Good morning, ladies and gentlemen. Welcome to the DREAM Unlimited Corp.'s Second quarter conference call for Wednesday, August 11th, 2021. 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 are disclosed 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 the 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. Your host for today will be Mr. Michael Cooper, CRO of DREAM Unlimited Corp. Mr. Cooper, you please go ahead.
Thank you, operator, and good morning. Welcome to DREAM's second quarter conference call. I'm with Deb Starkman, our CFO, and once we finish our presentation, we would be happy to answer your questions. As George Peppard used to say when he was leading The A-Team, "I love it when a plan comes together." Over the last few years, we have concentrated our assets and our efforts on owning and developing higher and higher quality properties and a higher and higher quality portfolio with a higher percentage of our income being recurring. Our pipeline of income properties under development and our acquisition of existing properties is building our company rapidly. At Zibi, we have about 60,000 sq ft of office properties completed in the last year. In addition, we started leasing our first apartment in Brighton in December of 2020.
The building's about 100,000 sq ft, and we already stabilized with 120 of the 121 units leased, and the remaining unit is used as a marketing center. Upon completion, the building is generating a 6.25% return on costs, and that's based on including land at fair market value. In the last year, we've completed 160,000 sq ft of income properties, and we're keeping them. In the next 90 days, we're completing 185,000 sq ft office building with 100% of the office component leased to the federal government for 15 years. In early 2022, we'll complete 162 unit apartment building in Gatineau, which is approximately 135,000 sq ft. On July 2nd, the federal government held a press conference at this site to announce their CAD 60 million construction loan and a CAD 10 million innovation loan for this building and others.
The first block of West Don Lands will commence leasing next summer. It will have 770 units, and it'll be about 630 sq ft in total, or 210,000 sq ft for the DREAM Group share. We have also started building 15 purpose-built rental properties and rental townhouses in Brighton. They will be finished by year-end, and we will get a clear indication of the desirability and profitability of this product type. If it is successful, we can commence building another 115 townhouses for rent next year. In addition, we have also started the sister building to our first apartment building in Brighton.
Over the next 18 months, from July 2021 to the end of 2022, in Toronto, the National Capital Region in Saskatoon, we're expecting to complete 185,000 sq ft of commercial income properties and 467 rental units, or about 500,000 sq ft of income properties at the DREAM share, which is a total of about CAD 300 million of properties, again, at our share. For the following 18 months from then, from January 2023 to June 2024, in Zibi, we are under construction of Block 11, a 146-unit apartment building that'll be approximately CAD 71 million. Block 206 is a 207-unit apartment building for about CAD 111 million in Ontario, and Block 207 is a 76,000 sq ft office building also in Ontario. During the same time in Saskatoon, we'll be building about another 300 units of apartments for about CAD 70 million.
Based on the success of our townhouse rental program, it could be much more. Altogether, this is about CAD 294 million of income properties at cost. For the following 18-month period, we're already under construction of the Indigenous Hub apartment building in downtown Toronto. Block 347 of West Don Lands is another 855 apartment units, and we'll likely build another 400,000 sq ft in the National Capital Region and likely a similar amount in Saskatoon. In addition to Saskatoon and the Brighton development, we're looking at Willows and in Alpine Park, we're getting ready to build there. That's what we used to call Providence. Hopefully in Regina and Edmonton, we'll find some opportunities to build apartments as well. Effectively, it seems like we're finishing about CAD 200 million per year of income properties at about a 5.5% cap rate on average.
The properties in Zibi have tremendous First Nations benefits. They are net zero heating and cooling and is a very inclusive community with six public parks, six privately owned public spaces, and many other community benefits as we build out the community for 5,000 people. In Toronto, we are building affordable and sustainable buildings in the West Don Lands, the Canary District, and generally in that area. We've also recently agreed to acquire about 900 apartment units in Toronto, which we will asset manage to create some affordable housing in addition to some market rate units. We will reduce greenhouse gas emissions by at least 15%. These commitments are helping us create very innovative financing, which will allow us to do good while also generating fair returns.
