Good afternoon, ladies and gentlemen. Welcome to the Dream Unlimited Corp Fourth Quarter Conference Call for Tuesday, February 21st, 2023. 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 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.
To queue up with your question, please press star one one on your telephone keypad. Your host for today will be Mr. Michael Cooper, CRO of Dream Unlimited Corp. Mr. Cooper, please go ahead.
Thank you very much, welcome everybody to Dream's year-end conference call. We released our results earlier. Today, I'm with our CFO, Deb, and she'll present the financials. After that, I will discuss some of the particulars about the company. I would just start with more of a macro point of view. You know, last night or this morning, I read one of the reports on Dream Industrial that said that European rents are up 20% and cap rates have expanded 75 basis points. I thought, like, 20% increase in rent is huge. It's kind of remarkable that cap rates would be up so much. That kind of defines everything we're seeing. This morning, Canadian CPI came out. It was looked actually great that core inflation's down at a reasonable number.
We're making progress. You see a jobs number that's off the charts. You're hearing people talking about how the market's gonna crash, other people saying we're past the bottom, interest rates are gonna come down. Like, it's just such a hard environment to manage through. At Dream, you know, we report quarterly, but we really do have a longer term outlook. I mean, currently, the equity in the company is, you know, quite a reasonable number now, and I think it's even higher than our trading value. The amazing thing about our equity is it's almost 100% retained earnings. We made that money starting on a very small equity base, and we keep growing it. A lot of the work we're doing is long-term in nature.
I think if you look at the progress we've made in the last year, the last three years, the last five years, the company's changed a lot. It's gotten higher quality. I think we're showing a lot better best-in-class management. We've got innovative products all over the place, I think the company's in really great shape. While the macro environment is fluctuating, I do think that we're building a great platform for the long term. You know, I think that the undercurrent is we're going through 25 years of declining interest rates, which have been a boost. Now interest rates are back to where they were in 2006, which, you know, doesn't seem shocking on its face. We are looking at a different sorta environment, one that might be different from the last 25 years.
What I would say is, from a year ago, the whole economy is adjusting way better than I would have ever thought, and quite honestly, way better than anything I've ever read. I think we've gotten through a lot of it. I'm actually quite bullish going forward, subject to the geopolitical events. I do think it's been an amazing recovery in the last 12 months to adapt to a very different environment. I think Dream's set up very well to perform in this environment. At this point, Deb, do you wanna provide some information on the financials?
Thank you, Michael. Good afternoon. For the three 12 months ended December 31st, earnings before income taxes after adjusting for fair value gains and losses on Impact Trust units held by other unitholders was a loss of $56 million and earnings of $117 million, respectively, compared to earnings of $99 million and $151 million in 2021. The change from 2021 is primarily due to lower fair value adjustments on our investment properties, including those held in equity accounted investments and fair value loss on Impact Trust investment in Virgin Hotels Las Vegas. This was partially offset by condominium occupancy at Canary Commons during the first half of the year and a gain on land settlement recognized in the third quarter.
We maintained strong liquidity and managed risk with CAD 286 million in liquidity and a conservative leverage ratio of 41%. I'll now go through a brief overview of the results by operating segment. In the fourth quarter, our recurring income segment generated revenue and net operating income of CAD 43 million and CAD 14 million, respectively, up from CAD 36 million and CAD 10 million in 2021. For the year ended December 31st, 2022, our recurring income segment generated revenue and net operating income of CAD 168 million and CAD 64 million respectively, an increase of CAD 51 million and CAD 23 million over 2021. The increase was primarily driven by strong results at A-Basin, earnings from our growing multifamily portfolio and improved performance at the Distillery District in our boutique hotels in Toronto.
Included in revenue for the year ended December 31st, is CAD 48 million relating to the asset management and development contracts with Dream Industrial REIT, Dream Office REIT, Dream Residential REIT, and our partnerships up from CAD 43 million in 2021. We expect these revenues to grow over time as we actively pursue new asset management opportunities. In the fourth quarter, our development segment generated revenue and net margin of CAD 125 million and CAD 33 million respectively, compared to CAD 114 million and CAD 27 million in the prior year. Fourth quarter results were largely driven by our sales mix in Western Canada. Revenue and net margin for the development segment was down from the prior year, as 2021 results included occupancies at Phase I at Riverside Square.
