Dream Unlimited's (DRUNF) CEO, Michael Cooper on Q4 2015 Results - Earnings Call Transcript

| About: Dream Unlimited (DRUNF)

Dream Unlimited Corp. (OTC:DRUNF) Q4 2015 Earnings Conference Call February 12, 2016 9:00 AM ET

Executives

Michael Cooper - President, Chief Responsible Officer

Pauline Alimchandani - Chief Financial Officer

Analysts

Mohit Khanna - Value Investment Principals

Brett Reiss - Janney Montgomery Scott

Mark Rothschild - Canaccord Genuity

Dean Wilkinson - CIBC World Markets

David Spier - Nitor Capital

Operator

Good morning ladies and gentlemen. Welcome to the Dream Unlimited Corp. Fourth Quarter 2015 conference call for Friday, February 12, 2016. 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 for a question, press star, one on your telephone keypad.

Your host for today will be Mr. Michael Cooper, CRO of Dream Unlimited Corp. Mr. Cooper, please go ahead.

Michael Cooper

Thank you, Operator. Good morning and welcome to our year-end conference call for Dream Unlimited. 2015 was a pretty good year for Dream Unlimited, not a great year for the world, and quite a bad year for Canada. Based on the current book of business, 2016 will be another good year for Dream. Can’t say much about what type of year it will be for Canada, though.

We’re very pleased with our progress developing condominiums in Toronto. Notwithstanding what everyone has been saying for 15 years, including us, the Toronto condominium market continues to perform very, very well. Thankfully for the first time in our history, we actually have a land back for condominium developments where we own land for thousands of units. We have two more buildings that we hope to be able to build in the Distillery District and three more in the PanAm Athletes Village, the Canary District, and we’ve started a couple more with Streetcar, so we’re busy for the next six or seven years building condominiums on the land we already own and have paid for. We also expect to find more opportunities in addition to what we already have.

Another area of increasing importance for us is the development of income properties. We continue to develop retail properties in our condominiums which are very valuable as there is more need for retail space where people live. We are partners in well over 500,000 square feet in downtown Toronto retail space currently in Dream. We have another 600,000 that we’ve developed which we’ll end up owning our current condominium projects. At our 50% share of the 1.1 million square feet, we’re looking at owning about 550,000 square feet of retail properties as a result of our condominium projects. These urban retail assets are proving out to be very desired and very valuable in the current market.

In western Canada, we were pleased with our success leasing and developing our first retail projects. We’ve leased in excess of 200,000 square feet in 2015 alone, and we expect that we will continue our progress over the next few years. I have spent some time reviewing [indiscernible]’s public documents and have been very impressed with their business. They have about $900 million of income properties, including all of the REIT, which is about 3.2 million square feet of properties. They are a well-run family business that started about 70 years before us, and they have generated value and profits for the 92 years they’ve been in business. Our income property division is new to us, but we are developing properties rapidly and we believe that we will also own millions of square feet of properties we develop in the not too distant future.

Aside from our retail and condominiums and in our communities, we have tremendous opportunities to develop commercial properties on our lands. We were pleased to have David Leeming join us at the beginning to become the Senior Vice President, Commercial Properties. David brings with him experience being a merchant developer at Hopewell and also has experience adding value to urban properties based on his experience at Talisker. We are pleased to have David join us and bring his experience to us. The commercial properties within our developments are almost limitless, and David is responsible to make that business line come alive as well as marshalling the Canadian Pacific commercial properties through the development process.

Our little ski area, Arapahoe Basin, has become increasingly more significant in our organization as [indiscernible] increased from $3.5 million in the 2013-2014 season to $4.7 million in the 2014-2015 season, and it looks like this year will increase to about US $7 million. In Canadian dollars, the basin is turning out to be very significant. Its contribution is meaningful for our business. The business is ably managed by Alan Henceroth and we continue to upgrade it. Late last season, we opened the new Kids Ski School and we’re always adding buildings. We’re in the process of adding new terrain, and I think the business will continue to have a growing EBITDA.

The asset management business has been changing dramatically lately. With the elimination of the fees from Dream Office REIT last year in exchange for REIT units, the asset management business has evolved and now the biggest growth come from our non-REIT activities. We generate fees for service from Dream Alternatives Trust. Our Dream CMCC funds from high net worth individuals invest in others’ developments. We generate fees from some of our condominium projects. We expect to generate fees from our CP joint venture, and another recent additional line of business is advice for joint venture partners, which so far includes a significant fund from Korea and another fund that completed a transaction with Dream Global in Austria in December. As a result, we continue to expect that our asset management business will continue to grow but that the growth will not come from where we would have expected it just a few years ago, but from new areas.

All these are very exciting aspects of our business which are growing. Our main driver for our profits for the last decade or so has been our western Canadian land and housing business. Obviously the housing business in western Canada is being affected by the economic transformation currently taking place. In 2015, we sold more lots than in 2014. For 2016, we do not have a lot of visibility; however, we had very significant success achieving land approvals in 2015. For anyone who follows our business, you know that we believe our province lands are one of the most significant developments in the country. Since we’ve been speaking about these lands, the [indiscernible] agreed to deal with the province to allow the ring road to proceed. Their deal has been approved by the Nation, the province, the federal government and signed, and more recently lands were conveyed to the Government of Canada and transferred to the Province of Alberta. The province has approved the funding of the ring road and is currently in advanced stages of completing the public-private partnership to build the road. In the agreement with the Nation, the road needs to be open within seven years or the Nation gets the land back, so it’s urgent that the province complete the construction.

On February 1, we completed the sale of 172 acres of land that the province requires to complete the road. We received the cash proceeds last week. The province now has all the land that they require for the 33-kilometer road. We will provide details on the sale price once the province releases the information and not before then; however, we are of the view that the pricing was fair.

