Dream Unlimited Corp.
TSX : DRM
TSX : DRM.PR.A

Dream Unlimited Corp.

July 30, 2015 17:00 ET

Dream Unlimited Corp. Reports Second Quarter 2015 Results and Announces Significant New Financing Transactions

TORONTO, ONTARIO--(Marketwired - July 30, 2015) - Dream Unlimited Corp. (TSX:DRM)(TSX:DRM.PR.A) ("Dream", "the Company" or "we") today announced its financial results for the three and six months ended June 30, 2015. Basic earnings per share ("EPS") for the three months ended June 30, 2015 were $1.10, up from $0.16 for for the three months ended June 30, 2014. Basic EPS for the six months ended June 30, 2015 were $1.13, up from $0.28 for the six months ended June 30, 2014. Results for the three and six months ended June 30, 2015 included a $110.4 million after-tax gain ($0.97 per share) as a result of the reorganization of the asset management contract with Dream Office REIT (TSX:D.UN) on April 2, 2015. At June 30, 2015, the Company's total equity increased to $716.8 million, up 21% from $591.8 million at December 31, 2014, all through internally generated value creation activities.

Michael Cooper, CEO of Dream commented: "We have increased total equity by 170% to $6.33 per share since our first public reporting period two years ago, which demonstrates our continued success in generating value for our shareholders. With the closing of our new $175 million, three-year term facility at a 3.65% fixed interest rate and amendment of the borrowing base structure underlying our existing $290 million operating line on June 30, 2015, we have improved the safety in our capital structure and have ample liquidity and flexibility to run the operations of our business over the long term. Our outlook for the remainder of 2015 is positive across all business lines, including our Western Canadian land operations with an expectation to earn over $200 million of pre-tax income for the full year, up from $109 million in 2014."

A summary of our results for the three and six months ended June 30, 2015 is included in the table below.

Three months ended
June 30,
Six months ended
June 30,
(in thousands of Canadian dollars, except per share amounts) 2015 2014 2015 2014
Revenue $ 65,538 $ 99,619 $ 113,689 $ 183,542
Net margin(1) $ 17,988 $ 27,427 $ 29,697 $ 51,195
Net margin %(1) 27.4 % 27.5 % 26.1 % 27.9 %
Earnings before income taxes $ 148,249 $ 25,586 $ 152,311 $ 46,315
Earnings for the period $ 124,548 $ 17,621 $ 127,619 $ 31,247
Basic earnings per share(2) $ 1.10 $ 0.16 $ 1.13 $ 0.28
Diluted earnings per share $ 1.06 $ 0.16 $ 1.07 $ 0.28
Net margin by business segment before eliminations
Land development(3) $ 11,732 $ 9,843 $ 11,253 $ 16,200
Housing development(3) $ 1,835 $ 2,277 $ 1,741 $ 3,507
Condominium development $ (811 ) $ 9,495 $ (818 ) $ 18,296
Investment and recreational properties $ 2,833 $ 1,933 $ 6,232 $ 5,025
Asset management and management services $ 4,098 $ 5,128 $ 13,819 $ 10,140
June 30,
2015
December 31,
2014
Total assets $ 1,403,511 $ 1,224,698
Total liabilities $ 686,745 $ 632,865
Total equity $ 716,766 $ 591,833
(1) Net margin (see "Additional Items" on page 36 of our management's discussion and analysis ("MD&A") for the period ended June 30, 2015) represents revenue less direct operating costs and asset management and advisory services expenses; including selling, marketing and other operating costs.
(2) Basic EPS is computed by dividing Dream's earnings attributable to owners of the parent by the weighted average number of Dream Subordinate Voting Shares and Dream Class B shares outstanding during the year.
(3) Net margin (see "Additional Items") results are shown before eliminations of internal lot sales to our housing division, as the homes have been sold to external customers during the period. Net margin of $1.7 million and $2.5 million for the three and six months ended June 30, 2015 ($1.2 million and $2.0 million - three and six months ended June 30, 2014) have been eliminated on consolidation. For additional details, please refer to the explanation on pages 10-11 of our MD&A for the period ended June 30, 2015.