In 2022, we achieved 858 lot sales and 39 acre sales, compared to 959 lots and 10 acres in 2021. To date, we have secured commitments for 420 lots and 23 acres that we expect to contribute to our earnings in 2023. We hold interest in Dream Office REIT, Dream Impact Trust, and Dream Residential REIT at 38%, 32%, and 12%, inclusive of senior management's holdings. During the year, we received CAD 28 million in cash distributions from the trust. As of February 17th, the market value of our interest in the trust is CAD 420 million, or approximately 34% of Dream's current market cap.
We remain committed to maintaining a conservative debt position and may use excess liquidity to fund potential new investment opportunities as they arise, as well as purchase additional units of Dream Office REIT and Dream Impact Trust. Now I'll turn it back over to Michael.
Thank you, Deb. Just by segment, you know, for years we've been saying we wanna increase our recurring income. We've taken a lot of steps in that direction. We've been completing quite a bit of income properties that have contributed significantly, especially getting into the apartment sector. Over the next number of years, next three or four years, we have a significant number of properties being completed, and we're also starting a lot more, so that's gonna grow quite a bit. All of our recurring income assets are performing very well. A-Basin had a good year last year. It's the best we ever had. I think this year will be even higher. I think it's going very well there and appreciate the work that the team's doing.
We've increased our position in the Distillery District from 50%- 62.5%. I think that is very valuable. Dream with its partners are completing West Don Lands, the Indigenous Hub. We've got Victory Silos and Quayside. Other developers are also finishing a lot of properties there, and we think the population is gonna increase a lot, traffic is gonna increase a lot, and I think the Distillery will be worth more in the future than it is now. We're pretty excited about that. Western Canada is holding in pretty good, which is great. I mean, I think the interesting in Western Canada is as oil fell after 2014, we weren't doing very well. It's picked up quite a bit the last couple of years. The first quarter of 2022 was unbelievably strong.
Throughout the year, it kind of petered off. Alberta and Saskatchewan have the highest discretionary income, the highest income per capita, and the businesses are going very well there. I think that there'll be increasing pressure on people, pent-up demand to start buying houses again. This year will be a little slow, but we think it'll be pretty good. It's looking very good for parcel sales, both to institutions like for schools as well as for commercial use. I think we'll pick up there what we might lose some of in lots. I think it's gonna turn out pretty good, and I think future years look very strong. I think Western Canada is gonna pay off well for us. Impact investing has been a big business for us.
I think we've got over CAD 3 billion of capital throughout our organization invested in impact. The type of investing we're doing, I truly believe that this is how all real estate companies will be developing. We're very pleased with the acceptance we've got from governments, the progress we've made on our developments. Winning Quayside and LeBreton Flats are huge for us. I also think the Dream Community Foundation is making a difference, and we're seeing that in the neighborhood of Weston Common. We're gonna expand it more over the next year. As far as impact goes, you know, dealing with having affordable housing units is great, reducing carbon emissions is great, but the foundation itself is providing a much more social safety net for the people in the community.
Generally, with the community foundation, you know, a third to half of the recipients are residents and the other half would be people in the neighborhood. We're trying to elevate the whole community, not just our properties. We've had amazing results just by how people feel about their community. As we expand over the next couple of years, I think it'll become much more obvious the amount of benefits that come from it and the benefits that Dream will reap as a result of the communities that we're involved in doing better. We put up an investor presentation earlier this afternoon. I just want to go through a couple of the things in it. On page three, you don't have to look at it. I'll tell you what I'm referring to.
We now have CAD 23 billion of assets under management. That's up 56% from the beginning of last year. As I mentioned, we have CAD 3.2 billion of Impact assets. Considering that we weren't thought of as a residential an income residential business, it's pretty amazing that we have about 34,000 units that we own or have land for. We've had a 19% annualized return for our shareholders over the last four years. A number that kind of jumps out is we're up to 84 million sq ft of commercial space as we are now. Since the launch in June at Forma, we've sold over CAD 800 million of condos, and that's a really magnificent number. It's an example of I think that's the biggest launch ever.