In early December, we were very pleased to receive what we believe was enthusiastic approval of the Providence area structure plan that we led from the city. We own 640 acres out of the 2,000, which provides us with the right to lead the process. The city-within-a-city concept that we were promoting has been well received by the city. Providence has direct access to Fish Creek Provincial Park, which is one of the largest urban parks in Canada and one of the most beautiful and varied for leisure activities. Our land faces the ring road as a result of it being built on the contiguous land we just sold to the province. The ring road is designed to have 16 lanes when it is fully built out.

For a sense of scale, our frontage on the highway is similar to the distance from Yonge Street to Bayview to Leslie. Our land is two miles in front of the highway and there are three exits that provide access to our development. We have about 640 acres in the first neighborhood after the sale to the province and another 1,000 acres that will be developed in the second area structure planned. The first 640 acres that we owned that we have received approval on are approved for about 320 acres of residential at about 10 units per acre - 3,000 units, plus a neighborhood retail center that is very much in demand. The balance of this site has very flexible density that allows about 5 million square feet of commercial property with a limit of about 30% for retail. We have already begun to be approached from other people with uses for the commercial properties.

We still have to receive approval of the allocation of capital from the city for the services, but we are obviously making progress on this development. We are also pleased that after two years of work among the City of Regina, the city council and the industry, the 25-year growth plan was approved in December. The growth plan is most significant because it provides certainty to the development communities in Regina. We believe that Dream has been treated fairly through the process. We have approval to start our specific approvals in the southeast immediately and our first 160 acres of the 1,100 acre Coopertown development, which we will be able to start in 2018. This gives us a bit of time to make sure that we get the plan right and build the greatest community we can.

In addition, Harbour Landing West is designated a special study area and we’ll study it to develop servicing plans, and if we’re able to make the servicing plans work with the city’s agreement, we’ll be able to start in a few years. In total we’re pleased to apply our best work to these great developments in collaboration with the City of Regina.

In 2015, we also acquired and received approval for Vista Crossing, a 160-acre development 30 minutes north of Calgary. This development is unique for us in that it’s close to Calgary but not subject to their approval requirements, and it’s been approved in one year as opposed to Providence, which has taken 19 years so far. In addition, Vista Crossing is the first community we have planned in Alberta, which is designed with us as a homebuilder in mind. As a developer, we’re building out the first 150 lots and there is no significant front-ending costs. The first 75 lots that we recently completed, we have almost 40 sold and we retain the balance for our own housing team. We have completed our first sales to other builders, development is underway, and so is the construction of the first homes.

So we’ve been very busy over the last year and we have a few major approvals for this year as well. We are pleased with our progress. These approvals are very difficult to obtain regardless of the current market conditions. We’ve added value to land and are well positioned to grow. We’re also hoping to achieve approvals for a suburban center in Holmwood. We’re seeking approvals for 1,000 acres of land with density of 50 units per acre, and that community will have significant retail and commercial development.

With all those good news, it really sucks that the market is so difficult and unpredictable right now. We do not have much color to add to what has been written by CMHC, the Bank of Canada, all of the Canadian banks’ economists, and basically everybody else. We sold 15 houses in January and we have about 25 lots sold in Alberta so far this year. It’s not a great indicator of what’s to come, so we’re going to have to wait and see how the year goes while anticipating all potential outcomes.

We are confident that we will have decent volume in Regina. It looks like Edmonton will have some decent demand. It’s hard to predict Saskatoon as we’ve overestimated demand for the last two years, and in Calgary we have the new Vista Crossing development where we had our first 28 sales in December and expect another 11 within days. We will not be providing any guidance as we don’t have good visibility and we’ve been wrong the last two years. With the economic news, it sounds like no one will build a new house this year, but that’s not what we’re seeing, and we have reasonable activity currently.

Counterintuitively, we are very excited to be starting to build houses in Calgary this year. We have assembled a team of very strong individuals experienced building at least 1,000 production homes per year with their former employers in their prior positions. The Calgary team are now leading our homebuilding in Saskatchewan as well. Starting with Calgary now gives us a chance to develop relations with the trades when they value our business. Prices are lower, the conditions demand perfection, and if we succeed now we’ll be in great shape when the market returns.

In Saskatchewan, we sold down our old inventory last year and we just started to build new inventory in November. We’ve been getting very attractive pricing for construction, we’ve improved our designs, sales, marketing and customer service, so we expect to see the progress that we made come to fruition this year.

With the sale of our lands to the Province of Alberta for the ring road plus the completion of the PanAm Village this year, those two sales will generate at least $90 million of contribution this year. In addition, our recurring income from renewable power, our income properties, Arapahoe Basin, and our management margin, we start the year with more income than we spend even without those sales. Add in the sale to the province, the PanAm Village, our 550 non PanAm condominiums that closing this year, our profit from developing retail and our profits from land and housing, it will be a good year.

One of the biggest accomplishments in 2015 was the amendment to our $290 million operating line that provides much more flexibility to borrow in an uncertain environment, and on top of that we added a three-year, $175 million term loan at 3.65% interest and we are in very good shape. Currently, we have over $160 million of availability and believe that we are well positioned for the current business environment.

Over the last couple years, we’ve accomplished so much at every level to make our company more valuable and safer. We’ve also undertaken an enormous transformation to make our business current by improving how we operate everything. We have no intention to slow down. Our retail division has proven itself out, so has our renewable power division. We now have the Alternative Trust set up, and we are focusing on enhancing our income from developing commercial properties. We’re building out our capabilities to build multi-family in Toronto and western Canada, so we have a number of new initiatives that have worked out and we have a few more that are under construction. We are well positioned to manage ourselves in the current market and we continue to pursue opportunities to make our business better, especially where we’re able to capitalize on development on the assets that we already own.