Key Highlights:

New $175 Million, Three-Year Secured Term Facility Financing & Amendment of Existing Two-Year $290 Million Operating Line

  • On June 30, 2015, we established a new three year term non-revolving facility amounting to $175 million with a syndicate of Canadian financial institutions ("non-revolving term facility"). The principal balance is due on its maturity date of June 30, 2018. The Company utilized the full net proceeds from the financing to complete final instalments for acquisitions of land and repay $161.6 million of other debt obligations, thereby increasing the Company's financial flexibility. On July 17, 2015, the Company also entered into an interest rate swap to effectively exchange the variable interest rate for a fixed rate of 3.65% per annum through the use of forward purchase contracts, which will commence on August 6, 2015. The interest rate swap was contracted for the full financing term and effectively hedges 100% of the $175 million of principal outstanding.
  • On June 30, 2015, we also amended the borrowing base structure underlying our existing $290 million revolving term credit facility ("operating line"). The amended borrowing base structure allows for reduced variability in the formula-based maximum, thereby providing management with increased predictability and flexibility in running the operations of the business. Interest and covenant terms remained unchanged and the maturity date was extended from November 30, 2016 to June 30, 2017. At June 30, 2015, $68.0 million was drawn under the operating line and the Company had $57.9 million of outstanding letters of credit, leaving an undrawn credit availability of up to $164.2 million.
  • On conclusion of these two significant financing transactions, we made substantial progress in improving both our immediate and longer term liquidity, financial position and cost of capital. At June 30, 2015, our debt to total assets ratio was 32.0% (March 31, 2015 - 34.2%) and debt to enterprise value ratio was 29.3% (March 31, 2015 - 29.1%). We believe that that our capital structure is conservative and offers significant flexibility to grow and manage the business and assets to their highest and best value over the long term.

Development

  • In the six months ended June 30, 2015, we achieved 171 lot sales, 17 developed acre sales, 45 undeveloped acre sales and 106 housing unit occupancies (six months ended June 30, 2014 - 173 lot sales, 33 developed acre sales, no undeveloped acre sales and 93 housing unit occupancies).
  • In the three months ended June 30, 2015, we achieved first tenant occupancies within our Tamarack South East retail development site in Edmonton, Alberta, located in the community of Meadows, where Dream has been actively developing over 1,400 acres of residential land since 1997. Dream recognized a $4.5 million gain within net income as a result of these occupancies, which resulted from a change in use of the land under IFRS from inventory (held at cost) to investment property (held at fair value). Year to date, we have achieved approximately 43,500 square feet of occupancies within our Tamarack North East and South East retail development sites, resulting in $9.7 million of fair value gains recognized during the six months ended June 30, 2015. Dream Centres, our internal retail development division has 183,000 square feet of active retail projects under various stages of construction in Tamarack and to date, has secured 111,000 square feet of committed leases for weighted average lease terms of 11 to 20 years. Management expects that the properties will be fully leased upon their expected completion dates in 2017 and 2018.
  • There were no condominium units occupied within the six months ended June 30, 2015 (six months ended June 30, 2014 - 157 occupancies). Commencing in the third quarter of 2015, occupancies are expected to occur in the Carlaw and Phase 1 of the Carnaby, which together comprise 528 units (214 at Dream's share). At June 30, 2015, our condominium projects consisted of 2,307 units (1,026 at Dream's share) of which 79% were in construction and 21% were in pre-construction. Approximately 84.3% of our condominium projects currently under construction are pre-sold as of June 30, 2015, up from 80.6% last quarter.
  • During the three months ended June 30, 2015, Windmill Green Fund LP V ("Windmill Dream"), which is a partnership between Dream and Windmill Development Group Ltd., acquired 22 acres of land located on the former Domtar lands along the Ottawa River in Gatineau, Quebec for the purpose of developing a mixed-use master planned community to be marketed under the name "Zibi". Windmill Dream has an additional 15 acres of directly adjacent lands under contract which it expects to acquire later in 2015, pending certain approvals. The project concept plan, inclusive of all 37 acres, includes over 3 million square feet of density, with 2,000 residential units and over 1 million square feet of commercial space. In June 2015, Zibi's first condominium project was launched in Gatineau. The six-storey project with 65 units and a ground floor retail component, is marketed under the name "O".
  • Earlier in 2015, substantial completion was achieved at the Pan/Parapan American Athletes' Village (the "Athletes' Village") in Toronto and the Athletes' Village was turned over to the organizing entity, TO2015, for use as a temporary home for athletes participating in the Pan Am/Parapan Am Games (the "Games") in July and August 2015. After the completion of the Games, the Province of Ontario will return the Athletes' Village to Dundee Kilmer, a 50/50 partnership between Dream and Kilmer Van Nostrand Co. Limited, at which point the conversion of the development to its final completed use for owners and tenants will commence. At June 30, 2015, the market condominiums were 90.2% and 57.4% sold in Blocks 11 and 4, respectively, in line with budgeted expectations, with anticipated occupancy in 2016. On a total dollar cost basis, approximately 90% of the project has been sold to third parties and contracted with the provincial government. Once the Games are completed, the Athletes' Village will evolve into a vibrant mixed-use neighbourhood known as the Canary District.

