Dream Unlimited Corp. (DRM.TO) reported a pre-tax loss of $1.9 million in its third-quarter earnings call on November 13, 2024, marking a decline from the $11.4 million profit in the previous quarter. The loss was attributed to timing in lot sales and reduced activity in asset management.
Despite this, the company showed increased revenue from recurring income properties and remains positive about its liquidity and future developments.
Key Takeaways
- Dream Unlimited experienced a pre-tax loss of $1.9 million compared to a profit of $11.4 million in the same period last year.
- Revenue from recurring income properties increased, driven by retail property stabilization.
- The company has significant lot sales and acreage commitments expected to yield substantial revenue in the coming quarters.
- Dream Unlimited plans to distribute 25% of free cash from transactions and maintain high liquidity.
- Upcoming projects include affordable housing initiatives and new community developments in Calgary and Regina.
- Management remains confident in the company's recovery and prospects despite current economic uncertainties.
Company Outlook
- 520 lot sales and 109 acres of development expected to bring in $191 million, with $112 million recognized in Q4.
- A robust pipeline for income properties aims to add $200 million annually over the next four years.
- Significant project starts in affordable housing anticipated in 2025 and 2026.
- Highest liquidity expected at year-end since the sale of Dream Global.
Bearish Highlights
- Current economic landscape presents uncertainties, particularly with government efficiency and market conditions.
- Asset management income may fluctuate, especially with variable interest rates.
Bullish Highlights
- Strong presales in Western Canada and ongoing developments, including 930 apartment units by 2027.
- The company ended the quarter with $257 million in liquidity and a 39% leverage position.
- Plans for new projects in Toronto focusing on affordable housing, leveraging cost and risk reduction programs.
Misses
- Development revenue was down significantly from last year due to timing.
Q&A Highlights
- Management expects to close the A-Basin sale by year-end, with an anticipated income of approximately $110 million.
- The dividend from the A-Basin sale will be about 25% of the net cash proceeds.
- Management is cautious about stock buybacks due to tax implications and the complex U.S. economic situation.
- Further questions about the company's strategy and financials will be addressed in February.
Dream Unlimited Corp. remains focused on maintaining liquidity and exploring new ventures amid market uncertainties. Despite a quieter quarter and the challenges presented by the current economic landscape, the company is optimistic about its recovery and growth prospects, particularly in the area of affordable housing and community development.
InvestingPro Insights
Dream Unlimited Corp.'s recent financial performance, as reported in its third-quarter earnings call, can be further contextualized with insights from InvestingPro. Despite the pre-tax loss reported for the quarter, there are several positive indicators that align with the company's optimistic outlook.
According to InvestingPro data, Dream Unlimited has shown impressive revenue growth, with a 139.67% increase in quarterly revenue as of Q2 2024. This substantial growth supports management's confidence in the company's recovery and future prospects, particularly given the significant lot sales and acreage commitments expected to yield substantial revenue in the coming quarters.
An InvestingPro Tip highlights that analysts anticipate sales growth in the current year, which aligns with the company's projections for upcoming projects and the robust pipeline for income properties. This expected growth could help offset the recent quarterly loss and contribute to the company's recovery.
Another relevant InvestingPro Tip indicates that Dream Unlimited is trading at a low revenue valuation multiple. This could be seen as an opportunity for investors, especially considering the company's strong liquidity position and the anticipated income from the A-Basin sale.
It's worth noting that InvestingPro offers additional tips and insights that could provide a more comprehensive view of Dream Unlimited's financial health and market position. Investors interested in a deeper analysis can explore 8 more tips available on the InvestingPro platform.
The company's dividend yield of 2.3% and dividend growth of 17.52% over the last twelve months demonstrate a commitment to shareholder returns, which aligns with management's plan to distribute 25% of free cash from transactions. This, combined with the company's highest expected liquidity since the sale of Dream Global, paints a picture of financial stability amidst market uncertainties.