Over the next few years, the addition of the income properties will make our income and value safer and more predictable and cement our position as a leader in sustainable community building. In addition to growing our recurring income through the addition of income properties, we have made significant strides in growing our asset management business in both assets under management and expanding our sectors and geography. The industrial REIT has grown tremendously on a per unit basis as well as by total size, as we've been able to add to our assets in Canada and created a Pan-European portfolio. With the European strategy in place and to scale, we've been able to reduce our borrowing costs by 60% in the last 18 months as the majority of our debt is now in euros. This strategy hedges our currency risk and reduces our cost of debt.
As an example, in June, we financed CAD 800 million for five years at a total five-year cost of 35 basis points. With the current valuation of the company and the opportunities that we are seeing, we expect the business will continue to grow rapidly. DREAM Impact Trust has become an exciting business in a very much in-demand sector. While the stock price has increased significantly, we are still trading at a discount and will make this one of our key priorities going forward to reduce our cost of capital. Our prior projects and additional impact projects are proving out. Our asset management fees are based on the assets at cost, and as we develop buildings, the income grows as the buildings are built.
Since the end of the second quarter, we agreed to acquire 1/3 of 900 apartment units in Toronto, as discussed a moment ago, and we issued the first-ever convertible impact debenture to fund the trust share of this purchase. We are pleased to welcome Fairfax Financial as a strategic partner for us, we expect that this partnership has the opportunity to continue to grow. With the acquisition of two office properties and existing apartments, we were able to increase the proportion of recurring income much faster than through development alone. We expect that investors will recognize the additional value of growing our recurring income so quickly. After Labor Day, we expect to be marketing the company to both real estate investors as well as responsible investors globally to improve our cost of capital.
DREAM Impact Trust is an exceptional company that is designed to generate competitive returns, working within our communities and with governments to make our communities more accessible, inclusive, and cleaner. If we can improve our cost of capital, we are well-positioned to provide our investors strong returns while we make communities healthier and fairer by creating more affordable housing, interesting and exciting commercial properties, and all of that will be more environmentally friendly and inclusive. Our asset management business includes the two public funds, but over the last 12 months, we've begun to grow our private business. In March, we closed the first CAD 136 million of our perpetual impact fund. We have made a lot of progress, and the returns are looking superior to what we had promised.
Last month, we created an institutional U.S. industrial fund seeded with CAD 250 million of equity in the U.S. assets in the DREAM Industrial REIT. The commitments for the fund are about CAD 480 million from DREAM Industrial and 15 other institutional investors. With the commitments already made, we can grow the size of the U.S. portfolio from CAD 500 million-CAD 1 billion. We have also been active with an institutional investor buying apartments to fix and sell in the Southern U.S.
So far, we have bought or have under contract 3,300 units with a value of about CAD 500 million. We believe that we can grow this strategy with our current partner and with other investors as well. In addition, we have contracted to acquire a 13% interest in the assets and a 47% interest in the general partner of a CAD 250 million apartment fund started by PaulsCorp .
This vehicle focuses on buy and hold of apartments, and we believe that we can grow this business over the next few years. Our private management business is producing cash flow. However, the real cash flow and value will not be created until our platform grows to scale. We have assembled a team to service the institutional business, which includes fundraising, compliance, reporting, and portfolio management. Over the next 12 months, our focus will be to grow our private management business. We expect our recurring income segment to grow rapidly from the development and acquisition of income properties on our balance sheet and increasing our assets under management. It is interesting to me that between 2016 and 2019, we sold CAD 11 billion or about CAD 7 billion of assets.
Hi there. I think we lost Michael for a little bit. I'll cover for him for a little bit until he gets back.