The price per unit is very high. I think it's the highest price per square foot for any building with more than a couple hundred units. It's gone exceptionally well in a very difficult environment, and I think that it's a testament to the innovation of our team and our partners' teams to be able to create something that's received this well in a tough environment. We also closed the Summit transaction with GIC last Friday. I think I'll probably refer to that a little bit more in a minute. On page five, we sort of break out the company, and there's some really interesting numbers. In the first section, which is just third-party asset management, we've got about CAD 11 billion of assets in our public vehicles.
We now have CAD 8 billion in our private investment vehicles, that's a pretty dramatic increase. We had very little three or four years ago. We can see growth in both, and we think that being able to access private and public market will make us more able to pursue the growth and the style of business that we would like to without taking on leverage or risk within Dream Unlimited. I think that's a very exciting progress for us. On the recurring income, when you include our REIT units, which are an indirect ownership of real estate, we had CAD 88 million of recurring cash flow. I think that's a special number.
I think we're gonna be over CAD 100 million pretty soon, that will really put us in good stead to be able to fund the business without anything from development. That's the direction we've been working on since around 2016 and 2017. To get to CAD 100 million will be a big accomplishment. Again, our development business continues to be significant, although the whole business is growing, I think it's not necessarily increasing as quickly as the overall business. On page six, I do wanna refer to the growth of our asset management business. As I said, we're at CAD 23 billion of assets under management. It's a pretty big increase from the beginning of 2022.
But I wanna point out that in 2016, we internalized Dream Office REIT, in 2019, we sold Dream Global. That's the equivalent of another CAD 10 billion of assets. In 2015, we were at about CAD 15 billion of assets under management. Now we have pretty good growth to CAD 23 billion, but if you include what we sold, it would be CAD 33 billion. There really has been growth. Now I think we've been building out a whole platform to support the growth in our asset management business. I think it's pretty good progress at each, in each sector of our business. A last comment on assets under management is that the mix of assets have really changed over the last, you know, two years.
We had CAD 10 billion of assets under management at the end of 2020. Now we have CAD 23.4 billion, of that, about 70%, 72% are now office and industrial and residential, up from 31% at the end of 2019. You know, that I think has been a pretty good shift to make sure that we own assets that are high quality, predictable, and safer. As we move forward, I think you're gonna see us focusing on increasing our recurring income from the assets that we develop. We may be buying some more apartments with Impact Trust and Impact Fund. We're gonna be growing our asset management business.
I'd say that the thing that has really stuck out is when I talk about Forma, that was a pretty innovative project that's been very successful. If we look at the work we did with CMHC to do the pilot project that led up to MLI Select financing, that was pretty innovative as well. MLI Select has become the number one platform for CMHC to be lending to apartments. It's been great to be part of creating that. We also worked with Canada Infrastructure Bank to create a CAD 136 million loan to decarbonize our buildings, and now we're making a lot of progress actually working on the decarbonization, but that was a pretty innovative loan. The transaction with the Sovereign Wealth Fund to buy Summit was also pretty innovative. When you look at it...
Also I'd say this, aside from decarbonizing the assets in Dream Office, the use that we're making of the buildings has been really quite innovative as well, and we're excited to see the Bay Street Collection open later this year. Then, of course, with Impact, that is You know, it's a relatively new asset class, and I think that our framework has held up well since we launched it over two years ago. We've been very successful dealing with different levels of governments in order to win projects. We've got about 20 institutional investors that are investing with us in Impact. When you put all this together, I think what's really happening is Dream is rising to the top of our individual sectors and doing innovative work and getting good returns for it.
We're very excited to keep building from where we are. As the macro environment changes, we'll either get a little bit of a push or maybe a bit of a body check. I think over the longer term, it will turn out to be not as significant as the actual work that we're doing to make our company better. I'd be happy to answer any questions. Ed would be happy to answer any questions. If there are any, operator, can you deal with them?
Yes, sir. We'll now begin our question and answer session. If you have a question, you can enter the queue by pressing star one one. If you'd like to remove yourself from the queue, you can also press star one one. If you're using a speakerphone, please pick up the handset first before pressing the numbers. Once again, to enter the queue, please press star one one. We have our first question from Mark Rothschild with Canaccord. Please go ahead. Please stand by while I open up your line. And your line is now open.