Full transcript - DREAM Unlimited Corp (DRUNF) Q3 2024:
Operator: Good morning, ladies and gentlemen. Welcome to the Dream Unlimited Corp third quarter conference call for Wednesday, November 13, 2024. During this call, management of Dream Unlimited Corp. may make statements containing forward-looking information within the meaning of applicable securities legislation. 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 Dream Unlimited Corp.'s control that could cause actual results to differ materially from those that closed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Unlimited Corp.'s filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Unlimited Corp.'s website at www.dream ca. Later in the presentation, we will have a question and answer session. [Operator Instructions] Your host for today will be Mr. Michael Cooper, CRO of Dream Unlimited Corp. Mr. Cooper, please go ahead.
Michael Cooper: Thank you, operator, and good morning to everybody. I think the management team is very excited about the progress we've made since our last call. The quarter itself was really quiet. It wasn't uninteresting, but I would say that the fourth quarter continues to meet or exceed our expectations and we're expecting to have a pretty fantastic year. I'm going to ask Meaghan to speak to the quiet quarter and then I'll talk a little bit more about the strategy and the progress we're making.
Meaghan Peloso: Thank you, Michael, and good morning, everyone. In the third quarter, we recognized a pre-tax loss of 1.9 million on a standalone basis, down from pre-tax earnings of 11.4 million in the comparative period. Results were largely driven by the timing of 2023 lot sales in Western Canada, the majority of which were recognized in the third quarter. There was also less development and transactional activity across our asset management platform this period in addition to higher interest costs now. This activity was partially offset by lower fair value losses on investment properties in the current period. From a segment perspective, in the third quarter our recurring income properties on a standalone basis, including a basin, which is under contract, generated revenue of 18 million in NOI of 2.8 million, up by 0.7 million and 1.4 million from prior year respectively. This was largely driven by the stabilization of three Western Canada retail properties, which were 92% occupied as of quarter end. In addition, we also realized lower losses at a basin as income and losses were no longer picked up from the ski hill after August 31, which is in accordance with the purchase and sale agreement. We continue to build out this segment as we develop our apartment pipeline and anticipate adding a further 930 units, which is at share between now and 2027, the majority of which is under construction today. Our asset management division generated revenue of $15.1 million and margin of $3.9 million, which includes an additional $2.2 million of promote earned from the Dream U.S. Industrial Fund. Excluding the promote, margin from our asset management division was down relative to prior year, which was largely driven by development activities and transactional noise which will fluctuate period-to-period. As it relates to development segment revenue at net margin of $47.3 million and $6.5 million was generated from our Western Canada Development division, down by $30.9 million and $12 million from prior year, largely due to timing. For comparison, lot sales on a quarter-to-date and year-to-date basis were 120 and 222 respectively, versus $404 million last year. As of September 30, we have commitments for an additional 520 lots and 109 acres through 2025, representing $191 million in revenue. Of this amount, $112 million will be recognized in the fourth quarter. Now this is a significant level of presales volume reflecting some of the strongest performance in Western Canada in our history. As part of our broader land development and capital strategy, we will continue to lock in presales commitments in advance of bringing new faces online. Aggregating our Western Canada development, asset management, and income property operations, our total margin year to date was $82 million up from $51 million in prior year. I'll also say that although the third quarter was quiet results-wise with the Edmonton joint venture income and U.S. Industrial Fund Promote recognized earlier in the year, the committed lot in acreages lined up for the Q4, and income expected from the AVs and sales, which is conditional upon closing, we are on track to end 2024 on a very strong note. Lastly, just to touch on liquidity briefly. We continue to maintain a very solid position throughout the quarter, ending the period with $257 million in total liquidity and a conservative leverage position of 39%, all on a standalone basis. And with that, I'll turn the call back over to Michael.
