Dream Hard Asset Alternatives Trust
TSX : DRA.UN

Dream Hard Asset Alternatives Trust

May 08, 2017 15:45 ET

Dream Hard Asset Alternatives Trust Reports First Quarter Results and Solid Progress on Redeploying Capital Into Higher Growth Opportunities

TORONTO, ONTARIO--(Marketwired - May 8, 2017) -

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.

DREAM HARD ASSET ALTERNATIVES TRUST (TSX:DRA.UN) ("Dream Alternatives", "we" or the "Trust") today reported its financial results for the three months ended March 31, 2017.

For the three months ended March 31, 2017, AFAD of $0.08 per unit was down $0.02 per unit when compared to the same quarter in the prior year as a result of lower contribution from the income property segment, in line with management expectations. More notably, solid progress was made on repatriating capital from the income property segment during and subsequent to the quarter, in relation to assets that no longer fit the long term objectives or targeted returns of the Trust. The Trust was also successful during the quarter in redeploying capital into exceptional development projects that are expected to drive future growth in net asset value ("NAV") per unit, in line with its stated strategy.

"The Trust made solid progress during and subsequent to the first quarter of 2017 towards achieving our stated goals, which is expected to result in increased AFAD and NAV per unit over time," said Michael Cooper, Portfolio Manager. "Through our recent investment in the exceptional Port Credit Development and increased investment in 10 Lower Spadina Avenue and 49 Ontario Street, two downtown Toronto income properties with attractive redevelopment potential in future years, the Trust continues to diversify its portfolio into growth assets. Subsequent to quarter end, we successfully announced the sale of $135.6 million of non-core office properties pursuant to the announcement of our disposition strategy in February of this year. All of these capital recycling initiatives are expected to benefit the Trust's long term growth objectives and we are very pleased with the results to date, although there may be some near-term impacts on NAV as we transition the Trust's asset profile from lower growth income properties to higher growth development opportunities."

Key Highlights:

Investment in Exceptional Residential/Mixed-use Development Opportunities to Drive Future Growth in NAV per Unit

In the three months ended March 31, 2017, the Trust invested a total of $27.2 million for a 23.25% equity ownership interest in the Port Credit West Village Partners Limited Partnership ("Port Credit Development"), adding to its portfolio of exceptional development assets in the Greater Toronto Area ("GTA").

The Port Credit Development is a 72-acre waterfront property in Mississauga's Port Credit area which is expected to be redeveloped into a large master planned residential/mixed use community. The acquisition was partially funded through a $105.0 million non-revolving credit facility ($24.4 million at the Trust's share) with a term of 3 years. The Trust's Asset Manager, who will also act as co-developer, owns a 7.75% equity interest in the development partnership and the residual third-party partners/co-developers include: Kilmer Van Nostrand, Diamond Corp., and FRAM + Slokker. Dream Alternatives and its partners intend to work with the Port Credit residents and stakeholders on a plan to transform the site into a complete, vibrant and diverse waterfront community. Highlights of the draft master plan proposal include approximately 2,500 residential units and approximately 200,000 square feet of commercial development, including both office/retail. The proposal is subject to various approvals and initial construction is anticipated to begin in 2019.

Demand for real estate developments in Toronto remains strong. The Trust is pleased to report that its investments in two downtown Toronto residential condominium development projects, are almost fully sold out after their respective sales launches in late 2016 / early 2017. The Trust's net equity investment in these projects was a total of $6.3 million as at March 31, 2017.

Update on Empire Projects in the Greater Toronto Area

The Empire Brampton low-rise project continues to progress well with all units fully sold out, of which 80% had closed as at March 31, 2017. This compares to 61% closed as at December 31, 2016. The initial phase was completed subsequent to the first quarter of 2017, and the overall project completion is scheduled for the third quarter of 2017. Distributions commenced subsequent to the first quarter of 2017 with the receipt of $4.7 million of cash proceeds. Of the remaining cash distributions of $31.2 million the Trust expects to receive $23.9 million by the third quarter of 2017, with the remaining customary cash hold backs expected to be released over the next two years.

The Empire Lakeshore high-rise condominium development project continues to progress on schedule. As at March 31, 2017, 99% of the 1,285 units were sold. Construction is now above grade and the project is expected to be completed in phases from the fourth quarter of 2019 to the second quarter of 2020. The Trust has recognized a further fair value increase of $2.1 million on the Empire Lakeshore project during the first quarter of 2017 as the project advances steadily to completion and payout.