Pauline, will you review the financial results?

Pauline Alimchandani

Thank you Michael, and good morning. Q4 was another solid quarter for the company. Our condos continue to sell, our western Canadian retail projects continue to lease on pace with expectations, our ski hill in Colorado continues to outperform even before considering the impact of a strengthening U.S. dollar, and our asset management business continues to grow and diversify through new institutional and development partnerships. This quarter, we enhanced our MD&A disclosure with respect to our recurring sources of income as it is very valuable to have and highlight in the current environment that we are in.

Overall, 2015 ended as a year of record profitability and liquidity, largely as a result of the reorganization of the asset management contract with Dream Office REIT in the second quarter. Our lot sales in western Canada were ahead of the prior year, and our margins were stable. We also recognized our first fair value gain from our retail division in 2015, which was supported by independent appraisals at year-end. Most importantly, as discussed by Michael, we refinanced $465 million of debt in 2015, putting our balance sheet and liquidity in a position of strength heading into a more uncertain year.

I will now discuss our results by major business division. Net margin from land was $42.7 million in 2015, down from $52.3 million in the prior year. In 2015, we sold 868 lots, up from 821 lots in the prior year, and we achieved 27 developed acre sales versus 61 in 2014. We achieved 298 lots sales in Saskatoon in 2015 with about 210 first sales within our new community at Brighton within our Holmwood development. We achieved 267 lot sales in Regina from our existing Harbour Landing community, 265 lots sales in Edmonton from our existing Meadows community, and we achieved our first 38 lot sales primarily from Vista Crossing, which is a community located north of Airdrie in

Alberta.

Our land margin results were below prior year due to the significantly lower acre sales revenue and margin, which is more in line with management strategy as we look to build more retail, commercial and multi-family properties on our own lands. Net margin as a percentage of revenues was 34% in 2015, in line with the prior year.

Subsequent to year-end, we transferred 172 acres of raw land in Providence to the Province of Alberta to construct parts of the southwest Calgary ring road in exchange for cash consideration. The gross margin expected to be achieved on these lands in the first quarter of 2016 is generally in line with our previously communicated expectations.

Moving to housing, in 2015 we achieved 209 housing unit occupancies, down slightly from 219 occupancies in the prior year. The volumes achieved in 2015 were in line with our expectations. Net margins from housing were $3.5 million before eliminations, down 55% from the prior year despite achieving relatively similar volumes year-over-year. Revenue and net margin declined year-over-year largely as a result of lower average selling prices from the occupancy of smaller homes, as well as slightly higher interim direct costs. The reported net margin percentage for the year at 4.2% is below the historical margins earned and targeted by management. The housing division is in transition as the company continues to implement process changes that will enable Dream to focus on finding the best communities and having the most competitive housing platform in the markets in which we operate in terms of product offering, customer satisfaction, and profitability. Accordingly, we expect to see the results of these efforts realized in future years as new inventory is developed and sold in line with our revised operating model.

In the fourth quarter of 2015, we commenced building Dream’s first homes in Calgary within the northwest community of Evansridge. As you may recall, we decided to reserve 19 lots for our internal housing division last year as Evansridge is one of the fastest growing and attractive neighborhoods in the city. We have commenced construction on all 19 lots with our first housing occupancies expected later this year.

Our inventory under construction has declined to 111 houses, down from the 270 level we have maintained over the last two years. In 2015, our focus was to sell our existing inventory. In 2016, we will look towards once again constructing new inventory as supported by business plans and on a phase-by-phase basis in line with our operating model.

Moving to condos, net margin from the condo division was $9.2 million in 2015, or $8.9 million including our equity accounted investments, versus $18.2 million in the prior year or $16.5 million including equity accounted investments. Year-over-year comparisons in condos are not meaningful as different projects were in occupancy in each period. Occupancies at the Carlaw and the Carnaby, which together comprise 750 units or 325 at our share, commenced in the third quarter of 2015. Both projects are now between 98% to 100% sold. The Carlaw closed in December of 2015 and the Carnaby is expected to close in May of 2016.

Net margin in the fourth quarter of 2015 was negatively impacted by approximately $1.4 million of costs and revenue adjustments which were material in the quarter given the level of activity, but not material to our overall project return. Despite these adjustments, we expect both projects to deliver a margin percentage of approximately 18%.

Net margin as a percentage of revenues in the condo division for 2015 was 15% or 12.5% including equity accounted investments. Excluding the impact of sales and marketing costs, which are expensed as incurred on projects expected to generate revenue in future periods, net margin as a percentage of revenue would be 17% and more in line with margins generated from our past condominium projects in downtown Toronto. Sales and marketing expenses were more significant in 2015 attributable to our PanAm and Riverside Square projects, the details of which can be found in our investor presentation which accompanied our year-end press release.

Moving to asset management, total fees from asset management were $33.9 million in 2015, down from $39.9 million in the prior year. The year-over-year decrease was primarily due to the reorganization of the asset management contract with Dream Office REIT, offset by increased fees from Dream Alternative Trust and increased development and other management fees from new arrangements in 2015. Fees from managing institutional development partnerships and private funds grew to represent 13% of our total fees in 2015, up from 4% in the prior year. This year, we added acquisition fees from a new Asian sovereign wealth fund through Dream Global REIT. We expect to continue to grow our fee income from institutional and development partnerships in 2016.

We generated net margin from asset management of $25.8 million for 2015, which represented a 76% margin over revenues during the period. Our year-end disclosures were updated to highlight the diversification of our asset management business beyond the publicly listed funds in 2015.

