Dream Unlimited Corp. (DRM) Earnings Call Transcript

Welcome to the Dream Unlimited Corp. Third Quarter 2026 Conference Call for Wednesday, November 11, 2026. 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. [Operator Instructions] Your host for today will be Mr. Michael Cooper, CRO of Dream Unlimited Corp. Mr. Cooper, please go ahead.

Thank you, operator, and I'd like to thank everybody for joining us. I think this morning, we want to go deep in a couple of topics on the business. I'm going to ask Meaghan Peloso to speak to the financials in a minute, but I just want to start by saying a couple of points. Firstly, I've been saying for a while that this decade has been a long one so far. And we've been looking at how do we have the best company we can have for January 1, 2030. And I think we've made a lot of progress on that. But what I would say is there's many parts of our business, ones that are going great and ones that aren't going as great that we're totally focused on growing. So we have multiple platforms that are growing quite quickly. And I think we're doing quite well for positioning ourselves to be the best company we can be in another 36 months or so. In the meantime, we just seem to be making quite a bit of money and we're creating a lot of value. People ask me quite often like do you care about the stock price or not. And I've said for 20 years, what I'd like to see is the companies that we are involved in traded net asset value that way, people can come in and out of a fair value, have access to capital and we can run the business and just focus on the business. Our company is trading at quite a discount and it's interesting because we're now like 5 years into building out asset management and building out income properties, and these businesses are becoming pretty big, and the discount hasn't gotten smaller, so I've been doing more marketing lately. And I think we're providing a lot of detailed information. But today, I'm happy to provide more detailed information. And we've got new coverage, which has been great. And I think the business is doing very well. We're quite advanced on our business plan for the next 4 years, and that's looking very good. And I think we're making tons of progress across all the platforms, so I'm going to get into that in a bit. But I just wanted you to know what we're going to talk about today, so you can think about it before I start. So Meaghan, do you want to provide an update?

Thanks, Michael. Good morning, everyone. Our third quarter earnings reflect another period of solid operating results across our key segments. I'll briefly speak to our earnings for the Q and then touch on liquidity and debt maturity progress. Net margin on a stand-alone basis was $32.6 million compared to $24.1 million in the comparative period. This was largely driven by growth across our Asset Management and income property divisions partially offset by our sales mix in Western Canada. Overall, we generated after-tax earnings for the period of $13.1 million, and we expect fourth quarter margin to be our strongest of the year. Now at a more granular level, our Asset Management division had an exceptionally strong quarter with revenue and net margin of $23.2 million and $17.8 million, respectively. The increase in net margin of $6.8 million from the prior year was driven by our AUM growth and performance fees on our various contracts. Inclusive of acquisitions post-quarter end, our AUM is currently $31 billion, inclusive of mandates acquired through our [ Transera ] platform acquisition and capital deployed across our various mandates this year. Western Canada development generated net margin of $8.9 million in the third quarter down modestly from prior year due to the specific mix and volumes sold in each period. Current period activity is primarily driven from Lattice speaker sales in our Alchin Park community in Calgary. Based on presales commitments achieved to date, we have secured $100 million in Western Canada revenue for the fourth quarter to round out another solid year of earnings for the division. In the third quarter, our income properties portfolio generated NOI of $7.6 million, up from $6.5 million in the prior year, largely driven by less activity across our apartment portfolio. Results for the division did include a bad debt expense of $550,000 related to a tenant and one of our retail properties. As of period end, we had roughly 1,100 multifamily units that are currently operational and are on track to deliver another 930 units, which is at our share over the course of 2027 in Saskatoon, Ottawa and our very first apartment in Calgary. Our Other Investments segment generated $0.2 million of negative net margin in the third quarter, an improvement compared to $3.2 million of negative net margin in the comparative period. We expected development fee income in this segment to increase over time as new projects come online, but for 2026 specifically, don't anticipate earnings from the segment with the minimal inventory available and a fewer active development projects in Toronto today. As of September 30, we had $264 million of liquidity available under our corporate credit facilities. Now on a consolidated basis, the company had about $596 million of debt presented as current. Our remaining 2026 maturities, which are included in this figure, will roll at the end of the year, and there's approximately $205 million of debt maturing in the first quarter of 2027, which is very much well underway. This includes the CMHC insured apartment mortgage and land loan for which we are in very advanced discussions for construction financing. The construction financing would effectively repay the in-place land loan on first raw. So overall, we're quite comfortable with our near-term positions. While our intent is to be proactive in working with our lenders on these maturities, there's oftentimes break fees if were to refinance too early, so a portion of these refinancings won't be looked at until later in 2027. Overall, we believe our remaining 12-month maturities pose little refinancing risk due to the nature of the debt, asset class and based on preliminary conversations with our lenders and will provide further updates as we make progress. So with that, I'll turn the call back over to Michael.

