Dream Impact Trust Reports First Quarter Results and the Release of Dream's Impact Management System
DREAM IMPACT TRUST (TSX: MPCT.UN) ("Dream Impact", "MPCT", "we" or the "Trust") today reported its financial results for the three months ended March 31, 2021 ("first quarter").
The Trust is pleased to announce the release of Dream's inaugural impact report which outlines the Dream Impact Management System. This is a significant milestone for the Trust as the framework provides a systematic and transparent approach to defining and measuring impact across the Trust's portfolio. Each of the qualifying impact assets within our portfolio has defined impact pathways which are aligned with one of our three impact verticals: environmental sustainability and resilience, attainable and affordable housing, and inclusive communities, in addition to the United Nations Sustainable Development Goals. The Trust intends to benchmark its performance, on an annual basis, against specific targets that will conform to principles set out by reputable third parties. We intend to continuously monitor and update our progress on our pathways through an internal scorecard and governance process. The Dream Impact Management System will be independently verified by a third-party consultant over the next year. Dream's Impact Report can be found here.
"Just over six months ago, we formally announced the repositioning of the Trust into a pure-play impact investment vehicle," said Michael Cooper (News - Alert), Portfolio Manager. "With the release of our impact management system today, we are reinforcing our commitment to manage the impact generated by the Trust's portfolio in a systematic and transparent manner. With the Trust's high-quality portfolio and robust impact framework, we are focused on growing the vehicle, strategically deploying capital and executing on our extensive development pipeline to generate attractive market returns for our unitholders and be a leader in this field. Since the announcement of our impact investing strategy, we are pleased the unit price has increased by 36% and are focused on reducing the discount further. With the release of our framework, progress on our 2020 business plan, and being the first publicly traded impact business in Canada, we are working towards continuing to narrow the value gap."
Selected financial and operating metrics for the three months ended March 31, 2021 are summarized below:
In the first quarter, the Trust reported a net loss of $6.2 million, compared to net income of $5.2 million in the prior year. The change in earnings period-over-period was primarily driven by fair value adjustments and fluctuations in foreign exchange on our investment in the Virgin Hotels Las Vegas. In addition, the Trust recognized reduced income contribution from scheduled repayments on the lending portfolio and an increase in general and administrative expenses. Refer to the Trust's individual segment discussion described below for further details.
Due to the composition of the Trust's portfolio, we expect fluctuations in earnings period to period until our development pipeline is further built out. For details on project occupancies and development timelines, refer to Section 1.4 "Summary of Portfolio Assets" and Section 10.1 "Summary of Impact Investments" of the Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2021.
As at March 31, 2021, the Trust had $91.9 million of cash-on-hand. The Trust's debt-to-asset value(1) as at March 31, 2021 was 16.1%, an increase relative to 13.6% as of December 31, 2020, driven by financing obtained in relation to income properties acquired in the period. The Trust's debt-to-total asset value, inclusive of project-level debt(1) and assets within our development segment, including equity accounted investments, was 41.5% compared to 38.5% as at December 31, 2020.
Subsequent to quarter-end, the Trust amended the collateral base of its credit facility, providing an incremental $50 million in liquidity upon close. The facility proceeds will be used to acquire income properties which meet our impact criteria, and which will further contribute to the Trust's sources of recurring income.
RESULTS HIGHLIGHTS BY SEGMENT
In the first quarter, the development segment generated a net loss of $4.7 million, compared to net income of $4.1 million in the prior year. The net loss in the period was driven by a fair value write-down of $6.3 million on the Trust's investment in the Empire Lakeshore project due to a change in profit assumptions on unsold inventory. The fair value write-down was partially offset by fair value gains on commercial development blocks at Zibi, as a result of milestones achieved in the period. Included in the comparative period was a foreign exchange gain of $4.4 million related to the Trust's investment in the Virgin Hotels Las Vegas. The Empire Lakeshore project is a non-core legacy asset inherited by the Trust in 2014 and developed by a third-party. To date, proceeds of $45.5 million have been received from the project, inclusive of the Trust's capital. We anticipate the timing for the remaining profit distributions from this project to be over the next 15 months.
In the three months ended March 31, 2021, the Trust contributed $3.6 million to its developments, primarily related to the West Don Lands and Zibi, which includes District Thermal, our net zero carbon heating-cooling system for the Zibi community. We anticipate further capital investments in the range of $70 million to $80 million for our development projects over the next two years.
In the first quarter, the newly converted and renovated Virgin Hotels Las Vegas reopened to the public after a year of renovations. The hotel, which has more than 1,500 rooms, a 60,000 square foot ("sf") casino, a 4,500-seat concert hall, restaurants and other state-of-the-art amenities, had a successful opening weekend, exceeding expectations for occupancy considering in-place COVID-19 capacity restrictions. The Trust has a 10% interest in the hotel and has invested $52.8 million to date.