In addition to asset management fees, we recognized approximately $10 million of investment income related to our equity investments in the listed funds. In the fourth quarter of ’15, we revised our basis of measurement for assessing the proportion of return of capital on units held in Dream Office REIT. As a result, investment income of $3.6 million from the nine months ended September 30, 2015 was recognized all in the fourth quarter of 2015. Management is of the view that the change in measurement provides more reliable information to shareholders in assessing realized investment returns over time from our equity investments as it reduces the delta between our cash distribution received from the REIT and our investment income recognized through our statement of operations under IFRS accounting.

In terms of our other divisions, investment properties drove $1.7 million of net margin in 2015 with $3.3 million of contribution from the Distillery District in downtown Toronto offset by approximately $1.7 million of net overhead costs within our western Canada retail division, as the properties will not be fully income producing until their completion dates in 2017 and 2018. Once completed, we expect our Tamarack and South Kensington retail properties will contribute approximately $6.5 million of annual stabilized net operating income at completion, representing over an 8% development yield on our costs, including land. Using our estimated fair value at completion, as disclosed in our MD&A, we expect to earn a development margin of approximately $1.1 million per acre, related to these retail sites. Dream is currently active or has in its pipeline over 300 acres of retail development.

Recreational properties generated $6.5 million of net margin before depreciation, up from $4.7 million in the prior year from stronger results at Arapahoe Basin. Subsequent to year-end, we successfully closed a US $9.5 million term financing secured by Arapahoe Basin, which generated $13.2 million of gross proceeds in Canadian dollars. The loan is fully amortizing over a term of seven years at an interest rate of 3.69%. Interest and debt service requirements are expected to be funded from the operations of the ski hill. The carrying value of A-Basin as depreciated cost at December 31, 2015 was approximately $19 million. The financing was subject to an appraisal of the asset by the lender, which valued the asset at significantly in excess of our carrying value. A-Basin has been and continues to be a great success story, both operationally and financially for the company.

We also recognized a $2.3 million gain in the fourth quarter of 2015 from the sale of our remaining interest in the King Edward Hotel in downtown Toronto.

With respect to our investment in renewable power, Firelight contributed $1.2 million of net losses during 2015, negatively impacted by about $7 million of impairment charges primarily related to Zenica [ph], which was our only hydro project in the portfolio. There are no further impairments expected as all the projects became fully operational by the end of 2015. In 2016, we expect to earn approximately $7 million of cash flow from our investment in Firelight, representing an annual yield of approximately 15% on our reported net assets, which is also tax-efficient for the company.

In terms of our balance sheet, at the end of the quarter our debt to total asset ratio was 33.6%, with up to $124 million of undrawn credit availability on our operating line. Upon receipt of the cash from the transfer of the Alberta lands on February 5, our liquidity position, including undrawn capacity, increased to almost $170 million. We plan to maintain our excess liquidity position through 2016.

At December 31, the company’s total equity increased to $718 million or $6.37 per share, up 22% from $592 million or $5.21 per share in the prior year. Since our first reporting period 2.5 years ago as a public company, we have achieved a 24% compounded annual growth rate in our total equity per share.

In terms of our outlook for 2016, all else equal, before any income from incremental development activities within land, housing and condominiums, and after fixed expenses, other G&A and interest expense, we expect to generate approximately $90 million of pre-tax income in 2016, which has been our average level of income over the last 12 years. Said differently, 2016 will be an average year of profitability for Dream, even before any sales activity in western Canada.

In summary, there were many successes and accomplishments in 2015, both financial and non-financial, and it has been a very exciting year. Our excess liquidity and recurring income sources are very valuable, and we are feeling the benefits of operating a diverse business in the current environment. 2016 will be another eventful year, particularly with the condo unit closings at the PanAm Games Village starting in the spring. I look forward to providing you with updates with respect to this development and our other achievements over the coming months.

With that, I will turn the call back over to Michael.

Michael Cooper

Thank you, Pauline. At this point, we’d be happy to answer any of your questions.

Question-and-Answer Session

Operator

[Operator instructions]

Our first question is from Mohit Khanna of Value Investment Principals. Please go ahead.

Mohit Khanna

Hi guys. Good morning. I have a question regarding the visibility on the projects, in that you said that you said you won’t be able to provide any guidance. What kind of [indiscernible] visibility is there in the second half of this year, and then further, if you can give any kind of guidance or any kind of other project updates?

Michael Cooper

I think it’s a hard question to ask us, can we provide visibility, when we said we can’t provide visibility. So what I would say is CMHC is in the business of predicting, analyzing housing starts in Canada, so if you just Google CMHC, you can find that they have projections, and the projections are lower than they’ve been in the past but they are not horrific. But I think their projection and everybody else’s has been bad, so we’re not really relying on anybody. What we’re saying is, firstly, we’ve got a lot of recurring income; secondly, we’ve got a lot of big projects that are finished this year, we’re going to make a lot of money. This year is going to be a tremendously cash flow positive year. 2015 is the highest profits we’ve ever had. 2015 should be the second highest. But with regards to lot sales and like that, we’re just not going to predict anything, but so far this year it’s been okay.

I’m not trying to help you, actually. I don’t mean it disrespectfully.

Mohit Khanna

All right, [indiscernible].

Michael Cooper

What am I going to say when oil is at 27?

Mohit Khanna

No problem. So what product, as you said, cash flow generation for this year, what is your internal target for that, and what will you target for the next year?

Michael Cooper

For 2016, Pauline, do you have a number of what kind of cash we’re going to generate?

Pauline Alimchandani

We will probably generate roughly $80 million of cash flow, but that assumes some level of lot sales in western Canada.

Michael Cooper

It should be higher than that. I’d say it’s a bit higher. I would have thought we’re going to generate $100 million of free cash this year.