Sorry. I'm back, sorry about that. What I was saying was that in addition to the CAD 500 million of apartments that we've acquired in the U.S. for the buy-fix-hold strategy, we also are co-general partners in a fund that has CAD 250 million of assets in a buy-and-hold strategy, and we expect to grow that business as well. Over the next year, our expectation is to continue to build out our private management business, and we think we have great prospects. We expect our recurring income to grow rapidly from our developments of income properties, acquisitions of income properties, and the general growth of our asset management business. Between 2016 and 2019, we sold CAD 11 billion of assets in total, but about CAD 7 billion net because we're also growing in other areas.
Just in 2021, we've so far acquired CAD 3.6 billion of assets with more under contract. We're really seeing opportunities to grow now. At Arapahoe Basin, we've had quite a good year. It's representing more and more of our EBITDA. This year, which was not a good year, it was poor snow, there was serious restrictions due to COVID. We should expect to produce about CAD 10 million of EBITDA during the ski season. Our hope is that for the 2021-2022 ski season, we'll get closer to CAD 15 million. That'll be growing over future years if we can execute on our plan. It's a significant asset for us. DREAM Office is also an important asset for us. We own 32%, which works out to be about CAD 1 billion of assets on a proportionate basis.
The office market right now is uncertain, but we're very pleased to own these assets over the long term as it is an extremely high-quality portfolio and the assets individually are desirable in one of the most attractive markets in North America. We continue to be pleased with our development progress. We are achieving our approvals for our on-balance sheet and managed developments. Our construction is generally on time and our profits are better than budget. In addition to the development of assets to keep as discussed above, our development of assets to sell are going well as well. We also have many projects we haven't started yet and it's great to have a large pipeline of development sites to work on over the years to come. We are completing Block 12 in the Canary District with occupancies beginning at the end of this year.
The building will be very profitable. The last site to build on at the Canary District is Block 13, which is almost 600,000 sq ft. It will be our biggest block and will be our most profitable ever. Brightwater, which is our largest development in Port Credit, is now about 18% sold as we've sold 550 units out of 3,000 and the profit margins are well in excess of our underwriting. We are also on the short list for request for proposal for Quayside, which is the former Sidewalk Labs site, which adjoins our Victory Silos site. We are also on the short list for LeBreton Flats in Ottawa, which adjoins our Zibi site. These are very exciting opportunities that provide tremendous impact.
There's no assurance of our success that these public-private partnerships are becoming a more significant share of development in Canada and DREAM is well-positioned with our impact focus on our extensive track record meeting government expectations in public-private partnerships. As you can see from the list of assets in the MD&A, we have over 20,000 residential units to build which will keep us busy for a long time. However, we are also seeing that our pace of development is picking up and we'll be able to convert the land into income properties or maximize profits through development sale more quickly than before. In Western Canada, we are very pleased with the recovery. We had a 20-year low of 335 lots that were sold in 2020 and this year we expect to sell over 900 and that looks to be our new run rate.
We are expanding in Brighton, w e started Alpine Park. We're beginning the expansion of The Willows. We're commencing with our 371 acres community just south of Edmonton in Élan. We're working on starting a new community in Regina. We have basically run out of inventory and need to reinvest to continue our sales. This is a major change in the tone of the market. In addition, we've had a good take-up of our retail properties and we are looking to grow our income by developing residential properties for lease. We expect that a recurring income in Western Canada will become increasingly meaningful in the future. On the capital side, we've been investing more this year than in prior years. We also recently completed this year's normal course issuer bid. We have now reduced our shares outstanding from the peak by about 25%.
We expect to continue to reduce our shares outstanding with cash generated from our operations for so long as the trading value is well below our view of fair value. Notwithstanding our investments developing our own assets, making new investments and reducing our shares outstanding, we are continuing to maintain ample liquidity as there continues to be uncertainty. We are balancing that with trying to achieve the returns that are available from the opportunities we are identifying and creating. The last 18 months have been scary, demanding and uncertain. Our business has thrived through this period. Our success is due to the commitment of our entire management team, the support of our board, advisors and customers. We thank them all for continued excellent contributions and also thank our patient investors. Deb?