The aforementioned development projects are expected key drivers of future growth with the Trust targeting attractive returns on equity (measured by pre-tax IRR) of between 15-20% and strong future cash flows upon completion. The targeted returns on the development are within the Trust's strategy to pursue NAV accretive opportunities over the long term. Value creation to the Trust is expected to begin to occur as planning milestones such as the completion of re-zoning are met over the next two to three years.

Executing on Disposition Strategy for Non-core Dream Office Properties

During the three months ended March 31, 2017 the Trust, in line with its previously disclosed disposition strategy, entered into agreements to sell its ownership interests in West Metro Corporate Centre in Etobicoke, Ontario ("West Metro") and 460 Two Nations Crossing in Fredericton, New Brunswick ("Two Nations"). This transaction closed subsequent to the first quarter of 2017 and the Trust received gross proceeds of $78.6 million which included $4.8 million in the form of publicly traded securities of the purchaser. The Trust repatriated net proceeds of $26.4 million from the transaction. In addition, subsequent to the first quarter of 2017, the Trust entered into an agreement to sell its ownership interest in Commerce West in Etobicoke, Ontario ("Commerce West") for gross consideration of $57.0 million. This transaction is expected to close in the second quarter of 2017, subject to customary closing conditions, financing arrangements and consents. All of the aforementioned assets are considered to be non-core assets that do not fit the long term objectives or targeted returns of the Trust. The Trust originally set a target to repatriate approximately $140 - $150 million of equity from the sale of non-core co-owned properties over the next two to three years, however, this amount can vary depending on the ultimate negotiated terms. Including the aforementioned transactions, the Trust has repatriated over 40.0% of its stated target to date from non-core office properties.

Update on NAV:

NAV per unit of $8.69 as at March 31, 2017 decreased 4.4% from $9.09 per unit as at December 31, 2016. The decline in the NAV resulted mainly from the fair value loss of $28.1 million on income properties primarily as a result of current contracted or potential sale prices for certain properties that are available for sale as discussed above, net of transaction and closing costs. Management is of the view that the current IFRS values of the co-owned properties at March 31, 2017 are reflective of the current market conditions, including factors such as vacancy, time to stabilization and required capital expenditures, before considering transaction costs.

Other Operating Highlights in Q1 2017:

Development and Investment Holdings

AFAD of $0.03 per unit for the three months ended March 31, 2017 from development and investment holdings increased by $0.01 per unit when compared to the same quarter in the prior year primarily due to guarantee fees earned related to a development project.

Income Properties

Income properties AFAD for the three months ended March 31, 2017 was $0.05 per unit, down from the comparative period prior year results of $0.06 per unit. The decrease is primarily due to the sale of a non-core co-owned office property in the prior year as well as lower in-place occupancy in the co-owned office portfolio. The decrease was partially offset due to the acquisition of both 10 Lower Spadina Avenue and 49 Ontario Street as the Trust increased its ownership of these two properties to 100%, early in the first quarter of 2017.

Renewable Power

For the three months ended March 31, 2017, AFAD of $0.02 per unit for the renewable power portfolio remained stable when compared to the same quarter in the prior year. Construction of all Ontario Ground Mount Solar power projects is now complete resulting in additional revenue contribution during the first quarter of 2017, with contribution also from wind projects acquired during 2016. This increased revenue contribution was offset by higher interest and principal charges, both of which are deducted in the determination of AFAD. During the first quarter of 2017, the Trust closed on the second and third tranche of financing on the remaining six Ontario Ground Mount Solar projects for gross proceeds of approximately $32.7 million of 19.5 year non-recourse debt. While the additional project financing will result in decreased AFAD contribution from the segment, the net impact after considering the repatriation of equity from permanent financing proceeds, is expected to have an improved return on equity on a total portfolio basis. The Trust is targeting to achieve an 11% to 12% annual yield on expected stabilized equity(1) of approximately $65 million.

Lending Portfolio

AFAD on the lending portfolio remained relatively stable year over year. During the quarter, approximately $9.9 million of legacy loans were repaid, resulting in 87% of the total original loan portfolio being repatriated, compared to 80% at the beginning of the year.

Trust Expenses, net

For the three months ended March 31, 2017, Trust expenses, net increased by $0.02 per unit year over year primarily from growth and transaction related activities.