Subsequent to March 31, 2021, the Federation of Canadian Municipalities ("FCM") announced a $23 million financing initiative through FCM's Green Municipal Fund for the build-out of District Thermal. The District Thermal Energy System, created in partnership with Hydro Ottawa, utilizes post-industrial waste energy for heating and the Ottawa River for cooling, to recycle greenhouse gas ("GHG") emissions for the entire 34-acre Zibi development, making the community one of the largest and most sustainable in Canada.
Subsequent to March 31, 2021, we achieved first tenant occupancy at Block 2-3 at Zibi. By the end of 2021, an aggregate of 240,000 sf of commercial GLA will transfer from our development segment to our recurring income segment, with an additional 35,500 sf of commercial GLA and 162 residential rental units coming online in 2022 (at 100% project level). With the Trust's extensive development pipeline we will continue to grow our recurring income segment through construction execution, in addition to seeking new potential investment opportunities.
On April 7, 2021, the Trust obtained zoning settlement approval from the City of Toronto council for its 5.3-acre Lakeshore East development. The site, which was approved for density of 1.25 million sf, is located in close proximity to the Canary and Distillery Districts, and immediately adjacent to Waterfront Toronto's Quayside property (former Sidewalk Labs site). The Trust's NAV as of December 31, 2020 was based on $178/sf at a density of approximately 1 million sf. As a result of the settlement approval, the value of the development is expected to increase due to the additional density. The Trust has a 37.5% interest in the development.
In the three months ended March 31, 2020, the recurring income segment generated a net loss of $0.2 million compared to net income of $2.7 million in the prior year, primarily as a result of reduced income contribution from scheduled loan repayments and fair value adjustments related to transaction costs on acquired income properties in the current period.
In the first quarter, the Trust acquired two income properties, 76 Stafford and 68-70 Claremont, located in downtown Toronto, for total consideration of $33.6 million, including transaction costs. The assets were acquired through cash-on-hand and mortgages payable with a weighted average term of five years. The Trust received favourable financing terms for both assets as the properties have significant impact potential and are aligned with the Trust's environmental sustainability and resilience and inclusive communities verticals. Over the next 12 months, the Trust will undertake certain capital expenditures to better align the properties with its verticals, including waste diversion, reduction of GHG emissions and energy usage, and increased accessibility, in line with the Trust's overall impact strategy.
The Trust currently has a growing recurring income portfolio, which includes over 1 million sf of commercial space as at March 31, 2021 (at 100% project-level). The Trust expects to continue to grow this segment by deploying capital to further acquire income properties that are in line with its impact strategy, in addition to completing the Trust's build-to-hold assets from its development pipeline. Refer to Section 2.2, "Recurring Income" of our Q1 2021 MD&A for further details on build-to-hold assets that will contribute to the Trust's recurring income over the next five years.
In the first quarter, the Other segment generated a net loss of $1.3 million compared to $1.6 million in the prior year. Segment results were not directly comparable to the prior year due to changes within deferred unit compensation and asset management fee expenses, offset by the Trust's income tax expense (recovery) position in each period. Changes in deferred unit compensation expense are driven by fluctuations in the Trust's unit price. The increase in asset management fees relative to prior year was driven by the settlement of fees in cash versus units. As of December 31, 2020, the Trust's arrangement with Dream Asset Management Corporation ("DAM") to satisfy management fees payable in units, converted at Net Asset Value ("NAV")(1) and recorded for accounting purposes based on the trading price on the date of settlement, expired. Since then, the Trust and Dream have agreed to extend the agreement for an additional three-year period, subject to unitholder approval at the upcoming annual general meeting on June 7, 2021. Accordingly, the asset management fees for the first quarter were recorded without the above trading price discount, as unitholder approval for the fee settlement extension has not yet been obtained. However, management expects that once approved, there will be a recovery in the asset management fee expense in June 2021.
Unit Buyback Activity
From the inception of the Trust's unit buyback program in December 2014 to May 3, 2021, the Trust has repurchased 14.4 million units for cancellation, for a total cost of $89.5 million.
As at May 3, 2021, the Trust's asset manager, DAM, owns 17.1 million units of the Trust, inclusive of 1.3 million units acquired under the Trust's distribution reinvestment plan, 2.0 million units acquired in settlement of the asset management fee and the remainder acquired on the open market for DAM's own account. In aggregate, DAM owns 26.4% of the Trust as at May 3, 2021.
Cash Generated from Operating Activities - Continuing Operations
Cash generated from operating activities in the three months ended March 31, 2021 was $6.0 million compared with $0.4 million in the prior year period. The increase of $5.6 million was primarily due to a return on investment from the Trust's Empire Lakeshore investment and fluctuations in non-cash working capital.
