of $25.49, up from $24.97 at Dec. 31, 2018. The increase in NAV was driven by cash flow retention from operations, fair value uplifts in downtown Toronto and its share of income from its investment in Dream Industrial REIT.
As at June 30, 2019, the total fair value of units held in the Dream publicly listed funds (comprising Dream Global REIT, Dream Alternatives and Dream Office REIT) was $535.9-million (based on closing prices on the TSX), representing 69 per cent of the company's total market capitalization. Within this total, Dream owned 15.0 million units or $354.6-million at fair value in Dream Office REIT and 15.0 million units or $115.3-million at fair value in Dream Alternatives (a 21-per-cent interest).
Key results highlights: urban development -- Toronto and Ottawa:
As at June 30, 2019, Dream had approximately 12,000 residential units and 3.6 million retail/commercial square feet in various stages of planning, predevelopment and construction (at 100-per-cent project level interest). This included nearly 1,700 residential units and 500,000 retail/commercial square feet, which were under development or had achieved a sales launch, with the rest in the company's future development pipeline. Of the company's condominium projects in inventory, which have achieved market launches to date, approximately 99 per cent of these units have been presold, including Riverside Square, Canary Block and Canary Commons. In addition, there are 750 purpose-built multiresidential units at Block 8 within the West Don Lands development, which the company expects to construct beginning in the fourth quarter of 2019. The company's pipeline includes: future phases of the West Don Lands, Zibi, the Distillery District, Canary District -- Block 13, Brightwater (formerly referred to as Port Credit), IVY, Frank Gehry and Lakeshore East. For further details on the company's project pipeline, refer to the "Urban Development Inventory and Pipeline" section of the company's MD&A.
In the three months ended June 30, 2019, Dream secured the first tenant at Zibi, the company's 34-acre waterfront development, along the Ottawa River in Gatineau, Que., and Ottawa, Ont., with the federal government of Canada. The 15-year lease is for approximately 155,000 square feet of office space located in the heart of the site, with unparalleled views of Parliament Hill. In addition to this building, there are over 450,000 square feet of retail and commercial space in various planning/development stages at Zibi. From a residential perspective, Zibi's second condominium building is nearing completion with expected occupancies in early 2020. Zibi also recently announced an innovative partnership with Common, a co-living residential company, to manage one of the project's first rental buildings on the site. Along with the first phase of servicing for both the Ontario and Quebec lands, which is progressing steadily, the site is transforming into an exceptional community in the heart of the national capital region. Dream, together with Dream Alternatives, has an 80-per-cent investment in the development.
During the three months ended June 30, 2019, the company reached an important financing milestone on the first block of the company's purpose-built rental community in Toronto's West Don Lands neighbourhood. Through CMHC's rental construction financing initiative, the federal government announced the investment of $357-million (at 100 per cent) for the first block slated for development (Block 8), which will comprise over 750 rental units, including 30 per cent affordable. Block 8 is expected to commence construction in the fourth quarter of 2019. Dream and Dream Alternatives, together, have a 33.3-per-cent interest in the West Don Lands development, with the rest owned by Kilmer Van Nostrand Co. Ltd. and Tricon Capital Group.
Subsequent to June 30, 2019, an agreement was reached with the City of Mississauga to facilitate the advancement of municipal approvals for the company's newly named Brightwater development (formerly referred to as Port Credit), which is a significant milestone for the project. The partnership has collaborated extensively with the city, residents and community to reach this important approval stage. Brightwater is a 72-acre waterfront development, which will encompass nearly 3,000 residential units and 400,000 square feet of commercial space upon completion. To date, remediation on the site has commenced, and pending final approvals in September, the company anticipates construction to commence in 2020. Dream, together with Dream Alternatives, has a 31-per-cent investment in the development, with the rest owned by Kilmer Van Nostrand, Diamond Corp. and FRAM + Slokker.
In the three months ended June 30, 2019, the first building at phase 1 of Riverside Square commenced occupancy with the majority of units in phase 1 expected to occupy in the fall of 2019. Riverside Square is a five-acre, two-phase, mixed-use development located in Toronto's downtown east side on the south side of Queen Street East and immediately east of the Don Valley Parkway. The first phase of the project consists of 688 residential condominium units, a state-of-the-art multilevel auto-plex and approximately 20,000 square feet of retail GFA. The second phase is planned to consist of approximately 36,000 square feet of multitenant commercial space with a proposed grocery-anchored component, together with 224 condominium units expected to occupy in 2021. Dream has a 32.5-per-cent interest in the project alongside partners, including Streetcar Developments.
Key results highlights: Western Canada development:
In the three and six months ended June 30, 2019, the company's land and housing division incurred negative net margin of $1.1-million and $3.2-million, respectively, with 87 lot sales and 52 housing occupancies year to date (June 30, 2018: negative net margin of $2.4-million and $5.2-million, with 98 lot sales and 104 housing occupancies year to date). The decrease in negative net margin relative to the comparative period was the result of lower overhead costs and higher cost recoveries. Market conditions in Saskatchewan and Alberta continue to be difficult. As the economy works through the excess supply in these regions, the company anticipates net margin from this segment will improve as the company commences the development of Providence. For further details on this segment, refer to the "Western Canada Development" section of the company's MD&A.
Strong liquidity position, NCIB (normal course issuer bid) activity and return to shareholders:
As at June 30, 2019, the company had up to $127.7-million of undrawn credit availability on Dream's operating line and margin facility. As at June 30, 2019, the company's debt to total asset ratio, on a Dream stand-alone basis, was 36.2 per cent, up from 34.9 per cent as at Dec. 31, 2018. In the first six months of 2019, the company's debt ratio increased slightly due to purchases of units in Dream Office and Dream Alternatives and borrowings on the company's developments on a cost to complete basis. The company anticipates through recycling capital, with the sale of non-core assets, that the company will lower the company's debt ratios as debt is repaid with net proceeds. The company is focused on maintaining a conservative debt position and has ample excess liquidity even before considering unencumbered or underlevered assets.
In the three and six months ended June 30, 2019, 900,000 and 1.1 million subordinate voting shares were purchased for cancellation by the company for $6.6-million and $8.1-million under its normal course issuer bid, respectively. Dividends of $2.7-million and $5.3-million were declared and paid on its subordinate voting shares and Class B shares in the three- and six-month periods, respectively. Subsequent to June 30, 2019, an additional 400,000 units were purchased for $3.4-million.
Information appearing in this press release is a select summary of results. The financial statements and MD&A for the company are available at
the Dream website
Senior management will host a conference call on Aug. 14, 2019, at 10 a.m. ET. To access the call, please dial 1-888-465-5079 in Canada and the United States or 416-216-4169 elsewhere, and use passcode 7124889 followed by the number sign. To access the conference call by webcast, please go to Dream's website, and click on calendar of events in the news and events section. A taped replay of the conference call and the webcast will be available for 90 days.
About Dream Unlimited Corp.
Dream is one of Canada's leading real estate companies with over $16-billion of assets under management in North America and Europe. The scope of the business includes asset management and management services for four Toronto Stock Exchange-listed trusts and institutional partnerships, condominium and mixed-use development, investments in and management of a renewable power portfolio, commercial property ownership, residential land development, and housing and multifamily development. Dream has an established record for being innovative and for its ability to source, structure and execute on compelling investment opportunities.
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