Thank you, Michael, good morning. For the three and six months ended June 30th, 2021, earnings before income taxes after adjusting for fair value gains and losses taken on DREAM Impact Trust units held by other unit holders was CAD 22.7 million and CAD 35.5 million respectively, compared with a loss of CAD 6.2 million and earnings of CAD 8.5 million in 2020. After adjusting for the sales of our renewable power portfolio and Glacier Ridge in the prior year. The change year-over-year is primarily due to our growing asset management base inclusive of DREAM Industrial REIT's expansion into Europe, strong results from A-Basin, and fair value gains on our investment properties. In addition, the company benefited due to low interest expense as a result of reduced interest rates as well as lower debt levels.
Amidst an unusual 2021, we maintained strong liquidity and managed risk with CAD 406 million in liquidity and a conservative leverage ratio of 28%. I will now go through a brief overview of results by operating segment. In the second quarter, our recurring income segment generated revenue and net operating income of CAD 28.8 million and CAD 12.5 million respectively, compared to CAD 19.8 million and CAD 4.2 million in 2020. For the six months ended June 30th, 2021, our recurring income segment generated revenue and net operating income of CAD 59.7 million and CAD 26.7 million respectively, an increase of CAD 3.5 million and CAD 6.4 million. The change was primarily driven by improved results at A-Basin, with all capacity restrictions lifted at the end of March and higher asset management fees earned on DREAM Industrial REIT's acquisition activity. Inclusive of retail in Western Canada, DREAM's average monthly rent collection in Q2 2021 exceeded 95%.
Included in revenue for the three months ended June 30th is CAD 10.9 million related to asset management and development contracts with DREAM Industrial REIT, DREAM Office REIT, and our partnerships, up from CAD 5.8 million in 2020. We expect these revenues to grow over time as we actively pursue new asset management opportunities. On June 24th, 2021, DREAM Industrial REIT closed on the acquisition of shares of a corporation that owns a portfolio of 31 institutional-quality logistics properties across Europe. The purchase price for the acquisition was approximately EUR 850 million. The total value of the real estate in connection with the acquisition is approximately EUR 1.3 billion. In second quarter, our development segment generated revenue and net margin of CAD 50.8 million and CAD 1.7 million respectively, compared to CAD 42.3 million and CAD 3.4 million in the prior year.
2021 results were largely driven by the sale of the multi-level auto-plex at our Riverside Square development, while 2020 results included condominium occupancies at Riverside Square, BT Towns , and Kanaal at Zibi . Year-to-date revenue and net margin for development segment was down from the prior year, as in 2020, results included the sale of Glacier Ridge in Western Canada, as well as 166 condominium occupancies that DREAM share. In 2020, we achieved 335 lot sales, 107 housing occupancies, and 525 acre sales inclusive of Glacier Ridge. We expect to end the year with 900-950 lot sales and 16 acre sales. 170 lot sales and 5 acre sales are recorded to date, and the remaining lots and acres are predominantly secured through deposits. 2021 could be our highest lot sale since 2013, and we are seeing positive momentum in the division.
We also began pre-selling for next year's sales, and we are seeing good initial success. It is worth mentioning that in the three and six months ended June 30th, 2021, we received government assistance through the Canadian Emergency Wage Subsidy of CAD 2 million and CAD 4.6 million respectively. Given the gap between our view of NAV and share price, we believe that continuing to buy back stock is an attractive use of capital and a driver for value creation. Year-to-date, we purchased 1.6 million subordinated voting shares for cancellation for total proceeds of CAD 37 million. We also hold interest in both DREAM Office REIT and DREAM Impact Trust at 32% and 27% respectively. During the six months ended June 30th, 2021, we received CAD 12.3 million in distributions from the trust.