Thank you, Meaghan. I'd like to discuss the 3 major divisions that I talk about every quarter, just to give an update. But asset management is doing quite well. We're I think we're going to have over $2 billion of acquisitions on behalf of our clients for the industrial business. Some of the other areas are growing not as well. And we're working with the existing clients to do more of the same, maybe to do some new things, and we're also working with potential new clients to add them to our work. So it looks as if the momentum that we have is like they continue pretty well. In the quarter, we closed on Chancery Gate, which rounds out our ability to be an asset manager of scale in Europe. We've just about completed all the documents for our previously announced first new venture -- new joint venture in Europe since we acquired Chancery Gate, and we've got lots of new prospects, so we're excited for that. And it looks as if based on the business that we just have now, our asset management business will continue to grow pretty rapidly. And we think we're going to be able to add new clients or new products and see it grow even more. So it's been quite a success story to go from $10 billion to $30 billion -- to over $30 billion since 2020 is a lot of assets -- it's a lot of growth in assets under management at a time where it's been hard for asset managers to get to scale. And I think every step we take provides us with more opportunities to continue to get more steps, so I think the team is doing a good job. I think they're achieving good results. Our relationships with our clients are strong and I think there's lots and lots of opportunities. If you take a look at our market cap, I'm not -- I'm just saying it conceptually, our asset management business is likely to make about a 10% return on our market cap next year. So it alone, more or less, is equal to the value that the company is trading at. But I think the most important thing is as we get to scale, it becomes much more valuable. I love the charts in asset management, same thing with income properties. They are consistently producing more and more profits for us. And I would say that the expectation is asset management will be our largest division profit-wise this year and probably throughout the budgeting period. Income properties is something that we really started in 2020, building apartments in Western Canada, and we don't even have that much in Toronto. We've got the shares, so it's a business line that is really getting momentum now. I think we have about 1,100 units at share in apartments currently operating, and we have 900 more coming in the next 5 quarters, less than 5 quarters, let's say, 13 months. And behind that, we actually have quite a bit coming in Western Canada. The Western Canada properties have been operating very well and pretty much hitting our numbers well leased. And as far as income property growth, it's positive, less than it has been, but it's still positive, and we've got best-in-class buildings. So that's pretty exciting. And this quarter, I think Meaghan mentioned, we had a bad debt at distillery. And even having that bad debt we're up, and I think it's going to see net operating income increase. My best estimate is like annualized at least 30% per year on average for the next 3 years. So that's really the work we've been doing there. It's really coming to fruition now. And then our Western Canada Development business, it's doing very well. We're underway in Homewood. We don't have the final approvals for the zoning, but we are doing the preparatory work. We're actually doing the servicing for the school site for the city, so the city and Dream are working hand in hand to get that ready to be fully approved in 2027. And that will mean we're going to have the next 1,100 acres available on a consistent basis. We have Coopertown going in Regina. We got Alpine Park, and a few other developments. We've got a land in Edmonton, so it's looking much stronger because we have much more of our land in development and we're expecting to think. So those are our 3 major divisions, which are about 82% or 83% of our business. And that's what we were talking about a lot and to be blunt, I think what we hope happen -- would happen is happening in those 3 divisions. On the 17% that isn't those 3 divisions, one of the things I was curious is 3% of that is working capital. We got the Dream Office shares in there, and that's a pretty good thing. We got our investments -- we have a small investment in Center Core. We've got an investment in a joint venture partner and apartments in the U.S. Our apartments in the Netherlands and a small amount of apartments here. So there's a lot of other