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Dream Impact Q4 2022 financials: Distribution cut, asset writedown

Dream Impact Trust logo.Dream Impact Trust (MPTC-UN-T) will reduce its distribution by 60 per cent and a large fair value loss on a small interest in Virgin Hotels Las Vegas contributed to a $44.86-million net loss in the fourth quarter ended Dec. 31.

Those announcements took some of the shine away from more positive news revealed in Dream Impact’s fourth-quarter and year-end financial and operational results, which were discussed during a Feb. 14 conference call.

“Our company now has assets that are over 90 per cent impact,” said Dream Impact portfolio manager Michael Cooper. “We also have a distribution that is backed by income properties. 

“We now believe that the company is better-positioned for our existing investors and also provides more opportunities to attract new impact investors as well. Our asset mix, distribution policy, returns and social benefits can now be marketed to specialized investors and institutions that have a focus on ESG. 

“As we continue to grow our income properties, report on our social good and progress on our development pipeline, we will work to attract more investors that see the value of what we do in the company.”

Dream Impact units were trading at $3.64 per unit this morning on the TSX. Prior to the release of the financials, the units had traded at $4.56.

Acquisitions and other 2022 activity

Dream Impact added $98.3 million in income properties in 2022, including completed developments and new acquisitions. That translated to more than 450 multiresidential rental units and 34,000 square feet of commercial gross leasable area.

Dream Impact’s goal is to have another $500 million of completed buildings by the end of 2025.

About $300 million of that will be in the West Don Lands area of downtown Toronto’s east end, which will feature purpose-built rental apartments, 500 affordable housing units, an indigenous health centre and a variety of amenities.

Occupancy of Block 8, a 770-unit (with 30 per cent designated as affordable) multiresidential rental building, should begin this spring.

The other $200 million is for apartments and affordable housing at the Zibi development in Ottawa-Gatineau.

Dream Impact was also part of a winning bid for Dream LeBreton, the first phase of the Building LeBreton project located adjacent to a light rail station and in close proximity to Zibi.

It owns 33.3 per cent of the project and approval has been granted to build two towers with 608 rental units, including 250 affordable units.

The Victory Silos site on Toronto’s waterfront was acquired for $58 million and is now valued at $250 million, according to Cooper. It's being rezoned for 1.3 million square feet of development.

The trust has a 37.5 per cent interest in the project.

Other development and property updates

Dream Impact acquired a 100 per cent interest in an 88,000-square-foot commercial property at 49 Ontario St. in Toronto for $46.8 million, and says it's now valued at $140 million as it goes through rezoning for more than 800,000 square feet of development — including more than 1,000 residential units.

Cooper expects to bring in a partner to manage the equity requirements of that apartment project and to do the same with future large developments.

The trust has a 37.5 per cent leasehold interest in a shopping centre and future residential mixed-use development at 100 Steeles Ave. W., close to a proposed future subway station.

The site is going through the rezoning process and Dream Impact anticipates achieving approximately 1.5 million square feet of gross floor area and 1,800 residential units.

Dream Impact executed an agreement to acquire a 12.5 per cent interest in the 12-acre Quayside site on Toronto’s waterfront in December.

Cooper expects to close on the first phase next month. Upon full build-out, Quayside is expected to include more than 800 affordable housing units, with an emphasis on family-sized accommodations, as well as 2.5 acres of public green space and Canada’s largest mass timber structure. 

Dream Impact is a 25 per cent partner in the two-tower, 864-unit Frank Gehry-designed Forma condominium on King Street in downtown Toronto.

The first tower launched last June and 71 per cent of the released suites have been sold for approximately $800 million. Construction began late in 2022.

Distribution cut to 16 cents per unit

Dream Impact had maintained a 40-cents-per-unit annual distribution. However, starting this month it will be reduced to 16 cents on an annualized basis to better match recurring income.

“This decision means that the company will maintain more capital than before, but it does not affect the intrinsic value of the business,” said Cooper.

“We believe the revised distribution preserves additional liquidity for the trust’s development commitments and is better aligned with our strategy,” said chief financial officer Meaghan Peloso.  “We felt pretty comfortable coming up with the 16-cent distribution in terms of how we’ll be able to sustain it going forward.”

As recurring income grows as new assets come online, Cooper would like to see the distribution rise again.

Financial results

Dream Impact has a 10 per cent interest in Virgin Hotels Las Vegas, which isn’t considered core to its portfolio and had an exit strategy upon stabilization.

It took a $59.2-million write-down on the hotel, with the loss attributed to operational performance, near-term financing and significant capital needs, uncertainty regarding stabilization, market comparators and a proposed capital re-organization by the investor group. 

“While the investment went through a thorough due diligence in 2018, with COVID and a very restrictive lending environment in the United States, we’re doubtful of the value of the asset,” said Cooper. “Our board determined it was reasonable and conservative to reduce the equity investment to zero, although we'll continue to try to achieve a return of some capital along the way.” 

Excluding the Virgin Hotels Las Vegas write-down, Peloso said Q4 net income would have been $14.3 million — down from $26.96 million a year earlier. 

Q4 net operating income (NOI) from commercial properties was $2.7 million, down slightly from the previous year due to a decline in occupancy rates. 

NOI for multiresidential rental assets was $1.7 million in the quarter, up from $0.8 million in the prior year. The multiresidential portfolio ended the quarter with in-place and committed residential occupancy of 94.3 per cent.

Dream Impact is an open-ended trust dedicated to generating attractive returns for investors while creating positive and lasting impacts for stakeholders through: environmental sustainability and resilience; attainable and affordable housing; and inclusive communities.

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