As of August 11th, the market value of our interest in the trust is CAD 510 million, which is approximately 44% of DREAM's current market cap. We remain committed to a conservative debt position and may use excess liquidity to purchase additional units in DREAM Office and DREAM Impact Trust as opportunities arise, fund potential new investments and ongoing share repurchases as part of our NCIB. I will now turn the call back over to Michael.
Thanks, Deb. At this time, Deb and I would be happy to answer your questions.
Thank you. We'll now begin the question-and-answer session. If you do have a question, press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. Once again, if you have a question, press star then one on your touch-tone phone. Our first question is from Mark Rothschild from Canaccord.
Hi, everyone . Michael, you went through in detail many different projects that the company's involved in, a lot of development projects. Is it reasonable to expect that share buybacks will have to be put on the sidelines over the next year or two with so much going on? I realize that it hasn't been a dramatic focus the past couple of years, but there's been consistent buyback of shares.
I'm insulted, Mark. Firstly, we completed our NCIB for the period that started last September. We completed about two weeks ago, so we completed as much as we could buy on the NCIB. Last year we completed the NCIB. In addition to that, we did a five million unit substantial issuer bid. We've been pretty committed to it and we expect that we'll be just as active on the NCIB over the next 12 months as we've been in the last 12 months, number one. Number two, every project we're talking about is already funded. I don't think any of the projects we talked about require additional capital. If Deb or Jose has a different view, let me know, but if there is any capital, it's really inconsequential.
Great, I guess I meant since the SIB, but I take your point then and that's very helpful. As far as the land development business in Western Canada, obviously this is a good year and it's kind of a unique year also, obviously. How do you think about this business over the next few years? Obviously, there were a few soft years leading into this. Do you think we've turned the corner and this is going to be sustainable? Maybe talk about just what you're seeing looking into 2022.
Yeah, we've already got commitments for a lot of lot sales for next year. We expect we'll go into 2022 with a similar amount of contracts to sell lots for 2022 as we did going into 2021, and we expect that more or less we'll have the same number of sales in 2022 as we currently have in 2021. We think that 2021 and 2022 will be great years. Beyond that, it's a little hard to tell. We are seeing some success with our retail and apartments. I think that's going to build as well in terms of a way to generate income and value out of our lands.
As an example, when I spoke about building the first apartment in Brighton at a 6.25% cap rate, it uses a little less than 2 acres of land, and that 6.25% cap rate is after valuing the land it's built on at CAD 1 million per acre. We're making some money on the land as well as making it from building. I think we're going to do pretty well that way. I think it's pretty exciting, I think it's going to be okay.
Okay, great. Thanks so much.
Thank you.
Our next question is from Dean Wilkinson from CIBC.
Thanks. Good morning, everybody.
Good morning, Dean.
Morning.
Michael, George Peppard said, "I love it when a plan comes together." Mr. T said, "I pity the fool." Here's the fool. On the asset management business, certainly third-party AUM is going to be a focus going forward. You have a lot of internal infrastructure at DREAM now. How big could you grow that business before you have to start bolstering that out, and at what level do we start to see a bit of a margin impact there? I'm assuming the next couple of billion dollars can be handled with what you've got, there's a lot of earnings talk to that, you'll hit a capacity limit. Do you have a sense of where that is?
We've got a big infrastructure that's very supportive for the real estate component, whether that's buying assets, operating assets, managing assets, we're in great shape. Deb led the project to become a registered investment advisor in the States, she's also dealt with all the compliance required to manage money for pension funds in the U.S. We've already created a lot of the infrastructure to support the private fund business. We've hired very capable people to help us raise funds internally. That's in place.
The part that has to be scaled is the extent of portfolio managers and asset managers as we grow. That's a relatively inexpensive component and it's variable cost because you need to only hire the people when you get the assets. What we're looking at, aside from additional asset managers and portfolio managers, we could look at growing for CAD 2 billion or CAD 3 billion of equity without greatly increasing our overheads. That's what I was saying earlier, which is we've now set up four different platforms and we're going to make some money at it the way it is now, but we don't make real money until we scale it up. That'll be a focus for the whole a sset management platform.