Thanks, good afternoon, everyone. Maybe just looking overall at the company with the liquidity approaching CAD 300 million, you know, is that more than you feel you need at this point? Is that the right number? How does that fit into your overall goals in the near term as far as capital uses, whether it's starting new condo projects, investing in the, you know, Dream Office units or, you know, buying back stock in Dream Unlimited?
Mark, I love that question. I can't tell you how many hours I've spent pondering it on beaches, on ski hills, and I think the answer I get to is it's not enough. As we have gone through the upheaval over the last year, I think we're seeing different kinds of investors, and some investors are feeling quite stressed already. You know, they're building condos and it's taking a little bit longer, interest rates are a little bit higher, and they're already committed to the next one and they're struggling a little bit. You know, when you look at the pension funds, they generally have quite a bit of liquidity. When you look at sort of either wealthy families or long-term real estate businesses, a lot of them either have very little debt or massive amounts of liquidity.
You know, the last year has been really quite uncertain how things are gonna turn out. I would say that we feel that the company should have more liquidity in the future. What we have now is great. It's great compared to what we've had any time before this. I think we're sort of thinking about maybe a good number would be CAD 500 million, which we hope to get to over the next, like, four or five years. That's just directional. I would say that to be able to pursue our plans without interruption as macro things change, we want to, you know, have more and more liquidity. Having said that, we do have a lot of liquidity, let's say, from third-party investors. We've got a lot of liquidity for our Impact Fund.
We've got liquidity for industrial. Some of the liquidity is at the top company. Clearly, we're trying to have more recurring income, a safer business, more liquidity, and more activity down at the managed entities, whether they're public or private. I would say we'll tend to increase the liquidity, and we'll, you know, obviously be opportunistic to invest in properties or buy a stock, but it'll probably be a lot less of our capital than it's been for the last 20 years.
Okay. That's interesting. Thanks. Maybe just following up on that, to what extent is that, maybe evolving view and position on liquidity because of the current economic environment or more just how you wanna position the company maybe through cycles?
Yeah, that's a great question, too. I mean, I think that we've had tailwinds from the beginning of the company's history. Although, you know, the recession of 2000 looked a bit scary, the global financial crisis looked scary. You know, when the U.S. was, you know, potentially gonna default in 2011, that was a bit scary. COVID was really scary. I think the point is, if we're going to have a view to run the company over the long term, we need to make sure that we have the ability to get through it. I'd say that the conditions in the last year was an example of what could happen. It actually went quite well. I mean, we haven't had any issues rolling over debt or getting new debt, but, you know, that could happen.
I'd say it's a combination of both. We have enough assets, enough reputation, enough activity to be able to get a lot of stuff done and not necessarily needing as much of our own money. I think we should just be safer to sort of be in a position to always be able to achieve our dreams.
Okay, great. Maybe just one more quick question on the lot sales. It sounds like the number now is about 420 that you have under contract you're looking to do. Would that be a target for the year? If you could also maybe just comment on how that the demand has evolved over the past six months with higher interest rates.
Oh, yeah. It's another good question. What's happened is for the last couple of years, our builders have been building everything they can, and they're the bottleneck was being able to produce properties, not having buyers. So in the first quarter, it was pretty extreme of last year, and it eased off. We're seeing now more people visiting. Like, people are getting on with their life, and the interest rates are kind of in the same place as they were now for, like, 90 days or whatever. We're starting to see more people looking to buy houses and starting to buy more. We're seeing it pick up. It's fortunate that, you know, Alberta and Saskatchewan have such good economics going on. We're think it's gonna get a bit better. The 420 is, like, pre-sold.
That doesn't include houses that we're doing or any builders that come to us and ask for more lots. We expect it to be higher, but that's going to depend on it, what the progress is.
Okay, great. Thank you so much.
Thank you. We have our next question from Sam Damiani with TD Securities. Please stand by, and I will open up your line for you. Your line is now open.
Thanks. Good afternoon. Good afternoon, Michael. Good afternoon, Deb. Maybe first question, just a little bit of a follow on from one of Mark's just on the leverage ratio that you guys quote in the MD&A at around 40%. Is that a focus metric for you? How do you feel about that metric in terms of where you'd like to see leverage in the business in the next few years?