Acquisition of Western Canada lands

  • During the second quarter of 2015, the Company acquired a total of 555 acres for a total of $51.8 million, of which $39.4 million had already been paid as deposits and the remainder was funded with the proceeds of the non-revolving term facility. The acquired acres comprised of 319 acres in Regina, 155 acres in Crossfield, north of Airdrie (Alberta) and 81 acres in Saskatoon.
  • In Regina, 178 of the total acres acquired are included in the City's current 235,000 population planning horizon where development can proceed immediately pending required approvals. Development of the lands are expected to yield approximately 1,400 residential units and an estimated 100,000 square feet of retail space. The remaining acreage will be used for longer term development.
  • In Crossfield, the City Council approved the Company's area structure plan during the second quarter of 2015, allowing development to commence on the master planned community. Development of the approved area structure plan area is expected to accommodate a population of 2,800 residents in a total of approximately 960 residential units upon completion.
  • In Saskatoon, the acquired lands form part of the larger Holmwood community (currently under development) which will accommodate a significant portion of the City's growth over the next 25 years.
  • Update on Approvals:
    • In addition to the approvals noted above, Dream continues to make progress towards the advancement of over 5,000 acres of land held for development in Alberta and Saskatchewan, which includes approximately 1,100 acres in Northwest Regina, 1,000 acres in Holmwood (Saskatoon), 900 acres in Harbour Landing West (Regina) and 650 acres in Providence (Calgary).

Asset Management & Management Services:

  • On April 2, 2015, the Company and Dream Office REIT announced a reorganization where the Company received 4,850,000 LP Class B Units, Series 1, of Dream Office LP, a subsidiary of Dream Office REIT, which are exchangeable for 4,850,000 Dream Office REIT Units. In return, the annual management fee, acquisition fee and capital expenditure fee payable by Dream Office REIT to Dream under its asset management agreement were eliminated. The units were recorded at their fair value of $127.3 million based on the closing trading price of the units on April 2, 2015 as per the Toronto Stock Exchange, with a corresponding gain on the statement of earnings. The units were subsequently adjusted to their fair value at June 30, 2015 with the change in fair value recorded as a change to other comprehensive income (OCI). Dream continues to provide strategic oversight to the REIT pursuant to a management services agreement, which includes an incentive fee tied to increases in the net asset value of the REIT.
  • Fee earning assets under management across the listed funds declined to $5.0 billion at June 30, 2015, down from $11.8 billion in the prior quarter, due to impact of the Dream Office REIT reorganization. Total assets under management were unchanged at approximately $15 billion.
  • During the six months ended June 30, 2015, Dream and Canadian Pacific (NYSE:CP)(TSX:CP) announced an agreement to form a joint venture called DREAM Van Horne Properties LP (Dream VHP). The joint venture will maximize the value of Canadian Pacific's surplus real estate portfolio in Canada and the United States by leveraging the experience and expertise of Dream to develop real estate assets over the next several years. Under the terms of the joint venture with Canadian Pacific, Dream will earn development and management fees as properties are developed by the joint venture. Dream is also entitled to an equity interest in these properties.