assets there that are really quite good. There's a bit of land, and the land actually as great land being 318 parliament, which is adjacent to the distillery block 13 in the Canary District, which came as part of our development in the Para Athlete's Village. We've got a site that's very exciting at Eastern Broadview just north of the major East Harbor transportation hub. So we like those sites. It's not a great time to develop, but it's not a bad time to work on it. And especially with the -- I mean 31 Harlan, we bought for $1.8 million, as guy zoning of 850,000 square feet and Block 13 has 800,000 square feet, and that was actually effectively just part of the profit that we put a nominal value of $55 a foot on 400,000 square feet. So like those are deep in the money and there'll be good one day, but there's no pressure. So what we've got is, and this will come up a little bit when I talk about impact, our investment in Zibi, it's 50-50 with impact. And these master plan communities, large master plan communities are very difficult right now. We've also got Brightwater and that one, there's 4 partners in it, and it's kind of lost momentum, but hopefully, we'll get -- pick them up with townhouses because that has a lot of townhouses. But generally, in that 17%, most of the assets are quite strong. They don't need to be repositioned or anything, and there's a little bit of work to do. So Dream Unlimited is actually in very good shape, and it's getting better and better. And I think the team is doing a good job, and we're pleased with the progress. Now Impact Trust is a business that's where we've been putting all of our best-in-class new developments, a lot of our public-private partnerships, and it's very concentrated in Ontario in development and apartments, and that has not been a good place to be. The company has needed support and Dream's provided the support Dream has fiduciary obligations to Dream Unlimited shareholders that whatever it does, it does in the best interest of the shareholders, so we're being what I believe is quite prudent in how we're managing it. We're lending money, taking security -- we have a general security agreement which effectively means that behind the first mortgage, we ranked first on all other capital, ahead of unsecured creditors, ahead of the convertible debentures ahead of any money that potentially may not get paid on an existing loan. So we're quite confident that we've got great security and great assets that are just not at the right time. So apartments right now aren't doing great. But I want to dig into it a little bit. The way we look at Impact Trust is these are the assets that we would have done ourselves if Impact Trust didn't exist. We like them very much. And an asset like Maple House in West Don Lands is -- it's an incredible asset. It's got a $357 million loan on it. The loan is to CMHC. It comes up in 2029. And we're we think there'll be no issues -- sorry, and that loan that comes up in 2029, it has an insurance certificate from CMHC, which means it's a guaranteed loan from -- we have no -- we have a full expectation that will be able to be renewed sort of replaced with -- sorry, right now, the $357 million is a direct loan from the government. In 2029, the idea would be that we would go to lenders who would have a guarantee from the federal government to the principal and interest, and we don't foresee any issue. And by the way, it's nonrecourse. And it's a great project. So we really like that one. All in all, the debt, there's a lot of debt in Impact Trust. There's $630 million that is CMHC insured debt. And that debt is very manageable. I mentioned that Maple House, which is about $100 million. Our share is nonrecourse, one of the apartments in Zibi nonrecourse. We've got a lot of value-add apartments that are nonrecourse. In addition, Block 347, I think we're up to about 70% leased. We expect within the next 12 months that, that building will become nonrecourse. In Ontario, it's still early, but when you look at the October housing starts, 1,200 units of new apartments rental would be our building because we just went above grade. The building is moving along quite quickly. We're way ahead of schedule. The budget is in great shape. That building, we're very confident that once we start leasing it in the summer of 2028 at the current rents it will become nonrecourse in due course, so that's a 20-year loan. We have over 19 years left on it. So what I'm trying to say is of that $630 million of CMHC debt, we've got great assets with great debt, and a lot of it is nonrecourse and even more will become nonrecourse over the next 18 to 24 months. So we're quite comfortable with that. We've got