Dream Impact Trust Reports Fourth Quarter Results

This press release contains forward-looking information that is based upon assumptions and is subject to risks and uncertainties as indicated in the cautionary note contained within this press release.

TORONTO--()--DREAM IMPACT TRUST (TSX: MPCT.UN) ("Dream Impact", "MPCT", "we" or the "Trust") today reported its financial results for the three and twelve months ended December 31, 2020.

We are making great progress repositioning our business into Canada's first public impact investment vehicle. We are making significant progress establishing our impact framework which will outline our goals and processes that will be verified by a dedicated impact audit firm. We believe the impact we can create from our current portfolio will make a meaningful and positive change in the communities they intend to serve, while continuing to generate attractive returns for our owners. We also believe that there are unlimited new opportunities with our refined strategy while generating strong returns as we contribute to the post-pandemic recovery," said Michael Cooper, Portfolio Manager. "We are pleased with the Trust's successes from an operational and strategic perspective in 2020. Despite the environment created by the pandemic, our development assets continue to progress and there were minimal delays on our projects under construction. We achieved favourable zoning for pipeline assets and had successful condo launches for products brought to market. In addition, we repatriated a significant amount of capital from non-core assets and prudently managed the Trust’s liquidity to withstand market volatility over the last year."

Since our announcement in the fourth quarter to become a pure-play impact investment vehicle, we have made tremendous headway on the development of our impact management framework. This framework will incorporate our governance and monitoring processes for identifying and measuring impact and will provide a systematic ranking methodology to be applied across the Trust’s portfolio. We remain committed to promoting transparency in the design and outcome of this framework as part of our inaugural impact report, which will be published this year. Upon completion of our framework, we intend to meet with local and global investors who have committed over $400 billion to this segment according to the Operating Principles for Impact Management ("OPIM"). In addition, in 2021, as a signatory to the OPIM, we intend to publish our disclosure statement and a third party verification report.

As a reminder, the Trust’s three core impact verticals include: Attainable and Affordable Housing, Inclusive Communities and Resource Efficiency, which align with the widely recognized and accepted United Nations Sustainable Development Goals. Each of the Trust’s assets that fall under the verticals above, may have up to five pathways identified, where we will assess the magnitude of impact created, the number of individuals who will be affected and the contribution we played in achieving the benefit. An example of pathways identified at Zibi can be seen in the Trust’s 2020 Annual Report.

Selected financial and operating metrics for the three and twelve months ended December 31, 2020 are summarized below:

 

Three months ended December 31,

 

 

Year ended December 31,

 

 

2020

 

2019

 

 

2020

 

2019

 

Consolidated results of operations

 

 

 

 

 

 

 

 

 

Net income

$

14,868

 

$

19,923

 

 

$

16,339

 

$

32,331

 

Net income from continuing operations

14,868

 

24,133

 

 

16,339

 

27,977

 

Net income per unit(1)

0.23

 

0.29

 

 

0.24

 

0.48

 

Net income from continuing operations per unit(1)

0.23

 

0.35

 

 

0.24

 

0.42

 

 

 

 

 

 

 

 

 

 

 

Distributions declared and paid per unit

0.10

 

0.10

 

 

0.40

 

0.40

 

Units outstanding – end of period

64,811,749

 

68,763,987

 

 

64,811,749

 

68,763,987

 

Units outstanding – weighted average

64,869,389

 

68,581,227

 

 

67,182,838

 

66,690,503

 

In the three and twelve months ended December 31, 2020, the Trust reported net income of $14.9 million and $16.3 million, respectively. Earnings relative to the prior year were not directly comparable due to asset sales, loan repayments, occupancy income on the Axis condominium project in 2019 and fair value fluctuations. 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" of our Management's Discussion and Analysis ("MD&A").

Included in the Trust's results for the fourth quarter were fair value gains on income properties of $10.2 million, compared to $21.1 million in the prior year. Gains in both periods were attributable to 49 Ontario St., one of the Trust’s income properties located in downtown Toronto, currently in the rezoning process. As at December 31, 2020, the asset was carried on MPCT’s books for $69.8 million. Once rezoned, we anticipate further fair value gains on this asset.

As at December 31, 2020, the Trust had $110.7 million of cash on hand. The Trust’s debt-to-asset value(1) as at December 31, 2020 was 13.6%, relatively consistent with September 30, 2020 at 13.9%, and up slightly from December 31, 2019 at 12.8%. 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 38.5% compared to 37.4% as at September 30, 2020, as a result of increased spend on our developments.

As previously communicated, we are changing the collateral base of MPCT’s operating facility to be more beneficial to the Trust. Once completed, we expect to deploy the additional $50 million of liquidity towards acquiring income properties meeting our impact criteria, which will further contribute to our sources of recurring income. In addition, we are continuing to work with Dream Asset Management Corporation ("DAM"), the Trust’s asset manager, to renew the agreement for DAM to accept units of the Trust in satisfaction of its management fees for an additional three years. The Trust’s existing arrangement with DAM to settle management fees in units based on NAV as of December 31, 2018 at $8.74 expired on December 31, 2020. By continuing to settle fees in units and through continued growth in our recurring income segment, we expect to improve MPCT’s operating cash flows and provide further security for our ongoing distributions.