You know, I look more at what the debt is to our fair value as a more significant metric. You know, going to liquidity, that's one of the focuses is what your ability to withstand a more difficult financing time. I think if you look at it on a proportion basis, where you look at what we own and what the debt is against that, we're just under CAD 1.2 billion. We have about CAD 300 million of liquidity. I think that's pretty good. A big part of our debt is like RCFi financing and mortgages. I feel that we're safe in a lot of different times. I don't really look at what the debt is to asset management at CAD 43 million and land at cost.
Got it. Maybe just switching over to the assets under management. Obviously a fantastic trajectory over the last couple of years, culminating with the Summit transaction. I wonder if you could give us a sense as to, you know, how active the programmatic element of that relationship is going to be going forward in the Canadian industrial property market.
Oh, that's interesting. I think we're gonna be quite active in the Canadian industrial market, and I think we've got the firepower to do it. I think that the JV will grow quite a bit, and it won't be that difficult for Dream Industrial to keep up. I think we'll be a solid buyer of excellent properties. I think this will be meaningful. I guess, you know, with industrial, I think we have 43 million sq ft in Canada now that we own and manage, and 11 million sq ft at a development pipeline. I think that's gonna grow significantly. What I'm really excited about is how we're going to develop our ability to make the most out of having a large platform.
Whether that's moving tenants to new developments and, you know, releasing the space before moving tenants around or other ways to make additional funds, we should be able to be much more profitable because we have scale than we had in the past. That we're gonna be focused on that a lot, but we expect to have decent growth in the industrial platform.
Okay, great. Just last one for me. You know, I've asked you this before, but just, you know, the build-out of the residential pipeline is a meaningful part of the expected growth in recurring income over the next few years. What's your sense as to how the stars are aligning for economical residential rental development to, you know, kickstarting a new project today?
That's a really interesting one. I think we're proceeding as planned for the most part. In Zibi, the numbers are working well. In Western Canada, it's really quite shocking that we're able to get decent rents built to a good yield on cost and get 10-year debt at a rate that's very profitable. I think we've got 220 units finishing this year. As soon as we have any level of comfort, we'll start the next one. At Zibi, we're getting ready to start the second residential building by the end of this year, even though the first isn't finished. There's a lot that is working. We have very rarely bought land at today's market value. We have a lot of. We have a low cost base.
I would say if we paid CAD 225 a foot for land downtown, it might be harder. We're in pretty good shape. We've announced this in different ways. I think it's in the press release that Quayside's closing soon. Quayside, it's going to... It's already consuming tremendous resources here. We've had very good meetings with the City Waterfront Toronto and different levels of government. I think that project's gonna progress very quickly, even more quickly than we had assumed originally. You know, I would say that we are looking at risk. When I say that, Quayside was designed in a way that it can go forward, and it will generate decent returns, and we'll be able to meet the commitments we made to the governments. That's very exciting.
At this point, I think we've got almost our maximum amount that we can build. The issue really now isn't gonna be like, are we gonna do a project that we're thinking of doing? I think for the most part, it'll be, let's make sure we do a great job on what we have. You know, we own a lot of land, and some of that is being deferred until we get other stuff done. You know, the market is challenged. I talk about Forma, and let me be clear, Forma is one of two projects in the last year that have been successfully launched. Others have been launched, but not to get to pre-sales very quickly. The condo market is struggling.
Hopefully we'll be able to get decent interest rates and be able to do more of housing. A lot of the housing we're doing, the rental is with CMHC RCFI debt, so we have certainty about the amount of debt and the long-term cost, and that seems to work okay right now.
Okay, great. Thank you.
Thank you.
Thank you. I'm standing by for further questions. If you have a question, you can enter the queue by pressing star one one. I see no further questions in queue. I will now turn the call back over to Mr. Cooper for closing remarks.
Thanks, Sam. Thanks, Mark. If anybody else has questions, please don't hesitate to contact Deb or myself. Thank you for listening in today, and I hope that you continue to have interest in our business. Be well.
Thank you. This concludes today's conference. We thank you for participating. You may now disconnect.