about $70 million of debt on commercial properties that Dream's involved in. And a lot of that is the Zibi commercial assets and the retailer Brightwater. The retail Brightwater is a great asset. There they be commercial assets. They're very good assets, but the leasing has been very tough until recently. And we have every expectation that we're going to make a lot of progress on Block 207, which is on an office building we built, it's like 60,000 square feet. We've got a little bit of lease there, but we think we're going to fill that up. We think we're going to have 208 filled up. So I think that commercial is going to be in great shape relatively soon. We've got the silos land, which is right next door to key side. And we think that one is going to be -- it's a great site. It's got a lot of density. But what's different than a lot of the other sites is -- we currently have zoning for 3 buildings. I think we're going to get approval for a fourth building. And each of those buildings are going to be right in the sweet spot for the type of buildings that people like today. So I think that we'll be able to develop it or sell it, but we're getting it into a great shape, not fussed about that. The area that we're more fussed is, as I mentioned earlier, the master plan community. So Zibi, Brightwater and also Forma East, which is under construction. So I'll take them separately. But we've got about $90 million of debt in Zibi and Brightwater. At Zibi, the Ontario side is going very well. We've got about 5 more sites for apartments, and that's all that's left. Block 206 is finishing in the next few months, we'll be leasing it. And we want to wait to see the progress on it, but we could easily start another building. I think we only have $20 million of debt for the 5 buildings that are left to 5 sites that are left. So we think that's manageable. In Gatan, we have a lot of land, and that's been going slow. So that's where we really need to focus our efforts. We have a new government. They want people back in the office. So we really haven't had any potential to lease to the government in 7 years, but now it looks like there are opportunities. In addition to that, this government has put up a lot of money for culture and sports, the National Capital Commission is getting a little bit more aspirational. And we're right in the center of the national capital region. So we're going to spend the next couple of years looking for ways to work with the government and others to use up more of the land in Gatan. And if we do that, that project will be fully stabilized. Brightwater is one of the best pieces of lands I've seen at 72 acres on the water at the foot of Mississauga Road. And that one is stalled. We're going to work on getting some townhouses done same as what I said for Dream Unlimited. But that's really all the assets that Dream is involved in. To make it clear, there's about $900 million of debt, $630 million is the CMHC loans, the commercial is $70 million of debt. I think we're going to get that totally under control in the next 6 months. The silos, we've got a lot of work on it. I think that's going to be in great shape. And then we'll work our way through Brightwater and Zibi. And I think that's basically the whole company. What I would say is, and I said this before, Impact Trust owns a lot of our very best assets. Dream is very keen. We're putting money in in a way that we think is very secure. The whole goal is to get to the other side of this current downturn where the markets react to higher interest rates and lower rent in apartments. And what we've seen recently is a lot more volume on rental. We have about 96% on our -- leased on our completed buildings, good lease-up. And our first choice is to see the market pick up and impact trust be very strong. Second choice is to support it and get to the other side and then maybe -- like Dream's keen on the asset, so we'll manage our way through it. But I think it's as much an opportunity as a risk because that right now the assets are in good shape and quite manageable. So on Impact Trust, we said that both impact trust and Dream said that at the year-end, we hope to have a more longer-term solution. The reason for that is we'd like to provide more certainty to everybody. And right now, we're making progress in a lot of these areas. I mean I think we'll be in a much better position to work with Impact Trust by them. And we just need a few more months to get some more work done and work with the 2 Boards to come up with something that gives both companies a little bit clearer runway. I think that's about it. Meaghan and I are happy to answer your questions, and I hope I didn't overshare. Operator?