RESULTS HIGHLIGHTS BY SEGMENT

Development
In the fourth quarter, the Trust's development segment generated net income of $10.2 million relative to $4.5 million in the comparative period. The increase of $5.7 million was driven by a gain on extinguishment of debt within the Trust's Frank Gehry investment, as well as a fair value gain within the West Don Lands investment, driven by zoning and financing milestones achieved in the current period. Partially offsetting the above noted items was occupancy income recognized in the prior period, as well as an increase in foreign exchange losses in the current year due to the depreciation of the U.S. dollar and certain cost-to-complete adjustments on a closed project. The Trust expects the impact of foreign exchange gains or losses on the Virgin Hotels Las Vegas to fluctuate each period.

In the twelve months ended December 31, 2020, the Trust contributed $45.8 million, including transaction costs, to projects within its development and investment holdings segment, including those classified as equity accounted investments. The Trust's contributions year to date were primarily related to Zibi, Brightwater, Frank Gehry, Virgin Hotels Las Vegas and the West Don Lands, our affordable housing development in downtown Toronto. We anticipate further capital investments in the range of $75 to $85 million for our development projects, over the next two years.

During the three months ended December 31, 2020, the Trust had the following key achievements and activity within its development segment:

In the fourth quarter, we obtained zoning approval for Blocks 3/4/7 and 20 at the Trust’s West Don Lands development through a Municipal Zoning Order (“MZO”) issued by the Province of Ontario. The MZO approval was a significant milestone as it secures the development timeline and additional density to execute one of the largest affordable housing programs in Canada. In aggregate, the West Don Lands, comprised of Blocks 8, 3/4/7 and 20, is expected to bring a total of 2,286 rental units to market in downtown Toronto between 2023-2027, of which 30% will be affordable. The MZO also provided for 300,000 square feet ("sf") of commercial space on the development. Construction is well underway at Block 8 and assuming current market conditions, we expect construction to commence at Blocks 3/4/7 in mid-2021. The Trust has a 25% interest in the development. In the fourth quarter, the Trust closed on $444 million of financing (at the project level) for Blocks 3/4/7.

In the fourth quarter, the Trust increased its equity ownership in the Frank Gehry development from 18.75% to approximately 25%, with no incremental capital investment. Concurrent to the change in ownership in the period, the aforementioned gain on extinguishment of debt ($8.0 million at the Trust's level), was the result of renegotiating certain financial obligations. To date, the Trust has invested $36.6 million in the landmark residential project located in the heart of downtown Toronto. Dream Unlimited Corp. and Dream Impact own a combined 33% in the project.

Over 70% of our projects are zoned, with the remaining 30% of Dream Impact's development projects or assets with redevelopment potential currently in the rezoning process. Depending on the specific municipality, this process may take upwards of 2-3 years from the timing of submission. Significant zoning approvals, including 49 Ontario, an income property with significant redevelopment potential in downtown Toronto, are expected to be achieved over the next two years.

The impact attributes of our development assets may provide the Trust with access to non-traditional forms of financing, such as programs created by CMHC or other government bodies. Examples of debt obtained on impact specific assets include $357 million under CMHC’s RCFi program for Block 8 at the West Don Lands, and $10 million of non-traditional financing to be utilized across certain blocks at Zibi (at 100% project level).

Please refer to Sections 1.4, "Summary of Portfolio Assets", and 10.1, "Summary of Impact Investments", in our MD&A for the years ended December 31, 2020 and 2019, for details on our complete development pipeline. Build-to-hold assets, such as the West Don Lands and future blocks at Zibi, are part of the Trust's long-term impact investing strategy.

Recurring Income
In the three months ended December 31, 2020, the Trust's recurring income segment generated net income of $11.8 million compared to $25.8 million in the prior period. The decrease was due to fluctuations in fair value adjustments recorded in each period, as well as reduced income contribution from the Trust's lending portfolio and sale of non-core income properties.

As at February 16, 2021, the Trust had two additional income properties under contract, expected to close in the first quarter of 2021. Once acquired, the two income properties, located in downtown Toronto, will add a further 55,000 sf of GLA, which is in addition to the Trust's 980,000 sf of existing GLA (at 100% project level). Both buildings are considered boutique offices with significant value-add and impact potential.

Other(2)
In the fourth quarter of 2020, the Other segment recorded a net loss of $7.2 million compared to $6.2 million in the prior period, an increase of $1.0 million primarily related to higher income tax expense as a result of the fluctuation in the fair value gains from the Trust's equity accounted investments and income properties.

Unit Buyback Activity
From the inception of the Trust's unit buyback program in December 2014 to February 16, 2021, the Trust has repurchased 14.1 million units for cancellation, for a total cost of $87.8 million. During 2020, the Trust repurchased 5.2 million units for a total cost of $24.6 million.

As at February 16, 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 February 16, 2021.