Mohit Khanna

Okay, and with [indiscernible] next year--

Michael Cooper

You know, I think it’s interesting--

Mohit Khanna

Would you say this is a sustainable level?

Michael Cooper

Beg your pardon?

Mohit Khanna

Do you think $100 million, $80 million to $100 million is a sustainable level for a couple of years?

Michael Cooper

Okay, you know what? I’m not going to give you anything about 2017. I’ve been wrong for the last two years, and I’m saying I don’t see the value of being wrong for four years. So there’s lots of public information out there. Within our company, we’re building out retail projects, we start the year with more recurring income than we have expenses. We’ve been pretty consistent on the sales, but I just think talking about 2017--I mean, go back to 2013 and tell me how close you were for 2015 on anything.

Mohit Khanna

All right. The next couple of new JVs that you’re doing, and more on the asset management side, what [indiscernible] do you think we can see? As you said, growth is coming on from new areas than you would have predicted a couple of years ago, so what are these areas and what do you think could be your next target of the asset management business operationally?

Michael Cooper

We’re hopeful that this year, we’ll start to see some asset management fees out of our Canadian Pacific joint venture. We were happy to have another deal done with a sovereign wealth fund in Europe in 2015. We’re working diligently on trying to create more of that. On the renewable power front, we’re seeing some opportunities, and we think that the renewable power, which does a lot of its work for the Alternative Trust, may end up having more opportunity than it had in the past, and maybe we’ll have some other sources of capital for it. So I think that’s what’s really driving it right now.

Mohit Khanna

All right. The last one from my side, do you have any sort of internal target of how much your big business mix would be and how much the asset management business could contribute to the total operating income of the company in future?

Michael Cooper

Well, I think that this year was up higher. I mean, in order to know what the percentage is, you have to know what the big number is, which is another way of giving you guidance, so I got that one. But I’m not sure - I think 15 to 20%, we’d be happy with because we’ve got a lot of other areas that produce cash flow and produce income.

Mohit Khanna

All right, thank you so much, guys.

Michael Cooper

Sorry, I’d love to give you better answers, but this is a pretty uncertain time to be managing a business.

Mohit Khanna

No problem with that. Best of luck.

Operator

Thank you. Our next question is from Brett Reiss of Janney Montgomery Scott. Please go ahead.

Brett Reiss

Hi Michael, hi Pauline.

Michael Cooper

Good morning, Brett.

Brett Reiss

What tax bracket do you think you’ll be 2016?

Michael Cooper

The tax in Canada is 26.5% more or less, all the time.

Brett Reiss

Okay, so I should haircut the 90 pre-tax and divide by 100 million shares--

Michael Cooper

No, no. Sorry - Brett, the $90 million is just two things.

Brett Reiss

Right?

Michael Cooper

The $90 million is just the land in Alberta. It’s just the one sale to the province plus the PanAm Athletes Village. We then have another $50 million or so in recurring income - that’s on the web now on a presentation that Pauline did. That doesn’t include our condos, that doesn’t include the retail, and it doesn’t include a ton of things. So this year, I expect we’ll be over 150 pre-tax.

Brett Reiss

Okay.

Michael Cooper

[Indiscernible] on this year because there’s a number of projects that we’ve done that come through this year that are sold.

Brett Reiss

Right.

Michael Cooper

So yeah--no, this year is going to be a great year.

Brett Reiss

Okay. Now I know because of the lack of visibility, you’re cautious on predicting the future and guidance, but--

Michael Cooper

Oh no, I can predict the longer term future excellently.

Brett Reiss

Okay, but just a number of your retail projects are going to be built out in western Canada by 2018. Back of the envelope, what kind of funds from operation on just your retail east and west Canada do you think you’ll be generating the end of 2017, 2018? Is that possible for you to share that with us?

Michael Cooper

Yeah, I just need a second. I’ve never put the two together. Pauline, do you have western Canada?

Pauline Alimchandani

So I think what would be helpful to look at is Slide 26 of our investor presentation. In our disclosures, we have Tamarack and South Kensington, which I mentioned was $6.5 million of stabilized NOI by 2018. That will add to the 50-plus recurring income that we have, plus we’re going to start new projects as well.

Michael Cooper

So what number was yours?

Pauline Alimchandani

$6.5 million of NOI.

Michael Cooper

Yeah, I think we’re probably looking closer to 12 from western Canada and 12 from eastern Canada, for probably $24 million.

Brett Reiss

Wow, all right. That starts to add up. Now I think--yes, I’m sorry?

Michael Cooper

Just because we don’t have visibility as to what’s going to happen specifically, there’s a lot of things that we’re doing that are going to be huge, not to quote a famous American. We’re not feeling beaten up on. We’re feeling like we’re excelling, and there’s a lot of things that are coming together. It’s just that we only know what we know, and we don’t think there’s a big value to anybody to talk about things we don’t know.

Brett Reiss

Okay, fair enough. Now, I think Pauline mentioned that the cash went from $124 million to $170 million because of the cash consideration that came from the 172 acres that was sold to Calgary, or transferred to Calgary.

Michael Cooper

Plus the [indiscernible] sale, plus the A-Basin loan.

Brett Reiss

Okay, which was $9.5 million?

Michael Cooper

US, or about 12-something Canadian.

Pauline Alimchandani

Thirteen million Canadian.

Brett Reiss

Okay, so--

Pauline Alimchandani

But there’s some moving parts in there, because we also completed an acquisition in Tamarack--

Michael Cooper

And we have some expenses.

Pauline Alimchandani

And we have some expenses, so what we were trying to just illustrate there was the boost in our liquidity. There are a few moving pieces in the math between December 31 and [indiscernible].