Select financial operating metrics for the three and six months ended June 30, 2015 are summarized in the table below.

Three months ended
June 30,
Six months ended
June 30,
(in thousands of dollars, except average selling price and units) 2015 2014 2015 2014
LAND DEVELOPMENT
Lot revenue $ 12,565 $ 8,086 $ 19,791 $ 19,720
Acre revenue(1) $ 12,225 $ 15,374 $ 13,073 $ 24,290
Revenue(1), (2) $ 24,790 $ 23,460 $ 32,864 $ 44,010
Gross margin(1), (2), (6) $ 14,382 $ 12,327 $ 16,291 $ 20,276
Gross margin (%) 58.0 % 52.5 % 49.6 % 46.1 %
Net margin(1), (2), (6) $ 11,732 $ 9,843 $ 11,253 $ 16,200
Net margin (%) 47.3 % 42.0 % 34.2 % 36.8 %
Lots sold 102 73 171 173
Average selling price - lot units $ 123,000 $ 111,000 $ 116,000 $ 114,000
Undeveloped acres sold - - 45 -
Developed acres sold 17 18 17 33
Average selling price - acres $ 719,000 $ 846,000 $ 210,000 $ 741,000
HOUSING DEVELOPMENT
Housing units occupied 62 55 106 93
Revenue(1) $ 25,360 $ 23,936 $ 42,246 $ 39,785
Gross margin(2), (6) $ 5,006 $ 5,183 $ 7,381 $ 8,554
Gross margin (%) 19.7 % 21.7 % 17.5 % 21.5 %
Net margin(2), (6) $ 1,835 $ 2,277 $ 1,741 $ 3,507
Net margin (%) 7.2 % 9.5 % 4.1 % 8.8 %
Average selling price - housing units $ 409,000 $ 435,000 $ 402,000 $ 428,000
Average selling price - per square foot for units occupied $ 288 $ 284 $ 281 $ 284
CONDOMINIUM DEVELOPMENT
Attributable to Dream, excluding equity accounted investments
Condominium occupancies - units - 86 - 157
Revenue(3) $ 950 $ 36,453 $ 2,018 $ 62,427
Gross margin(4), (6) $ 157 $ 10,068 $ 728 $ 19,873
Gross margin (%) 16.5 % 27.6 % 36.1 % 31.8 %
Net margin(6) $ (811 ) $ 9,495 $ (818 ) $ 18,296
Net margin (%) n/a 26.0 % na 29.3 %
Average selling price of condominiums occupied
Per unit $ n/a $ 415,000 $ n/a $ 368,000
Per square foot $ n/a $ 517 $ n/a $ 499
ASSET MANAGEMENT AND MANAGEMENT SERVICES
Total assets under management - listed funds(6) $ 11,737,628 $ 10,716,630 $ 11,737,628 $ 10,716,630
Fee earning assets under management - listed funds(6) $ 4,946,195 $ 10,716,630 $ 4,946,195 $ 10,716,630
Revenue $ 6,109 $ 7,427 $ 17,565 $ 17,303
Net margin(6) $ 4,098 $ 5,128 $ 13,819 $ 10,140
Net margin (%) 67.1 % 69.0 % 78.7 % 58.6 %
INVESTMENT INCOME EARNED ON INVESTMENTS IN LISTED FUNDS
Dream Office REIT $ 908 $ 162 $ 1,135 $ 454
Other listed funds $ 535 $ 436 $ 1,125 $ 802
INVESTMENT AND RECREATIONAL PROPERTIES
Revenue $ 13,131 $ 12,284 $ 26,290 $ 26,066
Net margin(5), (6) $ 2,833 $ 1,933 $ 6,232 $ 5,025
Net margin (%) 21.6 % 15.7 % 23.7 % 19.3 %
(1) Results include revenue and gross margin of $0.8 million and $0.2 million, respectively relating to 45 acres of undeveloped land sold to the Ministry for $0.8 million. See Results of Operations - Land for Regina on page 16 of this MD&A for further details.
(2) Results include land revenues and net margin on internal lot sales to our housing division as the homes have been sold to external customers by the housing division during the year. Revenue and net margin results of $4.8 million and $1.7 million, and $7.3 million and $2.5 million in the three and six months ended June 30, 2015 ($3.9 million ($1.2 million) and $6.0 million ($2.0 million) in the same period in the prior year), respectively, recognized in both the land and housing divisions, have been eliminated on consolidation. For more details, please refer to page 10-11 of this MD&A.
(3) Comparative condominium revenue results include a reclassification of guarantee fees income, previously included in investment and other income.
(4) Gross margin for condominium operations include interest expense, which is capitalized during the development period and expensed through cost of sale as units are occupied.
(5) Net margin for investment and recreational properties includes depreciation expense.
(6) Assets under management and fee earning assets under management are non-IFRS measures used by Management in evaluating operating performance. Please refer to the cautionary statements under the heading "Non-IFRS Measures" in this press release. Refer to "Additional Items" on page 36 of our MD&A for further details on gross margin and net margin.