NCIB

Since the inception of the Trust's NCIB program in December 2014 to May 8, 2017, the Trust has purchased for cancellation 2.2 million units for a total cost of $13.0 million.

During the first quarter of 2017, the Trust's asset manager, DAM, acquired an additional 1.0 million units. Following the acquisition, DAM owned 7.5 million units, representing approximately 10.4% of the units issued and outstanding.

Selected financial and operating metrics for the three months ended March 31, 2017, December 31, 2016 and March 31, 2016 are summarized below:

For the three months ended March 31,
2017
December 31,
2016
March 31,
2016
Consolidated results of operations
Total income $ 22,665 $ 26,380 $ 22,672
Adjusted total income(1) 20,880 20,131 20,657
Net income (loss) (18,572 ) (15,379 ) (3,633 )
Net operating income ("NOI")(1) 12,509 11,809 12,617
Adjusted EBITDA(1) 9,869 10,815 8,438
AFAD(1) 6,030 7,183 7,005
Annualized AFAD return on average Trust net assets(1) 3.8 % 4.4 % 4.1 %
Trust unit information
Distributions declared and paid per unit 0.10 0.10 0.10
AFAD per unit (basic and fully diluted)(1) 0.08 0.10 0.10
Units outstanding - end of period 72,354,151 72,351,722 72,253,498
Units outstanding - weighted average 72,353,192 72,312,566 72,397,492
As at March 31,
2017
December 31,
2016
Consolidated financial position
NAV per unit(1) $ 8.69 $ 9.09
Total contractual debt payable(1) 280,210 308,361
Total assets 1,023,160 991,598
Cash 17,238 11,757
Debt-to-gross asset value(1) 31.5 % 31.2 %
For the three months ended March 31,
2017
March 31,
2016
AFAD per unit
Income properties $ 0.05 $ 0.06
Lending portfolio 0.04 0.04
Development and investment holdings 0.03 0.02
Renewable power 0.02 0.02
Trust expenses, net(2) (0.06 ) (0.04 )
AFAD per unit $ 0.08 $ 0.10

About Dream Alternatives

Dream Alternatives provides an opportunity for unitholders to invest in hard asset alternative investments, including real estate, real estate lending, real estate development and infrastructure, including renewable power, managed by an experienced team with a successful track record in these areas. The objectives of the Trust are to provide predictable and sustainable cash distributions to unitholders on a tax efficient basis, and grow and reposition the portfolio to increase both AFAD and NAV per unit over time. For more information, please visit www.dreamalternatives.ca.

Footnotes

(1) Non-IFRS measures - Please refer to cautionary statements under the heading "Non-IFRS Measures" in this press release
(2) Trust expenses represent costs not allocated to the other operating segments, such as general and administrative costs and income taxes, and are net of interest income earned on our cash balances

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 annual yield on expected stabilized equity, adjusted total income, net operating income ("NOI"), adjusted EBITDA, adjusted funds available for distribution ("AFAD"), AFAD per unit, annualized AFAD return on average Trust net assets, debt-to-gross asset value, net asset value ("NAV") per unit, total contractual debt payable, 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 net income, total comprehensive income or cash flows generated from operating activities 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" in the Trust's Management's Discussion and Analysis for the periods ended March 31, 2017.

Forward Looking Information

This press release may contain forward-looking information within the meaning of applicable securities legislation, including statements relating to our objectives, strategies to achieve those objectives, our beliefs, plans, estimates, projection and intentions, and similar statement concerning anticipated future events, future growth, results of operations, performance, business prospects and opportunities, as well as statements regarding our plans and proposals for future development projects, including projected sizes, density and uses; development timelines and anticipated returns on current and future development projects; our anticipated return on our development projects; anticipated yield and investment returns on our renewable power projects; our future AFAD or NAV performance as well as future distributions and future returns on equity; and our disposition program for office properties and the effect of such program on our performance. 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: general and local economic and business conditions including foreign exchange rates, employment levels, mortgage and interest rates and regulations, regulatory risks, environmental risks, consumer confidence, the financial condition of tenants and borrowers, local real estate conditions, adverse weather conditions and variability in wind conditions and solar irradiation, reliance on key clients, partners and personnel, the uncertainties of acquisitions and new projects, inflation and competition. All forward looking information in this press release speaks as of May 8, 2017. The Trust does not undertake to update any such forward looking information whether as a result of new information, future events or otherwise. 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.dreamalternatives.ca.

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