Brett Reiss

Right, but in terms of what the value was per acre, do I think take 33 million, divide by 172, and that’s what the value per acre was?

Michael Cooper

Okay, so what I said specifically was we’re not going to disclose the number until the province does, because they’re pretty important to the success of our company, number one. Number two, if you use between 200,000 and 250,000 acres, that would cover effectively, I think, all possible outcomes. Those are the parameters of land and that kind of areas.

Brett Reiss

Okay. Now, the 4.8 million or so units of Dundee Office, because of--

Michael Cooper

Dream Office?

Brett Reiss

Dream Office, yes. Because of your diversity of operations, it sounds like even if things get dicey in Canada, you’re going to navigate through it. What are your views on Dundee Office, and--

Michael Cooper

Dream Office.

Brett Reiss

Forgive me - Dream Office, how do you feel they are going to be able to kind of navigate through this?

Michael Cooper

They have their board meeting next Thursday, and have a conference call Thursday night, and obviously I know the results so I don’t want to get into anything specific. But I think that the challenges are well known and the progress has been very good. The market has really hurt any company with exposure to Alberta in a way that I don’t think math supports, so basically if you think about the Canadian office market, you’ve got areas like downtown Toronto or downtown Vancouver that are setting absolute record prices, absolute on cap rate, absolute on total dollars. In every way, it’s the highest valuation they’ve ever had. You’ve got other assets, let’s say in suburban Toronto and things like that, that depending on the type are doing excellent well or just a little bit less than what they’ve usually done, but there is no stress.

Then, you’ve got Alberta, which we were just talking before about how hard it is to provide guidance on home building in Alberta. It’s the same for leasing office space, so there are these three big categories. The top category is the best ever, and in just in downtown Toronto, I think the number is 37% of the NOI of Dream Office comes from downtown Toronto, and that’s the highest value it’s ever had. In fact, that 37.5% is worth about the same as the total stock price. The suburban stuff is pretty good and western Canada is going to be value add -you’ve got to work your way through it. But I think the stock price is beaten up pretty good.

Brett Reiss

Right. Now so far, I think we’re all thankful that the condo market in Toronto has held up, but if that should change, how do you mitigate your risk if that market turns south?

Michael Cooper

It’s interesting, because almost all the condos we have under construction close this year, and we started a couple, but our exposure to condos--I don’t know the number, but it’s going to be in total, dollar value is probably down 70% this year So we didn’t plan that, and the condo market has been very strong and we don’t want to get out of it, but we’re sure making a lot of money and we’re finishing the projects and getting the money, so I don’t think we have a lot of leverage to that market. But I do like the fact that so many of our projects are finishing up.

By the way, downtown Toronto, there is also record-setting prices for pieces of land. There was a piece of land, I don’t know if it’s been disclosed yet, but it sold for $260 million, another for $130 million. There’s a piece of density that’s being sold for, I don’t know, 150 or something. I have never seen these kinds of prices for land anywhere, and the market is not only strong, people are starting new buildings and selling out. People are paying the highest prices for land ever, not just in dollars per square foot total dollars, and most of these guys are paying all cash. So the industry is actually in good financial shape because everybody is as concerned as you are.

Brett Reiss

Right. Thank you and Pauline for answering my questions, and thanks for the additional disclosure information. It’s appreciated.

Michael Cooper

Good to hear from you, Brett.

Brett Reiss

Right.

Operator

Thank you. Our next question is from Mark Rothschild of Canaccord. Please go ahead.

Mark Rothschild

Hi, good morning.

Michael Cooper

Good morning, Mark.

Mark Rothschild

Just so I can be clear, you made a comment, or maybe it was Pauline who said something about 550 condo completions or sales in 2016. I just wanted to make sure I understood, did that include everything in the PanAm Village? What else was in there, and I’m sorry - I will go through the presentation if it’s in there, I can look at that. Just so I understand what’s assumed for ’16, so I can have an understanding as well of what you are expecting to complete in ’17.

Pauline Alimchandani

Yeah, so it includes PanAm and our other Streetcar projects at our share.

Michael Cooper

Ironically, I think it turns out to be about 550 plus PanAm if you don’t do it at our share.

Mark Rothschild

Okay, and if I look at the presentation, will I be able to get some color on what you would expect to complete in 2017?

Pauline Alimchandani

Yes, you will. It’s all listed in there. We don’t have a lot of projects closing in 2017.

Mark Rothschild

Okay. Maybe you could explain to me, because I wasn’t fully clear on what happened to the $3.6 million, was it a catch-up or a change in the way--

Pauline Alimchandani

It was a catch-up. Exactly, it was a catch-up from April 2 to September 30, essentially.

Mark Rothschild

And what did that relate to? What drove that?

Pauline Alimchandani

So previously the return of capital was measured on a basis using taxable income, and now we’ve changed that methodology to use sort of net earnings or cash flow from the REITs, which is more in line with the true economics of the distribution. So it was just a change in measurement. Our cash distribution is the same, it’s just the way we’re doing it now, the investment income is actually closer to the cash distributions that we actually realize from our investments.

Mark Rothschild

Okay, and I assume that there’s not much tax, or at least I can look at what the return on capital for the distributions from Dream Office, I can look at that to understand what tax you would be paying?

Pauline Alimchandani

That’s correct.

Mark Rothschild

Okay. Then just lastly, I know you’re not disclosing the sale price for the land in Calgary, but I should assume that that was cash flow that came in and that went to either pay down debt or to fund other investments?

Pauline Alimchandani

Yes, it went directly to pay down debt.

Michael Cooper

We just got it Friday.

Mark Rothschild

Okay, perfect. Thank you very much.

Michael Cooper

Thanks Mark.