Other Information

Information appearing in this press release is a select summary of results. The financial statements and MD&A for the Company for the period ended June 30, 2015 are available at www.dream.ca and on www.sedar.com.

Conference Call

Senior management will host a conference call on July 31, at 1:00 p.m. (ET). To access the call, please dial 1-888-465-5079 in Canada and the United States or 416-216-4169 elsewhere and use passcode 6281 674#. To access the conference call via webcast, please go to Dream's website at www.dream.ca and click on the link for News and Events, then click on Calendar of Events. A taped replay of the conference call and the webcast will be available for 90 days.

About Dream Unlimited Corp.

Dream is one of Canada's leading real estate companies with approximately $15 billion of assets under management in North America and Europe. The scope of the business includes residential land development, housing and condominium development, asset management for three TSX-listed real estate investment trusts and one TSX-listed diversified, hard asset alternatives trust, investments in and management of Canadian renewable energy infrastructure and commercial property ownership. Dream has an established track record for being innovative and for its ability to source, structure and execute on compelling investment opportunities.

Non-IFRS Measures

Dream'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, Dream discloses and discusses certain non-IFRS financial measures, including: assets under management, fee earning assets under management, debt-to-total assets and debt-to-enterprise value 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. Dream 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 comparable metrics determined in accordance with IFRS as indicators of Dream'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" section in Dream's MD&A for the period ended June 30, 2015.

Forward-Looking Information

This press release may contain forward-looking information within the meaning of applicable securities legislation, including, but not limited to, estimated 2015 pre-tax income, expected completion and occupancy dates of our developments, anticipated sales results, expectations regarding our joint ventures and future approvals for our developments. 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's control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These assumptions include, but are not limited to: the nature of development lands held and the development potential of such lands, our ability to bring new developments to market, anticipated positive general economic and business conditions, including low unemployment and interest rates, positive net migration, oil and gas commodity prices, our business strategy, including geographic focus, anticipated sales volumes and performance of our underlying business segments. Risks and uncertainties include, but are not limited to, general and local economic and business conditions, employment levels, regulatory risks, mortgage rates and regulations, environmental risks, consumer confidence, seasonality, adverse weather conditions, reliance on key clients and personnel and competition. All forward looking information in this press release speaks as of July 30, 2015. Dream 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).

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.

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