Michael Cooper: Thank you, Meaghan. As we said on multiple occasions, the business is really -- 90% of the business is the income properties that are directly owned by Dream on balance sheet, Western Canada and our asset management business, and all three of those businesses are doing very well. In the other 10%, it includes our share of Dream Office and our share of Dream Impact among some other investments. We're very pleased we completed just a few days ago a $225 million loan on Natalie Place and throughout the year, we've done very well on the capital side of the business. The leasing has gone pretty well as well, and the company is in better shape this year than it was last year. We've had the Milos open and Daphne has been doing great. We finished the construction on the Bay Street collection and a lot of the work that we planned on is now done. So the buildings look great and we're all focused on leasing. But overall, we're just -- it's improved quite a bit since last year. With Impact Trust, on an asset-by-asset basis, it's gone well. Our liquidity has improved and we're making a lot of progress on 49 Ontario, Street side, and some of the other developments. We're also making progress at Bibby, and Toronto seems to be a difficult place for us to do great lately with either office buildings or land, but we've got excellent assets, we're making the most of them and we're making progress. But that's all in the 10% and the other 90%. Firstly, Western Canada is doing very well. We expect to have one of our best years ever this year. We're ending this year with I think the highest presales for future years we have ever had and there is quite a bit of momentum. So we have done a lot of development work. We have done a lot of sales in 2024. We have got a lot of work to do in 2025 to complete the land that's been purchased. Primarily, what we are looking at is, we are progressing in Brighton. Hopefully, we are going to start the next community right next door. Alpine Park, we are into the phases that are higher density than the initial phases that were just single-family housing. Those are going very well. We have sold a tremendous amount there. And in fact, we hope to start our 1st apartment building in Calgary early next year. We are also looking at starting a new community in Regina and hopefully, that will start by the end of next year. So overall, the demand is very good, the margins are good and we are very pleased with the Western Canadian business. On the income properties, our assets are performing well. We are completing apartments relatively frequently now in Western Canada and the National Capital Commission primarily. We started quite a few buildings this year. Sorry, so we in the last 12 months, we've had 5 buildings completed including a townhouse development in Saskatoon and an apartment in Saskatoon, both are leasing up extremely well. Every unit is leased that's available. In Ottawa and Gatineau, we have a building in Gatineau that I think is about 80% leased. And in Ottawa, we have one with common, which has two floors of co-living. It's just over 50%. And in Downtown Toronto, we have a building at the West Don Lands, which I think is also over 70%. So they are coming along and they are turning into good income properties. If you look at our numbers, you can see that very consistently quarter over quarter, our income properties continue to grow and they are going to continue to grow going forward. I think we are expecting about $200 million of additions to income properties every year for the next few years. And when I say few years, we are in the middle of our business plan and we plan out the next 4 years. So during those 4 years, we have at least $200 million of income properties being completed each year. So that's a very exciting part of our business that's going very quickly, steady income, best in class assets. So we are looking forward to completing those buildings, leasing them up. We are also doing some retail in Western Canada that's working out pretty well. So our Western Canada is doing well, our income profit is doing well and in asset management, it's continued obviously, we're switching a little bit from discretionary investing like with open ended funds and doing more JVs. We're quite pleased that we've been working together with other asset managers to complete a $1 billion transaction in the Netherlands on apartments. We expect that to close before year end, maybe a little bit into next year and that will be a good piece of business for us. But we are also working on a number of other specific mandates that we think will continue to grow our asset management business. I was quite pleased to see that we are up to $27 billion of assets under management and a significant portion of those are fee paid. So, the main drivers of our business are doing very, very well. We've been working very closely with the governments to move ahead on things like the waiver of HST. We work very closely with CMHC on funding for affordable housing and we have been a big component of it and also a big recipient of it. We're working currently today the City Council is considering motion to waive development charges on 7,000 units. And then to actually work with the federal and provincial government to get the funding to waive development charges on other 13,000 units, all of which have affordable housing. I think we are positioned well to benefit from it. And I think we are going to be able to start some significant projects in 2025 and 2026 in Toronto, which we haven't done for a few years. So when you put it all together, the company is looking good. I haven't mentioned A-Basin, but we're expecting to close that by year end and that will provide quite a bit of liquidity. We're sticking with our idea of trying to distribute maybe 25% of our income, in this case. It's 25% of the free cash that comes out of the transaction. And we are going to end the year with quite a bit of liquidity. I think we are going to have the most liquidity at year-end that we've had at any time since we sold Dream Global. But with Dream Global, they have quite a bit of tax with this share buyback. I think by March 31, we should have the most liquidity we have ever had at that, at the end of the first quarter. So we are very pleased with how the business is going. It's been one thing after another since at least beginning of COVID. I think we turned the corner on our core businesses and I think we're really pleased with how we landed. So, although the quarter was quiet, the company hasn't been and we've got a lot going on between now and the end of the year. And I think by the time we get to the year-end call it February. We'll have a lot of things to discuss that we're currently working on. So, that's what I've got. If there's any questions, we'd be happy to answer.
Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mark Rothschild from Canaccord. Please go ahead.
Mark Rothschild: Thanks, Dan, Good morning.
Michael Cooper: Morning. Meaghan, you noted that the asset management income will fluctuate. Does that mean that there are items maybe that weren't in this quarter that will be in the next quarter or two on a more recurring basis? And maybe the second part of that question, can you quantify how much management fees should grow when the European apartment’s acquisition closes?
Meaghan Peloso: I don't want to give any type of guidance yet on the ERES part. But what I'd say for in the quarter, there's probably relative to where we'll come in for Q4. I think you could probably assume there's a couple of million of just noise and timing that dragged down the Q3 results. So I think I'd leave it at that, and then we can give an update once that other transaction actually closes over the next three months.
Mark Rothschild: And Michael, you made a comment about starting new projects in Toronto in the next year or two. Were you referring to condo projects or new rental apartments? And if you just talk a little bit more about the returns that you believe you can achieve on those projects, in general most other public. At least the REITs seem to be more penned down on new developments. So, just wanted to understand more how that works.
Michael Cooper: Yes, we don't -- sorry, that's a great question. I want to be thoughtful about exactly what I say. We don't have none of the projects or condo projects. We think that the surplus of condo inventory will clear out, but it still seems too early to start condos on an economic basis. If you're doing market apartments, it requires a lot of cash and like you need 30% equity or something like that. So that's a lot of money, and I think that's really been challenging for the people who historically have built market apartments. But we've been in the area of affordable housing working with CMHC, we've done it at West Don Lands, at Zivi, and elsewhere and the type of projects that we have been doing are really incredibly well positioned for the market we are in. So as I mentioned, we have got the HST waivers now, CMHC is doing the ACPL financing affordable construction loan program, which we have been using quite a bit and it reduces your overall cost of debt. It reduces your risk because the debt is 10 years, and it's high leverage. So it reduced the amount of equity you need. I don't want to get into too much about the after return on equity, but what I would say is, where people were building at the low four, where they were building to a low four yield on costs a couple of years ago. Cap rates have moved up, but we are putting all these pieces together. We are in and around a 5 cap to build new apartments, and we think that's pretty attractive.
Mark Rothschild: Okay, great. And maybe just one more with the upcoming closing of the sale of Raffles Basin. You commented that even after the special dividend, you will have more liquidity than you ever had at year-end. The shares have come off after having a nice little run. You've been a little less active in the buyback of late. Would some of the money, some of this liquidity continue to be put into share repurchases?
Michael Cooper: It's funny you say that, because what Ash said was the second most.
Mark Rothschild: I am sorry, I apologize.
Michael Cooper: The second highest amount and that year we spent $1 billion on a stock buyback of $23.50 and now we will have more than that because we bought back that stock. I don't really want to answer, I want to think about it, I'd like to get it closed. Yes, I'll have a good answer in February. How's that?
Mark Rothschild: Okay. We'll wait. Thank you so much.
Operator: [Operator Instructions] Our next question comes from Sam Damiani of TD Cowen. Please go ahead.