Operator

Thank you. Our next question is from Dean Wilkinson of CIBC World Markets. Please go ahead.

Dean Wilkinson

Thank you. Morning Pauline, morning Michael.

Pauline Alimchandani

Morning.

Dean Wilkinson

Michael, just on the approvals that you got for Calgary, what exactly was that? Was that a development to the master plan, like the official plan, or is it a phased-in development? What exactly has been approved?

Michael Cooper

Everything has been approved for the entire neighborhood, the whole area. That’s 2,000 acres, and that means transportation, police, schools, the layout. Everything has been approved. The last remaining step is the allocation of capital from the city for the services.

Dean Wilkinson

Okay, and I’m assuming this is going to be phased in over quite a long period?

Michael Cooper

No, it--well, we’re right in the middle of things. We’re hoping that in the first six months of this year, we have some good news. We’re working very closely with everybody, so again--you know, I’ll tell you guys everything I can, but it’s subject to the growth management overlay, which is sort of the phasing of projects. In 2008, we were very close to getting this land approved, and then what happened was they said, you know what? We can’t look at it until there is progress on the ring road. The ring road was voted in favor in 2013, but I don’t think it was viewed credibly by the city because it had been negotiated for six years and nothing had happened.

What I was saying in my speech was every single hurdle to get that ring road in place is now done, so when the NDP government got in, the mayor of Calgary was saying, you’ve got to keep capital for the ring road. If there is such a thing as a shovel-ready infrastructure project, it’s there. It’s going ahead, everybody know it’s going ahead. As a result, it totally transforms when this land should be developed, and we’re working with all of the powers that be in Calgary as they now realize that this ring road is going in place.

Now in Edmonton, they have the Anthony Henday Drive, and it’s their ring road. These ring roads have a tremendous influence over traffic in the cities, and they totally change where the population travels. So don’t underestimate the significance of these roads, and now the city has taken that into account.

In addition to that, what we were told at the hearing was that the things that we had done in this plan were really appreciated by the city, and we got full marks for everything. The approval confirms where the transit it, where the roads are going, what the uses are, what the infrastructure is, and how that area is going to grow, so now we’re just waiting for the government to say they’re ready to--sorry, by the way, this whole thing is presented in a way where it’s going to generate a lot of cash for the city and have very low cost, so we’re working with the city now and we’re going to try to get going on it as soon as we can.

Dean Wilkinson

Okay, great. But the servicing, the planning, the allocation, the official plan is not contingent upon the completion of that ring road? Those things can happen contemporaneously, correct?

Michael Cooper

They should be able to, for sure.

Dean Wilkinson

Okay, so you’re not held in a box for seven years until the last paint on the road is dry?

Michael Cooper

Well, you know what? I think if you heard the words I said carefully, I’m saying we’re very focused on the next six months.

Dean Wilkinson

Good enough. Just switching to another area of the country, in Ottawa I think there’s been some consternation over the development on the island. What’s the status of that?

Michael Cooper

There is--okay, as part of that development, we have a lot of Indian Nations supporting us. There is a group that believes the City of Ottawa is on their land and so is most of Canada.

Dean Wilkinson

Yeah.

Michael Cooper

No, no, I’m not joking. Their view is none of that should exist there. They believe that they are right, and we have won at every single level. I think they’ve now appealed to the Ontario Municipal Board. I think that that should end pretty quickly. We take it seriously, but our street signs are in English, French and the native language. We’ve worked very closely with the native groups. This isn’t unusual, and I think our view is that there will be no issues, but you have to deal with it.

Dean Wilkinson

Okay, so it’s just a question of time and dealing with it. Fair enough. Pauline, on the condos, it looks like there was a component of fee income that has been moved to asset management that was prior periods recorded under revenue in the condo line. Does that have an impact on that 18% margin that you are targeting, or is that inclusive of that number being stripped out?

Pauline Alimchandani

So I think--okay, so historically we have recorded some ancillary fee income in the condo division. I think that now that we have this ongoing pipeline of development projects, we do earn recurring fees for the term of these projects, which can be really long-term. I think the net economics is you kind of view everything together, but I think what we’re really trying to do is look at our asset management business in its entirety and across everything we do, so we may have different geography in our income statements--I mean, from an economic perspective, we look at it all together.

Michael Cooper

It’s difficult because when we do a condo, we look at it from beginning to end. We look at the total profit, we look at how much capital we had in it. We look at the margin, and we look at the IRR. Under accounting, you have to expense all marketing costs, so everything that--like, the marketing cost of Zibby [ph], we launch a new project, and PanAm, a lot of that stuff gets expensed and you end up with the financial statements show expenses not really matched up with the revenue for it. So it is hard to get through, and we’re trying to explain it the best we can.

Dean Wilkinson

Is it fair to assume, then, that the margin for the next two to three quarters is going to be probably higher than what you were targeting, by virtue of the fact that that $1.4 million is sort of a sunk cost and it’s gone?

Pauline Alimchandani

Well, the $1.4 million related to those two specific projects. I think generally margins in the line of 17, 18%, absent any sort of large new projects that we do that have these large sales and marketing costs, is what you can expect.

Dean Wilkinson

Okay, and then in terms of the impact to, call it a new line item if you will, development and asset management fees, I don’t suppose you’d have a sense of what a run rate number around that would be? Is it close to that $2 million number, or it’s going to be dependent upon as projects come in and out?

Michael Cooper

It’s going to make the volatility in our other earnings look like nothing. It’s going to be very volatile. It’s focused on the completion of projects, so we’ll see. I think the interesting thing--I think the reason why we’re doing this is we’re expecting a lot more of that income as we grow all of our development business, so I think over time it will get less volatile, but right now it’s going to be volatile.