[Operator Instructions] Our first question comes from the line of Sam Damiani with TD Cowen.

Michael, I'm just going to pick up where you left off there briefly on impact. Is there anything -- is there anything else you can share? Is that next quarter timing for, I guess, somewhat of a meaningful update? Is that fairly set in stone? Or could that slip another quarter or 2?

I mean, what's so difficult is everything with an impact is a lot of specifics. We're making a lot of progress on things, so there's probably about 4 or 5 parts of impact we think we're going to make progress on during that time. In addition to that, we need the 2 Boards to come to an agreement, so written in stone is a very high standard, but I would say I'm highly confident that we'll have a big update then, which will not be a total solution, but a lot closer to one, which I mean like we -- what we're trying to do is have something to give at least 1.5 years runway and then we can all get back to business. I don't really love the idea of letting $15 million if it doesn't fix it.

Yes. Yes. Okay. That's helpful. And just switching over to the asset management side, a couple of questions there. I guess so the European industrial fund is kind of being finalized or imminently, it sounds like. I guess, generally, how do you look at that sort of expanded platform over in Europe with Chancery Gate in terms of giving some torque to AUM growth at this stage post-acquisition here?

Yes. I mean what I would say is on the conservative end, I think we'll be able to continue growing it. And be able to make some reasonable amount of money, like grow assets at a steady pace, so we got one JV that's just about done. We're working with some others. So I think we're going to see some consistent business coming out of there. So I think it will prove out to be a good expenditure of our time. But that's a market that is huge. And having $6 billion of assets, plus 100 real estate professionals, I think we're in a really good position to -- on the -- like when I think is on the low end, I think we can knock out a couple of JVs of EUR 200 million or EUR 400 million or U.S. dollars, they're getting pretty similar. And that -- we can make a living doing that. But on the high end, I think there may be opportunities to grow in a major way. And I think we're just going to spend more time with the team, more time with clients. So I think it could be a bigger growth platform because it's well positioned in a huge market with a ton of people who like to invest there. I mean what I'm saying is Europe is easier to sell in Canada if you've got the right pitch. So we're pretty focused on that.

Okay. Great. And last 1 for me is on the basin development fees of, I guess, $14 million, I think you had this quarter, they were up a bit quarter-over-quarter. Was there anything unusual in there? This was, of course, the first quarter with Chancery Gate. So is that a good run rate? Or was it something unusual in Q3 that won't repeat in Q4.

From a base fee perspective, no, that should increase slightly. I mean, we only acquired Chancery Gate at the end of August. I would just bear in mind that from a margin perspective, we aren't expecting it to have an overall impact this year. So base fees will increase slightly from it. But I wouldn't use Q3 as the go-forward run rate.

So there's 2 points. One is at the beginning of the year, Dream sold its first half, Dream Industrial sold the first half of his industrial CPP. That was net 0 for assets under management, like it just went from one fund to another, and in June, they did the other half. But then Dream Industrial had money to invest CPPs investing, GIC has been investing. And we are not reflecting the fees on a real run rate basis on that. I think we did a $600 million transaction late in the quarter. So I don't know, I think we might have actually had 2 days of income from that. So I think there's a bunch of things that as we're invested, we'll build on the base fees. With Chancery gate, they had been a traditional developer. They go to the asset management business. They did not get to scale. Dream Industrial like their assets a lot and the ability to access Europe and new development. Dream took over the asset management group at a nominal price, and the goal for us is to drive that revenue. I think we've got enough expenses to be a much bigger business, but we're going to add like more revenue, more expenses, but they kind of net out to the same. We only had, I think, around August 27 to September 30. So the revenue and the expenses are both going to go up equally with regards to Chancery gate until we drive the revenue higher.

Our next question comes from the line of Mark Rothschild with Canaccord Genuity.

The income properties portfolio, the rental apartments in particular, that has been growing. Can you give some more information on what the occupancy rate is with that portfolio? To what extent is it stabilized? And maybe on the debt on those properties is it all fixed? Is there a variable rate debt? Just trying to understand what we can expect from this portfolio in the coming quarters?

Okay. So great questions. just in rough terms, the building we're doing at Saskatoon are like $40 million buildings when they're finished. They probably are $34 million cost. We financed them with a land equity, maybe a couple of million dollars more and then when we're finished, we kind of finance them out. So we're probably at 75% or 80% debt when completed and the construction debt generally is floating, but the takeout debt like we did on a 3.89 for BBRI Brighton Village rentals. We did that at 3.89. We built it to a 6 cap. So those are kind of the metrics in Western Canada. In Ottawa, we got 10-year fixed rate debt on Block 204 and would probably have 8 years left. And I think that 1 is around 3.2%. So it's pretty good. We're going to go through the lease-up. I think that Odenak, we own 1/3 of that's finishing pretty soon as well. And that, I think, is in the same range for the debt rate and probably a little less time, 7.5 years. And I would say, the loan-to-value is hard to determine right now. It was -- I mean, I want to say that because I'm not sure what the value is when we're finished, we'll see. But they're a fairly high levered. But what we're seeing in Western Canada is -- one, which we finished, I think, in 5 years ago, the rents are up 20% from when we finished and the debt that we have in place is now in the 60% to 65% range. So we're building not using a lot of our own equity, and we're growing into it. And then porting on Ontario, which is an indirect one asset that one is going to have a reasonable profit and reasonable equity -- but yes, we've got -- I mean that one's got 19 years, 2 months left on the mortgage, so they're pretty secure. Does that help, Mark? Or do you need more details.

I guess I'm just trying to understand I mean that's definitely helpful. I'm just trying to understand what the occupancy is? And to what extent are the properties that developed stabilize? And where would you see the NOI and the FFO from this portfolio go over the next few quarters?

The NOI -- I don't know about the next quarters, I would say that the NOI should be growing at about a 30% compounded rate over the next 3 years.