The table below provides a summary of the Trust's portfolio as at March 31, 2021:
Senior management from the Dream group of companies, will host a virtual investor session on May 18, 2021 at 10:30 am (ET) to provide an overview of our impact investing and ESG initiatives, with special guest, Richard Florida, Vice-Chair, Impact, one of the world's leading urbanists. In addition, Dream will feature a virtual fireside chat with Jay-Ann Gilfoy, CEO of Vancity Community Investment Bank (VCIB), Canada's first values-driven bank, to discuss the power and purpose of using capital for impact. To register for the event, please click on this link, insert your registration details and a Webex log-in link will be emailed to you. A taped replay of the virtual conference will be available for 90 days on the Dream website under the Calendar of Events. Please contact email@example.com with any questions.
About Dream Impact
Dream Impact is an open-ended trust dedicated to impact investing. Impact investing is the intention of creating measurable positive, social and environmental change in our communities and for our stakeholders, while generating attractive market returns. Dream Impact's underlying portfolio is comprised of exceptional real estate assets reported under two operating segments: development and recurring income, that would not be otherwise available in a public and fully transparent vehicle, managed by an experienced team with a successful track record in these areas. The objectives of the Trust are to create positive and lasting impacts for our stakeholders through our three impact verticals: environmental sustainability and resilience, attainable and affordable housing, and inclusive communities; balance growth and stability of the portfolio, increasing cash flow, unitholders' equity and NAV(1) over time; leverage access to an experienced management team and strong partnerships in order to generate attractive returns for investors; provide investors with a portfolio of high-quality real estate development opportunities, concentrated in core geographic markets; and to provide predictable cash distributions to unitholders on a tax-efficient basis. For more information, please visit: www.dreamimpacttrust.ca.
The Trust's condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-IFRS financial measures, including debt-to-asset value, debt-to-total asset value inclusive of project-level debt, net income (loss) per unit and NAV, as well as other measures discussed elsewhere in this release. These non-IFRS measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. The Trust has presented such non-IFRS measures as management believes they are relevant measures of our underlying operating performance and debt management. Non-IFRS measures should not be considered as alternatives to unitholders' equity, net income, total comprehensive income or cash flows generated from operating activities (continuing), or comparable metrics determined in accordance with IFRS as indicators of the Trust's performance, liquidity, cash flow and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the "Non-IFRS Measures and Other Disclosures" section in the Trust's MD&A for the three months ended March 31, 2021.
This press release may contain forward-looking information within the meaning of applicable securities legislation, including statements relating to the Trust's objectives and strategies to achieve those objectives, our beliefs, plans, estimates, projections and intentions, and similar statements concerning anticipated future events, future growth and drivers thereof, results of operations, performance, business prospects and opportunities, market conditions, acquisitions or divestitures, leasing transactions, future maintenance and development plans and costs, capital investments, financing, the availability of financing sources, income taxes, litigation and the real estate and lending industries in general, in each case, that are not historical facts; as well as statements regarding: the Trust's focus on impact investing and expectations for formalizing its approach to impact management over the next year; the Trust's impact benchmarking strategy and its ability to achieve its impact and sustainability goals; the Trust's ability to become a leader in impact investing; the Trust's plans and proposals for current and future development projects, including projected sizes, densities, uses, costs, timing for expected zoning approvals, development milestones and their expected sustainability impact; development timelines, including commencement of construction and/or revitalization of our development projects and completion and occupancy dates, including plans for 76 Stafford and 68-70 Claremont; anticipated returns from our development projects and the timing thereof, including expected returns from the Empire Lakeshore development; the Trust's growth prospects; the Trust's ability to generate attractive returns for unitholders; the Trust's expectations to amend its credit facility to revise the collateral base and generate an additional $50 million in immediate liquidity for the Trust and the Trust's expectation to deploy such liquidity to acquire income properties meeting its impact criteria; expectations for the Trust's development segment to generate returns and the timing thereof; the Trust's expectations to make further capital investments in the range of $70 million to $80 million to development projects over the next two years; anticipated effect of our developments on returns, earnings, profits and future cash flows as milestones are achieved; the extension of our agreement with our asset manager to settle fees in units; and the anticipated growth in our recurring income segment and its effect on the Trust's operating cash flows and distributions. 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 the Trust's control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to: adverse changes in general economic and market conditions; the impact of the novel coronavirus (COVID-19) pandemic on the Trust; changes to the regulatory environment; environmental risks; local real estate conditions, including the development of properties in close proximity to the Trust's properties and changes in real estate values; timely leasing of vacant space and re-leasing of occupied space upon expiration; dependence on tenants' and borrowers' financial condition; the uncertainties of acquisition activity; the ability to effectively integrate acquisitions; dependence on our partners in the development, construction and operation of our real estate projects; uncertainty surrounding the development and construction of new projects and delays and cost overruns in the design, development, construction and operation of projects; our ability to execute on our strategic plans and meet financial obligations; interest and mortgage rates and regulations; inflation; availability of equity and debt financing and foreign exchange fluctuations. All forward-looking information in this press release speaks as of May 3, 2021. The Trust does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law. Additional information about these assumptions and risks and uncertainties is disclosed in filings with securities regulators filed on SEDAR (www.sedar.com). These filings are also available at the Trust's website at www.dreamimpacttrust.ca.