Dean Wilkinson

Fair enough. That is all I had. Thanks guys.

Michael Cooper

Thank you.

Operator

Thank you. Our next question is from David Spier of Nitor Capital. Please go ahead.

David Spier

Good morning, Michael and Pauline. How are you?

Michael Cooper

Good, how are you doing?

David Spier

I’m good. I’m going to try to make it easy for you guys, because I really couldn’t care too much about any type of 2017 guidance at this point, because I think at the current valuation, especially with your recurring income, you could sell about 10 lots in 2017 and that would really be fabulous. But you mentioned that you have the ability to still develop an additional 1,000 condos and 20,000 square feet of retail at Canary. In terms of Distillery, are you still expecting to be able to develop, I believe it was three additional structures that would have around 500-plus condos and another 250,000 square feet of retail? Is that still a possibility?

Michael Cooper

At Distillery, we’re doing three new buildings at Canary and two at Distillery. But I think it’s more than 500 units. We’re right in the throes of dealing with--

David Spier

No, I’m talking about just Distillery there, the project that’s not future at Canary, just as Distillery.

Michael Cooper

At the Distillery--sorry, we’re just going through the zoning of two new buildings. Is that what you mean?

David Spier

I believe there a ribbon building and another building that was--I saw there was some plans, I believe online, that were presented to Toronto planning board. I was talking about specifically that development there. It was about 300,000 square feet of retail as well as condos in Distillery.

Michael Cooper

Yeah, I think we’re looking at 250,000-plus of retail, and on the units it might be 1,000, it might be 600. We’re just working our way through it.

David Spier

Got it, and that’s in addition to what’s available to still build at Canary?

Michael Cooper

Yes. Yes, so there’s another 1,000 at Canary.

David Spier

Okay.

Michael Cooper

Thanks.

David Spier

So it’s funny you mentioned the recent land sales in Toronto, because that was actually something I was going to ask you about, because I was just curious to hear your view on that. But I believe in 2013, I think it was Pinnacle Group paid $250 million for a 6.5 acre development site on Yonge Street, and I think that’s only a couple block from Canary and Distillery. And then, I believe now there is the LCBO land, which is an 11 acre site adjacent to the site Pinnacle bought, that I’ve heard is their thoughts of a sale being close to $400 million, $500 million. So when you’re talking about bare land that is possibly being looked at, at a $700 million price being paid for 18 acres, how do you view your ownership of the 40 acres at Canary and Distillery, considering there’s still a significant amount of development available there, when it will click on your balance sheet there is less than $100 million of value being assigned to that?

Michael Cooper

Okay, they’re complicated. On our balance sheet--

David Spier

Yeah, I don’t mean to be so complex. It just seems like there’s a disconnect.

Michael Cooper

On our balance sheet, there is absolutely zero for the condo land that we might get approved, and there is zero at this point for any condos on PanAm. I don’t think there’s any value on that. Now, let’s say that’s 2,000 units, and let’s say that works out to 2 million square feet, our share is a million. You know, you could argue $55 a foot or $80 a foot for the density easily, so say $75 million just for that density that’s not on the balance sheet, and then we’d hope to more than double that by developing it, much more than double it.

David Spier

Yeah, I mean, the way I look at it is someone’s willing to pay $700 million for 18 acres of bare land, and you have about 48 acres of existing income properties plus plenty amount of future development, and then you’d say that they’ve--again, a pretty big disconnect there. So I’d say that’s definitely one observation.

Then just shifting gears a little bit, so with Dream Office, and I think it was mentioned before, it’s obviously a rough operating environment, but the payout ratio is still, I think, under about 80%. How comfortable are you with the distribution going forward? Just curious to hear your thoughts on that.

Michael Cooper

I would think that that’s a question that the company should speak of, but I would say that--what do we get, $10 million a year, Pauline? So we’re getting about $10 million a year from it, and it doesn’t really matter. But the value is there, it’s a good company. I just don’t want to talk about them - it’s not right.

David Spier

No, I understand. Then in terms of recurring income, I know--I believe it was touched upon, but so you’re around $55 million, and just--you know, at the end of the year, so that’s something we should expect to continue to grow as well, right?

Pauline Alimchandani

Yes, that’s correct.

David Spier

Got it. Then the last question I have, and it seems to be the case with the buyback, it looks like you guys were a little more active at the end of December and January. At these prices, do you still see that as a pretty attractive place to allocate capital?

Michael Cooper

Firstly, it’s cheap. Secondly, liquidity is good, and thirdly--like, this having liquidity is a great thing right now. Thirdly, I think that what we’re anticipating is that the Alternative Trust is going to become a more and more important aspect of our business. It’s trading very inexpensively and I think that we believe we can make a lot of money investing in the Alternative Trust, even compared to the Dream Unlimited shares. So I was at our board meeting yesterday - there is clearly a desire to spend more money on the Alternative Trust than there is on buying back stock.

David Spier

Got it. All right, well I do appreciate you guys. You’re doing a fabulous job. Hopefully the market comes to that realization as well, especially considering the environment, because it’s been a very good story, so I really do appreciate it.

Michael Cooper

We appreciate it. I think our team is doing amazing work, and when the current lens disappears, I think people will be shocked at how great a company we’re building.

David Spier

All right, well, looking forward to that. Anyway, I do appreciate it, guys. Have a good weekend.

Michael Cooper

You too. Thank you.

Operator

Thank you. We have no further questions at this time. I will now turn the call back over to Mr. Cooper for closing remarks.

Michael Cooper

Well, isn’t that a good way to end. Thank you all for your interest in the company. We’re working for you every day, and we look forward to seeing you at our annual meeting. Thanks a lot.

Operator

Thank you. Thank you, ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.

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