Net Asset Value ("NAV")(1)
As at December 31, 2020, the NAV per unit(1) was $8.99 compared with total unitholders' equity per unit(1) of $8.33. The variance was due to a market value(1) adjustment of $43.0 million (December 31, 2019 - $34.0 million), which included the impact of market value(1) gains on equity accounted investments. These market value(1) gains recorded related to the Lakeshore East and Brightwater developments ($50.7 million), which were partially offset by a related deferred tax adjustment ($7.7 million).

The Trust believes that incorporating an annual market value adjustment is a more useful measure to value certain development assets that would not ordinarily be captured within IFRS and the Trust's consolidated financial statements as they are accounted for under the equity accounted method and the underlying properties are carried at cost. In calculating the annual market value adjustment, the Trust obtains independent third-party appraisals annually or as significant development milestones are achieved. Assuming consistent market conditions, the development projects are expected to continue to generate market value increases as they continue to advance closer to their completion dates.

For further details and reconciliations regarding non-IFRS measures, where applicable, to the nearest IFRS measure in the Trust's consolidated financial statements, please refer to the "Financial Overview" section in the MD&A under the heading "Reconciliation of Net Asset Value to Total Unitholders' Equity".

Cash Generated from Operating Activities - Continuing Operations
Cash utilized in operating activities in the three months ended December 31, 2020 was $2.4 million compared with cash generated from operating activities of $1.3 million in the prior year period. The decrease of $3.7 million was due to changes in non-cash working capital.

The table below provides a summary of the Trust's portfolio as at December 31, 2020, including total unitholders' equity:

As at

December 31,
2020

 

December 31,
2019

 

Development

$

276,725

 

$

271,130

 

Recurring income

169,040

 

197,197

 

Other(2)

94,112

 

99,224

 

Total unitholders' equity

539,877

 

567,551

 

Total unitholders' equity per unit(1)

8.33

 

8.25

 

Total debt

88,392

 

89,269

 

Total assets

648,514

 

696,141

 

Cash

110,671

 

117,787

 

Footnotes

(1)

 

For the Trust's definition of the following non-IFRS measures: NAV, market value, debt-to-asset value, debt-to-total asset value inclusive of project-level debt, net income (loss) per unit, net income (loss) from continuing operations per unit, total unitholders' equity per unit and IRR, please refer to the cautionary statements under the heading "Non-IFRS Measures" in this press release and the Non-IFRS Measures and Other Disclosures section of the Trust's MD&A.

(2)

 

Includes other Trust amounts not specifically related to the segments.

Conference Call
Senior management will host a conference call on Thursday, February 25, 2021 at 10:30am (ET). To access the call, please dial 1.888.465.5079 in Canada or 1.416.216.4169 elsewhere and use passcode 5599 741#. To access the conference call via webcast, please go to Dream Impacts' website at www.dreamimpacttrust.ca 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 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: attainable and affordable housing, inclusive communities, and resource efficiency; 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.

Non-IFRS Measures
The Trust’s 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 NAV, market value, debt-to-asset value, debt-to-total asset value inclusive of project-level debt, net income (loss) per unit, net income (loss) from continuing operations per unit and total unitholders' equity per unit, 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 year ended December 31, 2020.

Forward-Looking Information
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; the Trust's focus on impact investing and expectations for formalizing its approach to impact management over the next year; the Trust's 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; the Trust's ability to achieve its impact and sustainability goals; our commitment to maintaining the current distribution policy and annual distribution of $0.40; our expectations regarding future purchases of units by the Trust under our NCIB, including the number of units to be acquired and the timing thereof; our 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; completion and expected timing on occupancy dates, including the expected timing for the commencement of construction at Blocks 3/4/7 of the Trust's West Don Lands development and the expected timing for the reopening of Virgin Hotels Las Vegas; anticipated returns from our development projects and the timing thereof, including expected returns from the Empire Lakeshore development; the Trust's expectations to make further capital investments in the range of $75 million to $85 million to development projects over the next two years; the Trust's expectations for recurring income to comprise 70% of its portfolio; 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 continued NAV accretion; expectations regarding the status of the Trust's development projects; timing of distributions or future cash return from our development and recurring income segments; our income and cash flow growth, and targeted pre-tax IRR(1) on equity investments in residential and mixed-use development projects; our methodologies for valuing investments, including market value adjustments;  anticipated effect of our developments on returns, profits and future cash flows as milestones are achieved and ability to contribute to increased unitholder value; expected profits from our development and recurring income projects; the anticipated future variability in our results of operations, including cash from operating activities and net income; the Trust’s sufficiency of cash on hand to fund normal course debt repayments, cash requirements and ongoing distributions; the extension of our agreement with our asset manager to settle fees in units; anticipated growth in our recurring income segment and its effect on the Trust's operating cash flows and distributions; and our expectations regarding the Trust's income tax expense/recovery and deferred tax liabilities/assets. 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 February 16, 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.

Contacts

Meaghan Peloso
Chief Financial Officer
416 365-6322
mpeloso@dream.ca

Kimberly Lefever
Director, Investor Relations
416 365-6339
klefever@dream.ca

Contacts

Meaghan Peloso
Chief Financial Officer
416 365-6322
mpeloso@dream.ca

Kimberly Lefever
Director, Investor Relations
416 365-6339
klefever@dream.ca