Perfect. That's great. I'll hand it back. Thanks, Michael.
Thank you.
Our next question is from Sam Damiani from TD Securities.
Thanks, good morning, everyone.
Morning.
Just to start off, back to the question on funding. I understand you've got commitments on the construction side to complete most everything you've got underway, but just more from a balance sheet leverage perspective between the asset growth coming from various and numerous avenues as well as prospective further share buybacks. How should we think about balancing the equity against the asset growth?
I would say that generally we look at our internal net value to determine the equity that we have and to determine the debt to total value. Secondly, I would say we're doing a lot of work with governments where we get quite high leverage on what we think of as effectively infrastructure assets. Apartments that have a lot of affordable, we think are going to stay full. We actually think they're going to trade at higher prices than assets that don't have a social impact component. When we get debt from governments, we think that's a lot less risky than other debt. Right now, we're not using any of our corporate lines. We have a term loan, and other than that, we have project loans on various developments. I'm not sure of the number, but I think we're around 20% debt to value.
I think we're very comfortable there and don't see debt coverage as a concern for a long time.
Fair to say, given the limits of IFRS accounting that just from an accounting basis, the leverage probably will tick up over the next few years?
Well, yeah, from an IFRS basis, we've got a lot of equity accounted investments which don't pick up the debt at all. You can do a proportionate, then you've got to take out the impact trust. If you look at it that way, then we'll start to see some increasing gains on income property. A lot of the stuff we're doing now is income properties. They will be fair valued. That will help us when we look at our debt ratio. If you think about the asset management contracts and A-Basin and our land in Western Canada, they really are undervalued on our balance sheet. I could see us having some increasing debt the way the accounting statements show it. I'm not sure because I don't pay that much attention to them. I still think we're modestly leveraged.
Okay, that's helpful. You mentioned A-Basin. Were those prospective EBITDA estimates U.S. dollars or Canadian?
Those were Canadian at this point.
Okay.
Our expectation is they'll become U.S. dollars.
Perfect. Always good to underpromise. Just with the asset management strategies, you've talked about adding your strategies in Europe. Just wondering what you're seeing and what we can expect with that platform beyond industrial over the next, say, six months or 12 months.
Yeah, we are looking at other things we can do in Europe. We built Dream Global from CAD 1 billion- CAD 6 billion. We sold all of our assets in Europe and then had to rebuild from scratch. I think internally we decided we definitely don't want to be doing that again. Now we've got the industrial platform through the DREAM Industrial REIT, and we're looking at other opportunities in this, some development. We hope to expand in Europe and other asset classes over 2022.
Okay. Final one from me, just on The Mason at Brightwater project, it says 99% sold. Is that on all 162 units being released? How was the pricing versus expectations?
Y eah, that was on what was released. You can see the repetition that just about everything we are developing is sold in both Ontario and Western Canada. When we bought Brightwater, our expectations were much lower prices. I think we probably sold at about CAD 1,000 a ft for the recent condos. No, it was higher than CAD 1,000. Yeah, I think it was?
Yeah, CAD 1,250, actually. CAD 1,250.
Thank you. It was CAD 1,250 a sq ft.
That's great. Thank you very much.
Thank you.
Once again, if you do have a question, press star then one on your touch-tone phone. I'm showing no further questions. Michael, I'll turn it back over to you for closing remarks.
I want to thank everybody for the continued interest in the company and their support. We're very excited about how the company has weathered through the last couple of years, and we think that the future looks great. Please don't hesitate to call us if we can help you underwrite the business or have any questions for us generally. Once again, thank you very much for your time. Be well.
Thank you, ladies and gentlemen. That concludes today's call. Thank you for participating, and you may now disconnect.