Sam Damiani: Thank you. Good morning, everyone. I guess, Michael, not too many questions left to ask, but I'll maybe just start off on the Western Canada development. Just with the well, everything's kind of everything's a lot of things have changed since the last quarter. Certainly, on the interest rate front, what how are you seeing in terms of new home sales in your core markets in Western Canada? Does that change your outlook at all for a lot of absorption over the next couple of years?
Michael Cooper: What do you think has changed?
Sam Damiani: Just the interest rates are a little higher, the bond yields are a little higher than perhaps we would have thought a couple of months ago?
Michael Cooper: Yeah. Although the short term rates are coming down as well as the 5-year mortgage is still, I don't think it's gone up much, it's gone up at all. So we are seeing reasonable sales. I think we had a couple of months that were better than the two, but it's still reasonable. Overall, this is a good year and it feels like in Alberta, Saskatchewan, things are going pretty good. We do not see a slowing of opportunity there. If anything, we think it's increasing.
Sam Damiani: Okay, great. And sort of on that vein, just with the election over in the US, does it sort of change your approach and the, I guess, opportunity set for AUM growth on the asset management side in any way?
Michael Cooper: Well, we've actually -- we are very busy right now working on ideas with various investors. And I mentioned that we are pleased to see our assets under management growing. We have got a lot going on in the Dream Summit venture. Dream Industrial is quite active. Our Industrial Development Fund is quite active. Our assets are growing in other areas as we develop more, and we are starting new ventures. So, I think overall it's strong. As far as the election goes. I don't have any idea what it might mean for anybody. I think it's interesting that there was first euphoria in the stock market, the bond rate took off, then it settled again. It feels like there isn't a consensus yet about what the way forward will be. So, I don't Vivek, and Elon Musk running to make the government efficient is fascinating. I just think there is too much unknown. So I don't take anything that's happened in the States as meaning we should do anything at this point for sure. But it's fascinating to watch.
Sam Damiani: I will agree with you there. And just lastly, on the A-Basin sale, a couple of things. One is, I guess, you seem a little more certain that the transaction will close by year-end. Could you sort of enlighten us as to what has progressed or what gave you the confidence to say that, if you're able? And then secondly, just in your comments about the proceeds, I mean, I couldn't quite get what you said, Michael. The dividend would be about 25% and something else would be about 25% of the net cash proceeds.
Michael Cooper: No, look, we often look at the dividend and say, if it's 25% of our income. That's pretty good. With A-Basin, the income should be about $110 million or that's what we said before. But the actual dividend is 25% of the cash we are getting. So, it's not a hard rule, but generally we kind of like the idea of distributing 25% of either the cash or net income, that's a reference point.
Sam Damiani: Okay. I thought there was reference to some other like another use for another 25% of it or something, but I guess I misheard.
Michael Cooper: No, I think that the expectation is that we used to pay down debt and just have liquidity for our business at this time.
Sam Damiani: Got you. Okay. Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Cooper for any closing remarks.
Michael Cooper: Thank you, operator. Going back to Mark Rothschild's question on buybacks, I will have a better answer in February. I think our company has always been active. We bought back stock last year. We'll probably be buying back stock this year and other years. But we are trying to think about where it fits into our capital structure. I personally can't stand paying taxes aren't necessary and why 2% doesn't sound like a lot to other people. It just seems so unnecessary, but we did buyback, I don't know, hundreds of thousands of shares this year. So, we will see, but I think that the uncertainty in the U.S. is pretty mind boggling. The movement in interest rates over the last few months has been quite interesting. I have no idea how Canada is positioned for what comes next in the U.S. So, I would just say that we are very excited about how our business is going. But we are also kind of in a -- we want to be in a position to take advantage of opportunities to defend ourselves regardless of what happens. So we are living in as much uncertainty as I think there has been in my whole life and the uncertainty seems to compound not get simpler. So we are being cautious about capital. With that, we're happy to answer other questions offline. Please feel free to reach out to Meaghan and I and we will manage ourselves to have an interesting and complete conference call in February. So, thank you and good day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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